Form 8-K indie Semiconductor, For: Jun 10
Tweet
Share
E-mail
United
States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT
REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 10, 2021
| indie Semiconductor, Inc. | ||
| (Exact Name of Registrant as Specified in its Charter) |
| Delaware | 001-40481 | 87-0913788 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) | (I.R.S. Employer Identification No.) |
32 Journey, Suite 100 Aliso Viejo, California |
92656 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (949) 608-0854
| (Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name
of each exchange on which registered | ||
| Class A Common Stock, par value $0.0001 per share | INDI | The Nasdaq Stock Market LLC | ||
| Warrants, each whole warrant exercisable for one share of Class A Common Stock for $11.50 per share | INDIW | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (Sec.230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (Sec.240.12b-2 of this chapter).
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. ☐
INTRODUCTORY NOTE
On June 10, 2021, Thunder Bridge Acquisition II, Ltd. (“Thunder Bridge II”) domesticated into a Delaware corporation and consummated a series of transactions that resulted in the combination (the “Business Combination”) of Thunder Bridge II with Ay Dee Kay, LLC d/b/a indie Semiconductor (“indie LLC”) pursuant to a Master Transactions Agreement, dated December 14, 2020, as amended on May 3, 2021, by and among Thunder Bridge II, Thunder Bridge II Surviving Pubco, Inc. (“Surviving Pubco”), indie LLC, and the other parties named therein, following the approval at the extraordinary general meeting of the shareholders of Thunder Bridge II held on June 9, 2021 (the “Special Meeting”). Unless otherwise defined herein, capitalized terms used in this Current Report on Form 8-K have the same meaning as set forth in the final prospectus and definitive proxy statement (the “Proxy Statement/Prospectus”) filed with the Securities and Exchange Commission (the “SEC”) on May 14, 2021 by Thunder Bridge II and Surviving Pubco.
Simultaneous with the Closing of the Transaction, Surviving Pubco also completed its PIPE Financing, issuing and selling $150 million of its Class A common stock in a private placement to the PIPE Investors. Effective upon the Closing of the Transaction, Surviving Pubco changed its name to indie Semiconductor, Inc.
Item 1.01. Entry into a Material Definitive Agreement.
Master Transactions Agreement
As disclosed under the sections titled “Shareholder Proposal 1: The Domestication Proposal” and “Shareholder Proposal 2: The Merger Proposal” of the Proxy Statement/Prospectus, on December 14, 2020, the parties entered into a Master Transactions Agreement, dated effective as of December 14, 2020 (as amended on May 3, 2021, the “MTA”) by and among: (a) Surviving Pubco; (b) Thunder Bridge II; (c) TBII Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of Surviving Pubco (“TBII Merger Sub”); (d) ADK Merger Sub LLC, a Delaware limited liability company and a wholly-owned subsidiary of Surviving Pubco (“ADK Merger Sub”); (e) ADK Service Provider Merger Sub LLC, a Delaware limited liability company and wholly-owned subsidiary of Surviving Pubco (“ADK Service Provider Merger Sub”); (f) ADK Blocker Merger Sub LLC, a Delaware limited liability company and wholly-owned subsidiary of Surviving Pubco (“ADK Blocker Merger Sub,” and collectively with TBII Merger Sub, ADK Merger Sub and ADK Service Provider Merger Sub, the “Merger Subs”); (g) indie LLC; (h) the corporate entities listed in the MTA (the “ADK Blocker Group”); (i) ADK Service Provider Holdco, LLC, a Delaware limited liability company (“ADK Service Provider Holdco”); and (j) solely in his capacity as the indie securityholder representative thereunder, Donald McClymont (the “indie Securityholder Representative”). Accordingly, (a) Surviving Pubco, which had been formed as a Delaware corporation solely for the purpose of facilitating the Transaction, succeeded to Thunder Bridge II as the registrant pursuant to the federal securities laws and changed its name to indie Semiconductor, Inc., and (b) indie LLC will continue its existing business operations as the controlled subsidiary of indie Semiconductor, Inc. (“indie”). Except where context provides otherwise, the term “indie” refers to indie and its consolidated subsidiaries, including indie LLC, and after giving effect to the Transaction.
Item 2.01 of this Current Report on Form 8-K discusses the consummation of the Transactions (as defined below) and various other transactions and events contemplated by the MTA, which took place on June 10, 2021 and is incorporated into this Item 1.01 by reference.
1
Exchange Agreement
On the Closing Date, Surviving Pubco entered into the Exchange Agreement with certain indie Equity Holders, which provides for the exchange of such holders’ Post-Merger indie Units into shares of Class A common stock. The material features of the Exchange Agreement are described in the Proxy Statement/Prospectus in the section titled “Shareholder Proposal 2: The Merger Proposal – Related Agreements – Exchange Agreement” and that information is incorporated herein by reference.
This summary and the information incorporated herein by reference is qualified in its entirety by reference to the text of the Exchange Agreement, which is included as Exhibit 10.5 to this Current Report on Form 8-K and is incorporated herein by reference
Amended Operating Agreement
On the Closing Date, the Eighth Amended and Restated Limited Liability Company Agreement of indie LLC (the “Amended Operating Agreement”) was entered into by indie LLC, Surviving Pubco and certain holders of Post-Merger indie Units. The material features of the Amended Operating Agreement are described in the Proxy Statement/Prospectus in the section titled “Shareholder Proposal 2: The Merger Proposal – Related Agreements – Amended Operating Agreement” and that information is incorporated herein by reference.
This summary and the information incorporated herein by reference is qualified in its entirety by reference to the text of the Amended Operating Agreement, which is included as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference
Tax Receivable Agreement
On the Closing Date, Surviving Pubco entered into the Tax Receivable Agreement with certain indie Equity Holders. The material features of the Tax Receivable Agreement are described in the Proxy Statement/Prospectus in the section titled “Shareholder Proposal 2: The Merger Proposal – Related Agreements – Tax Receivable Agreement” and that information is incorporated herein by reference.
This summary and the information incorporated herein by reference is qualified in its entirety by reference to the text of the Tax Receivable Agreement, which is included as Exhibit 10.6 to this Current Report on Form 8-K and is incorporated herein by reference.
Indemnification Agreements
On the Closing Date, Surviving Pubco entered into indemnification agreements, dated as of the Closing Date, with each of indie’s directors and executive officers. Each indemnification agreement provides for indemnification and advancements by indie of certain expenses and costs relating to claims, suits or proceedings arising from his or her service to indie or, at our request, service to other entities, as officers or directors to the maximum extent permitted by applicable law.
The foregoing description of the indemnification agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the indemnification agreement, a form of which is attached hereto as Exhibit 10.4 and is incorporated herein by reference.
Lock-up Agreements
On the Closing Date, indie entered into lock-up agreements, dated as of the Closing Date, with certain indie Equity Holders, pursuant to which such indie Equity Holders agreed not to offer, sell, contract to sell, pledge or otherwise dispose of any shares of Class A common stock received as Merger Consideration, including any Earn Out Shares, for a period of six months from the Closing.
The foregoing description of the lock-up agreements does not purport to be complete and is qualified in its entirety by the terms and conditions of the lock-up agreements, a form of which is attached hereto as Exhibit 10.8 and is incorporated herein by reference.
Registration Rights Agreement
On the Closing Date, Surviving Pubco entered into a registration rights agreement, dated as of the Closing Date, with the ADK Principal Holders, Tom Schiller, Bison Capital Partners IV, L.P. and GoDubs, Inc. pursuant to which Surviving Pubco has agreed to register for resale under the Securities Act shares of Class A common stock issued to the ADK Principal Holders as Merger Consideration, and to provide the Equity Holders with certain rights relating to the registration of the securities held by them.
2
The foregoing description of the registration rights agreement does not purport to be complete and is qualified in its entirety by the terms and conditions of the registration rights agreement, which is attached hereto as Exhibit 10.7 and is incorporated herein by reference.
Item 2.01. Completion of Acquisition or Disposition of Assets.
The disclosure set forth in the “Introductory Note” and “Item 1.01 – Entry into a Material Definitive Agreement – Master Transactions Agreement” above is incorporated into this Item 2.01 by reference. Pursuant to the MTA, on June 10, 2021, the Transaction was completed, which consisted of the following:
(1) Thunder Bridge II transferred by way of continuation and domesticated from the Cayman Islands as an exempted company to the State of Delaware as a corporation (the “Domestication”);
(2) a merger subsidiary of Surviving Pubco merged with and into Thunder Bridge II pursuant to which Thunder Bridge II equity holders received corresponding shares and warrants of Surviving Pubco, with Surviving Pubco continuing as the successor public company to Thunder Bridge II, and Surviving Pubco changed its name to indie Semiconductor, Inc.;
(3) a merger subsidiary of Surviving Pubco merged with and into indie LLC, with indie LLC continuing as the surviving limited liability company;
(4) certain entities in the ADK Blocker Group merged with and into a merger subsidiary of Surviving Pubco; and
(5) a merger subsidiary of Surviving Pubco merged with and into ADK Service Provider Holdco.
The material terms and conditions of the is described under the heading “Shareholder Proposal 2: The Merger Proposal – The MTA” in Proxy Statement/Prospectus, which description is incorporated herein by reference.
At the Special Meeting, holders of 9,877,106 Class A ordinary shares of Thunder Bridge II sold in its initial public offering (the “public shares”) exercised their rights to redeem their public shares for cash at a redemption price of approximately $10.13 per share, or an aggregate of approximately $100.1 million.
As discussed in the Introductory Note above, in connection with the Transaction, (i) certain indie Equity Holders received 53,234,572 shares of indie Class A common stock (including 1,791,147 shares subject to vesting conditions), (ii) certain indie Phantom Unit holders received the right to receive 1,751,368 shares of indie Class A common stock subject to vesting conditions, (iii) certain indie Equity Holders retained 34,476,883 Post-Merger indie Units (270,907 of which are subject to vesting conditions), and (iv) certain indie Equity Holders received the contingent right to receive Earn-Out Shares. “Earn-Out Shares” means a number of shares of indie Class A common stock or Post-Merger indie Units equal to, or exchangeable for, up to 10,000,000 shares of indie Class A common stock, less shares of Class A common stock reserved for possible issuance to the holders of Phantom Equity Units, subject to the satisfaction of certain stock-price based performance thresholds. Pursuant to the Exchange Agreement, the Post-Merger indie Units are exchangeable from time to time at the option of the holder for shares of Common Stock on a one-for-one basis (subject to customary conversion rate adjustments, including for stock splits, stock dividends and reclassifications and other terms of the Exchange Agreement).
Additionally, immediately following the Transaction, (i) indie issued to indie LLC 33,827,371 shares of indie Class V common stock and (ii) indie LLC distributed the number of shares of indie Class V common stock to the ADK Principal Holders equal to the number of vested Post-Merger indie Units held by such holder (the “Class V Holders”). The indie Class V common stock provides no economic rights in indie to the holder thereof; however, each Class V Holder is entitled to vote with the holders of Class A common stock of indie, with each share of Class V common stock entitling the holder to one (1) vote per share of Class V common stock at the time of such vote (subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications).
3
As a result of the Domestication and the Transaction, holders of Thunder Bridge II Class A ordinary shares automatically received Class A common stock of Surviving Pubco, and holders of Thunder Bridge II warrants automatically received warrants of Surviving Pubco with substantively identical terms. At the Closing of the Transaction, 8,625,000 Class B ordinary shares of Thunder Bridge II owned by the Sponsor, which we refer to as our Founder Shares, automatically converted into 8,625,000 shares of indie Class A common stock, and 8,650,000 Private Placement Warrants held by the Sponsor, each exercisable for one Class A ordinary share of Thunder Bridge II at $11.50 per share, automatically converted into warrants to purchase one share of indie Class A common stock at $11.50 per share with substantively identical terms.
indie also issued 1,500,000 warrants to an affiliate of the Sponsor in satisfaction of working capital promissory notes of Thunder Bridge II with aggregate principal amount of $1,500,000, which warrants have substantially identical terms to the Private Placement Warrants (the “Working Capital Warrants”). Also, at the Closing, the Sponsor transferred 3,450,000 of its Founder Shares into an escrow account, which Escrow Shares are subject to release or forfeiture based on the satisfaction of or failure to satisfy, respectively, the same certain stock-price based performance thresholds as the Earn-Out Shares. In addition, as disclosed above, immediately prior to the Closing of the Transaction, Surviving Pubco issued and sold 15,000,000 shares of Class A common stock (the “PIPE Shares”) to the PIPE Investors for gross proceeds of $150,000,000. Indie has agreed to file a registration statement registering the resale of the PIPE Shares within 30 days of the Closing and to have such registration statement effective as soon as practicable, but in any event within 90 days (or 120 days if the SEC notifies indie that it will review the registration statement).
Immediately after giving effect to the Transactions, there were 101,482,466 shares of indie Class A common stock, 33,827,371 shares of Class V common stock and 27,400,000 Warrants (including the Working Capital Warrants) issued and outstanding. Upon the Closing, Thunder Bridge II’s ordinary shares and public warrants ceased trading, and the indie’s shares of Class A common stock and indie’s Public Warrants began trading on the Nasdaq Capital Market under the symbols “INDI” and “INDIW,” respectively. As of the Closing, public stockholders own approximately 18.2% of the outstanding shares of indie Class A common stock and indie Class V common stock (collectively, “Common Stock”), the Sponsor owns approximately 6.4% of the outstanding shares of Common Stock (including the Escrow Shares), indie LLC’s former security holders collectively own approximately 64.3% of the outstanding shares of Common Stock (on an as-exchanged basis) and approximately 11.1% of the outstanding shares of Common Stock are held by the PIPE Investors.
As noted above, the per share redemption price of approximately $10.13 for holders of public shares of Thunder Bridge II electing redemption was paid out of Thunder Bridge II’s trust account, which had a balance immediately prior to the Closing of approximately $350 million. Following the payment of redemptions of approximately $100 million and after giving effect to the $150 million PIPE Financing, Thunder Bridge II had approximately $400 million of available cash for disbursement in connection with the Transactions. Of these funds, approximately $65 million was used to pay certain transaction expenses and indie’s long-term debt and related fees, of which, approximately $48 million represents total transaction costs. As a result, approximately $335 million became available to indie upon the consummation of the Transaction.
FORM 10 INFORMATION
Forward Looking Statements
This Current Report on Form 8-K, including the information incorporated herein by reference, contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about the anticipated benefits of the Transaction described herein, and the financial condition, results of operations, earnings outlook and prospects of indie. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking.
4
The forward-looking statements are based on the current expectations of the management of indie and its management and are inherently subject to uncertainties and changes in circumstances and their potential effects and speak only as of the date of such statement. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, the following:
| ● | indie’s future capital requirements and sources and uses of cash; |
| ● | indie’s ability to obtain funding for its operations and future growth; |
| ● | changes in the market for indie’s products and services; |
| ● | expansion plans and opportunities; |
| ● | the above-average industry growth of product and market areas that indie has targeted; |
| ● | indie’s plan to increase revenue through the introduction of new products within its existing product families as well as in new product categories and families; |
| ● | the cyclical nature of the semiconductor industry; |
| ● | indie’s ability to successfully introduce new technologies and products; |
| ● | the demand for the goods into which indie’s products are incorporated; |
| ● | indie’s ability to accurately estimate demand and obtain supplies from third-party producers; |
| ● | indie’s ability to win competitive bid selection processes; |
| ● | the outcome of any legal proceedings that may be instituted against indie or Thunder Bridge II following completion of the Transaction and transactions contemplated thereby; |
| ● | the inability to maintain the listing of the indie Class A common stock on Nasdaq following the Transaction; |
| ● | the risk that the Transaction disrupts current plans and operations; |
| ● | the ability to recognize the anticipated benefits of the Transaction, which may be affected by, among other things, competition, and the ability of the indie to grow and manage growth profitably; |
| ● | costs related to the Transaction; and |
| ● | other risks and uncertainties indicated in the Proxy Statement/Prospectus, including those set forth under the section entitled “Risk Factors.” |
Should one or more of these risks or uncertainties materialize or should any of the assumptions made by the management of indie prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.
All subsequent written and oral forward-looking statements concerning the Transaction or other matters addressed in this Current Report on Form 8-K and attributable to indie or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Current Report on Form 8-K. Except to the extent required by applicable law or regulation, indie undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Current Report on Form 8-K or to reflect the occurrence of unanticipated events.
5
BUSINESS
indie’s business operations after the Transaction are described in the Proxy Statement/Prospectus under the heading “Information About indie,” which is incorporated herein by reference.
RISK FACTORS
The risks associated with indie’s business are described in the Proxy Statement/Prospectus under the heading “Risk Factors – Risks Related to indie’s Business,” which are incorporated herein by reference.
FINANCIAL INFORMATION
Reference is made to the disclosure set forth in Item 9.01 of this Current Report on Form 8-K concerning the financial information of indie. Reference is further made to the disclosure contained in the Proxy Statement/Prospectus in the sections titled “Selected Historical Financial Data of Thunder Bridge II” and “Selected Historical Consolidated Financial and other Data of indie,” “Selected Unaudited Pro Forma Condensed Combined Financial Data,” “Unaudited Pro Forma Condensed Combined Financial Information,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of indie,” which are incorporated herein by reference.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The disclosure contained under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations of indie” in the Proxy Statement/Prospectus is incorporated herein by reference. In addition, the Management’s Discussion and Analysis of Financial Condition and Results of Operations for the period ended March 31, 2021 is included as Exhibit 99.4 to this Current Report on Form 8-K and is incorporated herein by reference.
PROPERTIES
The facilities of indie are described in the Proxy Statement/Prospectus in the section titled “Information About Indie—Design Centers and other Facilities,” which is incorporated herein by reference.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial ownership of indie’s Common Stock immediately following the consummation of the Transaction on June 10, 2021 by:
| ● | each person who is known by indie to be the beneficial owner of more than five percent of its issued and outstanding ordinary shares, |
| ● | each of indie’s Named Executive Officers and directors; and |
| ● | all of indie’s executive officers and directors as a group. |
Beneficial ownership is determined in accordance with Commission rules and includes voting or investment power with respect to securities. Except as indicated by the footnotes below, indie believes, based on the information furnished to it, that the persons and entities named in the table below will have sole voting and investment power with respect to all stock that they beneficially own, subject to applicable community property laws.
Subject to the paragraph above, the percentage ownership of issued shares is based on 101,482,466 shares of indie Class A common stock and 33,827,371 shares of indie Class V common stock issued and outstanding as of June 10, 2021. The table below includes the Escrow Shares, which are issued and outstanding but subject to forfeiture if certain stock price thresholds are not met by indie.
6
The beneficial ownership information below excludes the shares underlying the Warrants, the Earn-Out Shares and the shares expected to be issued or reserved under the 2021 Equity Incentive Plan.
Unless otherwise noted, the business address of each of the following entities or individuals is 32 Journey, Suite 100, Aliso Viejo, California 92656.
| Name and Address of Beneficial Owner | Shares of Class A Common Stock |
Shares of Class V Common Stock(1) |
% of Total Voting Power(2) |
|||||||||
| Donald McClymont | 633 | 6,334,349 | 4.7 | % | ||||||||
| Ichiro Aoki | 633 | 6,334,349 | 4.7 | % | ||||||||
| Thomas Schiller(3) | 2,085,01 | 9 | - | 1.5 | % | |||||||
| Scott Kee | 633 | 6,334,349 | 4.7 | % | ||||||||
| David Aldrich | - | - | - | |||||||||
| Diane Brink | - | - | - | |||||||||
| Peter Kight(4) | 1,000,100 | - | * | |||||||||
| Karl-Thomas Neumann(5) | 417,004 | - | * | |||||||||
| Jeffrey Owens | - | - | - | |||||||||
| Sonalee Parekh(6) | 10,958 | - | * | |||||||||
| William Woodward(7) | 514, | 305 | - | * | % | |||||||
| (All Executive Officers and Directors as a Group (13 persons)): | 4,029,285 | 19,003,047 | 17.0 | % | ||||||||
| Greater than Five Percent Holders: | ||||||||||||
| Anthem/MIC Strategic Partners LP (7) | 13,229,944 | - | 9.8 | % | ||||||||
| Walden CEL Global Fund I, L.P.(8) | 11,074,996 | - | 8.2 | % | ||||||||
| Gary Simanson(9) | 9,225,000 | - | 6.8 | % | ||||||||
| Thunder Bridge Acquisition II, LLC(10) | 8,625,000 | 6.4 | % | |||||||||
| Bison Capital Partners IV, L.P.(11) | 849 | 8,489,975 | 6.3 | % | ||||||||
| Cezanne Investments Ltd (Embry Converts)(12) |
8,023,072 | - | 5.9 | % | ||||||||
| * | Less than 1%. |
| (1) | Holders of Class A common stock will be entitled to one vote for each share of Class A common stock held by them. Certain indie Equity Holders will own Post-Merger indie Units and a corresponding number of shares of Class V common stock and will be entitled to one vote per share Class V common stock. Subject to the terms of the Exchange Agreement, the Post-Merger indie Units are initially exchangeable for shares of Class A common stock on a one-for-one basis from and after the six-month anniversary of the Closing. |
| (2) | Represents percentage of voting power of the holders of Class A common stock and Class V common stock of indie voting together as a single class. |
| (3) | Includes 937,100 shares subject to vesting conditions. |
| (4) | Includes 1,000,000 Class A common shares acquired in the PIPE Financing. |
| (5) | Includes 330,128 shares subject to vesting conditions. |
| (6) | Consists of shares held by Ms. Parekh’s spouse. |
| (7) | Consists of shares issued in the Transaction, which are held of record by Anthem/MIC Strategic Partners LP (“ASP). Anthem Strategic Capital LLC (“ASC”) is the general partner of ASP, and as such, may be deemed to have the power to vote and dispose of the shares held of record by ASP. William Woodward is the managing member of ASC and may be deemed to have the power to vote and dispose of the shares held of record by ASP. The address of ASP is 225 Arizona Street, Suite 200, Santa Monica, CA 90401. |
| (8) | Consists of shares issued in the Transaction and held of record by Walden CEL Global Fund I, L.P. (“Walden”)Walden CEL Global Fund GP (I) LTD is the general partner of Walden Walden and has sole voting and disposition over such shares. The address of Walden is 2550 Hanover Street, Palo Alto. |
7
| (9) | Interests shown includes 8,625,000 Founder Shares held by the Sponsor, 500,000 shares of Class A common stock acquired by Thunder Bridge Capital LLC in the PIPE Financing and 100,000 shares owned directly by Mr. Gary Simanson according to a Form 4 filed on August 14, 2019. Mr. Simanson may be deemed to beneficially own shares held by the Sponsor by virtue of his control over the Sponsor as its managing member. Mr. Simanson disclaims beneficial ownership of the shares held by the Sponsor other than to the extent of his pecuniary interest in such shares. Pursuant to the Sponsor Letter Agreement, at any time subsequent to the Closing, the Sponsor may liquidate and distribute the shares of Class A common stock (including rights to the Escrow Shares) among its members in accordance with its operating agreement, subject to the escrow. Following this dissolution, Mr. Simanson will have the authority to act on behalf of the Sponsor’s members in respect of all of the Escrow Shares (subject to an escrow agreement, in releasing from escrow or otherwise disposing of the Escrow Shares). While the Escrow Shares are held in escrow, the Sponsor’s members will have full ownership rights to the Escrow Shares, including voting rights, but any earnings or proceeds from the Escrow Shares will be retained in the escrow account, and neither the Sponsor’s members nor Mr. Simanson following the Sponsor dissolution will have the right to transfer the Escrow Shares. Mr. Simanson is deemed to beneficially own shares held by Thunder Bridge Capital LLC by virtue of his control over Thunder Bridge Capital LLC as its managing member. |
| (10) | Interests shown includes 8,625,000 Founder Shares held by the Sponsor. Mr. Simanson may be deemed to beneficially own shares held by the Sponsor by virtue of his control over the Sponsor as its managing member. Mr. Simanson disclaims beneficial ownership of the shares held by the Sponsor other than to the extent of his pecuniary interest in such shares. Pursuant to the Sponsor Letter Agreement, at any time subsequent to the Closing, the Sponsor may liquidate and distribute the shares of Class A common stock (including rights to the Escrow Shares) among its members in accordance with its operating agreement, subject to the escrow. Following this dissolution, Mr. Simanson will have the authority to act on behalf of the Sponsor’s members in respect of all of the Escrow Shares (subject to an escrow agreement, in releasing from escrow or otherwise disposing of the Escrow Shares). While the Escrow Shares are held in escrow, the Sponsor’s members will have full ownership rights to the Escrow Shares, including voting rights, but any earnings or proceeds from the Escrow Shares will be retained in the escrow account, and neither the Sponsor’s members nor Mr. Simanson following the Sponsor dissolution will have the right to transfer the Escrow Shares. |
| (11) | Consists of shares held of record by Bison Capital Partners IV, L.P. (“Bison”). Peter Macdonald, Douglas Trussler, Andreas Hildebrand, Lou Caballero and Yee-Ping Chu, the managing members of Bison Capital Partners GP LLC, the general partner of Bison Capital Partners IV GP, L.P, the general partner of Bison, share voting and dispositive power over these shares. The address of Bison Capital Partners IV, L.P. is 233 Wilshire Blvd, Suite 425, Santa Monica, CA 90401.. |
| (12) | Consists of 8,023,068 shares of Class A common stock to be issued to Cezanne Investments Ltd as consideration for the Transaction. Renato Portella has voting and dispositive power over the shares. The address of Cezanne Investments Ltd (Embry Converts) is Morgan & Morgan Building, Pasea Estate, Road Town, Tortola, The British Virgin Islands. |
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The disclosure contained in the Proxy Statement/Prospectus under the heading “Management of the Company Following the Transaction” is incorporated herein by reference.
EXECUTIVE COMPENSATION
The disclosure contained in the Proxy Statement/Prospectus under the heading “Executive Compensation of indie” is incorporated herein by reference.
At the Special Meeting, the shareholders of Thunder Bridge II adopted and approved the indie Semiconductor, Inc. 2021 Omnibus Equity Incentive Plan (the “2021 Equity Incentive Plan”), which became effective upon the Closing. indie reserved for issuance 10,368,750 shares pursuant to the 2021 Equity Incentive Plan. The material features of the Equity Incentive Plan are described in the Proxy Statement/Prospectus under the heading “Shareholder Proposal 3: The Equity Incentive Plan Proposal,” which is incorporated herein by reference.
8
This summary and the information incorporated herein by reference is qualified in its entirety by reference to the text of the 2021 Equity Incentive Plan, which is included as Exhibit 10.3 to this Current Report on Form 8-K and is incorporated herein by reference.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The certain relationships and related party transactions of indie are described in the Proxy Statement/Prospectus under the heading “Certain Relationships and Related Person Transactions – indie Related Person Transactions” and “Certain Relationships and Related Person Transactions – Post-Business Combination Agreements,” which are incorporated herein by reference. The certain relationships and related party transactions of Thunder Bridge II and Surviving Pubco are described in the Proxy Statement/Prospectus under the heading “Certain Relationships and Related Person Transactions – Thunder Bridge II Related Person Transactions,” which is incorporated herein by reference.
The information set forth in the section titled “Registration Rights Agreement” in Item 1.01 of this Current Report on Form 8-K are incorporated herein by reference.
LEGAL PROCEEDINGS
Reference is made to the disclosure regarding legal proceedings in the section of the Proxy Statement/Prospectus titled “Information About indie – Litigation” and “Information About Thunder Bridge II – Legal Proceedings” and that information is incorporated herein by reference but is updated to reflect the following: On June 15, 2020, the previously disclosed lawsuit captioned Householder v. Thunder Bridge Acquisition II, et al. (Case No. 1:21-cv-01768) was voluntarily dismissed without prejudice. On May 11, 2021, the putative class action complaint in the Supreme Court of the State of New York, captioned Tomczak v. Thunder Bridge Acquisition II, et al. (Case No. 650808/2021) was voluntarily discontinued.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
indie’s shares of Class A common stock began trading on the Nasdaq Capital Market under the symbol “INDI” and its Public Warrants began trading on the Nasdaq Capital Market under the symbol “INDIW” on June 11, 2021, in lieu of the units, ordinary shares, and warrants of Thunder Bridge II. indie has not paid any cash dividends on its shares of Common Stock to date. It is the present intention of the indie’s board of directors (the “Board”) to retain future earnings for the development, operation and expansion of its business and the Board does not anticipate declaring or paying any cash dividends for the foreseeable future. The payment of dividends is within the discretion of the Board and will be contingent upon indie’s future revenues and earnings, as well as its capital requirements and general financial condition.
RECENT SALES OF UNREGISTERED SECURITIES
Reference is made to the disclosure set forth under Item 3.02 of this Current Report on Form 8-K concerning the issuance of shares of Common Stock in connection with the Transactions, Working Capital Warrants and the PIPE Financing, which is incorporated herein by reference.
DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
A description of indie’s Common Stock, preferred stock and Warrants, is included in the Proxy Statement/Prospectus under the heading “Description of Thunder Bridge II’s and the Company’s Securities – Capital Stock of the Company after the Business Combination” is incorporated herein by reference.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Information about the indemnification of indie’s directors and executive officers is set forth in the Proxy Statement/Prospectus in the section titled “Certain Relationships and Related Person Transactions – Indemnification of Directors and Officers,” and “Description of Thunder Bridge II’s and the Company’s Securities – Anti-Takeover Effects of the Certificate of Incorporation, the Bylaws and Certain Provisions of Delaware Law – Limitations on Liability and Indemnification of Officers and Directors,” beginning on page 186 and that information is incorporated herein by reference.
The information set forth in the section titled “Indemnification Agreements” in Item 1.01 of this Current Report on Form 8-K is also incorporated herein by reference.
9
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth under Item 9.01 of this Current Report on Form 8-K is incorporated herein by reference.
FINANCIAL STATEMENTS AND EXHIBITS
The information set forth under Item 9.01 of this Current Report on Form 8-K is incorporated herein by reference.
Item 3.02. Unregistered Sales of Equity Securities.
PIPE Financing
As previously announced, on December 14, 2020, concurrently with the execution of the MTA, Thunder Bridge II entered into Subscription Agreements with the PIPE Investors pursuant to, and on the terms and subject to the conditions of which, the PIPE Investors collectively subscribed for an aggregate of 15,000,000 shares of indie Class A common stock at $10.00 per share for aggregate gross proceeds of $150.0 million (the “PIPE Financing”). The PIPE Financing was consummated substantially concurrently with the Closing of the Transaction. In connection with the PIPE Financing, the placement agents, Morgan Stanley & Co. LLC and Deutsche Bank Securities, Inc., earned placement fees of approximately $4.5 million and $3.0 million, respectively.
The shares of indie Class A common stock issued to the PIPE Investors were issued pursuant to and in accordance with the exemption from registration under the Securities Act, under Section 4(a)(2) and/or Regulation D promulgated under the Securities Act.
This summary is qualified in its entirety by reference to the text of the Subscription Agreements, which is included as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated herein by reference.
Working Capital Warrants
In full satisfaction of working capital promissory notes issued by Thunder Bridge II for the benefit of an affiliate of Sponsor with aggregate principal amount of $1,500,000, such notes were converted into warrants to purchase 1,500,000 shares of Class A common stock on terms substantially identical to the Private Placement Warrants.
Item 3.03. Material Modification to Rights of Security Holders.
The shareholders of Thunder Bridge II approved the Amended and Restated Certificate of Incorporation (as defined below) at the Special Meeting. In connection with the Closing, Surviving Pubco adopted the Amended and Restated Certificate of Incorporation and the Amended and Restated Bylaws (defined below) effective as of the Closing Date. Reference is made to the disclosure described in the Proxy Statement/Prospectus in the section titled “Shareholder Proposal 1: the Domestication Proposal – Comparison of Shareholder Rights under Applicable Corporate Law Before and After the Domestication and Business Combination” and “ – Comparison of Shareholder Rights under the Applicable Organizational Documents Before and After the Domestication,” which is incorporated herein by reference.
10
The full text of the Amended and Restated Certificate of Incorporation and the Amended and Restated Bylaws, which are included as Exhibits 3.1 and 3.2 hereto, respectively, to this Current Report on Form 8-K, are incorporated herein by reference.
Item 5.01. Changes in Control of Registrant.
Reference is made to the disclosure in the Proxy Statement/Prospectus in the section titled “Shareholder Proposal 2: The Merger Proposal,” which is incorporated herein by reference. Further reference is made to the “Introductory Note” and the information contained in Item 2.01 to this Current Report on Form 8-K, which is incorporated herein by reference.
Immediately after giving effect to the Transaction, there were 135,309,840 shares of Common Stock outstanding. As of such time, our executive officers and directors and affiliates held or controlled 26.4% of our outstanding shares of Common Stock.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
The information set forth in the Proxy Statement/Prospectus under the heading “Management of the Company Following the Business Combination,” is incorporated by reference herein.
On June 10, 2021, in connection with the Transaction, Surviving Pubco adopted the 2021 Equity Incentive Plan, the material features of which are described in the Proxy Statement/Prospectus under the heading “Shareholder Proposal 3: The Equity Incentive Plan Proposal” and such description is incorporated herein by reference.
The information contained in Item 1.01 and Item 2.01 to this Current Report on Form 8-K is also incorporated herein by reference.
Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
The information contained in Item 3.03 of this Current Report on Form 8-K is incorporated in this Item 5.03 by reference.
11
Item 5.05. Amendments to the Registrant’s Code of Ethics, or Waiver of a Provision of the Code of Ethics.
On June 10, 2021, the Board of Surviving Pubco adopted a new Code of Ethics that applies to all of indie’s employees, officers and directors, including indie’s Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers. The full text of indie’s Code of Business Conduct and Ethics is available on indie’s website at investors.indiesemi.com under “Governance.” In addition, a copy of the Code of Ethics will be provided without charge upon request to indie in writing at 32 Journey, Suite 100, Aliso Viejo, California 92656.
Any waivers under the Code of Ethics will be disclosed on a Current Report on Form 8-K or as otherwise permitted by the rules of the SEC and Nasdaq (or other stock exchange on which indie’s securities are then listed).
Item 5.06. Change in Shell Company Status.
As a result of the consummation of the Transaction, which fulfilled the “initial Business Combination” requirement of Thunder Bridge II’s Memorandum and Articles of Association, as amended and restated, each of Thunder Bridge II and Surviving Pubco ceased to be a shell company. The material terms of the Transaction are described in the Proxy Statement/Prospectus under the heading “Shareholder Proposal No. 1 – The Domestication Proposal” and “Shareholder Proposal No. 2 – The Merger Proposal,” which is incorporated herein by reference.
Further, the information set forth in the “Introductory Note” and under Item 2.01 of this Current Report on Form 8-K is incorporated herein by reference.
Item 8.01 Other Events.
indie’s Class A common stock and Public Warrants are listed for trading on the Nasdaq Capital Market under the symbols “INDI” and “INDIW,” respectively.
On June 10, 2021, indie and Surviving Pubco issued a joint press release announcing the consummation of the Business Combination. A copy of the press release is filed as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
In accordance with Rule 12b-23 promulgated under the Securities Exchange Act of 1934, as amended (“Rule 12b-23”), indie LLC’s audited consolidated balance sheets as of December 31, 2020 and 2019, the related consolidated statements of operations, members’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the related notes are incorporated by reference to such financial statements appearing on pages F-1 to F-37 of the Proxy Statement/Prospectus.
The unaudited financial statements of indie LLC as of March 31, 2021 and for the three months ended March 31, 2021 and 2020, together with the notes thereto, are set forth in Exhibit 99.2 and are incorporated herein by reference.
(b) Pro Forma Financial Information.
The unaudited pro forma consolidated financial information of Thunder Bridge II and indie LLC as of and for the three months March 31, 2021 and for the year ended December 31, 2020 is set forth in Exhibit 99.3 hereto and is incorporated herein by reference.
12
| (d) | Exhibits |
| * | Filed herewith. |
| † | Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby undertakes to furnish copies of any of the omitted schedules upon request by the Securities and Exchange Commission. |
13
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| INDIE SEMICONDUCTOR, INC. | |||
| June 16, 2021 | By: | /s/ Ellen Bancroft | |
| Name: | Ellen Bancroft | ||
| Title: | General Counsel and Secretary | ||
14
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
THUNDER BRIDGE II SURVIVING PUBCO, INC.
June 10, 2021
Thunder Bridge II Surviving Pubco, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), DOES HEREBY CERTIFY AS FOLLOWS:
1. The name of the Corporation is “Thunder Bridge II Surviving Pubco, Inc.”. The original certificate of incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on December 4, 2020 (the “Original Certificate”).
2. This Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate”), which both restates and further amends the provisions of the Original Certificate, was duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware, as amended from time to time (the “DGCL”), and by written consent of the Corporation’s stockholders in accordance with Section 228 of the DGCL.
3. This Amended and Restated Certificate shall become effective on the date of filing with the Secretary of State of Delaware.
4. The text of the Original Certificate is hereby restated and amended in its entirety to read as follows:
ARTICLE
I
NAME
The name of the corporation is “indie Semiconductor, Inc.” (the “Company”).
ARTICLE
II
REgistered Office and agent
The address of the Company’s registered office in the State of Delaware is c/o Corporate Creations Network Inc., 3411 Silverside Road, Tatnall Building #104, in the City of Wilmington, County of New Castle, State of Delaware 19810. The name of the Company’s registered agent at such address is Corporate Creations Network Inc.
ARTICLE
III
Purpose
The purpose of the Company is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, as amended (the “DGCL”).
ARTICLE
IV
CAPITAL STOCK
Section 1. Authorized Capital Stock. The total number of shares of all classes of capital stock which the Company is authorized to issue is 300,000,000 shares, consisting of (i) 250,000,000 shares of Class A common stock, par value $0.0001 per share (the “Class A Common Stock”), (ii) 40,000,000 shares of Class V common stock, par value $0.0001 per share (the “Class V Common Stock”), and (iii) 10,000,000 shares of preferred stock, par value $0.0001 per share (“Preferred Stock”). Subject to the rights of the holders of any series of Preferred Stock, the number of authorized shares of Class A Common Stock, Class V Common Stock or Preferred Stock may be increased or decreased (but not below (i) the number of shares thereof then outstanding and (ii) with respect to the Class A Common Stock, the number of shares of Class A Common Stock reserved pursuant to Article IV, Section 2(e)(3) below) by the affirmative vote of the holders of capital stock representing a majority in voting power of all the then-outstanding shares of capital stock of the Company entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the DGCL.
Section 2. Common Stock.
(a) Ranking. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board upon any issuance of the Preferred Stock of any series.
(b) Voting. Subject to the rights of the holders of any series of Preferred Stock, (i) each holder of Class A Common Stock, as such, shall have the right to one (1) vote per share of Class A Common Stock held of record by such holder and (ii) each holder of Class V Common Stock, as such, shall have the right to one (1) vote per share of Class V Common Stock held of record by such holder. Except as otherwise required by applicable law or provided in this Certificate of Incorporation, the holders of shares of Class A Common Stock and Class V Common Stock, as such, shall at all times vote together as a single class on all matters (including the election of directors) submitted to a vote of the stockholders of the Company generally. Notwithstanding any other provision of this Certificate of Incorporation to the contrary, the holders of Common Stock will not be entitled to vote on any amendment to this Certificate of Incorporation (including any Preferred Stock Designation) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any Preferred Stock Designation) or the DGCL. There shall be no cumulative voting.
(c) Dividends and Distributions. Subject to the rights of the holders of any series of Preferred Stock, holders of shares of Class A Common Stock will be entitled to receive ratably, in proportion to the number of shares of Class A Common Stock held by them, such dividends and other distributions in cash, stock or property of the Company when, as and if declared thereon by the Board from time to time out of assets or funds of the Company legally available therefor. Dividends and other distributions shall not be declared or paid on the Class V Common Stock.
(d) Liquidation, Dissolution or Winding Up. Subject to the rights of the holders of Preferred Stock, holders of shares of Class A Common Stock will be entitled to receive ratably, in proportion to the number of shares of Class A Common Stock held by them, the assets and funds of the Company available for distribution in the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary. A liquidation, dissolution or winding up of the affairs of the Company, as such terms are used in this Article IV, Section 2(d), will not be deemed to be occasioned by or to include any consolidation or merger of the Company with or into any other person or a sale, lease, exchange or conveyance of all or a part of its assets. The holders of shares of Class V Common Stock, as such, shall not be entitled to receive any assets of the Company in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company.
(e) Transfer. No holder of Class V Common Stock shall be permitted to consummate a sale, pledge, conveyance, hypothecation, assignment or other transfer (“Transfer”) of Class V Common Stock other than as permitted pursuant to that certain Exchange Agreement (the “Exchange Agreement”) entered into by and between the Company and certain members of Ay Dee Kay LLC, d/b/a indie Semiconductor, a California limited liability company (“ADK”). Any purported Transfer of Class V Common Stock not in accordance with the terms of this Article IV, Section 2(e) shall be void ab initio. The Company may, as a condition to the Transfer or the registration of Transfer of shares of Class V Common Stock, require the furnishing of such affidavits or other proof as it deems necessary to establish whether such Transfer is permitted pursuant to the terms of this Article IV, Section 2(e).
(f) Retirement of Class V Common Stock. In the event that any outstanding share of Class V Common Stock shall cease to be held directly or indirectly by a holder of an LLC Unit (as defined in the Exchange Agreement) as set forth in the books and records of ADK, such share shall automatically and without further action on the part of the Company or any holder of Class V Common Stock be transferred to the Company for no consideration. The Company shall not issue additional shares of Class V Common Stock after the effectiveness of this Certificate of Incorporation.
2
Section 3. Preferred Stock. The Preferred Stock may be issued in one or more series. The Board of Directors of the Company (the “Board”) is hereby authorized to issue the shares of Preferred Stock in such series and to fix from time to time before issuance the number of shares to be included in any such series and the designation, powers, preferences and relative participating, optional or other rights, if any, and the qualifications, limitations or restrictions thereof. The authority of the Board with respect to each such series will include, without limiting the generality of the foregoing, the determination of any or all of the following:
(a) the number of shares of any series and the designation to distinguish the shares of such series from the shares of all other series;
(b) the voting powers, if any, and whether such voting powers are full or limited in such series;
(c) the redemption provisions, if any, applicable to such series, including the redemption price or prices to be paid;
(d) whether dividends, if any, will be cumulative or noncumulative, the dividend rate of such series, and the dates and preferences of dividends on such series;
(e) the rights of such series upon the voluntary or involuntary dissolution of, or upon any distribution of the assets of, the Company;
(f) the provisions, if any, pursuant to which the shares of such series are convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock, or any other security, of the Company or any other corporation or other entity, and the rates or other determinants of conversion or exchange applicable thereto;
(g) the right, if any, to subscribe for or to purchase any securities of the Company or any other corporation or other entity;
(h) the provisions, if any, of a sinking fund applicable to such series; and
(i) any other relative, participating, optional, or other special powers, preferences or rights and qualifications, limitations, or restrictions thereof;
all as may be determined from time to time by the Board and stated or expressed in the resolution or resolutions providing for the issuance of such Preferred Stock (collectively, a “Preferred Stock Designation”).
ARTICLE
V
MEETINGS OF STOCKHOLDERS
Section 1. General. Subject to the rights of the holders of any series of Preferred Stock, (a) any action required or permitted to be taken by the stockholders of the Company may be taken at a duly called annual or special meeting of stockholders of the Company and (b) special meetings of stockholders of the Company may be called only (i) by the Chairman of the Board (the “Chairman”), (ii) by the Chief Executive Officer of the Company (the “Chief Executive Officer”), or (iii) by the Secretary of the Company (the “Secretary”) acting at the request of the Chairman, the Chief Executive Officer or a majority of the total number of Directors that the Company would have if there were no vacancies on the Board. At any annual meeting or special meeting of stockholders of the Company, only such business will be conducted or considered as has been brought before such meeting in the manner provided in the Bylaws of the Company. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least 66-2/3% of the voting power of the outstanding voting capital stock of the Company, voting together as a single class, will be required to amend or repeal, or adopt any provision inconsistent with, this Article V.
Section 2. Written Consent. Unless otherwise provided in this Amended and Restated Certificate of Incorporation or the Bylaws of the Company, any action required to be taken at any annual or special meeting of stockholders of the Company, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for notice of such meeting had been the date that written consents signed by a sufficient number of holders to take action were delivered to the Company.
3
ARTICLE
VI
BOARD OF DIRECTORS
Section 1. General. The business and affairs of the Company will be managed by or under the direction of the Board.
Section 2. Number. Subject to the rights, if any, of the holders of any series of Preferred Stock to elect additional Directors under circumstances specified in a Preferred Stock Designation, the number of the Directors of the Company will be fixed from time to time in the manner provided in the Bylaws of the Company.
Section 3. Election and Terms of Service.
(a) Subject to the rights of holders of any series of Preferred Stock to elect Directors, the Board shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one third of the total number of directors constituting the entire Board. The Board is authorized to assign members of the Board already in office to Class I, Class II or Class III at the time such classification becomes effective.
(b) Subject to the rights of holders of any series of Preferred Stock to elect directors, each director shall serve for a term ending on the date of the third annual meeting of stockholders following the annual meeting of stockholders at which such director was elected; provided that each director initially assigned to Class I shall serve for a term expiring at the Company’s first annual meeting of stockholders held following the time at which the initial classification of the Board becomes effective; each director initially assigned to Class II shall serve for a term expiring at the Company’s second annual meeting of stockholders held following the time at which the initial classification of the Board becomes effective; and each director initially assigned to Class III shall serve for a term expiring at the Company’s third annual meeting of stockholders held following the time at which the initial classification of the Board becomes effective; provided further, that the term of each director shall continue until the election and qualification of his or her successor and be subject to his or her earlier death, disqualification, resignation or removal.
(c) Subject to the rights, if any, of the holders of any series of Preferred Stock to elect additional Directors under circumstances specified in a Preferred Stock Designation, Directors may be elected by the stockholders only at an annual meeting of stockholders. Election of Directors of the Company need not be by written ballot unless requested by the presiding officer or by the holders of a majority of the voting capital stock of the Company present in person or represented by proxy at a meeting of the stockholders at which Directors are to be elected. If authorized by the Board, such requirement of a written ballot will be satisfied by a ballot submitted by electronic transmission as long as any such electronic transmission either sets forth or is submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder or proxy holder.
Section 4. Nomination of Director Candidates. Advance notice of stockholder nominations for the election of Directors must be given in the manner provided in the Bylaws of the Company.
Section 5. Newly Created Directorships and Vacancies. Subject to the rights, if any, of the holders of any series of Preferred Stock to elect additional Directors under circumstances specified in a Preferred Stock Designation, newly created directorships resulting from any increase in the number of Directors and any vacancies on the Board resulting from death, resignation, disqualification, removal, or other cause will be filled solely by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum of the Board, or by a sole remaining Director. Any Director elected in accordance with the preceding sentence will hold office for the remainder of the full term of the class of Directors in which the new directorship was created or the vacancy occurred and until such Director’s successor has been elected and qualified. No decrease in the number of Directors constituting the Board may shorten the term of any incumbent Director.
4
Section 6. Removal. Subject to the rights, if any, of the holders of any series of Preferred Stock to elect additional Directors under circumstances specified in a Preferred Stock Designation, any director may be removed from office at any time, but only for cause, by the affirmative vote of the holders of at least 66-2/3% of the voting power of the outstanding voting capital stock of the Company, voting together as a single class.
ARTICLE
VII
LIMITATION OF DIRECTOR LIABILITY
To the full extent permitted by the DGCL and any other applicable law currently or hereafter in effect, no Director of the Company will be personally liable to the Company or its stockholders for or with respect to any breach of fiduciary duty or other act or omission as a Director of the Company; provided, however, that nothing contained in this Article VII shall eliminate or limit the liability of a director (i) for any breach of the director’s duty of loyalty to the Company or its stockholders, or (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law. No repeal or modification of this Article VII will adversely affect the protection of any Director of the Company provided hereby in relation to any breach of fiduciary duty or other act or omission as a Director of the Company occurring prior to the effectiveness of such repeal or modification. If any provision of the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of directors will be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
ARTICLE
VIII
INDEMNIFICATION
Section 1. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise subject to or involved in any claim, demand, action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), by reason of the fact that he or she is or was a director or an officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another company or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (an “Indemnitee”), whether the basis of such Proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, will be indemnified by the Company to the fullest extent permitted or required by the DGCL and any other applicable law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than such law permitted the Company to provide prior to such amendment), against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith (“Indemnifiable Losses”); provided, however, that, except as provided in Section 4 of this Article VIII with respect to Proceedings to enforce rights to indemnification, the Company will indemnify any such Indemnitee pursuant to this Section 1 in connection with a Proceeding (or part thereof) initiated by such Indemnitee only if such Proceeding (or part thereof) was authorized by the Board.
Section 2. Right to Advancement of Expenses. The right to indemnification conferred in Section 1 of this Article VIII will include the right to advancement by the Company of any and all expenses (including, without limitation, attorneys’ fees and expenses) incurred in defending any such Proceeding in advance of its final disposition (an “Advancement of Expenses”); provided, however, that, if the DGCL so requires, an Advancement of Expenses incurred by an Indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such Indemnitee, including without limitation service to an employee benefit plan) will be made pursuant to this Section 2 only upon delivery to the Company of an undertaking (an “Undertaking”), by or on behalf of such Indemnitee, to repay, without interest, all amounts so advanced if it is ultimately be determined by final judicial decision from which there is no further right to appeal (a “Final Adjudication”) that such Indemnitee is not entitled to be indemnified for such expenses under this Section 2. An Indemnitee’s right to an Advancement of Expenses pursuant to this Section 2 is not subject to the satisfaction of any standard of conduct and is not conditioned upon any prior determination that Indemnitee is entitled to indemnification under Section 1 of this Article VIII with respect to the related Proceeding or the absence of any prior determination to the contrary.
Section 3. Contract Rights. The rights to indemnification and to the Advancement of Expenses conferred in Sections 1 and 2 of this Article VIII are contract rights and such rights will continue as to an Indemnitee who has ceased to be a director, officer, employee or agent and will inure to the benefit of the Indemnitee’s heirs, executors and administrators.
5
Section 4. Right of Indemnitee to Bring Suit. If a claim under Section 1 or 2 of this Article VIII is not paid in full by the Company within 60 calendar days after a written claim has been received by the Company, except in the case of a claim for an Advancement of Expenses, in which case the applicable period will be 20 calendar days, the Indemnitee may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Company to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the Indemnitee will be entitled to the fullest extent permitted or required by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader reimbursements of prosecution or defense expenses than such law permitted the Company to provide prior to such amendment), to be paid also the expense of prosecuting or defending such suit. In (a) any suit brought by the Indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to an Advancement of Expenses) it will be a defense that, and (b) any suit brought by the Company to recover an Advancement of Expenses pursuant to the terms of an Undertaking, the Company will be entitled to recover such expenses, without interest, upon a Final Adjudication that, the Indemnitee has not met any applicable standard for indemnification set forth in the DGCL. Neither the failure of the Company (including its Board of Directors or a committee thereof, its stockholders or independent legal counsel) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Company (including its Board of Directors or a committee thereof, its stockholders or independent legal counsel) that the Indemnitee has not met such applicable standard of conduct, will create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit. In any suit brought by an Indemnitee to enforce a right to indemnification or to an Advancement of Expenses hereunder, or brought by the Company to recover an Advancement of Expenses hereunder pursuant to the terms of an Undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such Advancement of Expenses, will be on the Company.
Section 5. Non-Exclusivity of Rights. The rights to indemnification and to the Advancement of Expenses conferred in this Article VIII will not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Company’s Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. Nothing contained in this Article VIII will limit or otherwise affect any such other right or the Company’s power to confer any such other right.
Section 6. Insurance. The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the DGCL.
Section 7. No Duplication of Payments. The Company will not be liable under this Article VIII to make any payment to an Indemnitee in respect of any Indemnifiable Losses to the extent that the Indemnitee has otherwise actually received payment (net of any expenses incurred in connection therewith and any repayment by the Indemnitee made with respect thereto) under any insurance policy or from any other source in respect of such Indemnifiable Losses.
ARTICLE
IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Company reserves the right at any time from time to time to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and any other provisions authorized by the DGCL may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article IX. Notwithstanding any other provision of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any series of Preferred Stock required by law, the affirmative vote of the holders of at least a majority in voting power of the outstanding voting capital stock of the Company, voting together as a single class, will be required to amend, alter, change or repeal, or adopt any provision inconsistent with, any of Article VII, Article VIII, this Article IX and Article X, or in each case, the definition of any capitalized terms used therein or any successor provision (including, without limitation, any such article or section as renumbered as a result of any amendment, alteration, change, repeal or adoption of any other provision of this Certificate of Incorporation). Any amendment, repeal or modification of any Article VII, Article VIII and this Article IX will not adversely affect any right or protection of any person existing thereunder with respect to any act or omission occurring prior to such amendment, repeal or modification.
6
ARTICLE
X
FORUM SELECTION
Unless the Company consents in writing to the selection of an alternative forum, (a) the Court of Chancery (the ”Chancery Court”) of the State of Delaware (or, in the event that the Chancery Court does not have jurisdiction, the federal district court for the District of Delaware) will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action, suit or proceeding brought on behalf of the Company, (ii) any action, suit or proceeding asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or stockholder of the Company to the Company or to the Company’s stockholders, (iii) any action, suit or proceeding arising pursuant to any provision of the DGCL or the Bylaws or this Certificate of Incorporation (as either may be amended and/or restated from time to time) or as to which the DGCL confers jurisdiction on the Chancery Court, or (iv) any action, suit or proceeding asserting a claim against the Company governed by the internal affairs doctrine; and (b) subject to the preceding provisions of this Article X, the federal district courts of the United States of America will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. If any action the subject matter of which is within the scope of clause (a) of the immediately preceding sentence is filed in a court other than the courts in the State of Delaware (a “Foreign Action”) in the name of any stockholder, such stockholder will be deemed to have consented to (1) the personal jurisdiction of the state and federal courts in the State of Delaware in connection with any action brought in any such court to enforce the provisions of clause (a) of the immediately preceding sentence and (2) having service of process made upon such stockholder in any such action by service upon such stockholder’s counsel in the Foreign Action as agent for such stockholder. Any person or entity purchasing or otherwise acquiring or holding any interest in any security of the Company will be deemed to have notice of and consented to this Article X. Notwithstanding the foregoing, the provisions of this Article X will not apply to suits brought to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended, or any other claim for which the federal courts of the United States have exclusive jurisdiction.
ARTICLE
XI
Section 203
The Company shall not be governed by Section 203 of the DGCL (“Section 203”), and the restrictions contained in Section 203 shall not apply to the Company.
[The remainder of this page has been left intentionally blank.]
7
Exhibit 3.2
BYLAWS
OF
INDIE SEMICONDUCTOR, INC.
(the “Corporation”)
ARTICLE I
OFFICES
SECTION 1. Principal Office. The registered office of the Corporation will be located in such place as may be provided from time to time in the Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”).
SECTION 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the board of directors of the Corporation (the “Board of Directors”) may from time to time determine or as the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 1. Annual Meetings. The annual meeting of the stockholders of the Corporation will be held wholly or partially by means of remote communication or at such place, within or without the State of Delaware, on such date and at such time as may be determined by the Board of Directors, the Chief Executive Officer or the chairman of the Board (the “Chairman”) and as will be designated in the notice of said meeting. The Board of Directors may, in its sole discretion, determine that a meeting will not be held at any place, but may instead be held solely by means of remote communication in accordance with Section 211(a) of the General Corporation Law of the State of Delaware (as amended, “DGCL”). The Board of Directors, the Chief Executive Officer or the Chairman may postpone, reschedule or cancel any previously scheduled annual meeting of stockholders. At each annual meeting of the stockholders, the stockholders will elect the directors from the nominees for director, to succeed those directors whose terms expire at such meeting and will transact such other business, in each case as may be properly brought before the meeting in accordance with Section 8 of this Article II.
SECTION 2. Special Meetings. Special meetings of the stockholders for any purpose or purposes, unless otherwise prescribed by law or by the Certificate of Incorporation, may only be held wholly or partially by means of remote communication or at any place, within or without the State of Delaware, and may only be called by the Secretary at the direction of the Board of Directors, by the Chairman or the Chief Executive Officer. Business transacted at any special meeting of stockholders will be limited to matters relating to the purpose or purposes stated in the notice of meeting. Those persons with the power to call a special meeting in accordance with this Section 2 of this Article II also have the power and authority to postpone, reschedule or cancel any previously scheduled special meeting of stockholders. The stockholders may cause business to be specified in the notice of meeting only as and to the extent provided in Section 8 and shall not otherwise be permitted to propose business to be brought before a special meeting of stockholders.
SECTION 3. Notice and Purpose of Meetings. Except as otherwise provided by law, the Certificate of Incorporation or these bylaws, written or printed notice of the meeting of the stockholders stating the place, day and hour of the meeting and, in case of a special meeting, stating the purpose or purposes for which the meeting is called, and in case of a meeting held by remote communication stating such means, will be delivered not less than ten nor more than 60 calendar days before the date of the meeting, either personally or by mail, to each stockholder of record entitled to vote at such meeting. Without limiting the manner by which notice otherwise may be given to stockholders, any notice will be effective if given by a form of electronic transmission consented to (in a manner consistent with the DGCL) by the stockholder to whom the notice is given. If notice is given by mail, such notice will be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. If notice is given by electronic transmission, such notice will be deemed given at the time specified in Section 232 of the DGCL.
SECTION 4. Quorum. Except as otherwise provided by law, the Certificate of Incorporation or these bylaws, the holders of a majority of the shares of common stock issued and outstanding and entitled to vote, present in person, present by means of remote communication in a manner, if any, authorized by the Board of Directors in its sole discretion, or represented by proxy, will constitute a quorum at all meetings of the stockholders for the transaction of business. A quorum, once established at a meeting, will not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such a quorum is not present or represented at any meeting of the stockholders, the Chairman of the meeting will have the power to adjourn the meeting from time to time, in the manner provided in Section 7 of this Article II, until a quorum is present or represented.
SECTION 5. Voting Process. When a quorum is present at any meeting, any matter other than the election of directors to be voted upon by the stockholders at such meeting will be decided by a majority vote of the holders of shares of capital stock present or represented at the meeting and voting affirmatively or negatively on such matter. Each outstanding share of stock having voting power, is entitled to one vote on each matter submitted to a vote at a meeting of stockholders. A stockholder may vote either in person, by proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact, or by an electronic ballot from which it can be determined that the ballot was authorized by a stockholder or proxyholder. The term, validity and enforceability of any proxy will be determined in accordance with the DGCL. Voting at meetings of stockholders need not be by written ballot. At all meetings of stockholders for the election of directors at which a quorum is present a plurality of the votes cast will be sufficient to elect such directors.
SECTION 6. Proxies. Each stockholder of record entitled to vote at a meeting of stockholders may vote in person (including by means of remote communications, if any, by which stockholders may be deemed to be present in person and vote at such meeting) or may authorize another person or persons to vote for such stockholder by a proxy executed or transmitted in a manner permitted by applicable law. No such proxy will be voted upon after three years from the date of its execution, unless the proxy expressly provides for a longer period.
SECTION 7. Adjournment. Any meeting of stockholders, annual or special, may be adjourned from time to time to any other time and to any other place at which a meeting of stockholders may be held under these bylaws by the chairman of the meeting. If the adjournment is for more than 30 calendar days, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors will fix as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote at the adjourned meeting, and will give notice of the adjourned meeting to each stockholder of record as of the record date so fixed for notice of such adjourned meeting.
SECTION 8. Nominations.
(a) Subject to the rights, if any, of any series of Preferred Stock to nominate or elect directors under circumstances specified in a Preferred Stock Designation (as defined in the Certificate of Incorporation), only persons who are nominated in accordance with the procedures set forth in this Section 8 of Article II will be eligible to serve as directors. Nominations of persons for election to the Board of Directors and the proposal of other business to be considered by the stockholders may be made at either an annual meeting or special meeting of stockholders only (i) pursuant to the Corporation’s notice of meeting (or any supplement thereto), (ii) by or at the direction of the Board of Directors or any committee thereof or (iii) by any stockholder of the Corporation who was a stockholder of record of the Corporation at the time the notice provided for in this Section 8 of Article II is delivered to the Secretary, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 8 of Article II.
2
(b) For any nominations or other business to be properly brought before an annual meeting or special meeting by a stockholder pursuant to Section 8(a)(iii) of this Article II, the stockholder must have given timely notice thereof in writing to the Secretary and any such proposed business (except as otherwise in this Section 8 Article II with respect to the nominations of persons for election to the Board of Directors) must constitute a proper matter for stockholder action. To be timely, a stockholder’s notice will be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, prior to the first anniversary of the preceding year’s annual meeting. In no event will the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above. Such stockholder’s notice will set forth: (i) as to each person whom the stockholder proposes to nominate for election as a director (A) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, and (B) such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the bylaws, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (A) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (B) the class or series and number of shares of capital stock of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner, (C) a description of any agreement, arrangement or understanding with respect to the nomination or proposal between or among such stockholder and/or such beneficial owner, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, including, in the case of a nomination, the nominee, (D) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the stockholder’s notice by, or on behalf of, such stockholder and such beneficial owners, whether or not such instrument or right will be subject to settlement in underlying shares of capital stock of the Corporation, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or such beneficial owner, with respect to securities of the Corporation, (E) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination, (F) a representation whether the stockholder or the beneficial owner, if any, intends or is part of a group which intends (1) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (2) otherwise to solicit proxies or votes from stockholders in support of such proposal or nomination, and (G) any other information relating to such stockholder and beneficial owner, if any, required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder. The foregoing notice requirements of this Section 8(b) will be deemed satisfied by a stockholder with respect to business other than a nomination if the stockholder has notified the Corporation of his, her or its intention to present a proposal at an annual meeting in compliance with applicable rules and regulations promulgated under the Exchange Act and such stockholder’s proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting. The Corporation may require any proposed nominee to furnish such other information as the Corporation may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation.
(c) Notwithstanding anything in the second sentence of Section 8(b) of Article II to the contrary, in the event that the number of directors to be elected to the Board of Directors at the annual meeting is increased effective after the time period for which nominations would otherwise be due under Section 8(b) of Article II and there is no public announcement by the Corporation naming the nominees for the additional directorships at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section 8 of Article II will also be considered timely, but only with respect to nominees for the additional directorships, if it will be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation.
3
(d) Only such business will be conducted at a special meeting of stockholders as will have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders, as called in accordance with the terms of the Certificate of Incorporation, at which directors are to be elected pursuant to the Corporation’s notice of meeting (i) by or at the direction of the Board of Directors or any committee thereof or (ii) provided that the Board of Directors has determined that directors will be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time the notice provided for in this Section 8 of Article II is delivered to the Secretary, who is entitled to vote at the meeting and upon such election and who complies with the notice procedures set forth in this Section 8 of Article II. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’s notice required by Section 8(b) of Article II will be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event will the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
(e) Except as otherwise expressly provided in any applicable rule or regulation promulgated under the Exchange Act, only such persons who are nominated in accordance with the procedures set forth in this Section 8 of Article II, and in accordance with the terms and requirements of the Certificate of Incorporation, will be eligible to be elected at an annual or special meeting of stockholders of the Corporation to serve as directors and only such business will be conducted at a meeting of stockholders as will have been brought before such annual meeting in accordance with the procedures set forth in this Section 8 of Article II. Except as otherwise provided by law, the Chairman will have the power and duty (i) to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 8 of Article II (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made, solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies or votes in support of such stockholder’s nominee or proposal in compliance with such stockholder’s representation as required by Section 8(b)(iii)(F)) of Article II and (b) if any proposed nomination or business was not made or proposed in compliance with this Section 8 of Article II, to declare that such nomination will be disregarded or that such proposed business will not be transacted. Notwithstanding the foregoing provisions of this Section 8 of Article II, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or proposed business, as applicable, such nomination will be disregarded and such proposed business will not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 8 of Article II, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
(f) For purposes of this Section 8 of Article II, “public announcement” will include disclosure in a press release reported by the Dow Jones News Service, Associated Press or other national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.
(g) Notwithstanding the foregoing provisions of this Section 8 of Article II, a stockholder will also comply with all applicable requirements of the Exchange Act and the rules and regulations promulgated thereunder with respect to the matters set forth in this Section 8 of Article II; provided however, that any references in these bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and will not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Section 8 of Article II (including Sections 8(a)(iii) and 8(d) of this Article II), and compliance with Sections 8(a)(iii) and 8(d) of Article II will be the exclusive means for a stockholder to make nominations or submit other business (other than, as provided in the third to last sentence of Section 8(b) of Article II, business other than nominations brought properly under and in compliance with Rule 14a-8 of the Exchange Act, as may be amended from time to time). Nothing in this Section 8 of Article II will be deemed to affect any rights (a) of stockholders to request inclusion of proposals or nominations in the Corporation’s proxy statement pursuant to applicable rules and regulations promulgated under the Exchange Act, or (b) of the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the Certificate of Incorporation.
4
SECTION 9. Conduct of Meetings.
(a) Meetings of stockholders will be presided over by the Chairman, or in the Chairman’s absence by a vice chairman, if any, or in the Vice Chairman’s absence by a chairman designated by the Board of Directors. The Secretary will act as secretary of the meeting, but in the Secretary’s absence the chairman of the meeting may appoint any person to act as secretary of the meeting.
(b) The Board of Directors may adopt by resolution such rules, regulations and procedures for the conduct of any meeting of stockholders of the Corporation as it deems appropriate including, without limitation, such guidelines and procedures as it may deem appropriate regarding the participation by means of remote communication of stockholders and proxyholders not physically present at a meeting. Except to the extent inconsistent with such rules, regulations and procedures as adopted by the Board of Directors, the chairman of any meeting of stockholders will have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as will be determined; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The chairman of any meeting, in addition to making any other determinations that may be appropriate to the conduct of the meeting, will, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if the chairman should so determine, the chairman will so declare to the meeting and any such matter or business not properly brought before the meeting will not be transacted or considered. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders will not be required to be held in accordance with the rules of parliamentary procedure.
(c) The chairman of the meeting will announce at the meeting when the polls for each matter to be voted upon at the meeting will be opened and closed. After the polls close, no ballots, proxies or votes or any revocations or changes thereto may be accepted.
(d) In advance of any meeting of stockholders, the Board of Directors will appoint one or more inspectors of election to act at the meeting or any adjournment thereof and make a written report thereof. One or more other persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is present, ready and willing to act at a meeting of stockholders, the chairman of the meeting will appoint one or more inspectors to act at the meeting. Unless otherwise required by law, inspectors may be officers, employees or agents of the Corporation. No person who is a candidate for an office at an election may serve as an inspector at such election.
SECTION 10. No Right to Have Proposal/Nominees Included. A stockholder is not entitled to have its proposal for business or nominees included in the Corporation’s proxy statement and form of proxy solely as a result of such stockholder’s compliance with the foregoing provisions of Section 8, Article II.
5
ARTICLE III
DIRECTORS
SECTION 1. Powers. The business affairs of the Corporation will be managed by the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these bylaws directed or required to be exercised or done by the stockholders. The Board of Directors may adopt such rules and regulations, not inconsistent with the Certificate of Incorporation or these bylaws or applicable laws, as it may deem proper for the conduct of its meetings and the management of the Corporation.
SECTION 2. Number, Qualifications, Term. The number of directors will be fixed by the Board of Directors and may thereafter be changed from time to time by resolution of the Board of Directors. Directors need not be residents of the State of Delaware nor stockholders of the Corporation. Subject to the Certificate of Incorporation, directors will be elected at each annual meeting of stockholders and will serve for three years after being elected or and until their successors are elected and qualified; provided that any directors that are to be elected by the holders of any series of the Preferred Stock will be so elected in the manner provided in the applicable Preferred Stock Designation (as defined in the Certificate of Incorporation).
SECTION 3. Vacancies; Newly-Created Directorships. Subject to the Certificate of Incorporation and the rights of holders of any series of Preferred Stock, vacancies and newly created directorships resulting from any increase in the number of directors or any vacancy on the Board that results from the death, disability, resignation, disqualification, removal or other cause may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director, and the directors so chosen will hold office until the next annual election and until their successors are duly elected and will qualify, and will not be filled by the stockholders. Any director elected to fill a vacancy not resulting from an increase in the number of directors will hold office for the remaining term of his or her predecessor. No decrease in the authorized number of directors will shorten the term of any incumbent director.
SECTION 4. Place of Meetings. Meetings of the Board of Directors, regular or special, may be held either within or without the State of Delaware.
SECTION 5. Regular Meetings. Regular meetings of the Board of Directors may be held upon such notice, or without notice, and at such time and at such place as will from time to time be determined by the Board of Directors; provided that any director who is absent when such a determination is made will be given notice of the determination. A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders.
SECTION 6. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman or by the number of directors who then legally constitute a quorum. Notice of the date, place and time of any special meeting of the Board will be given to each director by the Secretary or by the person or persons calling the meeting. Notice will be duly given to each director (a) in person or by telephone at least 24 hours in advance of the meeting, (b) by sending written notice by reputable overnight courier, facsimile or other means of electronic transmission, or delivering written notice by hand, to such director’s last known business, home or means of electronic transmission address at least 24 hours in advance of the meeting, or (c) by sending written notice by first-class mail to such director’s last known business or home address at least 72 hours in advance of the meeting.
SECTION 7. Notice; Waiver. A notice or waiver of notice of a meeting of the Board need not specify the purposes of the meeting. Whenever notice is required to be given by law, by the Certificate of Incorporation or by these bylaws, a written waiver signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before, at or after the time of the event for which notice is to be given, will be deemed equivalent to notice required to be given to such person. Attendance of a director at any meeting will constitute a waiver of notice of such meeting, except where a director attends for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.
SECTION 8. Quorum. At all meetings of the Board, a majority of the directors then in office will constitute a quorum for the transaction of business unless a greater number is required by law, by the Certificate of Incorporation or by these bylaws. If a quorum is not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.
6
SECTION 9. Meetings by Conference Communications Equipment. Directors may participate in meetings of the Board of Directors or any committee thereof by means of video or telephone conference or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means will constitute presence in person at such meeting.
SECTION 10. Action Without A Meeting. Any action required or permitted to be taken at a meeting of the directors may be taken without a meeting if a consent in writing or by electronic transmission, setting forth the action so taken, will be signed by all of the directors entitled to vote with respect to the subject matter thereof.
SECTION 11. Action. Except as otherwise provided by law or in the Certificate of Incorporation or these bylaws, if a quorum is present, the affirmative vote of a majority of the members of the Board of Directors will be required for any action.
SECTION 12. Removal of Directors. Subject to any provisions of applicable law and the Certificate of Incorporation, any or all of the directors may be removed from office at any time, but only for cause, by the holders of at least 66 ⅔% of the shares of capital stock of the Corporation then entitled to vote at an election of directors.
SECTION 13. Resignation. Any director may resign at any time by delivering a resignation in writing or by electronic transmission to the Corporation at its principal office or to the Chairman, the Chief Executive Officer or the Secretary. Such resignation will be effective upon delivery unless it is specified to be effective at some later time or upon the happening of some later event.
SECTION 14. Compensation of Directors. Directors may be paid such compensation for their services provided to the Corporation at the request of the Board of Directors and such reimbursement for expenses of attendance at meetings of the Board of Directors or any committee thereof as the Board of Directors may from time to time determine. No such payment will preclude any director from serving the Corporation or any of its parent or subsidiary entities in any other capacity and receiving compensation for such service.
ARTICLE IV
COMMITTEES
SECTION 1. Designation of Committees. The Board of Directors may, by resolution adopted by a majority of the entire Board of Directors, designate one or more committees, each of which will, except as otherwise prescribed by law, have such authority of the Board of Directors as will be specified in the resolution of the Board of Directors designating such committee; provided that no committee will have the power or authority in reference to the following matters: (a) approving or adopting, or recommending to the stockholders, any action or matter (other than election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval or (b) adopting, amending or repealing any provision of these bylaws. The Board of Directors will have the power at any time to change the membership of, to fill all vacancies in and to discharge any such committee, either with or without cause. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Except as otherwise provided in the Certificate of Incorporation, these bylaws, or the resolution of the Board of Directors designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee
SECTION 2. Procedure; Meetings; Quorum. Committee meetings, of which no notice will be necessary, may be held at such times and places as will be fixed by resolution adopted by a majority of the members thereof. So far as applicable, the provisions of Article III relating to notice, quorum and voting requirements applicable to meetings of the Board of Directors will govern meetings of any committee of the Board of Directors. Except as the Board of Directors may otherwise determine, any committee may make, alter and repeal rules for the conduct of its business, but unless otherwise provided in such rules, its business will be conducted as nearly as possible in the same manner as is provided in these bylaws for the Board of Directors. Any resolution of the Board establishing or directing any committee of the Board or establishing or amending the charter of any such committee may establish requirements or procedures relating to the governance and/or operation of such committee that are different from, or in addition to, those set forth in these bylaws. Each committee of the Board of Directors will keep written minutes of its proceedings and circulate summaries of such written minutes to the Board of Directors before or at the next meeting of the Board of Directors.
7
ARTICLE V
OFFICERS
SECTION 1. Titles. The Board of Directors at its first meeting after each annual meeting of stockholders will choose a Chief Executive Officer, a Secretary and a Treasurer, none of whom need be a member of the Board of Directors. The Board of Directors may also choose a Chairman from among the directors, one or more Vice Presidents (who may be given particular designations with respect to authority, function, or seniority), one or more Assistant Secretaries, and one or more Assistant Treasurers. The Board of Directors may appoint such other officers and agents as it deems necessary, who will hold their offices for such terms and will exercise such powers and perform such duties as will be determined from time to time by the Board of Directors. Any number of offices may be held by the same person.
SECTION 2. Compensation. Officers of the Corporation will be entitled to such salaries, compensation or reimbursement as may be fixed or allowed from time to time by the Board of Directors or by a committee of the Board of Directors. The Chief Executive Officer of the Corporation will have the authority to fix the salaries, compensation or reimbursements of all other officers of the Corporation. No officer will be prevented from receiving a salary or other compensation by reason of the fact that he or she is also a director. Except as the Board may otherwise determine, no officer who resigns or is removed will have any right to any compensation as an officer for any period following such officer’s resignation or removal, or any right to damages on account of such removal, whether such officer’s compensation be by the month or by the year or otherwise, unless such compensation is expressly provided for in a duly authorized written agreement with the Corporation.
SECTION 3. Term; Removal; Vacancy. The officers of the Corporation will hold office until their successors are chosen and qualify. Any officer may be removed at any time, with or without cause, by the affirmative vote of a majority of the whole Board of Directors. Any officer may resign by delivering a written resignation to the Corporation at its principal office or to the Board of Directors, the Chief Executive Officer or the Secretary. Such resignation will be effective upon receipt unless it is specified to be effective at some later time or upon the happening of some later event. Any vacancy occurring in any office of the Corporation may be filled by the Board of Directors and may, in the Board of Director’s discretion, be left unfilled, for such period as it may determine, any offices.
SECTION 4. Chairman. The Chairman shall not be considered an officer of the Corporation in his or her capacity as such. The Chairman will preside at all meetings of the stockholders and all meetings of the Board of Directors. The Chairman will perform such other duties and may exercise such other powers as may from time to time be assigned by these bylaws or by the Board of Directors. In the absence of the Chairman, such other director of the Corporation designated by the Chairman or by the Board of Directors shall act as chairman of any such meeting. The Chairman or the Board of Directors may appoint a vice chairman of the Board of Directors to exercise and perform such other powers and duties as may from time to time be assigned to him or her by the Chairman or by the Board of Directors.
SECTION 5. Chief Executive Officer. The Chief Executive Officer will have general charge and supervision of the business of the Corporation subject to the direction of the Board of Directors, and will perform all duties and have all powers that are commonly incident to the office of chief executive or that are delegated to such officer by the Board of Directors from time to time. In the event of the absence, inability or refusal to act of the Chief Executive Officer, the Vice President (or if there is more than one, the Vice Presidents in the order determined by the Board) will perform the duties of the Chief Executive Officer and when so performing such duties will have all the powers of and be subject to all the restrictions upon the Chief Executive Officer.
SECTION 6. Vice President. Each Vice President will perform such duties and possess such powers as the Board of Directors or the Chief Executive Officer may from time to time prescribe. The Board of Directors may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors.
8
SECTION 7. Secretary. The Secretary will perform such duties and will have such powers as the Board or the Chief Executive Officer may from time to time prescribe. In addition, the Secretary will perform such duties and have such powers as are incident to the office of the secretary, including attending all meetings of the Board of Directors and all meetings of the stockholders, recording all proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose, maintaining a stock ledger and preparing lists of stockholders and their addresses as require and being custodian of corporate records. The Secretary will give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and will perform such other duties as may be prescribed by the Board of Directors, the Chief Executive Officer or the committees designated by the Board of Directors. The Secretary will have custody of the corporate seal of the corporation and the Secretary, or an assistant secretary, will have the authority to affix the same to an instrument requiring it and when so affixed, it may be attested by the Secretary’s signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature.
SECTION 8. Assistant Secretary. The Assistant Secretary, if there is one or more than one, the assistant secretaries in the order determined by the Board of Directors, will, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and will perform such other duties and have such powers as the Board of Directors may from time to time prescribe.
SECTION 10. Treasurer. The Treasurer will perform such duties and will have such powers as may from time to time be assigned by the Board or the Chief Executive Officer. In addition, the Treasurer will perform such duties and have such powers as are incident to the office of treasurer, including custody of the corporate funds, securities and other property of the Corporation, keeping full and accurate accounts of receipts and disbursements in books belonging to the Corporation, depositing all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors, disbursing the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and rendering to the Chairman, the Chief Executive Officer and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all of his or her transactions as Treasurer and of the financial condition of the Corporation.
SECTION 11. Assistant Treasurer. The Assistant Treasurer, if there is one or more than one, the Assistant Treasurers in the order determined by the Board of Directors, will, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and will perform such other duties and have such other powers as the Board of Directors may from time to time prescribe.
SECTION 12. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.
SECTION 13. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chief Executive Officer, any Vice President or any other officer authorized to do so by the Board of Directors and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of stockholders of any company in which the Corporation may own securities and at any such meeting will possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.
ARTICLE VI
CAPITAL STOCK
SECTION 1. Issuance of Stock. Subject to the provisions of the Certificate of Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the Corporation or the whole or any part of any shares of the authorized capital stock of the Corporation held in the Corporation’s treasury may be issued, sold, transferred or otherwise disposed of by vote of the Board of Directors in such manner, for such lawful consideration and on such terms as the Board of Directors may determine.
9
SECTION 2. Uncertificated Shares. The Corporation shall issue shares in uncertificated form. The Corporation shall not issue stock certificates unless specifically requested by a stockholder upon written request by such stockholder to the Secretary. The Corporation shall provide to the record holders of such shares a written statement of the information required by the DGCL to be included on stock certificates. In the event that the Corporation issues shares of stock represented by certificates pursuant to a stockholders request, such certificates shall be in such form as prescribed by the Board or a duly authorized officer, shall contain the statements and information required by the DGCL and shall be signed by the officers of the Corporation in the manner permitted by the DGCL. Each such certificate will be numbered and signed in a manner that complies with Section 158 of the DGCL. Any or all of the signatures on a certificate may be a facsimile signature. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation will send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the DGCL or, with respect to Section 151 of DGCL, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
SECTION 3. Lost and Destroyed Certificates. If the Corporation issues certificates as set forth in Section 2 of this Article VI, the Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact, satisfactory to the Secretary, by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may prescribe such terms and conditions as it deems expedient, and may require such indemnities or bonds as it deems adequate, to protect the Corporation from any claim that may be made against it with respect to any such certificate alleged to have been lost or destroyed.
SECTION 4. Transfer of Shares. Shares of stock of the Corporation will be transferable in the manner prescribed by law, the Certificate of Incorporation and in these bylaws. Transfers of shares of stock of the Corporation will be made only on the books of the Corporation or by transfer agents designated to transfer shares of stock of the Corporation. Subject to applicable law, shares of stock represented by certificates will be transferred only on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or the authenticity of signature as the Corporation or its transfer agent may reasonably require. Except as may be otherwise required by law, by the Certificate of Incorporation or by these bylaws, the Corporation is entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the Corporation in accordance with the requirements of these bylaws.
SECTION 5. Record Date.
(a) In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date will not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date will, unless otherwise required by law, not be more than 60 nor less than 10 days before the date of such meeting. If the Board of Directors so fixes a date, such date will also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting will be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders will be at the close of business on the day immediately preceding the day on which notice is given, or, if notice is waived, at the close of business on the day immediately preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders will apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case will also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned meeting.
10
(b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date will not precede the date upon which the resolution fixing the record date is adopted, and which will not be more than 60 days prior to such action. If no such record date is fixed, the record date for determining stockholders for any such purpose will be at the close of business on the day on which the Board adopts the resolution relating thereto.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. Checks. All checks or demands for money and notes of the Corporation will be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
SECTION 2. Fiscal Year. The fiscal year of the Corporation will be determined, and may be changed, by resolution of the Board of Directors.
SECTION 3. Seal. The corporate seal will have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Delaware.” The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced.
SECTION 4. Pronouns. All pronouns used in these bylaws will be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require.
SECTION 5. Reliance upon Books, Reports and Records. Each director, each member of a committee designated by the Board of Directors, and each officer of the Corporation will, in the performance of his or her duties, be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports, or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees of the Board of Directors, or by any other person or entity as to matters the director, committee member, or officer believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.
SECTION 6. Evidence of Authority. A certificate by the Secretary, or an Assistant Secretary, or a temporary secretary, as to any action taken by the stockholders, directors, a committee or any officer or representative of the Corporation will as to all persons who rely on the certificate in good faith be conclusive evidence of such action.
SECTION 7. Severability. Any determination that any provision of these bylaws is for any reason inapplicable, illegal or ineffective will not affect or invalidate any other provision of these bylaws.
SECTION 8. Electronic Transmission. For purposes of these bylaws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.
SECTION 9. Certificate of Incorporation. All references in these bylaws to the Certificate of Incorporation will be deemed to refer to the Certificate of Incorporation of the Corporation, as amended and/or restated and in effect from time to time.
SECTION 10. Defined Terms. Capitalized terms used herein and not otherwise defined have the meanings given to them in the Certificate of Incorporation.
ARTICLE IX
AMENDMENTS
Except as otherwise provided by law or by the Certificate of Incorporation, these bylaws or any of them may be amended in any respect or repealed at any time, either (a) at any meeting of stockholders, provided that any amendment or supplement proposed to be acted upon at any such meeting has been properly described or referred to in the notice of such meeting, or (b) by the Board, provided that no amendment adopted by the Board may vary or conflict with any amendment adopted by the stockholders in accordance with the Certificate of Incorporation and these bylaws. Notwithstanding the foregoing and anything contained in these bylaws to the contrary, Sections 1, 2, 8, and 9 of Article II, Sections 2, 3, and 12 of Article III, and this Article IX may not be amended or repealed by the stockholders, and no provision inconsistent therewith may be adopted by the stockholders, without the affirmative vote of the holders of at least 66-⅔% of the capital stock of the Corporation, voting together as a single class.
11
Exhibit 4.1
| NUMBER | C- | |
| SHARES | ||
| SEE REVERSE FOR CERTAIN DEFINITIONS | ||
| CUSIP 45569U 101 |
INDIE SEMICONDUCTOR, INC.
INCORPORATED UNDER
THE LAWS OF THE STATE OF DELAWARE
CLASS A COMMON STOCK
This Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $0.0001 EACH OF THE CLASS A COMMON STOCK OF
INDIE SEMICONDUCTOR,
INC.
(THE “COMPANY”)
transferable on the books of the Company in person or by duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar.
Witness the seal of the Company and the facsimile signatures of its duly authorized officers.
| Chief Executive Officer | [Corporate Seal] Delaware | Chief Financial Officer |
INDIE SEMICONDUCTOR, INC.
The Company will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof of the Company and the qualifications, limitations, or restrictions of such preferences and/or rights. This certificate and the shares represented thereby are issued and shall be held subject to all the provisions of the Certificate of Incorporation and all amendments thereto and resolutions of the Board of Directors providing for the issue of securities (copies of which may be obtained from the secretary of the Company), to all of which the holder of this certificate by acceptance hereof assents. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
| TEN COM | — | as tenants in common | UNIF GIFT MIN ACT | — | Custodian | ||
| TEN ENT | — | as tenants by the entireties | (Cust) | (Minor) | |||
| JT TEN | — | as joint tenants with right of survivorship and not as tenants in common |
under Uniform Gifts to Minors Act | ||||
| (State) | |||||||
Additional abbreviations may also be used though not in the above list.
For value received, hereby sells, assigns and transfers unto
(PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER(S) OF ASSIGNEE(S))
(PLEASE PRINT OR TYPEWRITE NAME(S) AND ADDRESS(ES), INCLUDING ZIP CODE, OF ASSIGNEE(S))
shares of the capital stock represented by the within Certificate, and hereby irrevocably constitutes and appoints
Attorney to transfer the said stock on the books of the within named Company with full power of substitution in the premises.
| Dated: | |
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
| Signature(s) Guaranteed: | |
| By | |
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15 (OR ANY SUCCESSOR RULE).
Exhibit 4.4
ASSIGNMENT, ASSUMPTION AND AMENDMENT AGREEMENT
This Assignment, Assumption and Amendment Agreement (this “Agreement”) is made as of June 10, 2021, by and among Thunder Bridge Acquisition II, Ltd., a Cayman Islands exempted company (the “Company”), Thunder Bridge II Surviving Pubco, Inc., a Delaware corporation (“New Pubco”), and Continental Stock Transfer & Trust Company, a New York corporation (the “Warrant Agent”).
WHEREAS, the Company and the Warrant Agent are parties to that certain Warrant Agreement, dated as of August 8, 2019, and filed with the United States Securities and Exchange Commission on August 14, 2019 (the “Existing Warrant Agreement”; capitalized terms used herein but not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the Existing Warrant Agreement);
WHEREAS, pursuant to the Existing Warrant Agreement, the Company issued (a) 8,650,000 warrants to the Sponsor (collectively, the “Private Placement Warrants”) to purchase shares of the Company’s ordinary shares, par value $0.0001 per share (“Ordinary Shares”), simultaneously with the closing of the Offering, at a purchase price of $1.00 per Private Placement Warrant, with each Private Placement Warrant being exercisable for one Ordinary Share and with an exercise price of $11.50 per share and (b) 17,250,000 warrants to public investors in the Offering (collectively, the “Public Warrants”) to purchase Ordinary Shares, with each whole Public Warrant being exercisable for one Ordinary Share and with an exercise price of $11.50 per share;
WHEREAS, on December 14, 2020, a Transaction Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Transaction Agreement”) was entered into by and among the Company, New Pubco, TBII Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of New Pubco (“TBII Merger Sub”), ADK Merger Sub LLC, a Delaware limited liability company and wholly-owned subsidiary of New Pubco (“ADK Merger Sub”), ADK Service Provider Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of New Pubco (“ADK Service Provider Merger Sub”), ADK Blocker Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of New Pubco (“ADK Blocker Merger Sub”) (TBII Merger Sub, ADK Merger Sub, ADK Service Provider Merger Sub and ADK Blocker Merger Sub may be referred to herein, collectively, as the “Merger Subs”), Ay Dee Kay LLC, d/b/a indie Semiconductor, a California limited liability company (“Seller”), each of the corporate entities listed on Schedule 1to the Transaction Agreement holding membership units in Seller (each an “ADK Blocker” and collectively, the “ADK Blocker Group”), ADK Service Provider Holdco LLC, a Delaware limited liability company (“ADK Service Provider Holdco”), and, solely in his capacity as the Seller Securityholder Representative, Donald McClymont (the “Seller Securityholder Representative”);
WHEREAS, the Transaction Agreement provides, among other things, that the Company will domesticate from a Cayman Islands exempted company to a Delaware corporation (the “Domestication”) and immediately following the Domestication, TBII Merger Sub will merge with and into the Company with the Company continuing as the surviving entity and a subsidiary of New Pubco (the “Merger” and together with the Domestication and the other transactions contemplated by the Transaction Agreement, the “Transactions”), pursuant to which, among other things, (A) each Company share outstanding immediately prior to the Merger shall be automatically converted into the right to receive one share of validly issued, fully paid and non-assessable Class A common stock, par value $0.0001 per share, of New Pubco (“Class A Common Stock”), (B) all of the Private Placement Warrants owned by the Sponsor shall be automatically converted into a like number of warrants to purchase one share of Class A Common Stock, at the same contractual terms and conditions as were in effect immediately prior to the Domestication, and (C) each Public Warrant to purchase one Ordinary Share will automatically convert into a warrant to purchase one share of Class A Common Stock, on the same contractual terms and conditions as were in effect immediately prior to the Domestication, under the terms of the Existing Warrant Agreement as amended hereby;
WHEREAS, all of the Warrants are governed by the Existing Warrant Agreement;
WHEREAS, the board of directors of the Company has determined that the consummation of the transactions contemplated by the Transaction Agreement will constitute a Business Combination (as defined in Section 3.2 of the Existing Warrant Agreement);
1
WHEREAS, in connection with the Transactions, the Company desires to assign all of its right, title and interest in the Existing Warrant Agreement to New Pubco and New Pubco wishes to accept such assignment; and
WHEREAS, Sections 4.4 and 9.8 of the Existing Warrant Agreement provides that the Company and the Warrant Agent may amend the Existing Warrant Agreement without the consent of any Registered Holders for the purpose of providing for a replacement of the securities upon reorganization and of curing any ambiguity, or curing, correcting or supplementing any defective provision contained therein or adding or changing any other provisions with respect to matters or questions arising under the Existing Warrant Agreement as the Company and the Warrant Agent may deem necessary or desirable and that the Company and the Warrant Agent deem shall not adversely affect the interest of the Registered Holders.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, the parties hereto hereby agree as follows:
1. Assignment and Assumption; Consent.
1.1 Assignment and Assumption. The Company hereby assigns to New Pubco all of the Company’s right, title and interest in and to the Existing Warrant Agreement (as amended hereby) as of the Purchaser Merger Effective Time (as defined in the Transaction Agreement). New Pubco hereby assumes, and agrees to pay, perform, satisfy and discharge in full, as the same become due, all of the Company’s liabilities and obligations under the Existing Warrant Agreement (as amended hereby) arising from and after the Purchaser Merger Effective Time.
1.2 Consent. The Warrant Agent hereby consents to the assignment of the Existing Warrant Agreement by the Company to New Pubco pursuant to Section 1.1 hereof effective as of the Purchaser Merger Effective Time, and the assumption of the Existing Warrant Agreement by New Pubco from the Company pursuant to Section 1.1 hereof effective as of the Purchaser Merger Effective Time, and to the continuation of the Existing Warrant Agreement in full force and effect from and after the Purchaser Merger Effective Time, subject at all times to the Existing Warrant Agreement (as amended hereby) and to all of the provisions, covenants, agreements, terms and conditions of the Existing Warrant Agreement and this Agreement.
2. Amendment of Existing Warrant Agreement. The Company and the Warrant Agent hereby amend the Existing Warrant Agreement as provided in this Section 2, effective as of the Purchaser Merger Effective Time, and acknowledge and agree that the amendments to the Existing Warrant Agreement set forth in this Section 2 are necessary or desirable and that such amendments do not adversely affect the interests of the Registered Holders:
2.1 Preamble. The preamble on page one of the Existing Warrant Agreement is hereby amended by deleting “Thunder Bridge Acquisition II, Ltd., a Cayman Islands exempted company” and replacing it with “Thunder Bridge II Surviving Pubco, Inc., a Delaware corporation”. As a result thereof, all references to the “Company” in the Existing Warrant Agreement shall be references to Thunder Bridge II Surviving Pubco, Inc. rather than Thunder Bridge Acquisition II, Ltd.
2.2 Recitals. The recitals on pages one and two of the Existing Warrant Agreement are hereby deleted and replaced in their entirety as follows:
“WHEREAS, on August 8, 2019, Thunder Bridge Acquisition II, Ltd. (“Thunder Bridge II”) entered into that certain Private Placement Warrants Purchase Agreement (the “Warrant Purchase Agreement”) with Thunder Bridge Acquisition II LLC, a Delaware limited liability company (the “Sponsor”) pursuant to which the Sponsor agreed to purchase an aggregate of 8,650,000 warrants (including those received by Sponsor in connection with the full exercise by the underwriters of their right to purchase additional units in connection with Thunder Bridge II’s Offering (as defined below) (the “Over-allotment Option”) simultaneously with the closing of the Offering (and the closing of the Over-allotment Option) bearing the legend set forth in Exhibit B hereto (the “Private Placement Warrants”) at a purchase price of $1.00 per Private Placement Warrant; and
2
WHEREAS, on August 13, 2019, Thunder Bridge II consummated its initial public offering (the “Offering”) of 34,500,000 units of Thunder Bridge II’s equity securities (the “Units”), each such Unit consisting of one ordinary share of Thunder Bridge II, par value $0.0001 per share (“Ordinary Shares”), and one-half of one warrant (the “Public Warrants” and, together with the Private Placement Warrants, the “Thunder Bridge II Warrants”) and, in connection therewith, Thunder Bridge II issued and delivered 17,250,000 Public Warrants to public investors in the Offering. Each whole Public Warrant entitles the holder thereof to purchase one Ordinary Share at a price of $11.50 per share; and
WHEREAS, Thunder Bridge II has filed with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-1, File No. 333-232688 (the “Registration Statement”) and prospectus (the “Prospectus”), for the registration, under the Securities Act of 1933, as amended (the “Securities Act”), of the Units, the Public Warrants and the Ordinary Shares included in the Units; and
WHEREAS, the Company, Thunder Bridge II, TBII Merger Sub Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“TBII Merger Sub”), ADK Merger Sub LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“ADK Merger Sub”), ADK Service Provider Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“ADK Service Provider Merger Sub”), ADK Blocker Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“ADK Blocker Merger Sub”) (TBII Merger Sub, ADK Merger Sub, ADK Service Provider Merger Sub and ADK Blocker Merger Sub may be referred to herein, collectively, as the “Merger Subs”), Ay Dee Kay LLC, d/b/a indie Semiconductor, a California limited liability company (“Seller”), each of the corporate entities listed on Schedule 1 to the Transaction Agreement holding membership units in Seller (each an “ADK Blocker” and collectively, the “ADK Blocker Group”), ADK Service Provider Holdco LLC, a Delaware limited liability company (“ADK Service Provider Holdco”), and, solely in his capacity as the Seller Securityholder Representative, Donald McClymont (the “Seller Securityholder Representative”) are parties to that certain Transaction Agreement, dated as of December 14, 2020 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Transaction Agreement”); and
WHEREAS, the Transaction Agreement provides, among other things, (i) that Thunder Bridge II will domesticate from a Cayman Islands exempted company to a Delaware corporation (the “Domestication”) and immediately following the Domestication, TBII Merger Sub will merge with and into the Thunder Bridge II with Thunder Bridge II continuing as the surviving entity and a subsidiary of the Company (the “Merger” and together with the Domestication and the other transactions contemplated by the Transaction Agreement, the “Transactions”), pursuant to which, among other things, (A) each Thunder Bridge II share outstanding immediately prior to the Merger shall be automatically converted into the right to receive one share of validly issued, fully paid and non-assessable Class A common stock, par value $0.0001 per share, of the Company (“Class A Common Stock”), (B) all of the Private Placement Warrants owned by the Sponsor shall be automatically converted into a like number of warrants to purchase one share of Class A Common Stock, at the same contractual terms and conditions as were in effect immediately prior to the Domestication, and (C) each Public Warrant to purchase one Ordinary Share will automatically convert into a warrant to purchase one share of Class A Common Stock, on the same contractual terms and conditions as were in effect immediately prior to the Domestication, under the terms of the Existing Warrant Agreement as amended hereby; and
WHEREAS, on June 10, 2021, pursuant to the terms of the Transaction Agreement, Thunder Bridge II, the Company and the Warrant Agent entered into an Assignment, Assumption and Amendment Agreement (the “Warrant Assumption Agreement”), pursuant to which Thunder Bridge II assigned this Agreement to the Company and the Company assumed this Agreement from Thunder Bridge II; and
WHEREAS, pursuant to the Transaction Agreement, the Warrant Assumption Agreement and Section 4.4 of this Agreement, effective as of the Effective Time (as defined in the Transaction Agreement), each of the issued and outstanding Thunder Bridge II Warrants were automatically converted for warrants to purchase one share of Class A Common Stock (subject to the terms and conditions of this Agreement) (each a “Warrant” and collectively, the “Warrants”); and
3
WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to so act, in connection with the issuance, registration, transfer, conversion, exchange, redemption and exercise of the Warrants; and
WHEREAS, the Company desires to provide for the form and provisions of the Warrants, the terms upon which they shall be issued and exercised, and the respective rights, limitation of rights, and immunities of the Company, the Warrant Agent, and the holders of the Warrants; and
WHEREAS, all acts and things have been done and performed which are necessary to make the Warrants, when executed on behalf of the Company and countersigned by or on behalf of the Warrant Agent, as provided herein, the valid, binding and legal obligations of the Company, and to authorize the execution and delivery of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto agree as follows:”
2.3 Reference to Class A Common Stock. All references to “Ordinary Share” in Sections 2.5 through 8.6 of the Existing Warrant Agreement and all Exhibits to the Existing Warrant Agreement shall mean “Class A Common Stock” or “shares of Class A Common Stock” as the context requires.
2.4 Reference to Warrant. All references to “Public Warrant” in Sections 2.3 through 9.8 of the Existing Warrant Agreement and all Exhibits to the Existing Warrant Agreement shall mean “Warrant”.
2.5 Detachability of Warrants. Section 2.4 of the Existing Warrant Agreement is hereby deleted and replaced with the following:
“[INTENTIONALLY OMITTED]”
2.6 No Fractional Warrants Other Than as Part of Units. Section 2.5 of the Existing Warrant Agreement is hereby deleted and replaced with the following:
“No Fractional Warrants. The Company shall not issue fractional Warrants. If a holder of Warrants would be entitled to receive a fractional Warrant, the Company shall round down to the nearest whole number the number of Warrants to be issued to such holder.”
2.7 Transfer of Warrants. Section 5.6 of the Existing Warrant Agreement is hereby deleted and replaced with the following:
“[INTENTIONALLY OMITTED]”
2.8 Notices. Section 9.2 of the Existing Warrant Agreement is hereby amended in part to change the delivery of notices to the Company to the following:
indie Semiconductor
32 Journey
Aliso Viejo, California 92656
Attention: Tom Schiller, CFO
(949) 608 0854
[email protected]
With a required copy to (which shall not constitute notice):
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
Attention: Mitchell Nussbaum
Giovanni Caruso
(212) 407-4159
[email protected]
[email protected]
4
And
Nelson Mullins Riley & Scarborough
LLP
101 Constitution Ave NW, Suite 900
Washington, DC 20001
Attention: Jonathan Talcott
Peter Strand
(202) 689-2800
[email protected]
[email protected]
2.9 Currency. A new Section 9.10 is hereby inserted as follows:
“Currency. Unless otherwise specified in this Agreement, all references to currency, monetary values and dollars set forth herein shall mean U.S. dollars (USD) and all payments hereunder shall be made in U.S. dollars (USD).”
2.10 Exhibit A to the Existing Warrant Agreement is hereby amended by replacing “Ordinary Shares” with “Class A Common Stock” and inserting after “(the “Warrant Agreement”),” “as amended by that certain Assignment, Assumption and Amendment Agreement dated June 10, 2021”.
3. Miscellaneous Provisions.
3.1 Effectiveness of Warrant. Each of the parties hereto acknowledges and agrees that the effectiveness of this Agreement shall be expressly subject to the occurrence of the Transactions and shall automatically be terminated and shall be null and void if the Transaction Agreement shall be terminated for any reason.
3.2 Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns.
3.3 Severability. This Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable.
3.4 Applicable Law. The validity, interpretation and performance of this Agreement shall be governed in all respects by the laws of the State of New York, without giving effect to conflict of law principles that would result in the application of the substantive laws of another jurisdiction. The parties hereby agree that any action, proceeding or claim against a party arising out of or relating in any way to this Agreement shall 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 irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. Each of the parties hereby waives any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum.
3.5 Examination of the Warrant Agreement. A copy of this Agreement shall be available at all reasonable times at the office of the Warrant Agent in the Borough of Manhattan, City and State of New York, for inspection by the Registered Holder of any Warrant. The Warrant Agent may require any such holder to submit his Warrant for inspection by it.
5
3.6 Counterparts. This Agreement may be executed in any number of original or facsimile counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Signatures to this Agreement transmitted by electronic mail in PDF form, or by any other electronic means designed to preserve the original graphic and pictorial appearance of a document (including DocuSign), will be deemed to have the same effect as physical delivery of the paper document bearing the original signatures.
3.7 Effect of Headings. The section headings herein are for convenience only and are not part of this Agreement and shall not affect the interpretation thereof.
3.8 Reference to and Effect on Agreements; Entire Agreement.
3.8.1 Any references to “this Agreement” in the Existing Warrant Agreement will mean the Existing Warrant Agreement as amended by this Agreement. Except as specifically amended by this Agreement, the provisions of the Existing Warrant Agreement shall remain in full force and effect.
3.8.2 This Agreement and the Existing Warrant Agreement, as modified by this Agreement, constitutes the entire understanding of the parties and supersedes all prior agreements, understandings, arrangements, promises and commitments, whether written or oral, express or implied, relating to the subject matter hereof, and all such prior agreements, understandings, arrangements, promises and commitments are hereby canceled and terminated.
[Remainder of page intentionally left blank.]
6
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly executed as of the date first above written.
| THUNDER BRIDGE ACQUISITION II, LTD. | ||
| By: |
/s/ Gary Simanson | |
| Name: | Gary A. Simanson | |
| Title: | Chief Executive Officer | |
| THUNDER BRIDGE II SURVIVING PUBCO, INC. | ||
| By: |
/s/ Gary Simanson | |
| Name: | Gary A. Simanson | |
| Title: | Chief Executive Officer | |
| CONTINENTAL STOCK TRANSFER & TRUST COMPANY | ||
| By: |
/s/ Douglas Reed | |
| Name: | Douglas Reed | |
| Title: | Vice President | |
[Signature Page to Warrant Assignment, Assumption and Amendment Agreement]
7
Exhibit 10.1
EIGHTH AMENDED AND RESTATED
OPERATING AGREEMENT
OF
AY DEE KAY, LLC
A California Limited Liability Company
Dated as of June 10, 2021
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR REGISTERED NOR QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED AND REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, SUCH QUALIFICATION AND REGISTRATION IS NOT REQUIRED. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS AGREEMENT IS FURTHER SUBJECT TO OTHER RESTRICTIONS, TERMS AND CONDITIONS WHICH ARE SET FORTH HEREIN.
THE DELIVERY OF THIS AGREEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY OFFER, SOLICITATION OR SALE OF LIMITED LIABILITY COMPANY INTERESTS IN AY DEE KAY, LLC IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE IS NOT AUTHORIZED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OR SALE.
Table of Contents
| Page | ||
| ARTICLE I IN GENERAL | 2 | |
| Section 1.1 Name. | 2 | |
| Section 1.2 Formation of Limited Liability Company. | 2 | |
| Section 1.3 Agreement; Inconsistencies with Act. | 2 | |
| Section 1.4 Principal Place of Business. | 3 | |
| Section 1.5 Registered Office and Registered Agent. | 3 | |
| Section 1.6 Term. | 3 | |
| Section 1.7 Permitted Businesses. | 3 | |
| Section 1.8 Defined Terms. | 3 | |
| Section 1.9 Maintenance of Separate Existence | 3 | |
| Section 1.10 No State-Law Partnership. | 3 | |
| ARTICLE II MEMBERS; MEMBERSHIP INTERESTS; UNITS | 4 | |
| Section 2.1 Members of the Company. | 4 | |
| Section 2.2 Capital Contributions and Capital Accounts | 4 | |
| Section 2.3 Classes of Units. | 6 | |
| Section 2.4 Representations and Warranties. | 8 | |
| Section 2.5 Voting; Meetings of Members. | 9 | |
| Section 2.6 Members are Not Agents. | 12 | |
| Section 2.7 Members as Creditors. | 12 | |
| Section 2.8 No Right of Withdrawal or Resignation. | 12 | |
| Section 2.9 Limited Liability. | 12 | |
| ARTICLE III MANAGEMENT AND CONTROL OF BUSINESS | 13 | |
| Section 3.1 Management Vested in the Manager | 13 | |
| Section 3.2 Voting Rights. | 13 | |
| Section 3.3 Certain Powers of the Manager. | 13 | |
| Section 3.4 Limited Liability of the Manager. | 14 | |
| Section 3.5 Fiduciary Duties of the Manager. | 14 | |
| Section 3.6 Manager and Members Duties to Company. | 14 | |
| Section 3.7 Transactions between the Company and the Manager. | 14 | |
| Section 3.8 Bank Accounts. | 15 | |
| Section 3.9 Officers. | 15 | |
| ARTICLE IV TAXES, ALLOCATIONS AND DISTRIBUTIONS | 18 | |
| Section 4.1 Allocations and Tax Provisions. | 18 | |
| Section 4.2 Distributions. | 18 | |
| ARTICLE V ACCOUNTING AND RECORDS | 22 | |
| Section 5.1 Accounting and Records. | 22 | |
| Section 5.2 Access to Accounting and Other Records. | 22 | |
| Section 5.3 Annual and Tax Information; Financial Information. | 23 |
i
Table of Contents continued
| Page | ||
| ARTICLE VI INDEMNIFICATION | 23 | |
| Section 6.1 Indemnification. | 23 | |
| Section 6.2 Procedures; Survival. | 24 | |
| ARTICLE VII TRANSFERS OF UNITS; LIMITATIONS | 25 | |
| Section 7.1 Transfer or Assignment of Units. | 25 | |
| Section 7.2 Conditions to Transfer by Member. | 25 | |
| Section 7.3 Permitted Transfers. | 26 | |
| Section 7.4 Repurchase of Class B Units | 27 | |
| Section 7.5 Unauthorized Transfers Void. | 27 | |
| Section 7.6 Change of Control. | 27 | |
| ARTICLE VIII ADMISSION OF ADDITIONAL MEMBERS | 27 | |
| Section 8.1 Admission of Additional Members. | 27 | |
| Section 8.2 Procedure for Admission. | 28 | |
| ARTICLE IX TERMINATION, DISSOLUTION AND LIQUIDATION OF THE COMPANY | 28 | |
| Section 9.1 Events Causing Dissolution. | 28 | |
| Section 9.2 Liquidation and Winding Up. | 28 | |
| Section 9.3 Limitations on Payments Made in Dissolution. | 29 | |
| ARTICLE X MISCELLANEOUS | 29 | |
| Section 10.1 Complete Agreement. | 29 | |
| Section 10.2 Governing Law. | 29 | |
| Section 10.3 No Assignment; Binding Effect. | 29 | |
| Section 10.4 Severability. | 30 | |
| Section 10.5 No Partition. | 30 | |
| Section 10.6 Multiple Counterparts. | 30 | |
| Section 10.7 Additional Documents and Acts. | 30 | |
| Section 10.8 No Employment Rights. | 30 | |
| Section 10.9 Amendments. | 31 | |
| Section 10.10 No Waiver. | 31 | |
| Section 10.11 Representations and Warranties; Reliance. | 31 | |
| Section 10.12 Notices. | 31 | |
| Section 10.13 Dispute Resolution; Arbitration. | 32 | |
| Section 10.14 Specific Performance. | 33 | |
| Section 10.15 No Third Party Beneficiary. | 33 | |
| Section 10.16 Cumulative Remedies. | 33 | |
| Section 10.17 Exhibits. | 33 | |
| Section 10.18 Interpretation. | 33 | |
| Section 10.19 Survival. | 34 | |
| Section 10.20 Confidentiality. | 34 | |
| Section 10.21 No Recourse. | 34 |
ii
EIGHTH AMENDED AND RESTATED
OPERATING AGREEMENT
OF
AY DEE KAY, LLC
This EIGHTH Amended and Restated Operating Agreement (together with all Exhibits attached hereto, this “Agreement”) is made and entered into as of June 10, 2021 (the “Effective Date”) by the Members specified in Section 2.1.
WHEREAS, the Company was formed as a limited liability company pursuant to and in accordance with the Beverly-Killea Limited Liability Company Act, by the filing of Articles of Organization filed with the California Secretary of State on February 9, 2007, entity number 200704010265, and the execution of that certain Operating Agreement of Limited Liability Company (the “Original Agreement”), dated March 28, 2007;
WHEREAS, the then Members and the Company made and entered into that certain Amended and Restated Limited Liability Company Agreement (the “First Restated Agreement”), dated as of December 28, 2012, which amended and restated the Original Agreement in its entirety;
WHEREAS, the then Members and the Company made and entered into that certain Second Amended and Restated Limited Liability Company Agreement (the “Second Restated Agreement”), dated as of July 24, 2015, which amended and restated the First Restated Agreement in its entirety;
WHEREAS, the then Members and the Company made and entered into that certain Third Amended and Restated Limited Liability Company Agreement (the “Third Restated Agreement”), dated as of August 28, 2015, which amended and restated the Second Restated Agreement in its entirety;
WHEREAS, the then Members and the Company made and entered into that certain Fourth Amended and Restated Limited Liability Company Agreement (the “Fourth Restated Agreement”), dated as of July 12, 2017, which amended and restated the Third Restated Agreement in its entirety;
WHEREAS, the then Members and the Company made and entered into that certain Fifth Amended and Restated Limited Liability Company Agreement (the “Fifth Restated Agreement”), dated as of June 22, 2018, which amended and restated the Fourth Restated Agreement in its entirety;
WHEREAS, the then Members and the Company made and entered into that certain Sixth Amended and Restated Limited Liability Company Agreement (the “Sixth Restated Agreement”), dated as of April 6, 2020, which amended and restated the Fifth Restated Agreement in its entirety;
WHEREAS, the then Members and the Company made and entered into that certain Seventh Amended and Restated Limited Liability Company Agreement (the “Seventh Restated Agreement”), dated as of April 20, 2020, which amended and restated the Sixth Restated Agreement in its entirety;
WHEREAS, the Company is a party to that certain Master Transaction Agreement (the “Transaction Agreement”), by and among Thunder Bridge II Surviving Pubco, Inc., a Delaware corporation (“Surviving Pubco”), Thunder Bridge Acquisition II, Ltd., a Cayman Islands exempted company, the Merger Subs (as defined therein), each of the corporate entities listed on Schedule 1 to the Transaction Agreement, ADK Service Provider Holdco LLC, a Delaware limited liability company, and, solely in its capacity as the Company Securityholder Representative, Donald McClymont.
WHEREAS, the Board, the Preferred Members and a Majority Vote under the Seventh Restated Agreement adopted certain amendments to the Seventh Restated Agreement in accordance with Section 10.10 thereof.
WHEREAS, the Board, the Preferred Members and a Majority Vote under the Seventh Restated Agreement adopted this Agreement.
WHEREAS, pursuant to the transactions contemplated in the Transaction Agreement (the “Reorganization”), effective at the Effective Date, and as previously approved in accordance with Section 10.10 of the Seventh Restated Agreement, the Members and Manager, as a result of the Reorganization, desire to amend and restate in its entirety the Seventh Restated Agreement.
NOW, THEREFORE, in consideration of their mutual promises, covenants and agreements, the Company and Members agree as follows:
ARTICLE I
IN GENERAL
Section 1.1 Name.
The name of the Company is Ay Dee Kay, LLC (the “Company”).
Section 1.2 Formation of Limited Liability Company.
The Company was duly formed upon the filing of articles of organization of the Company (the “Articles of Organization”) with the Secretary of State of the State of California on February 9, 2007, in accordance with the Beverly-Killea Limited Liability Company Act.
Section 1.3 Agreement; Inconsistencies with Act.
(a) This Agreement constitutes the “operating agreement” of the Company within the meaning of California Revised Uniform Limited Liability Company Act, as amended from time to time (the “Act”). This Agreement amends, restates and replaces in its entirety the Seventh Restated Agreement.
(b) This Agreement will govern the rights, powers, duties, obligations and liabilities of the Members, except to the extent a provision of this Agreement is expressly prohibited or ineffective under the Act or under the Articles of Organization. If any provision of this Agreement is prohibited or ineffective under the Act or the Articles of Organization, this Agreement will be considered amended to the smallest degree possible in order to make such provision effective under the Act or Articles of Organization.
2
Section 1.4 Principal Place of Business.
The principal place of business of the Company within the State of California shall be 32 JOURNEY, SUITE 100, ALISO VIEJO, CA 92656. The Company may locate its place of business and registered office at any other place or places as the Manager of the Company may from time to time deem advisable.
Section 1.5 Registered Office and Registered Agent.
The Company’s registered office shall be at the office of its registered agent at 32 JOURNEY SUITE 100, ALISO VIEJO, CA 92656 and the name of its registered agent at such address shall be DONALD MCCLYMONT. The registered office and registered agent may be changed by the Manager from time to time by filing the address of the new registered office or the name of the new registered agent with the California Secretary of State pursuant to the Act.
Section 1.6 Term.
The existence of the Company (“Term”) shall continue until terminated, dissolved or liquidated in accordance with this Agreement and the Act.
Section 1.7 Permitted Businesses.
The business of the Company shall be to accomplish any lawful business or activity whatsoever, except the banking business, the business of issuing policies of insurance and assuming insurance risks or the trust company business.
Section 1.8 Defined Terms.
Capitalized terms used in this Agreement but not defined in this Agreement will have the meanings indicated on Exhibit A attached hereto and made a part hereof.
Section 1.9 Maintenance of Separate Existence
The Company shall do all things necessary to maintain its limited liability company existence separate and apart from each Member and any Affiliate of any Member, including holding regular meetings of the Members and maintaining its books and records on a current basis separate from that of any Affiliate of the Company or any other Person, and shall not commingle the Company’s assets with those of any Affiliate of the Company or any other Person.
Section 1.10 No State-Law Partnership.
The Members intend that the Company not be a partnership (including a limited partnership) or joint venture, and that no Member be a partner or joint venturer of any other Member by virtue of this Agreement, for any purposes other than as set forth in the last sentence of this Section 1.10, and neither this Agreement nor any other document entered into by the Company or any Member relating to the subject matter hereof shall be construed to suggest otherwise. The Members intend that the Company shall be treated as a partnership for federal and, if applicable, state or local income tax purposes, and that each Member and the Company shall file all tax returns and shall otherwise take all tax and financial reporting positions in a manner consistent with such treatment.
3
ARTICLE II
MEMBERS; MEMBERSHIP INTERESTS; UNITS
Section 2.1 Members of the Company.
Set forth on Exhibit B is a current list of (i) the full name of each Member, (ii) the Member’s Number of Class A Units, (iii) the Member’s Class B Units, (iv) the Member’s Redetermined Capital Account as of Date of this Agreement, and (v) the Member’s Percentage Interest. The current Percentage Interest held by each Member, as determined and recomputed by the Manager, shall be computed by the Manager and set forth in the books and records of the Company. In all events, the sum of all Percentage Interests shall total 100%. The Manager from time to time shall amend Exhibit B to show the current Percentage Interests held by the Members.
Section 2.2 Capital Contributions and Capital Accounts
(a) Acquisition of Units as of the Effective Date. The terms of the Agreement modify the rights, privileges and obligations of the existing Units held by the Members. Except as set forth in Exhibit B as in effect on the Effective Date, no Member has as of the Effective Date any Membership Interest in the Company.
(b) Class A Members. As of the date specified in Exhibit B, each Class A Member has the Capital Account set forth opposite such Members name on Exhibit B. As of the date specified in Exhibit B, each Class A Member has the number of Class A Units set forth opposite such Member’s name on Exhibit B.
(c) Class B Members. The parties hereto intend that Class B Units issued hereunder may be issued in exchange for services rendered to or on behalf of the Company by certain persons in anticipation of becoming Members. Except to the extent of any cash and property contributed, the Class B Units, when issued, are intended to qualify as “profits interests,” as that term is used in Revenue Procedure 93-27 and Revenue Procedure 2001-43. All Class B Members as of the Effective Date are listed in the books and records of the Company. Except as required by law, the Class B Members shall have no vote.
(d) Additional Capital Contributions. No Member shall be required to make any additional Capital Contributions.
(e) No Right to Return of Contribution; No Interest on Capital. Except as provided in this Agreement, no Member will have the right to withdraw or receive any return of, or interest on, any Capital Contribution or on any balance in such Member’s Capital Account. If the Company is required to return any Capital Contribution to a Member, the Member shall not have the right to receive any property other than cash.
4
(f) Profits Interests.
(i) The Company intends that each Class B Unit (such Class B Units, a “Profits Interest”), when issued, be treated as a separate “profits interest” within the meaning of Revenue Procedure 93-27, 1993-2 C.B. 343, or any future IRS guidance or other authority that supplements or supersedes the foregoing Revenue Procedure.
(ii) The Class B Units are Profits Interests. In accordance with Revenue Procedure 2001-43, 2001-2 CB 191, for federal income tax purposes, the Company shall treat a Member holding a Profits Interest as the owner of such Profits Interest from the date it is granted, and shall file its IRS form 1065, and issue appropriate Schedule K-1s to such Member, allocating to such Member its distributive share of all items of income, gain, loss, deduction and credit associated with any Profits Interest subject to vesting as if it were fully vested. Each Member agrees to take into account such distributive share in computing its federal income tax liability for the entire period during which it holds the Profits Interest. The Company and each Member agree not to claim a deduction (as wages, compensation or otherwise) for the Fair Market Value of such Profits Interest issued to a Member, either at the time of grant of the Profits Interest or at the time any unvested Profits Interest becomes substantially vested.
(iii) The Company is hereby authorized to make an election to value any Profits Interests at liquidation value (the “Safe Harbor Election”), as the same may be permitted pursuant to or in accordance with the finally promulgated successor rules to Proposed Regulations Section 1.83-3(l) and IRS Notice 2005-43 (collectively, the “Proposed Rules”). Upon making such an election, the Company shall make any allocations of items of income, gain, deduction, loss or credit (including forfeiture allocations and elections as to allocation periods) necessary or appropriate to effectuate and maintain the Safe Harbor Election.
(iv) Any such Safe Harbor Election shall be binding on the Company and on all of its Members with respect to all Transfers of Profits Interests made by the Company while a Safe Harbor Election is in effect. A Safe Harbor Election once made may be revoked by the Company as permitted by the finally promulgated successor to the Proposed Rules or any other applicable rule.
(v) Each Member (including any person to whom a Profits Interest is Transferred in connection with the performance of services), by signing this Agreement or by accepting such Transfer, hereby agrees to comply with all requirements of the Safe Harbor Election with respect to all Profits Interests Transferred while the Safe Harbor Election remains effective.
(vi) The Company, acting under the control of the Manager, shall file all returns, reports and other documentation as may be required to perfect and maintain any Safe Harbor Election with respect to Transfers of Profits Interests covered by such Safe Harbor Election.
5
(vii) Each Member agrees to cooperate with the Company to perfect and maintain any Safe Harbor Election that the Company elects to make, and to timely execute and deliver any documentation with respect thereto reasonably requested by the Company.
(viii) Without limitation of any other provision herein, no Transfer of any Profits Interest in the Company by a Member, to the extent permitted by this Agreement, shall be effective unless prior to such Transfer, the transferee, assignee or intended recipient of such Profits Interest shall have agreed in writing to be bound by the provisions of this Section 2.2(f).
(ix) On the forfeiture of an unvested Class B Unit, the forfeited Class B Unit shall be cancelled. The Manager shall recompute the Percentage Interests of the Members, so that the Percentage Interest associated with forfeited Class B Units is reallocated among the remaining outstanding Class A Units and Class B Units. The Manager shall reallocate this forfeited Percentage Interest among the remaining outstanding Class A Units and Class B Units pro rata in accordance with the ratio of the Percentage Interests held by each of these Members to all outstanding Percentage Interests in such a manner that the sum of all outstanding Percentage Interests shall total 100%. The current Percentage Interest held by each Member, as determined and recomputed by the Manager, shall be computed by the Manager and set forth in the books and records of the Company. The Manager from time to time shall amend Exhibit B to show the current Percentage Interests held by the Members. Any portion of the Percentage Interest allocated to a Class B Unit that is not currently vested at the time of reallocation shall become subject to the existing schedule and to potential forfeiture in the future for failure to vest.
(x) Nothing in this Section 2.2(f) shall be construed as imposing any liability on the Company for any Member’s taxes resulting from the receipt, ownership or vesting of Membership Interests issued in connection with the performance of services, and the Company shall under no circumstances be liable for any such taxes.
Section 2.3 Classes of Units.
The Company is authorized to issue two (2) classes of units in the Company which shall represent the Membership Interests of the Members in the Company and shall be designated “Class A Units” and “Class B Units.”
(a) Class A Units. Class A Units are Membership Interests in the Company. The Percentage Interest of each holder of Class A Units is set forth beside each Class A Member’s name in the column entitled “Percentage Interest” on Exhibit B.
(b) Class B Units. Class B Units are Membership Interests in the Company. Class B Units may be issued, with or without monetary consideration, only to those employees, consultants, advisors and independent contractors and in such amounts and subject to such vesting and other restrictions as determined by the Manager, acting in good faith. The Percentage Interest of each holder of Class B Units is set forth beside each Class B Member’s name in the column entitled “Percentage Interest” on Exhibit B.
6
(c) Earn Out Event. Upon the occurrence of an Earn Out Event, the Company shall cause the number of outstanding Units to be adjusted, as determined by the Company in good faith, such that, after the adjustment, (i) the number of Units held by the Surviving Pubco shall equal the number of Surviving Pubco shares issued and outstanding immediately after the Earn Out Event, and (ii) the number of Units held by the Legacy Members shall equal the sum of (A) the number of Units held by the Legacy Members immediately prior to the Earn Out Event plus (B) the number of share equivalents that would have been issued to the Legacy Members in the Earn Out if the Legacy Members had held Surviving Pubco shares at the time of the Earn Out Event. The Company will divide and, if necessary, issue additional Units and recalculate Percentage Interests on account of this recapitalization. The Members agree that Capital Accounts of Legacy Members prior to the Earn Out shall be treated as provisional and contingent Capital Accounts and that Capital Accounts shall be redetermined on each Earn Out Event so that the Capital Accounts of all Members are equal on a per Unit basis. The Members also agree, unless otherwise not permissible for Federal or state tax purposes, to treat such adjustment as a non-taxable adjustment. The Company shall amend Exhibit B on each Earn Out Event to be consistent with the readjustments made pursuant to this Section 2.3 (c).
(d) Issuance of Additional Pubco Shares. In the event that Surviving Pubco shall issue additional shares of Surviving Pubco stock other than upon an Earn Out Event, (i) the Company shall issue additional Class A Units to Surviving Pubco in such a number as to preserve the ratio existing between (A) the number of shares of issued and outstanding Surviving Pubco stock to (B) the number of Class A Units held by Surviving Pubco, and (ii) Surviving Pubco shall contribute to the Company any consideration, net of expenses of issuance, received by Surviving Pubco for the issuance of these shares. It is the intention of the Company and of Surviving Pubco that, at all times, Surviving Pubco shall hold a number of Class A Units equal to the number of issued and outstanding shares of Surviving Pubco stock. The Company shall issue additional Class A Units to Surviving Pubco or cancel outstanding Class A Units held by Surviving Pubco in such a manner that, at all times, Surviving Pubco shall hold a number of Class A Units equal to the number of issued and outstanding shares of Surviving Pubco stock.
(e) Changes in Pubco. The Company shall issue additional Units or cancel outstanding Units as necessary reasonably to reflect changes in the outstanding stock ownership of Surviving Pubco, including stock issuances, stock splits, reverse stock splits, stock dividends, reorganizations, combinations recapitalizations and similar transactions affecting the Surviving Pubco Class A Shares after the date of this Agreement. In all events, Surviving Pubco shall hold a number of Class A Units equal to the number of issued and outstanding stock of Surviving Pubco. Any net consideration received by Surviving Pubco in these transaction will be contributed by Surviving Pubco to the Company.
(f) The Company shall issue the number of Class A Units and Class B Units in connection with the Earn Out (as defined in the Master Transaction Agreement), as required by and pursuant to the terms and conditions set forth in the Master Transaction Agreement.
(g) The Units of each Legacy Member of the Company are as set forth in Exhibits D.
(h) The Units of each Member of the Company are as set forth in Exhibit B.
7
(i) The number of Units issued to any Member shall not be adjusted for any increase or decrease in the Capital Account of such Member at any time.
(j) Any Transfer of Units by a Member shall be deemed to be the Transfer of the Membership Interest of the Member represented and evidenced by such Units for all purposes; and no Transfer of the Membership Interest separate and apart from a Transfer of Units shall be required or permitted for any purpose.
(k) The Company may not reissue any Units that it acquires from any Member or other Person.
(l) The Company may issue fractional Units.
Section 2.4 Representations and Warranties.
Each Member hereby represents and warrants to the Company and each other Member that:
(a) If such Member is a Person who is not an individual, such Member is duly organized, validly existing, and in good standing under the law of its state of organization and has full organizational power to execute and deliver this Agreement and to perform its obligations hereunder.
(b) If such Member is a Person who is not an individual, such Member has full right, authority and power under its charter, by-laws or governing partnership agreement, as applicable, to enter into this Agreement. The execution, delivery and performance of this Agreement have been duly authorized by all necessary action under such Member’s charter, by-laws or governing partnership agreement, as applicable. The execution, delivery and performance by such Member of this Agreement does not (i) violate or result in a violation of, conflict with or constitute or result in a default (whether after the giving of notice, lapse or time or both) under, accelerate any obligation under, or give rise to a right of termination of, any material contract, permit, license or authorization to which such Member is a party or by which such Member or its assets is bound, or any provision of such Member’s organizational documents; (ii) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, any provision of any law, or any order of, or any restriction imposed by, any governmental entity applicable to such Member; or (iii) require from such Member any notice to, declaration or filing with, or consent or approval of, any governmental entity or other third party.
(c) Such Member is (i) an “accredited investor” as that term is defined in Rule 501(a) of Regulation D of the Securities Act of 1933, as amended (“Securities Act”) or (ii) qualifies for the exemption provided in Rule 701 of the Securities Act.
(d) Such Member, by reason of his or her or its business and financial experience has such knowledge, sophistication and experience in financial and business matters and in making investment decisions of this type that the Member is capable of (i) evaluating the merits and risks of an investment in the Company and the Units and making an informed investment decision, (ii) protecting his or her or its own interest and (iii) bearing the economic risk of such investment.
8
(e) Such Member has acquired or is acquiring its Units in the Company for such Member’s own account as an investment and without a view to the distribution thereof.
(f) Such Member understands that the Units have not been registered under the Securities Act or any state securities laws and are being issued by reason of a specific exemption from the registration provisions of the Securities Act and applicable state securities laws that depend upon, among other matters, the bona fide nature of the investment intent and the accuracy of the Member’s representations and warranties as expressed herein. Such Member further understands that except as otherwise provided herein, the Company shall have no obligation to register the Units under the Securities Act or any state securities laws or to take any action that would make available any exemption from the registration requirements of such laws. Such Member further understands and agrees that such Member will observe and comply with this Agreement and with all applicable securities laws at all times in connection with the Units, and that the Units may not be resold or transferred by such Member without appropriate registration or the availability of an exemption from applicable registration and then only upon compliance with the terms and conditions set forth in this Agreement.
(g) Such Member has had access to all information regarding the Company and its present and prospective business, assets, liabilities and financial condition that the Member reasonably considers important in making the decision to purchase the Units.
(h) Such Member has not been formed for the purpose of acquiring the Units.
(i) Each Member represents and warrants that neither (i) such Member, nor (ii) any entity that controls such Member, or is under the control of or under common control with, such Member, is subject to any of the “bad actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (each, a “Disqualification Event”), except for Disqualification Events covered by Rule 506(d)(2)(ii) or (iii) under the Securities Act and disclosed in writing in reasonable detail to the Company.
Section 2.5 Voting; Meetings of Members.
(a) Vote or Written Consent of the Members. Except as expressly provided in this Agreement or required by the Act, Members shall have no voting, approval or consent rights. Except as otherwise provided, each matter requiring the vote or written consent of the Members shall be authorized or approved by the vote or written consent of a majority vote of Units voting. Notwithstanding the foregoing, the Manager may from time to time elect to submit a matter approved by the Manager to the vote or approval of the Members even though the Manager is not obligated to submit such matter to the vote or approval of the Members.
(b) Meetings of Members.
(i) The Members shall meet at least annually.
(ii) The Manager shall be elected by a simple majority of votes cast at the annual meeting of the Members of the Company for a term ending on the end of the next annual meeting.
9
(iii) All meetings of the Members shall be held at such date, time, and place either within or without the State of California as may be designated by the Manager from time to time in the notice of the meeting.
(iv) An annual meeting shall be held for the election of the Manager, and any other proper business may be transacted thereat.
(v) The holders of a majority of the combined outstanding Class A Units issued and outstanding, and entitled to vote thereat, present in person, or represented by proxy, shall constitute a quorum at all meetings of the Members for the transaction of business except as otherwise provided by law. In the absence of a quorum, the Manager may, or the Members so present may, by majority vote, adjourn the meeting from time to time until a quorum shall attend.
(vi) Any meeting of Members, annual or special, may be adjourned by the Manager or by a majority vote of the Members present, whether or not a quorum, and reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Member of record entitled to vote at the meeting.
(vii) At any meeting of the Members, every Member having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such Member and bearing a date not more than three (3) years prior to said meeting, unless said instrument provides for a longer period. Each Member shall have one vote for each Class A Unit registered in his or her name on the books of the Company.
(viii) Written notice of the annual meeting which shall state the place, date, and hour of the meeting shall be mailed to each Member entitled to vote thereat at such address as appears in the records of the Company, or sent by electronic delivery at least ten (10) days prior to the meeting and not more than sixty (60) days prior to the meeting.
(ix) No business may be transacted at an annual meeting of Members, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Manager, (b) otherwise properly brought before the annual meeting by or at the direction of the Manager or (c) otherwise properly brought before the annual meeting by any Member (i) who is a Member of record on the date of the giving of the notice provided for in this Section and on the record date for the determination of Members entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section.
(x) In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a Member, such Member must have given timely notice thereof in proper written form to the Manager.
10
(xi) To be timely, a Member's notice to the Manager must be delivered to or mailed and received at the principal executive offices of the Company not less than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of Members; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the Member in order to be timely must be so received before the later (a) of the close of business on the twenty-first (21st) day following the day on which such notice of the date of the annual meeting was mailed or the day on which public disclosure of the date of the annual meeting was made, whichever first occurs and (b) the close of business on the day which is ninety (90) days prior to the date of the annual meeting.
(xii) To be in proper written form, a Member's notice to the Manager must set forth as to each matter such Member proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such Member, (iii) the class or series (if any) and number of Units of the Company which are owned beneficially or of record by such Member, (iv) a description of all arrangements or understandings between such Member and any other person or persons (including their names) in connection with the proposal of such business by such Member and any material interest of such Member in such business and (v) a representation that such Member intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.
(xiii) No business shall be conducted at the annual meeting of Members except business brought before the annual meeting in accordance with the procedures set forth in this Section, provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section shall be deemed to preclude discussion by any Member of any such business. If the Manager determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the Manager shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.
(xiv) A complete list of the Members entitled to vote at each meeting of Members, arranged in alphabetical order, with the record address of each, and the number of voting shares held by each, shall be prepared by the Manager and made available for examination by any Member either (i) on a reasonably accessible electronic network, provided that information required to gain access is provided with the notice of the meeting or (ii) during ordinary business hours at the Company’s principal place of business, at least ten (10) days before every meeting, and shall at all times during said meeting continue to be open to the examination of any Member.
(xv) Special meetings of the Members may be called for any purpose or purposes by the Manager, and shall be called by the Manager. Business transacted at all special meetings shall be confined to the objects stated in the notice of the meeting.
(xvi) Written notice of a special meeting of Members, stating the time and place and object thereof, shall be mailed postage prepaid, at least ten (10) days before such meeting, to each Member entitled to vote thereat at such address as appears on the books of the Company or sent by electronic delivery.
11
(xvii) The Manager shall appoint two persons as inspectors of election, to serve for one year or until their successors are chosen. The inspectors shall act at meetings of Members on elections of the Manager and on all other matters voted upon by ballot.
(xviii) If at the time of any meeting inspectors have not been appointed or if none, or only one, of the inspectors is present and willing to act, the shall appoint the required number of inspectors so that two inspectors shall be present and acting.
Section 2.6 Members are Not Agents.
Pursuant to Section 3.1, the management of the Company is vested in the Manager. No Member, acting solely in such capacity, is an agent of the Company, nor can any Member in such capacity bind nor execute any instrument on behalf of the Company. Any Member who takes any action or binds the Company in violation of this Section 2.6 shall be solely responsible for any loss and expense incurred by the Company as a result of the unauthorized action and shall indemnify and hold the Company harmless with respect to the loss or expense.
Section 2.7 Members as Creditors.
Subject to Section 3.7 and approval by the Manager, any Member may lend money to and transact other business with the Company as a creditor and, subject to applicable law, any Member has the same rights and obligations with respect thereto as a person who is not a Member. Loans by Members to the Company shall not be considered Capital Contributions. If any Member shall loan funds to the Company in excess of the amounts required hereunder to be contributed by such Member to the capital of the Company, the making of such loans shall not result in any increase in the amount of the Capital Account of such Member. The amount of any such loans shall be a debt of the Company to such Member and shall be payable or collectible in accordance with the terms and conditions upon which such loans are made.
Section 2.8 No Right of Withdrawal or Resignation.
No Member shall have the right to disassociate, withdraw or resign from the Company except as otherwise provided for in this Agreement. Notwithstanding any other provision of this Agreement, the disassociating, withdrawing or resigning Member shall not be entitled to any return or repayment of its Capital Contribution or other distribution or transfer in the event of disassociation, withdrawal or resignation. The foregoing provisions are exclusive and no Member shall be entitled to claim any distribution or transfer upon disassociation, withdrawal or resignation pursuant to the Act or otherwise.
Section 2.9 Limited Liability.
Except as expressly set forth in this Agreement or required by law, no Member will (a) be personally liable for any debt, obligation, or liability of the Company or other Members, whether that liability or obligation arises in contract, tort, or otherwise, solely by reason of being a Member of the Company, or (b) have any obligation to restore any deficit or negative balance that may exist from time to time in the Capital Account of such Member (including upon and after dissolution of the Company). Notwithstanding anything contained herein to the contrary, the failure of the Company to observe any formalities or requirements relating to the exercise of its powers or management of its business and affairs under this Agreement or the Act shall not be grounds for imposing personal liability on any of the Members for liabilities of the Company.
12
ARTICLE III
MANAGEMENT AND CONTROL OF BUSINESS
Section 3.1 Management Vested in the Manager
(a) Manager. Subject to the terms hereof, management of the Company shall be vested in the Manager (the “Manager”). The Manager of the Company shall have all the rights and powers that may be possessed by a manager under the Act. The Members intend that the provisions of Section 17704.07(c)(4) of the Act shall not apply to the Company or this Agreement. The Manager shall have full and complete authority, power and discretion to manage and control the business and affairs of the Company, to make all decisions regarding those matters and to perform any and all other acts customary or incident to the powers granted by law or under this Agreement.
(b) Initial Manager; Selection of Manager. The initial Manager shall be Surviving Pubco. The Manager shall serve as such until the next annual meeting of the Members, at which a new Manager will be elected or the then-current Manager will be re-elected.
Section 3.2 Voting Rights.
(a) Except as otherwise required by law or provided herein, each holder of Class A Units shall be entitled to one (1) vote per Class A Unit at the record date for determination of the Members entitled to vote, or, if no such record date is established, at the date such vote is taken or any written consent of the Members is solicited. Except as otherwise required by law or provided herein, each holder of Class B Units shall not be entitled to vote except as required by applicable law.
Section 3.3 Certain Powers of the Manager.
(a) Without limiting the generality of Section 3.1, the Manager shall have power and authority, on behalf of the Company:
(i) to appoint officers to run and manage the day-to-day operations of the Company and to remove such officers;
(ii) to borrow money for the Company from banks, other lending institutions, Members, or Affiliates of the Members on such terms as the Manager deems appropriate, and in connection therewith, to hypothecate, encumber and grant security interests in the assets of the Company to secure repayment of the borrowed sums. No debt shall be contracted or liability incurred by or on behalf of the Company except as approved by the Manager, or by agents or employees of the Company expressly authorized by the Manager to contract such debt or incur such liability; and
13
(iii) to employ accountants, legal counsel, managing agents or other experts to perform services for the Company and to compensate them from Company funds.
(b) The Manager shall have the power to recompute Percentage Interests in accordance with this Agreement and to amend this Agreement by making changes to Exhibit B to reflect changes in the Members of the Company, changes in Member information, and changes in Percentage Interests of the Members.
Section 3.4 Limited Liability of the Manager.
Except as expressly set forth in this Agreement or as required by law, no Manager will be personally liable for any debt, obligation or liability of the Company whether that liability or obligation arises in contract, tort, or otherwise, solely by reason of being the Manager of the Company.
Section 3.5 Fiduciary Duties of the Manager.
The Manager shall perform the duties as the Manager in good faith, consistent with the terms of this Agreement, in a manner the Manager reasonably believes to be in the best interests of the Company, and with such care as an ordinarily prudent person in a like position would use under similar circumstances. The Manager who so performs the duties as Manager shall not have any personal liability for any obligation of the Company by reason of being or having been the Manager of the Company. The Manager does not, in any manner, guarantee the return of the Members’ Capital Contributions or a profit for the Members from the operations of the Company. Subject to Section 17701.10(g) of the Act, the Manager shall not be liable to the Company or to any Member for any loss or damage sustained by the Company or any Member, unless the loss or damage shall have been the result of fraud, intentional misconduct, or a willful and knowing violation of law by such Manager.
Section 3.6 Manager and Members Duties to Company.
The Manager shall not be required to manage the Company as its sole and exclusive function and the Manager or Member may have other business interests and may engage in other activities in addition to those relating to the Company.
Section 3.7 Transactions between the Company and the Manager.
Notwithstanding that it may constitute a conflict of interest, the Manager may directly or indirectly engage in any transaction (including the purchase, sale, lease, or exchange of any property, or the lending of funds, or the rendering of any service, or the establishment of any salary, other compensation, or other terms of employment) with the Company; provided, however, that in each case (a) such transaction is not expressly prohibited by this Agreement, and (b) (i) the terms and conditions of such transaction on an overall basis are fair and reasonable to the Company, and (ii) the transaction has been approved by an affirmative Majority Vote.
14
Section 3.8 Bank Accounts.
The Manager shall maintain, and may from time to time open, bank accounts in the name of the Company at such depository institution or institutions as determined by the Manager, acting in good faith, and the Company shall maintain all of the funds of the Company in such bank account or accounts. The Manager or officers as authorized by the Manager shall be the sole signatories thereon, unless the Manager determines otherwise.
Section 3.9 Officers.
(a) Certain Powers of Officers. Without limiting the generality of the powers of the officers described below, the Manager hereby grant the officers the power and authority, on behalf of the Company (with the exercise of such power and authority to be subject to the management and direction of the Manager):
(i) To acquire property from any Person as the Manager may determine and approve. The fact that the Manager or a Member is directly or indirectly Affiliated or connected with any such Person shall not prohibit the Manager s from dealing with such Person;
(ii) To purchase liability and other insurance to protect the Company’s property and business and to protect the assets of the Members and the Manager;
(iii) To acquire, hold and dispose of any Company real or personal properties;
(iv) To execute on behalf of the Company all instruments and documents, including checks; drafts; notes and other negotiable instruments; mortgages or deeds of trust; security agreements; financing statements; documents providing for the acquisition, mortgage or disposition of the Company’s property; assignments; bills of sale; leases; contracts; partnership agreements, operating agreements of other limited liability companies; and any other instruments or documents necessary, in the opinion of the Manager, to conduct the business of the Company;
(v) To employ accountants, legal counsel, managing agents or other experts to perform services for the Company and to compensate them from Company funds, in a manner and in an amount consistent with the Company’s annual budget;
(vi) To enter into any and all other agreements on behalf of the Company, with any other Person for any purpose, in such forms as the Manager may approve; and
(vii) To do and perform all other acts as may be necessary or appropriate to the conduct of the Company’s business.
(b) The officers of the Company shall be chosen by the Manager and may consist of the Chairman, the President, the Chief Executive Officer, the Chief Operating Officer, the Secretary, and the Chief Financial Officer; and each of them shall be appointed by the Manager (subject to the proviso below in this Section 3.9 (b)). The Company may also have one or more Vice Presidents, one or more Assistant Secretaries and Assistant Chief Financial Officers, and such other officers as may be appointed by the Manager, or by the President or the Chief Executive Officer with authorization from the Manager. Any two or more offices may be held by the same person. All officers of the Company shall serve and may be removed at the pleasure of the Manager at any time, without waiver of any claim under any contract to which such officer may be a party.
15
(c) Compensation. The salary and other compensation of the officers shall be fixed from time to time by resolution of or in the manner determined by the Manager, acting in good faith.
(d) Duties and Powers of the Chairman. The Chairman shall be an officer of the Company and shall, if present, preside at meetings of the Manager, if any, and at meetings of the Members, if any, and exercise and perform such other powers and duties as may be from time to time assigned to the Chairman by the Manager or prescribed by this Agreement.
(e) Duties of the Chief Executive Officer. Subject to the supervisory powers of the Manager, the Chief Executive Officer, if there is one, shall be the chief executive officer of the Company, and the Chief Executive Officer shall supervise, coordinate and manage the business and activities of the Company. The Chief Executive Officer shall perform such other duties and have such other powers as the Manager shall designate from time to time and shall see that all orders and resolutions of the Manager are carried into effect. Subject to the foregoing, the Chief Executive Officer shall have general authority general powers and duties of management usually vested in the office of chief executive officer of a corporation. In the absence of a separate appointment of the Chief Executive Officer, the President shall have the powers and authorities of the Chief Executive Officer.
(f) Duties and Powers of the President. Subject to the supervisory powers of the Manager, the President, if there is one, shall be the chief executive officer of the Company, in the absence of a separate appointment of the Chief Executive Officer. The President also shall preside at all meetings of the Members. The President shall perform such other duties and have such other powers as the Manager shall designate from time to time and shall see that all orders and resolutions of the Manager are carried into effect. Subject to the foregoing, the President shall have the general powers and duties of management usually vested in the office of president of a corporation.
Without limiting the foregoing, the President shall (i) execute bonds, mortgages and other contracts requiring a seal, under the seal of the Company, except where required or permitted by law to be otherwise signed and executed, and except where the signing and execution thereof shall be expressly delegated by the Manager to some other officer or agent of the Company and (ii) be entitled to vote securities and other equity interests held by the Company.
(g) Duties and Powers of the Chief Operating Officer. Subject to the supervisory powers of the Chief Executive Officer, the Chief Operating Officer, if there is one, shall have supervision over the day-to-day operations and administration of the Company. The Chief Operating Officer shall perform such other duties and have such other powers as the Manager shall designate from time to time and shall see that all orders and resolutions of the Manager and all directions of the Chief Executive Officer are carried into effect. Subject to the foregoing, the Chief Operating Officer shall have the general powers and duties of management usually vested in the office of chief operating officer of a corporation.
16
(h) Duties and Powers of the Vice President(s). The Vice President, if there is one, or if there shall be more than one, the Vice Presidents in the order determined by a resolution of the Manager, shall perform such duties and have such powers as the Manager by resolution may from time to time prescribe.
(i) Duties and Powers of the Secretary. Subject to the supervisory powers of the Chief Executive Officer, and unless otherwise determined by the Manager, the Secretary shall attend all meetings of the Manager, if any, and all meetings of the Members, if any, and shall record all the proceedings of the meetings in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all validly called meetings of the Members and shall perform such other duties as may be prescribed by the Manager. The Secretary shall have custody of the seal, if any, and the Secretary shall have authority to affix the same to any instrument requiring it, and when so affixed, it may be attested by his or her signature. The Manager may give general authority to any other officer to affix the seal of the Company, if any, and to attest the affixing by his or her signature.
The Secretary shall keep, or cause to be kept, at the principal executive office of the Company, a register, or a duplicate register, showing the names of all Members and their addresses, and the number and classes of Units held by each Member. The Secretary shall also keep all documents as may be required under the Act. The Secretary shall perform such other duties and have such other authority as may be prescribed elsewhere in this Agreement or from time to time by the Manager. Subject to the foregoing, the Secretary shall have the general duties, powers and responsibilities of a secretary of a corporation.
If the Manager chooses to appoint an Assistant Secretary or Assistant Secretaries, the Assistant Secretaries, in the order of their seniority, in the absence, disability or inability to act as the Secretary, shall perform the duties and exercise the powers of the Secretary, and shall perform such other duties as the Manager may from time to time prescribe.
(j) Duties and Powers of the Chief Financial Officer. Subject to the supervisory powers of the Chief Executive Officer, the Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Company, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, and capital. The books of account shall at all reasonable times be open to inspection by the Manager.
The Chief Financial Officer shall have the custody of the funds and securities of the Company, and shall keep or cause to be kept full and accurate accounts of receipts and disbursements in books belonging to the Company, and shall deposit all moneys and other valuable effects in the name and to the credit of the Company in such depositories as may be designated by the Manager.
The Chief Financial Officer shall disburse the funds of the Company as may be ordered by the Manager or the Chief Executive Officer, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer and the Manager, when so requested by the Manager or the Chief Executive Officer, an account of all his or her transactions as Chief Financial Officer and of the financial condition of the Company.
17
The Chief Financial Officer shall perform such other duties and shall have such other responsibility and authority as may be prescribed elsewhere in this Agreement or from time to time by the Manager. In lieu of a separate appointment by the Manager, the Chief Financial Officer shall also be the Treasurer of the Company. Subject to the foregoing, the Chief Financial Officer shall have the general duties, powers and responsibilities of a chief financial officer of a corporation and shall be the chief financial and accounting officer of the Company.
If the Manager chooses to appoint an Assistant Chief Financial Officer or Assistant Chief Financial Officers, the Assistant Chief Financial Officers in the order of their seniority shall, in the absence, disability or inability to act of the Chief Financial Officer, perform the duties and exercise the powers of the Chief Financial Officer, and shall perform such other duties as the Manager shall from time to time prescribe.
(k) Signing Authority of Officers. Subject to any restrictions imposed by the Manager and unless the Manager specifically provides otherwise, the President, Chief Executive Officer or Chief Financial Officer, acting alone or any two officers acting together, are authorized to (i) endorse checks, drafts and other evidences of indebtedness made payable to the order of the Company, but only for the purpose of deposit into the Company’s accounts, and (ii) sign on behalf of the Company, all checks, drafts, and other instruments obligating the Company to pay money and all contracts, obligations and other documents.
ARTICLE IV
TAXES, ALLOCATIONS AND DISTRIBUTIONS
Section 4.1 Allocations and Tax Provisions.
The allocations of income, gains, losses and deductions, certain tax matters and related items shall be as set forth in Exhibit C attached hereto and made a part hereof.
Section 4.2 Distributions.
(a) Distributions. Distributions of cash or other assets of the Company other than Tax Distributions, if any, shall be made to the Members in such amounts and at such times as the Manager may determine from time to time in its sole judgment and discretion in the priorities specified in this Section 4.2(a). All Distributions shall be made:
(i) first, as Tax Distributions as provided under Section 4.2(b), and (ii) second, in accordance with Percentage Interests.
(ii) second, in accordance with Percentage Interests.
18
(b) Tax Distributions.
(i) To the extent that the Company has funds legally available that are not otherwise required by the Company in the operations or business of the Company or in reserves of the Company, as determined by the Manager acting in good faith, prior to making Distributions under Section 4.2(a)(i), the Company will distribute to each Member, prior to March 15 of each year, a tax distribution amount (“Tax Distributions”) as determined in Section 4.2 (b) below. All Tax Distributions will be made to the Members in accordance with their Percentage Interests.
(ii) The Tax Distribution to each Member equals the product of (A) the Member’s Percentage Interest and (B) an amount that, when added to all other Distributions made in the aggregate to all Members (or their predecessors in interest) with respect to the previous Fiscal Year, equals the estimated federal and state income tax liabilities applicable in the aggregate to such Members (or their predecessors in interest) (“Tax Distributions”) for the immediately preceding Fiscal Year as the result of its, his or her ownership of the Units. For this purpose, any increases in a Member’s share of income of the Partnership shall be disregarded to the extent that the income is specially allocated to the Member pursuant to Code Section 704(c). This computation of the Tax Distribution also will disregard any adjustments to tax basis resulting from adjustments under Code Section 743. Items adjusted in an audit of the Company shall be considered in computing the Tax Distribution.
(iii) The Tax Distribution for each Member shall be determined by the Manager, acting in good faith.
(iv) In computing the Tax Distribution, the Manager will conclusively assume that each Member is a domestic C corporation domiciled in the State of California and that all of the Member’s distributive share from the Company is California source. This computation shall conclusively assume that all of the Member’s distributive share from the Company is taxable in the federal and state tax brackets appropriate for the highest amounts of taxable income.
(v) The Manager shall consider any federal deduction for state taxes, to the extent available.
(vi) The Manager shall consider as reductions to taxable income for such previous Fiscal Year the cumulative excess of items of expense, deduction and loss over items of income and gain allocated to such Member (and predecessor owners of the Member’s Units) by the Company from prior periods, to the extent the Manager determines that this reduction is reasonable.
(vii) The Manager shall consider the various components of the Member’s distributive share from the Company as taxable at appropriate tax rates depending on character of income.
(viii) The Manager shall consider any effective tax rates that apply to capital gains, collectables, or other special rates of tax that depend on character of income.
19
(ix) The Manager additionally shall consider any minimum taxes, alternative minimum taxes, taxes on investment income, tax surcharges, special income taxes on high income taxpayers, special taxes imposed on income of a special character, and other similar taxes.
(x) The Manager shall apply tax rates and tax law applicable to the immediately previous Fiscal Year.
(xi) The Manager shall not consider Code Section 1061.
(xii) The Manager shall not consider any special tax characteristics personal to the Member such as net operating losses, carryover or capital losses, etc.
(xiii) Notwithstanding any of the foregoing, no Tax Distributions shall be made in violation of the Act.
(xiv) The Company will make Tax Distributions only to the extent that the Company has funds available for the Tax Distributions after considering the needs of the business of the Company for current operations and for reasonable reserves and any applicable restrictions on Distributions under law or under contract.
(xv) No Tax Distributions shall be made following the occurrence of an event resulting in a liquidation of the Company, or sale of all or substantially all of the assets of or Membership Interests in, the Company or in connection with a Liquidity Event in connection with the final liquidation of the Company.
(xvi) Each Member waives any action against the Company, against the Manager, and any member of the Manager disputing the calculation of the Tax Distribution or the decision to pay the Tax Distribution.
(xvii) The Tax Distribution shall be considered an advance or draw against other Distributions to the Members from the Company.
(c) The Company shall withhold taxes from Distributions to, and allocations among, the Members to the extent required by law. All amounts withheld hereunder shall be deemed to have been actually distributed to such Member for purposes hereof.
(i) The Company will withhold from Distributions (or on account of allocations to a Member or Assignee) those amounts required to be withheld under the Code, the laws of any state, or any other provision of law.
(ii) The Company will treat any withheld amounts as having been distributed to that Member or Assignee (with respect to whom the withholding was undertaken) under this Agreement.
(iii) The Company will remit any sums withheld under this provision to (and file the required forms with) the appropriate governmental agency.
20
(iv) A Member or Assignee will be limited to an action against the appropriate governmental agency for refund if the Member or Assignee makes any claim of over-withholding. This action is the Member or Assignee’s exclusive remedy on account of any claimed over-withholding.
(v) Each Member or Assignee waives any claim or right of action against the Company or anyone acting on behalf of the Company on account of withholding.
(vi) The Member or Assignee will contribute any excess to the Company (within ten (10) business days after notice from the Company) if the amounts required to be withheld exceed the amounts that otherwise would have been distributed to a Member or Assignee. This Section 4.2(c)(vi) applies regardless of whether the Member or Assignee disputes the withheld amounts.
(vii) The Company will consider any excess amounts determined under Section 4.2(c)(vi) that the Member or Assignee has failed to contribute to the Company, as a demand loan from the Company to that Member or Assignee.
(viii) This demand loan will bear interest at a rate equal to the lesser of (i) ten percent (10%) or (ii) the highest rate permitted by law, if lower.
(ix) The Company will compute interest on the basis of a computational year of 360 days comprised of 30-day months, using the “30/360 US” day count convention.
(x) The Company will compound interest annually on the anniversary of the loan.
(xi) The Member or Assignee who is treated as the borrower of this demand loan will repay this demand loan in full within ten (10) business days after demand by the Company.
(d) Other Rules.
(i) Provided such Distributions are made in accordance with applicable law, neither the Company nor the Manager will incur any liability for making Distributions in accordance with this Section 4.2.
(ii) In the event Units of a Member are permissibly Transferred during any Fiscal Year in full compliance with Article VII, (A) all Distributions on or before the date of such transfer shall be made to the transferring Member of record, and (B) all Distributions thereafter shall be made to the assignee of record; provided, however, that neither the Company nor the Manager or Member shall incur any liability for making Distributions in accordance with the foregoing, whether or not such Person has knowledge of any transfer or purported transfer of ownership of any Units.
(iii) No Distribution of assets shall be made to the Members if, after giving effect to the Distribution, the Company would not be able to pay its debts as they become due in the usual course of business. Each Member acknowledges that if such Member receives any Distribution from the Company in violation of the Act, the Member may be liable to the Company or its successors for the return of such Distributions.
21
ARTICLE V
ACCOUNTING AND RECORDS
Section 5.1 Accounting and Records.
The books and records of the Company shall be kept, and the financial position and the results of its operations recorded, in accordance with the accounting methods elected to be followed by the Company for federal income tax purposes or Generally Accepted Accounting Principles, as appropriate. The books and records of the Company shall reflect all Company transactions and shall be appropriate and adequate for the Company’s business in accordance with the Act. All books and records of the Company shall be maintained at the Company’s principal executive offices.
Section 5.2 Access to Accounting and Other Records.
(a) Subject to such reasonable standards and conditions as imposed by the Manager, including but not limited to the entering into of a nondisclosure or similar agreement as deemed appropriate by the Company, upon request of any Member for purposes reasonably related to the interest of that Person as a Member, the Company shall promptly deliver or cause to be delivered to the requesting Member, at the expense of the Company, a copy of (i) a current list of the full name and last known address of each Member and the Capital Contributions and Units held of record by each Member; and (ii) the Company’s federal, state and local income tax returns and reports, if any, for each of its Fiscal Years.
(b) Subject to such reasonable standards and conditions as imposed by the Manager, including the entering into of a nondisclosure or similar agreement as deemed appropriate by the Company, each Member also has the right, upon reasonable request for purposes reasonably related to the interest of the Person as a Member, to inspect and copy during normal business hours (i) any of the Company records described in the foregoing Section 5.2(a); (ii) the Articles of Organization of the Company, any amendments thereto, and executed copies of any powers of attorney granted for the purpose of executing the such Articles or amendments; (iii) this Agreement and any amendments to this Agreement; (iv) financial statements of the Company, if any, for the five (5) most recent Fiscal Years; and (v) the written minutes of any meeting of the Members and any written consents of the Manager or the Members for actions taken without a meeting.
(c) The Company also shall promptly furnish to a Member a copy of any amendment to the Articles of Organization or this Agreement executed pursuant to a power of attorney from such Member.
(d) Any request by a Member for documents or request to inspect or copy documents under this Section 5.2 (i) may be made by that Member or that Member’s agent or attorney; and (ii) shall be made in writing and shall state the purpose of such demand.
22
(e) Notwithstanding any contrary provision of this Agreement, the Manager or officers of the Company designated by the Manager shall have the right to keep confidential from the Members, for such period of time as the Manager deems reasonable, any information which the Manager reasonably believes to be in the nature of trade secrets or other information the disclosure of which the Manager in good faith believes is not in the best interest of the Company or could damage the Company or its business or which the Company is required by law or by agreement with a third party to keep confidential.
(f) No Person who is not the Manager or Member shall have any information or inspection rights.
Section 5.3 Annual and Tax Information; Financial Information.
(a) The Company shall deliver to each Member (i) within 90 days after the end of each Fiscal Year all information necessary for the preparation of such Member’s federal and state income tax or information returns, (ii) within 90 days after the end of each Fiscal Year an Annual Report containing a balance sheet as of the Fiscal Year end and an income statement and statement of changes in financial position for such year and (iii) within 30 days after the end of each Fiscal Quarter all information necessary for the preparation of such Member’s federal and state estimated income tax payments and (iv) for so long as the Company has 35 or fewer Members, a copy of the Company’s federal, state and local income tax or information returns within 90 days after the end of each Fiscal Year. Such Annual Report need not be audited by an independent public accounting firm at the discretion of the Manager.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification.
(a) To the fullest extent permitted by the Act and other applicable law, the Company will indemnify, hold harmless and defend the Manager and officers of the Company, the Partnership Representative, the Designated Individual, the Tax Matters Partner, and each equityholder, officer, employee, or agent of the Manager or officer of the Company (each, an “Indemnitee”) from and against any and all losses, claims, damages, liabilities, whether joint or several, expenses (including legal fees and expenses), judgments, fines and other amounts paid in settlement (collectively, “Indemnified Losses”), incurred or suffered by such Indemnitee, as a party or otherwise, in connection with any threatened, pending or completed claim, demand, action, suit or proceeding, whether civil, criminal, administrative or investigative, and whether formal or informal, arising out of or in connection with the business or the operation of the Company, or by reason of the Indemnitee’s status as the Manager or officer of the Company or any of its subsidiaries, regardless of whether the Indemnitee retains such status at the time any such Indemnified Loss is paid or incurred, unless the Indemnified Losses were the result of fraud, intentional misconduct, or a willful and knowing violation of law by such Indemnitee.
(b) Subject to Section 17701.10(g) of the Act, (i) no Indemnitee shall be liable to the Company or to any Member for any loss or damage sustained by the Company or any Member, unless the loss or damage shall have been the result of fraud, intentional misconduct, or a willful and knowing violation of law by such Indemnitee and (ii) no Indemnitee shall be liable to the Company or to any Member for any actions taken in good faith in a manner such Indemnitee reasonably believes to be in the best interests of the Company. An Indemnitee shall be deemed to have acted in good faith and without negligence with regard to any action or inaction that is taken in accordance with the advice or opinion of an attorney, accountant or other expert advisor so long as such advisor was selected with reasonable care and the Indemnitee made a good faith effort to inform such advisor of all the facts pertinent to such advice or opinion. An Indemnitee’s reliance upon the truth and accuracy of any written statement, representation or warranty of a Member shall be deemed to have been reasonable and in good faith absent such Indemnitee’s actual knowledge that such statement, representation or warranty was not, in fact, true and accurate.
23
(c) To the fullest extent permitted by law, expenses incurred by an Indemnitee in defending any claim, demand, action, suit or proceeding subject to this Section 6.1 will, from time to time, be advanced by the Company prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Company of an undertaking by or on behalf of the Indemnitee to repay such amount unless it is determined that such Indemnitee is entitled to be indemnified therefor pursuant to this Section 6.1.
(d) The indemnification provided by this Section 6.1 will be in addition to any other rights to which any Indemnitee may be entitled under this Agreement, any other agreement, as a matter of law or otherwise, and will inure to the benefit of the heirs, legal representatives, successors, assigns and administrators of the Indemnitee.
Section 6.2 Procedures; Survival.
(a) If an Indemnitee wishes to make a claim under Section 6.1, the Indemnitee should notify the Company in writing within five (5) days after receiving notice of the commencement of any action that may result in a right to be indemnified under Section 6.1; provided, however, that the failure to notify the Company will not relieve the Company of any liability for indemnification pursuant to Section 6.1 (except to the extent that the failure to give notice has prejudiced the Company).
(b) An Indemnitee will have the right to employ separate legal counsel in any action pursuant to Section 6.1 and to participate in the defense of the action. The fees and expenses of such legal counsel will be at the expense of the Indemnitee unless (i) the Company has agreed in writing to pay such fees and expenses, (ii) the Company has failed to assume the defense of the action without reservation and employ counsel within a reasonable period of time after being given the notice required above, or (iii) the named parties to any such action (including any impleaded parties) include both the Indemnitee and the Company and the Indemnitee has been advised by its legal counsel that representation of the Indemnitee and the Company by the same counsel would be inappropriate under applicable standards of professional conduct because of actual or potential differing interests between them. It is understood, however, that the Company will, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of only one separate firm of attorneys at any time for all such Indemnitees having actual or potential differing interests with the Company.
24
(c) The Company will not be liable for any settlement of any action agreed to without the Company’s written consent, such consent not to be unreasonably withheld.
(d) The indemnification obligations set forth in this Article VI will survive the termination of this Agreement.
ARTICLE VII
TRANSFERS OF UNITS; LIMITATIONS
Section 7.1 Transfer or Assignment of Units.
No Member shall be entitled to assign, convey, sell, encumber or in any manner alienate or otherwise Transfer all or part of such Member’s Units in the Company or any other rights or obligations or interests of such Member as a Member except with the express written consent of the Manager and in strict compliance with each and all of the other Sections of this Article VII.
Section 7.2 Conditions to Transfer by Member.
Without limiting any other provisions or restrictions or conditions of this Article VII and in addition thereto, a Transfer of Units or any other rights or obligations or interests of a Member proposed to be effected in accordance with this Article VII may not be effected unless each and all of the following requirements and conditions precedent are satisfied:
(a) Units Only. Members may Transfer entire Units only. No rights or obligations or interests of a Member of any kind shall be severable from the Units at any time or under any circumstances. Members therefore shall have no right to and shall not Transfer or purport to Transfer any rights or obligations or interests as a Member separate from the Units.
(b) Required Documents. The following are delivered to the Company:
(i) Notice of Intent to Transfer. At a reasonable time prior to the consummation of the Transfer, written notice by the Member of the intent to make a Transfer of Units, together with a detailed statement of the circumstances surrounding the proposed Transfer which is sufficient to enable the Company and the Manager to determine whether such Transfer is permissible hereunder, and what opinions of counsel, certificates or documents, if any, may be needed to complete such Transfer in compliance with Section 7.2(c);
(ii) Agreement to be Bound. An instrument pursuant to which the proposed assignee agrees to all of the terms and conditions of, and to be bound by, this Agreement, and to assume all of the obligations with respect to the Units proposed to be transferred of the transferring Member and to be subject to all the restrictions and obligations to which the transferring Member is subject under the terms of this Agreement; and
(iii) Additional Documents. Such additional instruments, documents and certificates as shall be requested by the Company (including opinions of counsel to any transferor satisfactory to the Company with respect to any of the matters set forth in Section 7.2(c)).
25
(c) Restrictions. Such Transfer would not:
(i) Securities Laws. Result in the violation of the Securities Act of 1933, as amended, or any regulation issued pursuant thereto, or any state securities laws or regulations, or any other applicable federal or state laws or order of any court having jurisdiction over the Company;
(ii) Events of Default. Be a violation of or an event of default under, or give rise to a right to accelerate any indebtedness described in, any note, mortgage, loan agreement or similar instrument or document to which the Company is a party unless such violation or event of default shall be waived by the parties thereto;
(iii) Not Legally Competent. Be a Transfer to an individual who is not legally competent or who has not achieved his or her majority under the laws of the State of California (excluding trusts for the benefit of minors as otherwise permitted in Section 7.3);
(iv) Tax Status of Company. Cause a material risk, in the opinion of independent reputable tax counsel (whose fees and disbursements shall be paid by the assignee), which counsel has been reasonably approved by the Manager of the Company, that the classification of the Company as a partnership for purposes of the Code could be adversely affected;
(v) Restriction on Number of Partners.. Notwithstanding anything in this Agreement to the contrary, no Disposition of a Member's Membership Interest or any portion thereof shall cause the Company to have more than 95 partners at any time during the taxable year of the Company. Any Disposition that would cause the Company to have more than 95 partners at any time will be void ab initial and of no force or effect whatsoever, nor shall this Disposition cause the transferee to have any interest in the Company, whether legal or equitable. This Section 7.2 (c)(v) is intended to permit the Company to qualify under the private placement safe harbor of Treasury Regulations Section 1.7704-1 and shall be interpreted in accordance with this safe harbor.
(d) Costs. If requested by the Manager, the transferring Member or assignee shall pay to the Company any and all costs incurred and to be incurred by the Company in connection with or as a result of such Transfer, to the extent such costs would not have been incurred by the Company if such Transfer had not been proposed or made.
Section 7.3 Permitted Transfers.
Notwithstanding the limitations in Section 7.1, subject to full compliance with and subject to the limitations contained in Section 7.2, including to the requirement for an agreement to be bound, and, subject to the provisions of any other agreement between the Member and the Company:
(a) A Member shall be permitted to Transfer all or any part of its or his or her Units without further consent hereunder only to (i) to any Affiliate of such Member; (ii) to the spouse of said Member; (iii) to any revocable trust established solely for the benefit of such Member or his or her parents, spouse or issue; or (iv) upon the death of such Member, to his or her estate or issue or devisees (each a “Permitted Assignee” and each Transfer permitted under this Section 7.3(a), a “Permitted Transfer”).
26
(b) A Member shall be permitted to Transfer Units in accordance with such Member’s Exchange Agreement.
(c) If the consideration to be paid for the Units is in whole or in part in property, services or other non-cash consideration, the Fair Market Value of such consideration shall be determined in good faith by the Manager. If the Company or any Member cannot for any reason pay for the Units in the same form of non-cash consideration, the Company or such Member may instead pay the Fair Market Value (as determined pursuant to the preceding sentence) therefor.
Section 7.4 Repurchase of Class B Units
The terms governing the repurchase of Class B Units (for example, in the event of termination of employment), shall be contained in each agreement by which such Class B Member receives their Class B Units.
Section 7.5 Unauthorized Transfers Void.
Any Transfer or purported Transfer in violation of the provisions of this Article VII shall be null and void ab initio and shall constitute a material breach of this Agreement. In the event of any Transfer or purported Transfer of any Units in violation of this Agreement, without limiting any other rights or remedies of the Company or the other Members, the assignee or purported assignee shall have no right to participate in the management of the business and affairs of the Company or to become a Member, or to receive any Distributions of any kind or to receive any part of the share of profits or other compensation by way of income and the return of contributions, or any allocation of income, gain, loss, deduction, credit or other items to which the owner of such Units would otherwise be entitled.
Section 7.6 Change of Control.
In connection with a Change of Control (as defined in the Exchange Agreement), the provisions of Section 2.4(a) of the Exchange Agreement shall apply and the provisions of Section 2.4(a) of the Exchange Agreement are incorporated in this Agreement as if they were expressly set forth in this Agreement.
ARTICLE VIII
ADMISSION OF ADDITIONAL MEMBERS
Section 8.1 Admission of Additional Members.
Upon approval by the Manager, the Company may (a) admit, from time to time, Additional Members; (b) determine the Capital Contributions required from Additional Members; and (c) issue such Units representing the Membership Interests of such Additional Members on such terms and conditions as the Manager deems necessary or advisable.
27
Section 8.2 Procedure for Admission.
No Person will be admitted as an Additional Member until such Person (i) executes and acknowledges such instruments, in form and substance satisfactory to the Manager, as the Manager deems necessary or advisable to effect such admission and to confirm the agreement of the Person being admitted to be bound by the terms and provisions of this Agreement; and (ii) makes such Capital Contribution as determined by the Manager. The Company shall reflect the admission of such Additional Member in the records of the Company as soon as possible after satisfaction of the conditions set forth in this Agreement. Exhibit B shall be deemed to be amended to reflect the admission of the Additional Member upon such admission; and each of the Members then of record hereby consents to such amendment to the extent required by law or this Agreement.
ARTICLE IX
TERMINATION, DISSOLUTION AND
LIQUIDATION OF THE COMPANY
Section 9.1 Events Causing Dissolution.
The Company will be dissolved only upon the occurrence of any of the following events (each, a “Dissolution Event”):
(a) Permanent cessation of the Company’s business;
(b) (i) The consent of the Manager and (ii) the affirmative Majority Vote; or
(c) The final decree of a court of competent jurisdiction that such dissolution is required under applicable law.
Section 9.2 Liquidation and Winding Up.
Upon the occurrence of a Dissolution Event, the Company will be liquidated and the Manager who has not wrongfully dissolved the Company will wind up the affairs of the Company provided, (i) if there is no such Manager, the Members will wind up the affairs of the Company, and (ii) if there is a Person designated by a decree of court to wind up the affairs, then notwithstanding any other provision of this Section 9.2, such Person will wind up the affairs of the Company. In such case, the Manager (or such Members or such other Person designated by a decree of court) shall have the authority, in its sole and absolute discretion, to sell the Company’s assets and properties or distribute them in kind. The Manager or other Person winding up the affairs of the Company will promptly proceed to the liquidation of the Company. In a Dissolution Event, the assets and property of the Company will be distributed in the following order of priority:
(a) To the payment of all debts and liabilities of the Company in the order of priority as provided by law (other than outstanding loans from a Member the Manager);
(b) To the establishment of any reserves deemed necessary by the Manager, or the Person winding up the affairs of the Company, for any contingent liabilities or obligations of the Company (including those of the Person serving as the liquidator), which reserves when they become unnecessary shall be distributed in accordance with the provisions of Section 9.2(d);
28
(c) To the repayment of any outstanding loans from a Member or the Manager to the Company; and
(d) The balance, if any, to the Members in accordance with Sections 4.2(a)(ii).
Upon liquidation of the Company, no Member shall be required to contribute any amount to the Company solely because of a deficit or negative balance in the Capital Account of such Member. Any deficit or negative balance shall not be considered an asset of the Company for any purpose.
Section 9.3 Limitations on Payments Made in Dissolution.
Except as otherwise provided in this Agreement, each Member shall be entitled to look solely to the assets and properties of the Company for return of the Member’s Capital Contribution and returns thereon, and, if such assets and properties are insufficient to return such Member’s Capital Contributions or returns thereon, the Member shall have no recourse against the Manager, other Members or officers of the Company.
ARTICLE X
MISCELLANEOUS
Section 10.1 Complete Agreement.
This Agreement and the Class B Unit Purchase Agreements of the Members including the Exhibits and ancillary documents hereto and thereto, the Articles of Organization and the Exchange Agreements and the Earn Out Provisions of the Master Transaction Agreement constitute the complete and exclusive statement of agreement among the Members with respect to the subject matter hereof. This Agreement, including the Exhibits and ancillary documents hereto, and the Articles of Organization replace and supersede all prior agreements by and among the Members or any of them in respect of the Company with respect to the subject matter hereof. This Agreement, including the Exhibits and ancillary documents hereto, and the Articles of Organization supersede all prior written and oral statements; and no representation, statement, condition or warranty not contained in this Agreement, including the Exhibits and ancillary documents hereto, or the Articles of Organization will be binding on the Members or the Company or have any force or effect whatsoever with respect to the subject matter hereof. Any conflict between the Exchange Agreements and this Agreement shall be controlled by the applicable Exchange Agreement.
Section 10.2 Governing Law.
This Agreement and the rights of the parties hereunder will be governed by, interpreted, and enforced in accordance with the laws of the State of California, without reference to conflicts of law principles.
Section 10.3 No Assignment; Binding Effect.
This Agreement may not be transferred or assigned by any party hereto other than (a) in the case of a Member, in full compliance with Article VII as an integrated part of a permissible Transfer of any or all of the Units of such Member; and (b) in the case of the Company, in connection with the transfer or assignment of all or substantially all of the assets of the Company. Any purported assignment, sale, Transfer, delegation or other disposition, except as expressly permitted herein, will be null and void and shall constitute a material breach of this Agreement. Subject to the foregoing restrictions and Article VII, this Agreement will be binding upon and inure to the benefit of the Members and their respective spouses, heirs, devisees, representatives, successors and assigns.
29
Section 10.4 Severability.
If any provision of this Agreement is held to be illegal, invalid, or unenforceable under any present or future laws applicable to the Company effective during the term of this Agreement, such provision will be fully severable; this Agreement will be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Agreement; and the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement.
Section 10.5 No Partition.
The parties acknowledge that the assets and properties of the Company are not and will not be suitable for partition. Thus, each Member (on behalf of such Member and his, her or its successors and assigns) hereby irrevocably waives any and all rights that such Member may have to maintain any action for partition of such assets and properties.
Section 10.6 Multiple Counterparts.
This Agreement may be executed by written signature or electronically and delivered in multiple counterparts, including facsimile, PDF, or other electronic counterparts, each of which shall be an original, but all of which together shall constitute one instrument. A party may deliver this Agreement by transmitting a facsimile, PDF, or other electronic counterpart copy of the signed signature page to the other parties.
Section 10.7 Additional Documents and Acts.
Each Member agrees to execute and deliver such additional documents and instruments and to perform such additional acts as may be necessary or appropriate to effectuate, carry out and perform all of the terms, provisions, and conditions of this Agreement and the transactions contemplated hereby at any time.
Section 10.8 No Employment Rights.
Nothing in this Agreement shall confer upon any Person any right to be employed or to continue employment by the Company or any affiliated entity, or interfere in any manner with any right of the Company or affiliated entity to terminate such employment at any time.
30
Section 10.9 Amendments.
All amendments and modifications to this Agreement must be in writing and shall be approved (i) by the Manager, and (ii) by the affirmative Majority Vote; provided, however, that no approval shall be needed for an amendment of Exhibit B in connection with the admission of Additional Members in accordance with this Agreement or the issuance of additional Units to certain Members in accordance with this Agreement and the Transaction Agreement. In addition to the foregoing, the Company may not amend or modify this Agreement in any way that alters or changes the rights, preferences or privileges in a manner that would be prejudicial and disproportionate with respect to any class of Members without the written approval of the majority of such class of Members.
Section 10.10 No Waiver.
No delay, failure or waiver by any party to exercise any right or remedy under this Agreement, and no partial or single exercise of any such right or remedy, will operate to limit, preclude, cancel, waive or otherwise affect such right or remedy, nor will any single or partial exercise of such right or remedy limit, preclude, impair or waive any further exercise of such right or remedy or the exercise of any other right or remedy.
Section 10.11 Representations and Warranties; Reliance.
(a) Each party represents and warrants that such party has the full right, power, legal capacity and authority to enter into and execute this Agreement and to discharge all of his or her or its obligations hereunder, and that such party does not have any outstanding obligation and is not a party to any outstanding agreement which obligation or agreement is inconsistent with this Agreement. This Agreement has been duly executed and delivered by such party after all legally required approvals, and constitutes its or his or her valid and legally binding agreement and obligation and is enforceable in accordance with its terms.
(b) Without limiting the foregoing, in the event that a Member is not a natural person, neither the Company nor any Member will (i) be required to determine the authority of the individual signing this Agreement to make any commitment or undertaking on behalf of such entity or to determine any fact or circumstance bearing upon the existence of the authority of such individual or (ii) be required to see to the application or distribution of proceeds paid or credited to individuals signing this Agreement on behalf of such entity.
Section 10.12 Notices.
Except as otherwise provided in this Agreement regarding notices by electronic mail or other electronic means to Members and the Manager and regarding Member proxies, all notices, requests, demands and other communications required or permitted to be given hereunder shall be in writing and shall be delivered (a) by personal delivery, (b) by a nationally recognized overnight courier service, (c) by facsimile if the writing is legible and sent from a facsimile machine providing written confirmation of receipt, (d) on the date sent by e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient or (e) by deposit in the United States Postal Service as registered or certified US Mail, postage and charges prepaid, return receipt requested, to the Company at its principal executive office and to any Member at the address then shown as the current address of such Member on the books and records of the Company. Any such notice shall be deemed to have been given on the date so delivered, if delivered personally or by overnight air courier service; or if by facsimile, on the first day following the transmission of such facsimile; or if mailed, five (5) calendar days after mailing. Any party may by written notice to the other parties specify a different address or facsimile number for notice purposes by sending notice thereof in the foregoing manner.
31
Section 10.13 Dispute Resolution; Arbitration.
(a) Any controversy, claim or dispute arising out of or related to this Agreement or the interpretation, performance, or breach hereof, including alleged violations of state or federal statutory or common law rights or duties, all tort claims and all claims for punitive damages (a “Dispute”), shall be resolved solely according to the procedures set forth in this Section 10.13 .
(b) The parties shall attempt, whenever possible, to discuss and resolve any Disputes on an informal basis, in order to avoid the expense and delay associated with arbitration. A party invoking these dispute resolution procedures shall deliver a notice to the other parties (a “Dispute Notice”) of the claims it intends to bring and the relief sought, including sufficient details regarding the factual, contractual or other legal bases for the party’s claim as reasonably required to enable the parties receiving the Dispute Notice to evaluate the claim and respond thereto. No arbitrator shall have authority to consider or resolve any Dispute that is not first the subject of a Dispute Notice and subject to informal dispute resolution pursuant to this Section 10.13 .
(c) If the parties are unable to resolve one or more Disputes informally, any party to the Dispute may initiate a binding arbitration proceeding for the final resolution of such remaining Dispute(s). A party shall initiate arbitration by delivering a notice to the other parties to such Dispute(s) (an “Arbitration Notice”) describing the Dispute(s) to be arbitrated. Within twenty (20) days of receiving an Arbitration Notice, the receiving party may deliver its own Arbitration Notice, specifying additional Disputes to be submitted to arbitration. If more than one Dispute is to be arbitrated, the subject matters of the various Disputes need not be related to each other.
(d) The arbitration, which shall take place in Los Angeles County, State of California, shall be administered by the Los Angeles, California office of the American Arbitration Association (“AAA”), or any successor hereof, in accordance with the AAA Rules, except as otherwise provided herein. The arbitration shall be held before and decided by a single neutral arbitrator (the “Arbitrator”). The arbitrator shall be a member of the AAA Large and Complex Case Panel selected in accordance with the AAA Rules. The arbitration decision shall be binding and final upon the parties thereto, and judgment on any award rendered by the Arbitrator may be entered in any court having jurisdiction thereof.
(e) Notwithstanding any contrary provision of this Section 10.13 , any party may seek emergency or temporary injunctive remedies exclusively in any federal or state court located within Los Angeles County, State of California, in aid of its claims for relief in the arbitration notwithstanding this agreement to arbitrate; provided, however, that such action shall not be deemed a waiver of the right to arbitrate the merits of the dispute. Each party hereto irrevocably submits to the exclusive jurisdiction and venue of any such court in any such action or proceeding.
32
(f) In any judicial or arbitration proceeding hereunder, the prevailing party shall be entitled to receive its reasonable attorneys’ fees and costs incurred in connection with such proceeding in addition to its judgment. The arbitrator’s remedies shall be limited to those which could be granted by a court of competent jurisdiction hearing the same dispute.
Section 10.14 Specific Performance.
Because of the unique character of the Membership Interests and the Units, the Members and the Company will be irreparably damaged if this Agreement is not specifically enforced. If any dispute arises concerning the Transfer of any Units, or any portion thereof, an injunction may be issued restraining any purported Transfer pending the determination of such controversy. If any dispute arises concerning the right or obligation to purchase or sell any such Units, or any portion thereof, such right or obligation will be enforceable in a court of equity by a decree of specific performance. Such remedy may, however, be cumulative and not exclusive, and will be in addition to any other remedy which the Members or the Company may have.
Section 10.15 No Third Party Beneficiary.
This Agreement is made solely and specifically among and for the benefit of the parties hereto, and their respective successors and permitted assigns, and no other Person will have any rights, interest, or claims hereunder or be entitled to any benefits under or on account of this Agreement as a third party beneficiary or otherwise.
Section 10.16 Cumulative Remedies.
The rights and remedies of any party as set forth in this Agreement are not exclusive and are in addition to any other rights and remedies now or hereafter provided by law or at equity, subject to the Dispute Resolution and Arbitration provisions of Section 10.13 .
Section 10.17 Exhibits.
All Exhibits attached hereto are hereby incorporated by reference into, and made a part of, this Agreement.
Section 10.18 Interpretation.
The titles and section headings set forth in this Agreement are for convenience only and shall not be considered as part of agreement of the parties. No provision of this Agreement shall be interpreted or construed against any party because such party or its counsel was the drafter thereof. Unless the context clearly requires otherwise:(i) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms; (ii) the singular form of nouns, pronouns and verbs shall include the plural and vice versa; (iii) the use of the word “includes” and “including” in this Agreement shall be by way of example rather than by limitation; (iv) reference to any agreement, document or instrument means such agreement, document or instrument as amended or otherwise modified from time to time in accordance with the terms thereof, and if applicable hereof; (v) the use of the words “or,” “either” and “any” shall not be exclusive; (vi) all references in this Agreement to designated “Sections” and other subdivisions, or to designated “Exhibits” or “Schedules”, are to the designated Sections and other subdivisions of, or the designated Exhibits or Schedules to, this Agreement; (vii) the words “this Agreement,” “herein,” “hereof,” “hereby,” “hereunder,” and words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision hereof;.
33
Section 10.19 Survival.
It is the express intention and agreement of the Company and the Members that all covenants, agreements, statement, representations, warranties and indemnities made in this Agreement will survive the execution and delivery of this Agreement and the Units and, where appropriate to facilitate the intent of this Agreement, the dissolution, liquidation and winding up of the Company.
Section 10.20 Confidentiality.
Each Member agrees that it will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) any confidential information obtained from the Company pursuant to the terms of this Agreement (including notice of the Company’s intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Section 10.20 by such Member), (b) is or has been independently developed or conceived by the Member without use of the Company’s confidential information, or (c) is or has been made known or disclosed to the Member by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that a Member may disclose confidential information: (i) to its attorneys, accountants, consultants, and other professionals and advisors to the extent necessary to obtain their services in connection with monitoring its investment in the Company; (ii) to any prospective purchaser of any Units from such Member, if such prospective purchaser agrees to be bound by confidentiality restrictions no less protective of the confidential information than those contained in this Section 10.20 ; (iii) to any Affiliate, partner, member, stockholder, or wholly owned subsidiary of such Member in the ordinary course of business, provided, however, that such Person described in the foregoing clauses (i), (ii) or (iii) (A) is not, in the reasonable judgment of the Manager, a competitor of the Company or an officer, employee, or director of, or holder of more than ten percent (10%) of the equity securities of, a competitor of the Company, unless such Person is a bona fide prospective purchaser of Units from a Member, and (B) is informed by the Member that such information is confidential and such Person agrees to be bound by the confidentiality provisions of this section or comparable restrictions to maintain the confidentiality of such information; (iv) to any governmental agency pursuant to a subpoena or order and as reasonably necessary or required during the course of any tax audit, dispute or controversy, or (v) as may otherwise be required by law, provided, however, that the Member promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.
Section 10.21 No Recourse.
Notwithstanding anything that may be expressed or implied in this Agreement, each of the Company and the Members covenants, agrees and acknowledges that no recourse under this Agreement or any documents or instruments delivered in connection with this Agreement shall be had against any current or future manager, officer, employee, general or limited partner or equity holder of any Member or of any Affiliate or assignee thereof, whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any statute, regulation or other applicable law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any current or future officer, agent or employee of any Member or any current or future member of any Member or any current or future manager, officer, employee, partner or member of any Member or of any Affiliate or assignee thereof, as such for any obligation of any Member under this Agreement or any documents or instruments delivered in connection with this Agreement for any claim based on, in respect of or by reason of such obligations or their creation.
* * *
[Signature Pages to Follow]
34
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first hereinabove set forth.
| COMPANY: | ||
| AY DEE KAY, LLC, | ||
| a California limited liability company | ||
| By: | /s/ Donald McClymont | |
| Donald McClymont | ||
| Chief Executive Officer | ||
| MEMBERS: | ||||
| Thunder Bridge II Surviving Pubco, Inc., | /s/ Donald McClymont | |||
| a Delaware corporation (which will change | Donald McClymont | |||
| its name to indie Semiconductor, Inc.) | ||||
| By: | /s/ Gary Simanson | /s/ Ichiro Aoki | ||
| Gary Simanson | Ichiro Aoki | |||
| Chief Executive Officer | ||||
| /s/ Scott Kee | ||||
| Scott Kee | ||||
| /s/ David Kang | ||||
| David Kang | ||||
| Bison Capital Partners IV, L.P.. | ||||
| By: | Bison Capital Partners IV GP, L.P., its General Partner | |||
| By: | Bison Capital Partners GP LLC, | |||
| its General Partner | ||||
| By: | /s/ Peter Macdonald | |||
| Name: | Peter Macdonald | |||
| Title: | Managing Member | |||
EXHIBIT A
DEFINITIONS
As used in this Agreement, the following terms will have the following meanings:
“Act” has the meaning provided in Section 1.3.
“Additional Member” means a Member who has acquired Units from the Company and who has been admitted as a Member pursuant to Article VIII.
“Adjusted Capital Account” means, with respect to any Member, such Member’s Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments:(i) credit to such Capital Account any amounts which such Member is obligated or treated as obligated to restore with respect to any deficit balance in such Capital Account pursuant to Section 1.704-1(b)(2)(ii)(c) of the Treasury Regulations, or is deemed to be obligated to restore with respect to any deficit balance pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations; and (ii) debit to such Capital Account the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations and will be interpreted consistently therewith.
“ADK Principal Owners” means the Class A Members listed on Exhibit B-1.
“Affiliate” or “Affiliated” shall mean any corporation, firm or other entity that is directly or indirectly controlling, controlled by, or under common control with a party hereto; provided, however, that the Company shall not be deemed to be an Affiliate of any of the Members or any of their respective Affiliates, and no Member or any of its Affiliates shall be deemed to be an Affiliate of the Company. For the purpose of this definition, “control” shall mean 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.
“Agreement” means this Seventh Amended and Restated Operating Agreement and any amendments hereto.
“Articles of Organization” has the meaning set forth in Section 1.2.
“Bankruptcy” means with respect to any Person, (i) the inability of such Person generally to pay its debts as such debts become due, or an admission in writing by such Person of its inability to pay its debts generally or a general assignment by such Person for the benefit of creditors; the filing of any petition or answer by such Person seeking to adjudicate it a bankrupt or insolvent, or seeking for itself any liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of such Person or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking, consenting to, or acquiescing in the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for such Person or for any substantial part of its property; or corporate action taken by such Person to authorize any of the actions set forth above; or (ii) without the consent or acquiescence of such Person, the entering of an order for relief or approving a petition for relief or reorganization or any other petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or other similar relief under any present or future bankruptcy, insolvency, or similar statute, law, or regulation, or the filing of any such petition against such Person which petition shall not be dismissed or stayed within sixty(60) days, or, without the consent or acquiescence of such Person, the entering of an order appointing a trustee, custodian, receiver or liquidator of such Person or of all or any substantial part of the property of such Person which order shall not be dismissed or stayed within sixty (60) days.
A-1
“Capital Account” means the capital account established on behalf of each Member on the books of the Company. The Capital Account shall be computed and maintained strictly in accordance with the capital account maintenance rules of Treasury Regulations Section 1.704-1(b)(2)(iv). The Manager shall have the absolute discretion to elect for the Company to revalue assets and to redetermine Capital Accounts to the extent and as permitted under Treasury Regulations Section 1.704-1(b)(2)(iv)(f). In the case of a revaluation of assets, the Manager will revalue assets in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv)(f) and Treasury Regulations Section 1.704-1(b)(2)(iv)(h). Upon the Transfer of a Membership Interest in accordance with this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent provided in the rules of Treasury Regulations Section 1.704-1(b)(2)(iv)(l).
“Capital Contribution” means any contribution to the capital of the Company in cash or other assets or property by a Member.
“Class A Members” mean those Members that hold Class A Units of the Company.
“Class B Members” mean those Members that hold Class B Units of the Company.
“Class B Unit Purchase Agreements” mean those certain agreements between the Company and the Class B Members governing the award, terms and conditions of the Class B Units granted to such Class B Members.
“Code” means the Internal Revenue Code of 1986 as amended, or corresponding provisions of subsequent superseding federal revenue laws.
“Company” means Ay Dee Kay, LLC, a California limited liability company.
“Company Minimum Gain” means “partnership minimum gain” set forth in Section 1.704-2(b)(2) of the Treasury Regulations.
“Dissolution Event” shall have the meaning set forth in Section 9.1.
“Distribution” means each distribution made by the Company to a Member, whether in cash, property or securities of the Company and whether by liquidating distribution, redemption, repurchase or otherwise; provided, however, that none of the following shall be a Distribution: any recapitalization, exchange or conversion of Units, and any subdivision (by unit split or otherwise) or any combination (by reverse unit split or otherwise) of any outstanding Units that does not involve (i) a distribution of cash, or (ii) a direct or indirect change in the ownership of the fully diluted equity of the Company.
A-2
“Earn Out Event” shall mean the achievement by the Surviving Pubco of the trading levels resulting in an issuance of additional Surviving Pubco shares to Legacy Members under Section 2.5 of the Master Transaction Agreement.
“Earn Out Provisions” means those provisions in the Master Transaction Agreement whereby certain equity holders of the Company will have a contingent right to receive up to an additional 10,000,000 shares of Class A common stock of Surviving Pubco after the Closing based on the achievement of certain stock price performance thresholds of the Company.
“Equity Financing Transaction” has the meaning set forth in Section 3.4(d)(i).
“Exchange Agreements” means those certain Exchange Agreements by and between Surviving Pubco, each ADK Principal Owners and each ADK Non-Contributing Service Providers, dated as of the date hereof, pursuant to which the ADK Principal Owners and the ADK Non-Contributing Service Providers shall have the right to exchange their Class A Units and Class B Units, respectively, for stock in Surviving Pubco, pursuant to the terms and conditions set forth therein.
“Fair Market Value” means, except as otherwise specifically provided herein, with respect to any property, services or other non-cash asset, the fair market value thereof determined in accordance with Treasury Regulations Section 1.704-1(b)(2)(h). This provision will be applied by the Manager in accordance with these regulations.
“Fiscal Year” means the Company’s fiscal year. The Company’s fiscal year and taxable year will be the Fiscal Year, unless otherwise required by the Code or Treasury Regulations, as reasonably determined by the Manager.
“Indemnified Losses” has the meaning set forth in Section 6.1.
“Indemnitee” has the meaning set forth in Section 6.1.
“Legacy Members” shall mean those members listed as Legacy Members on Exhibit D.
“Majority Vote” means the affirmative vote or consent of (1) the Class A Members of record owning more than Fifty Percent (50%) of the Class A Units and (2) the ADK Principal Owners owning more than Fifty Percent (50%) of the Class A Units owned by the ADK Principal Owners.
“Manager” means Surviving Pubco.
“Master Transactions Agreement” means that certain Master Transactions Agreement by and among Thunder Bridge II Surviving Pubco. Inc., the Thunder Bridge Surviving Pubco., Inc. Merger Subs described therein, Thunder Bridge Acquisition II, Ltd., Ay Dee Kay LLC, d/b/a indie Semiconductor, each ADK Blocker, ADK Service Provider HoldCo, LLC and Donald Mc, as the Company Securityholder Representative, dated as of December 14, 2020.
A-3
“Member” or “Members” means the Members of the Company listed on Exhibit B, including any other Members subsequently admitted as members in accordance with this Agreement and the Act.
“Member Nonrecourse Debt” means “partner nonrecourse debt” in Treasury Regulations Section 1.704-2(b)(4).
“Member Nonrecourse Deductions” means “partner nonrecourse deductions” in Treasury Regulations Section 1.704-2(i)(2).
“Membership Interest” means the entire ownership interest of a Member in the Company at any particular time, including all economic rights and voting rights of the Member in the Company, the right of such Member to any and all benefits to which a Member may be entitled as provided in this Agreement and under law, and the obligations of such Member to comply with all of the terms and provisions set forth in this Agreement and under applicable law, all of which Membership Interest is represented and evidenced by Units.
“Minimum Gain Attributable to Member Nonrecourse Debt” means “partner nonrecourse debt minimum gain” as determined in accordance with Treasury Regulations Section 1.704-2(i)(2).
“Nonrecourse Deductions” has the meaning set forth under Sections 1.704-2(b)(1) and (c) of the Treasury Regulations.
“Nonrecourse Liabilities” has the meaning set forth under Section 1.704-2(b)(3) of the Treasury Regulations.
“Partnership Representative” means the “partnership representative” of the Company as that term is used in Code Section 6223.
“Percentage Interest” shall mean the percentage (rounded to the nearest 0.1%) determined for each Member equal to the number of Units held by the Member divided by the number of Units held by all Members. The Percentage Interest of each Member as of the date of this Agreement is set forth beside the Member’s name on Exhibit B in the column “Percentage Interest”. The current Percentage Interest held by each Member, as determined and recomputed by the Manager, shall be computed by the Manager and set forth in the books and records of the Company. In all events, the sum of all Percentage Interests shall total 100%. The Manager from time to time shall amend Exhibit B to show the current Percentage Interests held by the Members.
“Permitted Assignee” shall have the meaning provided in Section 7.3.
“Permitted Transfer” shall have the meaning provided in Section 7.3.
“Person” means any individual, limited liability company, corporation, partnership, trust or other entity.
“Profits” and “Losses” shall mean, for each Fiscal Year or other period, the net “book” income or loss of the Company (including revaluation surplus and revaluation loss on a permitted revaluation of partnership assets), computed by excluding all items specially allocated under Paragraph C or Paragraph D of Exhibit “D”. In this regard, the term “book” is used in the sense in which that term is used in Treasury Regulations Section 1.704-1(b)(2)(iv).
A-4
“Tax Items” has the meaning set forth in Section D(1) of Exhibit C.
“Tax Matters Member” means the “tax matters partner” as defined in Section 6231(a)(7) of the Code.
“Term” has the meaning provided in Section 1.6.
“Transfer” means the sale, assignment, transfer, mortgage, pledge, hypothecation, encumbrance, exchange or other disposition of any Units of the Company, directly or indirectly, whether or not for value, and whether voluntarily, by operation of law or otherwise, and “Transferred” has the correlative meaning.
“Treasury Regulations” means the temporary and final regulations issued by the U.S. Treasury Department under the Code, as amended or superseded from time to time.
“Unit” means a unit representing and evidencing a fractional part of the respective Membership Interest of each Member in the Company, pursuant to Section 2.3.
A-5
EXHIBIT B
MEMBERS, CONTRIBUTIONS, AND UNITS
Listed on the books and records of the Company
B-1
EXHIBIT B-1
ADK PRINCIPAL OWNER (CLASS A MEMBERS)
Listed on the books and records of the Company
B-1-1
EXHIBIT B-2
CLASS B MEMBERS
(As of the Effective Date)
Listed on the books and records of the Company
B-2-1
EXHIBIT C
TAXES; ALLOCATIONS; RELATED MATTERS
A Profits and Losses Generally.
All Profits and Losses of the Company shall be allocated in accordance with “partners’ interests in the partnership” as defined in Treasury Regulations Section 1.704-1(b)(3) and as required by Treasury Regulations Section 1.704-1. The Profits and Losses of the Company (and, at the discretion of the Manager, individual items of Profit and Loss) shall be allocated annually (and at such other times as the tax law may require). Subject to the first sentence of this paragraph, allocations of Profits and Losses Company (and, at the discretion of the Manager, individual items of Profit and Loss) will be made to the Members in such manner that the Adjusted Capital Account balance of each Member, to the greatest extent possible, after this allocation (and recognition of any partner minimum gain or partnership minimum gain) shall be equal to the amount, positive or negative, that would be distributed to such Member (in the case of a positive amount) or for which such Member would be liable to the Company under this Agreement (in the case of a negative amount), if (a) the Company were to sell the assets of the Company for their Adjusted Asset Values, (b) all Company liabilities were satisfied (limited with respect to each nonrecourse liability to the Adjusted Asset Values of the assets securing such liability), (c) the Company were to distribute the proceeds of sale pursuant to Section 4.2(a)(ii) and (d) the Company were to dissolve pursuant to Article IX.
A. [Intentionally Omitted.]
B. Regulatory Allocations and Other Allocation Rules.
Notwithstanding the foregoing, the following special allocations will be made as follows, and, as appropriate, in the following order:
(1) Company Minimum Gain Chargeback. If there is a net decrease in Company Minimum Gain for any Fiscal Year (except as a result of conversion or refinancing of Company indebtedness, certain capital contributions or revaluation of the Company’s property as further outlined in Treasury Regulation Sections 1.704-2(d)(4), (f)(2) or (f)(3)), the minimum gain chargeback set forth in Treasury Regulations Section 1.704-2(f) shall apply as if those requirements were expressly set forth in this Agreement.
(2) Chargeback of Minimum Gain Attributable to Member Nonrecourse Debt. If there is a net decrease in Minimum Gain Attributable to Member Nonrecourse Debt during any Fiscal Year (other than due to the conversion, refinancing or other change in the debt instrument causing it to become partially or wholly nonrecourse, certain capital contributions, or certain reevaluations of the Company’s property as further outlined in Treasury Regulations Section 1.704-2(i)(4)), the partner nonrecourse debt minimum gain chargeback set forth in Treasury Regulations Section 1.704-2(i) shall apply as if those requirements were expressly set forth in this agreement.
(3) Qualified Income Offset. In the event a Member unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), and such Member has an Adjusted Capital Account Deficit, the qualified income offset set forth in Treasury Regulations Section 1.704-2(d) shall apply as if those requirements were expressly set forth in this Agreement.
C-1
(4) Nonrecourse Deductions. Nonrecourse Deductions for any Fiscal Year or other applicable period shall be allocated to the Members in accordance with Percentage Interests.
(5) Member Nonrecourse Deductions. Member Nonrecourse Deductions for any Fiscal Year or other applicable period shall be specially allocated in accordance with Treasury Regulations Section 1.704-2(i) as if its requirements were set forth explicitly in this Agreement.
(6) Varying Interests Rule. Allocations to Members whose interests vary during a year by reason of transfer, redemption, admission, capital contributions, or otherwise, shall be made as determined by the Manager, acting in good faith, in accordance with permissible methods under Code Section 706.
(7) Limitations on Losses. Losses allocated pursuant this Agreement shall not exceed the maximum amount of Losses that can be allocated without causing any Member to have a deficit balance in such Member’s Adjusted Capital Account. In the event some but not all of the Members would have deficit balance in such Members’ Adjusted Capital Accounts, Losses not allocated to any Member as a result of such limitation shall be allocated to the other Members in accordance with the positive balances in such Member’s Adjusted Capital Accounts.
(8) Forfeiture Allocations. The Company shall make Forfeiture Allocations with respect to any unvested Class B Units that have been forfeited. “Forfeiture Allocations” refer to allocations of loss and deduction as described in REG-105346-03, 70 Fed. Reg. 29675-29683, as it may be amended or supplemented.
C. Tax Allocations.
(1) Except as otherwise provided in this Agreement, all tax items of income, deduction, gain, or loss of the Company (“Tax Items”) shall be allocated in accordance with “partners’ interests in the partnership” as defined in Treasury Regulations Section 1.704-1(b)(3) and as required by Treasury Regulations Section 1.704-1 and Treasury Regulations Section 1.704-3. Subject to the foregoing and except as specifically provided under Paragraph A and Paragraph C, all tax items of income, deduction, gain, or loss of the Company shall be allocated in accordance with Percentage Interests.
(2) If any Company property is subject to Code Section 704(c) or is reflected in the Capital Accounts of the Members and on the books of the Company at a value that differs from the adjusted tax basis of such property, then the Tax Items with respect to such property will be allocated in accordance with Treasury Regulations Section 1.704-1(b)(4)(i) and Treasury Regulations Section 1.704-3 in accordance with the principles of Section 704(c), using the “traditional” method or any other permitted method selected by the Manager.
(3) A Member's share of the nonrecourse liabilities of the Company shall equal the sum of (i) the Member's share of partnership minimum gain determined in accordance with the rules of Code Section 704(b) and the Treasury Regulations thereunder, (ii) the amount of any taxable gain that would be allocated to the Member under Code Section 704(c) (or in the same manner as Code Section 704(c) in connection with a revaluation of Company property) if the Company disposed of (in a taxable transaction) all Company property subject to one or more nonrecourse liabilities of the Company in full satisfaction of the liabilities and for no other consideration, (iii) the amount of built-in gain that is allocable to the Member with respect to Code Section 704(c) property (as defined under Treasury Regulations Section 1.704-3(a)(3)(ii) or property for which reverse Code Section 704(c) allocations are applicable (where such property is subject to the nonrecourse liability to the extent that such built-in gain exceeds the gain described clause (ii) above); provided that the liabilities allocated pursuant to this clause (iii) shall be allocated to the greatest extent possible in an amount up to and in proportion to the Members' negative tax capital accounts, and (iv) any excess nonrecourse liabilities not allocated pursuant to the preceding clause (iii) shall be allocated to the Members in proportion to Percentage Interests or such other permissible method selected by the Manager.
C-2
(4) Any payment of foreign tax that may be creditable against any Member’s United States federal income tax liability and any tax credits shall be allocated to the Members in a manner reasonably determined by the Manager, but strictly in accordance with Treasury Regulations Section 1.704-1(b)(2) and any other applicable Treasury Regulations.
(5) The Members are aware of the income tax consequences of the allocations made by this Agreement and will report their shares of Profits and Losses and other items of Company, gross income, gain, loss and deduction for income tax purposes consistently with this Agreement and the Form 1065 and Schedules K-1 issued by the Company.
D. Tax Classification.
The Members intend that the Company shall always be operated in a manner consistent with its treatment as a “partnership” for federal, state and local income and franchise tax purposes. In accordance therewith, (a) no Member shall file any election with any taxing authority to have the Company treated otherwise, and (b) each Member hereby represents, covenants, and warrants that it shall not maintain a position inconsistent with such treatment. The Manager shall not at any time, except as otherwise required by applicable law cause or permit the Company to elect (A) to be excluded from the provisions of Subchapter K of the Code, or (B) to be treated as a corporation or an association taxable as a corporation for any tax purposes. The Manager shall (i) cause the Company to make any election reasonably determined to be necessary or appropriate in order to ensure the treatment of the Company as a partnership for all tax purposes; and (ii) cause the Company to file any required tax returns in a manner consistent with its treatment as a partnership for tax purposes. The Manager shall not take any action or cause any officer or agent or representative of the Company to take any action that would be inconsistent with the treatment of the Company as a partnership for such purposes.
E. Annual and Tax Information.
The Manager will cause the Company to deliver to each Member, within 90 days after the end of each Fiscal Year, all information with respect to the Company necessary for the preparation of such Member’s federal and state income tax returns.
C-3
F. Tax Audit.
(1) For fiscal years of the Company beginning before December 31, 2017, these terms shall apply to any audit of the Company:
(a) Surviving Pubco shall serve as the Tax Matters Member.
(b) If Surviving Pubco is no longer a Member of the Company, then a replacement Tax Matters Member shall be designated by the Manager.
(c) Except to the extent specifically provided in the Code or Treasury Regulations (or the laws of other relevant taxing jurisdiction) or otherwise provided herein, the Tax Matters Member in his sole and absolute discretion shall have exclusive authority to act for or on behalf of the Company with regard to tax matters to the extent such matters are reserved to a tax matters partner under the Code and related Treasury Regulations and corresponding provisions of state or local law if any.
(d) Any Member entering into a settlement agreement with the Internal Revenue Service that concerns a Company item shall notify the Tax Matters Member of such settlement agreement and its terms within ten (10) days after the date thereof. During any Company income tax audit or other income tax controversy with any governmental agency over which the Tax Matters Member has control, the Tax Matters Member shall keep the other Members informed of all material facts and developments on a reasonably prompt basis.
(e) All expenses incurred by the Tax Matters Member on behalf of the Company with respect to any tax matter that does or may affect the Company, or any Member by reason thereof, shall be paid for out of Company assets, These expenses shall be treated as Company expenses; provided however that the Company shall not be obligated to pay any such expenses incurred as a result of the Tax Matters Member’s breach of fiduciary duty, breach of duty of loyalty, bad faith, gross negligence, reckless or intentional misconduct or knowing violation of the law.
(f) The Tax Matters Partner shall give prompt notice to the Members upon receipt of advice that the Internal Revenue Service or other taxing authority intends to examine any income tax return, or records or books of the Company and upon the occurrence of any significant developments with respect thereto.
(g) If a Member is permitted by the Tax Matters Member or permitted under the Code to participate in Company-level administrative or judicial tax proceedings, such Member shall be responsible for all expenses incurred by it in connection with such participation.
(h) The cost of any adjustments to all Members and the cost of any resulting audits or adjustments of Members will be borne solely by the Members without reimbursement by the Company.
(2) Tax Audit of the Partnership under Consolidated Tax Audit Rules. The provisions of this Paragraph G(2) will apply to an Audit of the Partnership pursuant to the audit provisions enacted as part of the Centralized Company Audit Regime.
C-4
(a) Definitions. These definitions apply for purposes of this Paragraph G(2):
(i) Audit. “Audit” means a federal tax audit of the Company and subsequent administrative proceedings and judicial proceedings under the Centralized Company Audit Regime.
(ii) Audit Expenses. “Audit Expenses” mean all expenses of the conduct of an Audit. Audit Expenses include the Imputed Underpayment.
(iii) Centralized Company Audit Regime. “Centralized Company Audit Regime” means the provisions of the Internal Revenue Code enacted by the Bipartisan Budget Act of 2015, Section 1101, Pub. L. No. 114-74, contained in Subchapter C, Chapter 63, of Subtitle F of Title 26, as these rules may be amended.
(iv) Designated Individual. “Designated Individual” means the “designated individual” as that term is used in Treasury Regulations Section 301.6223-1.
(v) Imputed Underpayment. “Imputed Underpayment” means the “Imputed Underpayment” of the Partnership as that term is used in Section 6225. For purposes of this Agreement, the “Imputed Underpayment” will include any penalties, interest, and additions to tax with respect to the Imputed Underpayment.
(vi) In Good Faith. “In Good Faith” means, to act for a purpose reasonably believed by the Partnership Representative to be in, or not opposed to, the best interests of the Partnership and not any improper personal benefit, without fraud or gross negligence.
(vii) Indemnified Audit Claim. “Indemnified Audit Claim” means any civil investigation or civil action undertaken, filed or threatened to be filed against the Partnership Representative before any governmental agency or in a federal or state court or in an arbitration or mediation or similar forum for nonjudicial adjudication in connection with the Partnership Representative’s activities, actions, or status in connection with an Audit.
(viii) Indemnified Audit Claim Expenses. “Indemnified Audit Claim Expenses” mean liabilities, costs and expenses related to defense against an Indemnified Audit Claim.
(ix) Indemnified Expenses. “Indemnified Expenses” mean liabilities, costs and expenses (other than Indemnified Audit Claim Expenses) related to an Audit incurred In Good Faith.
(x) Partnership Representative.. “Partnership Representative” means the “partnership representative” of the Company as the term “partnership representative” is used in Code Section 6223.
(b) Selection of Partnership Representative.
(i) The Manager will appoint the Partnership Representative. The initial Partnership Representative will be Surviving Pubco.
C-5
(ii) The Partnership Representative shall have the power to designate a Designated Individual in accordance with Treasury Regulations Section 301.6223-1. The Designated Individual shall have the powers of the “designated individual” under the Centralized Company Audit Regime, but shall be limited by the limitations set forth in this Agreement on the Partnership Representative.
(iii) The Manager can remove the Partnership Representative with or without cause, subject to the rules of the Centralized Company Audit Regime.
(iv) The Partnership Representative will serve until replaced by the Manager.
(v) The Partnership Representative and any replacement Partnership Representative must meet the qualification requirements under the Centralized Company Audit Regime.
(c) General Duties of Partnership Representative.
(i) The Partnership Representative will undertake the duties of the “Partnership Representative” for the Partnership under the Code and Regulations.
(ii) The Partnership Representative shall defend any audit of the Company and any related administrative or court proceedings using the accountants of the Company and counsel of the Company, as determined by the Manager.
(iii) The Partnership Representative shall supervise the Company’s accountants and counsel in connection with an audit of the Company and any related administrative or court proceedings, subject to the overall supervision by the Manager. In any event, the Manager shall have final authority to engage or to discharge accountants and counsel.
(iv) The Partnership Representative will have the sole authority to bind the Partnership under Section 6223(b).
(v) Subject to the terms of this Agreement, the Partnership Representative shall undertake all duties, have all responsibilities, and shall have all powers of the “partnership representative” of the Company under the Centralized Company Audit Regime.
(d) Partnership Representative Will Keep Manager Informed. The Partnership Representative will keep the Manager reasonably apprised on a current basis of all material developments in connection with any Company Audit, administrative proceedings, and judicial proceedings.
(e) Partnership Representative Will Follow All Instructions of Manager. The Partnership Representative will follow all instructions of the Manager in connection with the Company Audit, administrative proceedings, and judicial proceedings.
(f) Actions Requiring Prior Approval of Manager. The Partnership Representative will undertake these acts only with the prior approval of the Manager:
C-6
(i) Scheduling Meetings. To schedule or to attend any meeting with representatives of the Internal Revenue Service, the United States Department of Justice, or state tax authorities.
(ii) Written Communications. To make any written filings or to send to the Internal Revenue Service, United States Department of Justice, or state tax authorities any letters, memoranda, responses to information document requests, responses to any requests for admissions, or any other written arguments, responses or communications.
(iii) Depositions. To schedule any depositions.
(iv) Election Out. To make the “election out” under Section 6221.
(v) Push-Out Election. To make the “push-out” election under Section 6226 to apply to the Partnership.
(vi) Pull-in Election. To cause the Company to make the “pull-in” election under Section 6225(c)(2)(B).
(vii) Administrative Adjustment. To cause the Company to request an administrative adjustment for any Partnership taxable year under Section 6227.
(viii) Waive Section 6232(b) Restrictions. To waive the restrictions in Section 6232(b) on the making of any Partnership adjustment.
(ix) File Petition for Readjustment in Court. To file a petition for readjustment with the Tax Court, the district court of the United States for the district in which the Partnership’s principal place of business is located, or the Court of Federal Claims.
(x) Filings. To make any filings with any court or the appellate division of the Internal Revenue Service.
(xi) To Seek Member Information in Connection with Company Audit, Administrative Proceedings, and Judicial Proceedings. To seek information from Members and former Members necessary or reasonably desirable in connection with the Company audit, administrative proceedings, and judicial proceedings.
(xii) Extend Period of Limitations on Adjustments. To extend the period of the period of limitations on making adjustments.
(xiii) Settlement Agreement. To enter into a settlement agreement or closing agreement with the Internal Revenue Service.
(xiv) Amended Tax Returns. To file any amended tax returns for the Company.
(xv) Tax Appeal. To file any appeal to an audit determination.
C-7
(xvi) Court Action. To file any court action for the determination of the taxes of the Company.
(xvii) To File Amended Returns. To cause the Company to file any amended tax returns.
(g) Partnership Representative Will Keep Manager Informed. The Partnership Representative will inform the Manager on a current basis of all material developments in connection with any Company Audit, administrative proceedings, and judicial proceedings.
(h) Manager May Remove and Replace Partnership Representative. The Manager may remove the Partnership Representative and appoint a successor Partnership Representative, with or without cause and with or without prior notice. Notwithstanding the foregoing, the removal and selection of the successor Partnership Representative will be effective only as provided in controlling Treasury Regulations.
(i) Partnership Representative May Resign. The Partnership Representative may resign as Partnership Representative’s on 30-days’ advance written notice to the Manager. Notwithstanding the foregoing, the resignation and selection of the successor Partnership Representative will be effective only as provided in controlling Treasury Regulations.
(j) Delivery of Files on Removal or Resignation. The Partnership Representative may resign or be removed. In that event, the former Partnership Representative promptly will deliver to the Manager all of the Partnership Representative’s written and electronic files and writings with respect to the Partnership Representative’s position.
(k) Manager May Elect Successor Partnership Representative. The Manager may elect a successor Partnership Representative at any time at which the office of Partnership Representative is vacant.
(l) Member Cooperation in Connection With Company Audits. Each Member and former Member will fully cooperate with the Partnership Representative in connection with Company Audits.
(m) Allocation of Audit Expenses. The Partnership Representative may allocate, In Good Faith, Audit Expenses and reasonably expected Audit Expenses equitably among current and former Members.
(n) Contribution of Imputed Underpayment.
(i) Election Out. The Manager, in their discretion, may reasonably determine any imputed underpayment imposed on the Company pursuant to Code Section 6232 (and any related interest, penalties or other additions to tax) that is attributable to one or more Members or former Members.
(ii) Contribution by Members. At the discretion of the Manager, the Manager shall require that such Members promptly pay to the Company the imputed underpayment (pro rata in proportion to their respective shares of such imputed underpayment, as reasonably determined by the Manager) within fifteen days following the Partnership Representative’s request for payment.
C-8
(iii) Failure to Pay. Any failure of a Member or former Member to pay such amount shall result in a subsequent reduction in Distributions otherwise payable to such Members or former Members plus interest on such amount calculated at the Prime Rate plus two percent (2%)).
(iv) Allocation of Imputed Underpayment. In making the determination of which Members (including former Members) should contribute a share of the imputed underpayment, the Manager will allocate any imputed underpayment imposed on the Company (and any related interest, penalties, additions to tax and audit costs) among the Members and former Members in good faith taking into account each Member’s particular status, including, for the avoidance of doubt, a Member’s tax-exempt status.
(v) Imputed Underpayment of Lower-Tier Entity. Any amounts that the Company is required to contribute to any passthrough entity in which it owns an interest (a “Lower-Tier Entity”) with respect to taxes of the Lower-Tier Entity (“Lower-Tier Taxes”) that the Manager reasonably determines is reasonably allocable to one or more Members or former Members shall be treated as an imputed underpayment of the Company.
(A) In the discretion of the Manager, this amount shall be promptly paid by such Members or former Members to the Company (pro rata in proportion to their respective shares of “Lower-Tier Taxes” as determined by the Manager) within fifteen days following the Manager’ request for payment. Any failure to pay such amount shall result in a subsequent reduction in Distributions otherwise payable to such Members or former Members plus interest on such amount calculated at the Prime Rate plus two percent (2%)).
(B) In making the determination of which Members or former Members (including former Members or former Members) are liable for any “Lower-Tier Taxes”, the Manager will allocate any “Lower-Tier Taxes” among the Members or former Members in good faith taking into account each Member’s particular status, including, for the avoidance of doubt, a Member’s tax-exempt status.
(C) All of the indemnification provisions of Article VI shall apply to the Manager and the Manager shall have no liability to the Company or any Member for any loss suffered by the Company or any Member that arises out of any action or inaction of the Manager, unless such action or inaction is adjudicated by a court of competent jurisdiction to constitute bad faith, actual fraud, gross negligence or willful misconduct by the Manager.
(o) Audit Notification. The Partnership Representative will provide prompt written notification to each Member in the event of any audit of the Company by the United States Internal Revenue Service.
(p) Member Contribution for Audit Expenses. At the Manager’ option, the Partnership may require each current and former Member to contribute to the Partnership the current or former Member’s share of the Audit Expenses and reasonably expected Audit Expenses as so allocated.
C-9
(q) Member Covenant Not to Sue. No current or former Member will sue (and neither the Partnership nor any current and former Member or other Member will have any claim against) the Tax Matters Partner, the Partnership Representative, the Manager, or the Company on account of any act or failure to act by the Tax Matters Partner, the Partnership Representative, the Manager, or the Company in connection with an Audit.
(r) Partnership Indemnification against Expenses. The Partnership will indemnify and will hold harmless the Partnership Representative from and against any and all Indemnified Audit Claim Expenses and Indemnified Expenses.
(s) Survival of Audit Provisions. Each Member agrees that the provisions of this Paragraph G will survive the termination of the Partnership and the termination of any Member’s interest in the Partnership.
C-10
EXHIBIT D
LEGACY MEMBERS
The Legacy Members are:
Scott Kee
Ichiro Aoki
Donald McClymont
David Kang
Bison Capital Partners IV, L.P
D-1
Exhibit 10.3
INDIE SEMICONDUCTOR, INC.
2021 OMNIBUS EQUITY INCENTIVE PLAN
Effective June 10, 2021
Approved by Shareholders of Thunder Bridge Acquisition II, Ltd. (the predecessor by mergers to indie Semiconductor, Inc.) on June 9, 2021
INDIE SEMICONDUCTOR, INC.
2021 OMNIBUS EQUITY INCENTIVE PLAN
Article
I
PURPOSE
The purpose of this indie Semiconductor, Inc. 2021 Omnibus Equity Incentive Plan (the “Plan”) is to benefit indie Semiconductor, Inc., a Delaware corporation (the “Company”) and its stockholders, by assisting the Company and its subsidiaries to attract, retain and provide incentives to key management employees, directors, and consultants of the Company and its Affiliates, and to align the interests of such service providers with those of the Company’s stockholders. Accordingly, the Plan provides for the granting of Non-qualified Stock Options, Incentive Stock Options, Restricted Stock Awards, Restricted Stock Unit Awards, Stock Appreciation Rights, Performance Stock Awards, Performance Unit Awards, Unrestricted Stock Awards, Distribution Equivalent Rights or any combination of the foregoing.
Article
II
DEFINITIONS
The following definitions shall be applicable throughout the Plan unless the context otherwise requires:
2.1 “Affiliate” shall mean any corporation which, with respect to the Company, is a “subsidiary corporation” within the meaning of Section 424(f) of the Code or other entity in which the Company has a controlling interest in such entity or another entity which is part of a chain of entities in which the Company or each entity has a controlling interest in another entity in the unbroken chain of entities ending with the applicable entity.
2.2 “Award” shall mean, individually or collectively, any Option, Restricted Stock Award, Restricted Stock Unit Award, Performance Stock Award, Performance Unit Award, Stock Appreciation Right, Distribution Equivalent Right or Unrestricted Stock Award.
2.3 “Award Agreement” shall mean a written agreement between the Company and the Holder with respect to an Award, setting forth the terms and conditions of the Award, as amended.
2.4 “Board” shall mean the Board of Directors of the Company.
2.5 “Base Value” shall have the meaning given to such term in Section 14.2.
2.6 “Cause” shall mean (i) if the Holder is a party to an employment or service agreement with the Company or an Affiliate which agreement defines “Cause” (or a similar term), “Cause” shall have the same meaning as provided for in such agreement, or (ii) for a Holder who is not a party to such an agreement, “Cause” shall mean termination by the Company or an Affiliate of the employment (or other service relationship) of the Holder by reason of the Holder’s (A) intentional failure to perform reasonably assigned duties, (B) dishonesty or willful misconduct in the performance of the Holder’s duties, (C) involvement in a transaction which is materially adverse to the Company or an Affiliate, (D) breach of fiduciary duty involving personal profit, (E) willful violation of any law, rule, regulation or court order (other than misdemeanor traffic violations and misdemeanors not involving misuse or misappropriation of money or property), (F) commission of an act of fraud or intentional misappropriation or conversion of any asset or opportunity of the Company or an Affiliate, or (G) material breach of any provision of the Plan or the Holder’s Award Agreement or any other written agreement between the Holder and the Company or an Affiliate, in each case as determined in good faith by the Board, the determination of which shall be final, conclusive and binding on all parties.
2.7 “Change of Control” shall mean, except as otherwise provided in an Award Agreement, (i) for a Holder who is a party to an employment or consulting agreement with the Company or an Affiliate which agreement defines “Change of Control” (or a similar term), “Change of Control” shall have the same meaning as provided for in such agreement, or (ii) for a Holder who is not a party to such an agreement, “Change of Control” shall mean the satisfaction of any one or more of the following conditions (and the “Change of Control” shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied):
(a) Any person (as such term is used in paragraphs 13(d) and 14(d)(2) of the Exchange Act, hereinafter in this definition, “Person”), other than the Company or an Affiliate or an employee benefit plan of the Company or an Affiliate, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities;
(b) The closing of a merger, consolidation or other business combination (a “Business Combination”) other than a Business Combination in which holders of the Shares immediately prior to the Business Combination have substantially the same proportionate ownership of the common stock or ordinary shares, as applicable, of the surviving corporation immediately after the Business Combination as immediately before;
(c) The closing of an agreement for the sale or disposition of all or substantially all of the Company’s assets to any entity that is not an Affiliate;
(d) The approval by the holders of shares of Shares of a plan of complete liquidation of the Company, other than a merger of the Company into any subsidiary or a liquidation as a result of which persons who were stockholders of the Company immediately prior to such liquidation have substantially the same proportionate ownership of shares of common stock or ordinary shares, as applicable, of the surviving corporation immediately after such liquidation as immediately before; or
2
(e) Within any twenty-four (24) month period, the Incumbent Directors shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided, however, that any director elected to the Board, or nominated for election, by a majority of the Incumbent Directors then still in office, shall be deemed to be an Incumbent Director for purposes of this paragraph (e), but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, entity or “group” other than the Board (including, but not limited to, any such assumption that results from paragraphs (a), (b), (c), or (d) of this definition).
Unless otherwise provided in an applicable Award Agreement, solely for the purpose of determining the timing of any payments pursuant to any Award constituting a “deferral of compensation” subject to Code Section 409A, a Change of Control shall be limited to a “change in the ownership of the Company,” a “change in the effective control of the Company,” or a “change in the ownership of a substantial portion of the assets of the Company” as such terms are defined in Section 1.409A-3(i)(5) of the U.S. Treasury Regulations.
2.8 “Code” shall mean the United States of America Internal Revenue Code of 1986, as amended. Reference in the Plan to any section of the Code shall be deemed to include any amendments or successor provisions to any section and any regulation under such section.
2.9 “Committee” shall mean a committee comprised of two (2) or more members of the Board who are selected by the Board as provided in Section 4.1.
2.10 “Company” shall have the meaning given to such term in the introductory paragraph, including any successor thereto.
2.11 “Consultant” shall mean any natural person that provides bona fide services as an independent contractor and who qualifies as a consultant or advisor under Instruction A.1.(a)(1) of Form S-8 of the Securities Act of 1933, as amended.
2.12 “Director” shall mean a member of the Board or a member of the board of directors of an Affiliate, in either case, who is not an Employee.
2.13 “Distribution Equivalent Right” shall mean an Award granted under Article XIII of the Plan which entitles the Holder to receive bookkeeping credits, cash payments and/or Share distributions equal in amount to the distributions that would have been made to the Holder had the Holder held a specified number of Shares during the period the Holder held the Distribution Equivalent Right.
2.14 “Distribution Equivalent Right Award Agreement” shall mean a written agreement between the Company and a Holder with respect to a Distribution Equivalent Right Award.
3
2.15 “Effective Date” shall mean June 10, 2021.
2.16 “Employee” shall mean any employee, including any officer, of the Company or an Affiliate.
2.17 “Exchange Act” shall mean the United States of America Securities Exchange Act of 1934, as amended.
2.18 “Fair Market Value” shall mean, as of any specified date, the closing sales price of the Shares for such date (or, in the event that the Shares are not traded on such date, on the immediately preceding trading date) on the NASDAQ Stock Market (“NASDAQ”), as reported by NASDAQ, or such other domestic or foreign national securities exchange on which the Shares may be listed. If the Shares are not listed on NASDAQ or on a national securities exchange, but are quoted on the OTC Bulletin Board or by the National Quotation Bureau, the Fair Market Value of the Shares shall be the mean of the highest bid and lowest asked prices per Share for such date. If the Shares are not quoted or listed as set forth above, Fair Market Value shall be determined by the Board in good faith by any fair and reasonable means (which means may be set forth with greater specificity in the applicable Award Agreement). The Fair Market Value of property other than Shares shall be determined by the Board in good faith by any fair and reasonable means consistent with the requirements of applicable law.
2.19 “Family Member” of an individual shall mean any child, stepchild, grandchild, parent, stepparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, any person sharing the Holder’s household (other than a tenant or employee of the Holder), a trust in which such persons have more than fifty percent (50%) of the beneficial interest, a foundation in which such persons (or the Holder) control the management of assets, and any other entity in which such persons (or the Holder) own more than fifty percent (50%) of the voting interests.
2.20 “Holder” shall mean an Employee, Director or Consultant who has been granted an Award or any such individual’s beneficiary, estate or representative, who has acquired such Award in accordance with the terms of the Plan, as applicable.
2.21 “Incentive Stock Option” shall mean an Option which is intended by the Committee to constitute an “incentive stock option” and conforms to the applicable provisions of Section 422 of the Code.
2.22 “Incumbent Director” shall mean, with respect to any period of time specified under the Plan for purposes of determining whether or not a Change of Control has occurred, the individuals who were members of the Board at the beginning of such period.
2.23 “Non-qualified Stock Option” shall mean an Option which is not an Incentive Stock Option or which is designated as an Incentive Stock Option but does not meet the applicable requirements of Section 422 of the Code.
4
2.24 “Option” shall mean an Award granted under Article VII of the Plan of an option to purchase Shares and shall include both Incentive Stock Options and Non-qualified Stock Options.
2.25 “Option Agreement” shall mean a written agreement between the Company and a Holder with respect to an Option.
2.26 “Performance Criteria” shall mean the criteria selected by the Committee for purposes of establishing the Performance Goal(s) for a Holder for a Performance Period.
2.27 “Performance Goals” shall mean, for a Performance Period, the written goal or goals established by the Committee for the Performance Period based upon the Performance Criteria, which may be related to the performance of the Holder, the Company or an Affiliate.
2.28 “Performance Period” shall mean one or more periods of time, which may be of varying and overlapping durations, selected by the Committee, over which the attainment of the Performance Goals shall be measured for purposes of determining a Holder’s right to, and the payment of, a Performance Stock Award or a Performance Unit Award.
2.29 “Performance Stock Award” or “Performance Stock” shall mean an Award granted under Article XII of the Plan under which, upon the satisfaction of predetermined Performance Goals, Shares are paid to the Holder.
2.30 “Performance Stock Agreement” shall mean a written agreement between the Company and a Holder with respect to a Performance Stock Award.
2.31 “Performance Unit Award” or “Performance Unit” shall mean an Award granted under Article XI of the Plan under which, upon the satisfaction of predetermined Performance Goals, a cash payment shall be made to the Holder, based on the number of Units awarded to the Holder.
2.32 “Performance Unit Agreement” shall mean a written agreement between the Company and a Holder with respect to a Performance Unit Award.
2.33 “Plan” shall mean this indie Semiconductor, Inc. 2021 Omnibus Equity Incentive Plan, as amended from time to time, together with each of the Award Agreements utilized hereunder.
2.34 “Restricted Stock Award” and “Restricted Stock” shall mean an Award granted under Article VIII of the Plan of Shares, the transferability of which by the Holder is subject to Restrictions.
2.35 “Restricted Stock Agreement” shall mean a written agreement between the Company and a Holder with respect to a Restricted Stock Award.
5
2.36 “Restricted Stock Unit Award” and “RSUs” shall refer to an Award granted under Article X of the Plan under which, upon the satisfaction of predetermined individual service-related vesting requirements, a payment in cash or Shares shall be made to the Holder, based on the number of Units awarded to the Holder.
2.37 “Restricted Stock Unit Agreement” shall mean a written agreement between the Company and a Holder with respect to a Restricted Stock Award.
2.38 “Restriction Period” shall mean the period of time for which Shares subject to a Restricted Stock Award shall be subject to Restrictions, as set forth in the applicable Restricted Stock Agreement.
2.39 “Restrictions” shall mean the forfeiture, transfer and/or other restrictions applicable to Shares awarded to an Employee, Director or Consultant under the Plan pursuant to a Restricted Stock Award and set forth in a Restricted Stock Agreement.
2.40 “Rule 16b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act, as such may be amended from time to time, and any successor rule, regulation or statute fulfilling the same or a substantially similar function.
2.41 “Shares” or “Stock” shall mean the Class A common stock of the Company, par value $0.0001 per share.
2.42 “Stock Appreciation Right” or “SAR” shall mean an Award granted under Article XIV of the Plan of a right, granted alone or in connection with a related Option, to receive a payment equal to the increase in value of a specified number of Shares between the date of Award and the date of exercise.
2.43 “Stock Appreciation Right Agreement” shall mean a written agreement between the Company and a Holder with respect to a Stock Appreciation Right.
2.44 “Tandem Stock Appreciation Right” shall mean a Stock Appreciation Right granted in connection with a related Option, the exercise of some or all of which results in termination of the entitlement to purchase some or all of the Shares under the related Option, all as set forth in Article XIV.
2.45 “Ten Percent Stockholder” shall mean an Employee who, at the time an Option is granted to him or her, owns shares possessing more than ten percent (10%) of the total combined voting power of all classes of shares of the Company or of any parent corporation or subsidiary corporation thereof (both as defined in Section 424 of the Code), within the meaning of Section 422(b)(6) of the Code.
2.46 “Termination of Service” shall mean a termination of a Holder’s employment with, or status as a Director or Consultant of, the Company or an Affiliate, as applicable, for any reason, including, without limitation, Total and Permanent Disability or death, except as provided in Section 6.4. In the event Termination of Service shall constitute a payment event with respect to any Award subject to Code Section 409A, Termination of Service shall only be deemed to occur upon a “separation from service” as such term is defined under Code Section 409A and applicable authorities.
6
2.47 “Total and Permanent Disability” of an individual shall mean the inability of such individual to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months, within the meaning of Section 22(e)(3) of the Code.
2.48 “Unit” shall mean a bookkeeping unit, which represents such monetary amount as shall be designated by the Committee in each Performance Unit Agreement, or represents one Share for purposes of each Restricted Stock Unit Award.
2.49 “Unrestricted Stock Award” shall mean an Award granted under Article IX of the Plan of Shares which are not subject to Restrictions.
2.50 “Unrestricted Stock Agreement” shall mean a written agreement between the Company and a Holder with respect to an Unrestricted Stock Award.
Article
III
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the Effective Date, provided that the Plan is approved by the stockholders of the Company within twelve (12) months of such date.
Article
IV
ADMINISTRATION
4.1 Composition of Committee. The Plan shall be administered by the Committee, which shall be appointed by the Board. If necessary, in the Board’s discretion, to comply with Rule 16b-3 under the Exchange Act or relevant securities exchange or inter-dealer quotation service, the Committee shall consist solely of two (2) or more Directors who are each (i) “non-employee directors” within the meaning of Rule 16b-3 and (ii) “independent” for purposes of any applicable listing requirements;. If a member of the Committee shall be eligible to receive an Award under the Plan, such Committee member shall have no authority hereunder with respect to his or her own Award.
4.2 Powers. Subject to the other provisions of the Plan, the Committee shall have the sole authority, in its discretion, to make all determinations under the Plan, including but not limited to (i) determining which Employees, Directors or Consultants shall receive an Award, (ii) the time or times when an Award shall be made (the date of grant of an Award shall be the date on which the Award is awarded by the Committee), (iii) what type of Award shall be granted, (iv) the term of an Award, (v) the date or dates on which an Award vests, (vi) the form of any payment to be made pursuant to an Award, (vii) the terms and conditions of an Award (including the forfeiture of the Award, and/or any financial gain, if the Holder of the Award violates any applicable restrictive covenant thereof), (viii) the Restrictions under a Restricted Stock Award, (ix) the number of Shares which may be issued under an Award, (x) Performance Goals applicable to any Award and certification of the achievement of such goals, and (xi) the waiver of any Restrictions or Performance Goals, subject in all cases to compliance with applicable laws. In making such determinations the Committee may take into account the nature of the services rendered by the respective Employees, Directors and Consultants, their present and potential contribution to the Company’s (or the Affiliate’s) success and such other factors as the Committee in its discretion may deem relevant.
7
4.3 Additional Powers. The Committee shall have such additional powers as are delegated to it under the other provisions of the Plan. Subject to the express provisions of the Plan, the Committee is authorized to construe the Plan and the respective Award Agreements executed hereunder, to prescribe such rules and regulations relating to the Plan as it may deem advisable to carry out the intent of the Plan, to determine the terms, restrictions and provisions of each Award and to make all other determinations necessary or advisable for administering the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in any Award Agreement in the manner and to the extent the Committee shall deem necessary, appropriate or expedient to carry it into effect. The determinations of the Committee on the matters referred to in this Article IV shall be conclusive and binding on the Company and all Holders.
4.4 Committee Action. Subject to compliance with all applicable laws, action by the Committee shall require the consent of a majority of the members of the Committee, expressed either orally at a meeting of the Committee or in writing in the absence of a meeting. No member of the Committee shall have any liability for any good faith action, inaction or determination in connection with the Plan.
Article
V
SHARES SUBJECT TO PLAN AND LIMITATIONS THEREON
5.1 Authorized Shares and Award Limits. The Committee may from time to time grant Awards to one or more Employees, Directors and/or Consultants determined by it to be eligible for participation in the Plan in accordance with the provisions of Article VI. Subject to Article XV, the aggregate number of Shares that may be issued under the Plan shall not exceed ten million, three hundred sixty-eight thousand, seven hundred and fifty (10,368,750) Shares. Shares shall be deemed to have been issued under the Plan solely to the extent actually issued and delivered pursuant to an Award. To the extent that an Award lapses, expires, is canceled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its Holder terminate, any Shares subject to such Award shall again be available for the grant of a new Award. Notwithstanding any provision in the Plan to the contrary, the maximum number of Shares that may be subject to Awards of Incentive Stock Options shall not be more than ten million, three hundred sixty-eight thousand, seven hundred and fifty (10,368,750) Shares (subject to adjustment in the same manner as provided in Article XV with respect to Shares subject to Awards then outstanding).
5.2 Types of Shares. The Shares to be issued pursuant to the grant or exercise of an Award may consist of authorized but unissued Shares, Shares purchased on the open market or Shares previously issued and outstanding and reacquired by the Company.
8
Article
VI
ELIGIBILITY AND TERMINATION OF SERVICE
6.1 Eligibility. Awards made under the Plan may be granted solely to individuals who, at the time of grant, are Employees, Directors or Consultants. An Award may be granted on more than one occasion to the same Employee, Director or Consultant, and, subject to the limitations set forth in the Plan, such Award may include, a Non-qualified Stock Option, a Restricted Stock Award, a Restricted Stock Unit Award, an Unrestricted Stock Award, a Distribution Equivalent Right Award, a Performance Stock Award, a Performance Unit Award, a Stock Appreciation Right, a Tandem Stock Appreciation Right, or any combination thereof, and solely for Employees, an Incentive Stock Option.
6.2 Termination of Service. Except to the extent inconsistent with the terms of the applicable Award Agreement and/or the provisions of Section 6.3 or 6.4, the following terms and conditions shall apply with respect to a Holder’s Termination of Service with the Company or an Affiliate, as applicable:
(a) The Holder’s rights, if any, to exercise any then exercisable Options and/or Stock Appreciation Rights shall terminate:
(i) If such termination is for a reason other than the Holder’s Total and Permanent Disability or death, ninety (90) days after the date of such Termination of Service;
(ii) If such termination is on account of the Holder’s Total and Permanent Disability, one (1) year after the date of such Termination of Service; or
(iii) If such termination is on account of the Holder’s death, one (1) year after the date of the Holder’s death.
Upon such applicable date the Holder (and such Holder’s estate, designated beneficiary or other legal representative) shall forfeit any rights or interests in or with respect to any such Options and Stock Appreciation Rights. Notwithstanding the foregoing, the Committee, in its sole discretion, may provide for a different time period in the Award Agreement, or may extend the time period, following a Termination of Service, during which the Holder has the right to exercise any vested Non-qualified Stock Option or Stock Appreciation Right, which time period may not extend beyond the expiration date of the Award term.
(b) In the event of a Holder’s Termination of Service for any reason prior to the actual or deemed satisfaction and/or lapse of the Restrictions, vesting requirements, terms and conditions applicable to a Restricted Stock Award and/or Restricted Stock Unit Award, such Restricted Stock and/or RSUs shall immediately be canceled, and the Holder (and such Holder’s estate, designated beneficiary or other legal representative) shall forfeit any rights or interests in and with respect to any such Restricted Stock and/or RSUs.
9
6.3 Special Termination Rule. Except to the extent inconsistent with the terms of the applicable Award Agreement, and notwithstanding anything to the contrary contained in this Article VI, if a Holder’s employment with, or status as a Director of, the Company or an Affiliate shall terminate, and if, within ninety (90) days of such termination, such Holder shall become a Consultant, such Holder’s rights with respect to any Award or portion thereof granted thereto prior to the date of such termination may be preserved, if and to the extent determined by the Committee in its sole discretion, as if such Holder had been a Consultant for the entire period during which such Award or portion thereof had been outstanding. Should the Committee effect such determination with respect to such Holder, for all purposes of the Plan, such Holder shall not be treated as if his or her employment or Director status had terminated until such time as his or her Consultant status shall terminate, in which case his or her Award, as it may have been reduced in connection with the Holder’s becoming a Consultant, shall be treated pursuant to the provisions of Section 6.2, provided, however, that any such Award which is intended to be an Incentive Stock Option shall, upon the Holder’s no longer being an Employee, automatically convert to a Non-qualified Stock Option. Should a Holder’s status as a Consultant terminate, and if, within ninety (90) days of such termination, such Holder shall become an Employee or a Director, such Holder’s rights with respect to any Award or portion thereof granted thereto prior to the date of such termination may be preserved, if and to the extent determined by the Committee in its sole discretion, as if such Holder had been an Employee or a Director, as applicable, for the entire period during which such Award or portion thereof had been outstanding, and, should the Committee effect such determination with respect to such Holder, for all purposes of the Plan, such Holder shall not be treated as if his or her Consultant status had terminated until such time as his or her employment with the Company or an Affiliate, or his or her Director status, as applicable, shall terminate, in which case his or her Award shall be treated pursuant to the provisions of Section 6.2.
6.4 Termination of Service for Cause. Notwithstanding anything in this Article VI or elsewhere in the Plan to the contrary, and unless a Holder’s Award Agreement specifically provides otherwise, in the event of a Holder’s Termination of Service for Cause, all of such Holder’s then outstanding Awards shall expire immediately and be forfeited in their entirety upon such Termination of Service.
Article
VII
OPTIONS
7.1 Option Period. The term of each Option shall be as specified in the Option Agreement; provided, however, that except as set forth in Section 7.3, no Option shall be exercisable after the expiration of ten (10) years from the date of its grant.
7.2 Limitations on Exercise of Option. An Option shall be exercisable in whole or in such installments and at such times as specified in the Option Agreement
10
7.3 Special Limitations on Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined at the time the respective Incentive Stock Option is granted) of Shares with respect to which Incentive Stock Options are exercisable for the first time by an individual during any calendar year under all plans of the Company and any parent corporation or subsidiary corporation thereof (both as defined in Section 424 of the Code) which provide for the grant of Incentive Stock Options exceeds One Hundred Thousand Dollars ($100,000) (or such other individual limit as may be in effect under the Code on the date of grant), the portion of such Incentive Stock Options that exceeds such threshold shall be treated as Non-qualified Stock Options. The Committee shall determine, in accordance with applicable provisions of the Code, Treasury Regulations and other administrative pronouncements, which of a Holder’s Options, which were intended by the Committee to be Incentive Stock Options when granted to the Holder, will not constitute Incentive Stock Options because of such limitation, and shall notify the Holder of such determination as soon as practicable after such determination. No Incentive Stock Option shall be granted to an Employee if, at the time the Incentive Stock Option is granted, such Employee is a Ten Percent Stockholder, unless (i) at the time such Incentive Stock Option is granted the Option price is at least one hundred ten percent (110%) of the Fair Market Value of the Shares subject to the Incentive Stock Option, and (ii) such Incentive Stock Option by its terms is not exercisable after the expiration of five (5) years from the date of grant. No Incentive Stock Option shall be granted more than ten (10) years from the earlier of the Effective Date or date on which the Plan is approved by the Company’s stockholders. The designation by the Committee of an Option as an Incentive Stock Option shall not guarantee the Holder that the Option will satisfy the applicable requirements for “incentive stock option” status under Section 422 of the Code.
7.4 Option Agreement. Each Option shall be evidenced by an Option Agreement in such form and containing such provisions not inconsistent with the other provisions of the Plan as the Committee from time to time shall approve, including, but not limited to, provisions intended to qualify an Option as an Incentive Stock Option. An Option Agreement may provide for the payment of the Option price, in whole or in part, by the delivery of a number of Shares (plus cash if necessary) that have been owned by the Holder for at least six (6) months and having a Fair Market Value equal to such Option price, or such other forms or methods as the Committee may determine from time to time, in each case, subject to such rules and regulations as may be adopted by the Committee. Each Option Agreement shall, solely to the extent inconsistent with the provisions of Sections 6.2, 6.3, and 6.4, as applicable, specify the effect of Termination of Service on the exercisability of the Option. Moreover, without limiting the generality of the foregoing, a Non-qualified Stock Option Agreement may provide for a “cashless exercise” of the Option, in whole or in part, by (a) establishing procedures whereby the Holder, by a properly-executed written notice, directs (i) an immediate market sale or margin loan as to all or a part of Shares to which he is entitled to receive upon exercise of the Option, pursuant to an extension of credit by the Company to the Holder of the Option price, (ii) the delivery of the Shares from the Company directly to a brokerage firm and (iii) the delivery of the Option price from sale or margin loan proceeds from the brokerage firm directly to the Company, or (b) reducing the number of Shares to be issued upon exercise of the Option by the number of such Shares having an aggregate Fair Market Value equal to the Option price (or portion thereof to be so paid) as of the date of the Option’s exercise. An Option Agreement may also include provisions relating to: (i) subject to the provisions hereof, accelerated vesting of Options, including but not limited to, upon the occurrence of a Change of Control, (ii) tax matters (including provisions covering any applicable Employee wage withholding requirements) and (iii) any other matters not inconsistent with the terms and provisions of the Plan that the Committee shall in its sole discretion determine. The terms and conditions of the respective Option Agreements need not be identical.
11
7.5 Option Price and Payment. The price at which an Share may be purchased upon exercise of an Option shall be determined by the Committee; provided, however, that such Option price (i) shall not be less than the Fair Market Value of an Share on the date such Option is granted (or 110% of Fair Market Value for an Incentive Stock Option held by Ten Percent Stockholder, as provided in Section 7.3), and (ii) shall be subject to adjustment as provided in Article XV. The Option or portion thereof may be exercised by delivery of an irrevocable notice of exercise to the Company. The Option price for the Option or portion thereof shall be paid in full in the manner prescribed by the Committee as set forth in the Plan and the applicable Option Agreement, which manner, with the consent of the Committee, may include the withholding of Shares otherwise issuable in connection with the exercise of the Option. Separate share certificates shall be issued by the Company for those Shares acquired pursuant to the exercise of an Incentive Stock Option and for those Shares acquired pursuant to the exercise of a Non-qualified Stock Option.
7.6 Stockholder Rights and Privileges. The Holder of an Option shall be entitled to all the privileges and rights of a stockholder of the Company solely with respect to such Shares as have been purchased under the Option and for which share certificates have been registered in the Holder’s name.
7.7 Options and Rights in Substitution for Stock or Options Granted by Other Corporations. Options may be granted under the Plan from time to time in substitution for stock options held by individuals employed by entities who become Employees, Directors or Consultants as a result of a merger or consolidation of the employing entity with the Company or any Affiliate, or the acquisition by the Company or an Affiliate of the assets of the employing entity, or the acquisition by the Company or an Affiliate of stock or shares of the employing entity with the result that such employing entity becomes an Affiliate. Any substitute Awards granted under this Plan shall not reduce the number of Shares authorized for grant under the Plan.
7.8 Prohibition Against RePricing. Except to the extent (i) approved in advance by holders of a majority of the shares of the Company entitled to vote generally in the election of directors, or (ii) as a result of any Change of Control or any adjustment as provided in Article XV, the Committee shall not have the power or authority to reduce, whether through amendment or otherwise, the exercise price under any outstanding Option or Stock Appreciation Right, or to grant any new Award or make any payment of cash in substitution for or upon the cancellation of Options and/or Stock Appreciation Rights previously granted.
12
Article
VIII
RESTRICTED STOCK AWARDS
8.1 Award. A Restricted Stock Award shall constitute an Award of Shares to the Holder as of the date of the Award which are subject to a “substantial risk of forfeiture” as defined under Section 83 of the Code during the specified Restriction Period. At the time a Restricted Stock Award is made, the Committee shall establish the Restriction Period applicable to such Award. Each Restricted Stock Award may have a different Restriction Period, in the discretion of the Committee. The Restriction Period applicable to a particular Restricted Stock Award shall not be changed except as permitted by Section 8.2.
8.2 Terms and Conditions. At the time any Award is made under this Article VIII, the Company and the Holder shall enter into a Restricted Stock Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to be appropriate. The Company shall cause the Shares to be issued in the name of Holder, either by book-entry registration or issuance of one or more stock certificates evidencing the Shares, which Shares or certificates shall be held by the Company or the stock transfer agent or brokerage service selected by the Company to provide services for the Plan. The Shares shall be restricted from transfer and shall be subject to an appropriate stop-transfer order, and if any certificate is issued, such certificate shall bear an appropriate legend referring to the restrictions applicable to the Shares. After any Shares vest, the Company shall deliver the vested Shares, in book-entry or certificated form in the Company’s sole discretion, registered in the name of Holder or his or her legal representatives, beneficiaries or heirs, as the case may be, less any Shares withheld to pay withholding taxes. If provided for under the Restricted Stock Agreement, the Holder shall have the right to vote Shares subject thereto and to enjoy all other stockholder rights, including the entitlement to receive dividends on the Shares during the Restriction Period. At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to Restricted Stock Awards, including, but not limited to, rules pertaining to the effect of Termination of Service prior to expiration of the Restriction Period. Such additional terms, conditions or restrictions shall, to the extent inconsistent with the provisions of Sections 6.2, 6.3 and 6.4, as applicable, be set forth in a Restricted Stock Agreement made in conjunction with the Award. Such Restricted Stock Agreement may also include provisions relating to: (i) subject to the provisions hereof, accelerated vesting of Awards, including but not limited to accelerated vesting upon the occurrence of a Change of Control, (ii) tax matters (including provisions covering any applicable Employee wage withholding requirements) and (iii) any other matters not inconsistent with the terms and provisions of the Plan that the Committee shall in its sole discretion determine. The terms and conditions of the respective Restricted Stock Agreements need not be identical. All Shares delivered to a Holder as part of a Restricted Stock Award shall be delivered and reported by the Company or the Affiliate, as applicable, to the Holder at the time of vesting.
8.3 Payment for Restricted Stock. The Committee shall determine the amount and form of any payment from a Holder for Shares received pursuant to a Restricted Stock Award, if any, provided that in the absence of such a determination, a Holder shall not be required to make any payment for Shares received pursuant to a Restricted Stock Award, except to the extent otherwise required by law.
13
Article
IX
UNRESTRICTED STOCK AWARDS
9.1 Award. Shares may be awarded (or sold) to Employees, Directors or Consultants under the Plan which are not subject to Restrictions of any kind, in consideration for past services rendered thereby to the Company or an Affiliate or for other valid consideration.
9.2 Terms and Conditions.
At the time any Award is made under this Article IX, the Company and the Holder shall enter into an Unrestricted Stock Agreement setting forth each of the matters contemplated hereby and such other matters as the Committee may determine to be appropriate.
9.3 Payment for Unrestricted Stock
. The Committee shall determine the amount and form of any payment from a Holder for Shares received pursuant to an Unrestricted Stock Award, if any, provided that in the absence of such a determination, a Holder shall not be required to make any payment for Shares received pursuant to an Unrestricted Stock Award, except to the extent otherwise required by law.
Article
X
RESTRICTED STOCK UNIT AWARDS
10.1 Award. A Restricted Stock Unit Award shall constitute a promise to grant Shares (or cash equal to the Fair Market Value of Shares) to the Holder at the end of a specified vesting schedule. At the time a Restricted Stock Unit Award is made, the Committee shall establish the vesting schedule applicable to such Award. Each Restricted Stock Unit Award may have a different vesting schedule, in the discretion of the Committee. A Restricted Stock Unit shall not constitute an equity interest in the Company and shall not entitle the Holder to voting rights, dividends or any other rights associated with ownership of Shares prior to the time the Holder shall receive a distribution of Shares pursuant to Section 10.3.
10.2 Terms and Conditions. At the time any Award is made under this Article X, the Company and the Holder shall enter into a Restricted Stock Unit Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to be appropriate. The Restricted Stock Unit Agreement shall set forth the individual service-based vesting requirement which the Holder would be required to satisfy before the Holder would become entitled to distribution pursuant to Section 10.3 and the number of Units awarded to the Holder. Such conditions shall be sufficient to constitute a “substantial risk of forfeiture” as such term is defined under Section 409A of the Code. At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to Restricted Stock Unit Awards in the Restricted Stock Unit Agreement, including, but not limited to, rules pertaining to the effect of Termination of Service prior to expiration of the applicable vesting period. The terms and conditions of the respective Restricted Stock Unit Agreements need not be identical.
14
10.3 Distributions of Shares. The Holder of a Restricted Stock Unit shall be entitled to receive Shares or a cash payment equal to the Fair Market Value of a Share, or one Share, as determined in the sole discretion of the Committee and as set forth in the Restricted Stock Unit Agreement, for each Restricted Stock Unit subject to such Restricted Stock Unit Award, if the Holder satisfies the applicable vesting requirement. Such distribution shall be made no later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the calendar year in which the Restricted Stock Unit first becomes vested (i.e., no longer subject to a “substantial risk of forfeiture”).
Article
XI
PERFORMANCE UNIT AWARDS
11.1 Award. A Performance Unit Award shall constitute an Award under which, upon the satisfaction of predetermined individual and/or Company (and/or Affiliate) Performance Goals based on selected Performance Criteria, a cash payment shall be made to the Holder, based on the number of Units awarded to the Holder. At the time a Performance Unit Award is made, the Committee shall establish the Performance Period and applicable Performance Goals. Each Performance Unit Award may have different Performance Goals, in the discretion of the Committee. A Performance Unit Award shall not constitute an equity interest in the Company and shall not entitle the Holder to voting rights, dividends or any other rights associated with ownership of Shares.
11.2 Terms and Conditions. At the time any Award is made under this Article XI, the Company and the Holder shall enter into a Performance Unit Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to be appropriate. The Committee shall set forth in the applicable Performance Unit Agreement the Performance Period, Performance Criteria and Performance Goals which the Holder and/or the Company would be required to satisfy before the Holder would become entitled to payment pursuant to Section 11.3, the number of Units awarded to the Holder and the dollar value or formula assigned to each such Unit. Such payment shall be subject to a “substantial risk of forfeiture” under Section 409A of the Code. At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to Performance Unit Awards, including, but not limited to, rules pertaining to the effect of Termination of Service prior to expiration of the applicable performance period. The terms and conditions of the respective Performance Unit Agreements need not be identical.
11.3 Payments. The Holder of a Performance Unit shall be entitled to receive a cash payment equal to the dollar value assigned to such Unit under the applicable Performance Unit Agreement if the Holder and/or the Company satisfy (or partially satisfy, if applicable under the applicable Performance Unit Agreement) the Performance Goals set forth in such Performance Unit Agreement. All payments shall be made no later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the Company’s fiscal year to which such performance goals and objectives relate.
15
Article
XII
PERFORMANCE STOCK AWARDS
12.1 Award. A Performance Stock Award shall constitute a promise to grant Shares (or cash equal to the Fair Market Value of Shares) to the Holder at the end of a specified Performance Period subject to achievement of specified Performance Goals. At the time a Performance Stock Award is made, the Committee shall establish the Performance Period and applicable Performance Goals based on selected Performance Criteria. Each Performance Stock Award may have different Performance Goals, in the discretion of the Committee. A Performance Stock Award shall not constitute an equity interest in the Company and shall not entitle the Holder to voting rights, dividends or any other rights associated with ownership of Shares unless and until the Holder shall receive a distribution of Shares pursuant to Section 12.3.
12.2 Terms and Conditions. At the time any Award is made under this Article XII, the Company and the Holder shall enter into a Performance Stock Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to be appropriate. The Committee shall set forth in the applicable Performance Stock Agreement the Performance Period, selected Performance Criteria and Performance Goals which the Holder and/or the Company would be required to satisfy before the Holder would become entitled to the receipt of Shares pursuant to such Holder’s Performance Stock Award and the number of Shares subject to such Performance Stock Award. Such distribution shall be subject to a “substantial risk of forfeiture” under Section 409A of the Code. If such Performance Goals are achieved, the distribution of Shares (or the payment of cash, as determined in the sole discretion of the Committee), shall be made in accordance with Section 12.3, below. At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to Performance Stock Awards, including, but not limited to, rules pertaining to the effect of the Holder’s Termination of Service prior to the expiration of the applicable performance period. The terms and conditions of the respective Performance Stock Agreements need not be identical.
12.3 Distributions of Shares. The Holder of a Performance Stock Award shall be entitled to receive a cash payment equal to the Fair Market Value of a Share, or one Share, as determined in the sole discretion of the Committee, for each Performance Stock Award subject to such Performance Stock Agreement, if the Holder satisfies the applicable vesting requirement. Such distribution shall be made no later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the Company’s fiscal year to which such performance goals and objectives relate.
16
Article
XIII
DISTRIBUTION EQUIVALENT RIGHTS
13.1 Award. A Distribution Equivalent Right shall entitle the Holder to receive bookkeeping credits, cash payments and/or Share distributions equal in amount to the distributions that would have been made to the Holder had the Holder held a specified number of Shares during the specified period of the Award.
13.2 Terms and Conditions. At the time any Award is made under this Article XIII, the Company and the Holder shall enter into a Distribution Equivalent Rights Award Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to be appropriate. The Committee shall set forth in the applicable Distribution Equivalent Rights Award Agreement the terms and conditions, if any, including whether the Holder is to receive credits currently in cash, is to have such credits reinvested (at Fair Market Value determined as of the date of reinvestment) in additional Shares or is to be entitled to choose among such alternatives. Such receipt shall be subject to a “substantial risk of forfeiture” under Section 409A of the Code and, if such Award becomes vested, the distribution of such cash or Shares shall be made no later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the Company’s fiscal year in which the Holder’s interest in the Award vests. Distribution Equivalent Rights Awards may be settled in cash or in Shares, as set forth in the applicable Distribution Equivalent Rights Award Agreement. A Distribution Equivalent Rights Award may, but need not be, awarded in tandem with another Award (other than an Option or a SAR), whereby, if so awarded, such Distribution Equivalent Rights Award shall expire, terminate or be forfeited by the Holder, as applicable, under the same conditions as under such other Award.
13.3 Interest Equivalents. The Distribution Equivalent Rights Award Agreement for a Distribution Equivalent Rights Award may provide for the crediting of interest on a Distribution Rights Award to be settled in cash at a future date (but in no event later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the Company’s fiscal year in which such interest is credited and vested), at a rate set forth in the applicable Distribution Equivalent Rights Award Agreement, on the amount of cash payable thereunder.
Article
XIV
STOCK APPRECIATION RIGHTS
14.1 Award. A Stock Appreciation Right shall constitute a right, granted alone or in connection with a related Option, to receive a payment equal to the increase in value of a specified number of Shares between the date of Award and the date of exercise.
17
14.2 Terms and Conditions. At the time any Award is made under this Article XIV, the Company and the Holder shall enter into a Stock Appreciation Right Agreement setting forth each of the matters contemplated thereby and such other matters as the Committee may determine to be appropriate. The Committee shall set forth in the applicable Stock Appreciation Right Agreement the terms and conditions of the Stock Appreciation Right, including (i) the base value (the “Base Value”) for the Stock Appreciation Right, which shall be not less than the Fair Market Value of a Share on the date of grant of the Stock Appreciation Right, (ii) the number of Shares subject to the Stock Appreciation Right, (iii) the period during which the Stock Appreciation Right may be exercised; provided, however, that no Stock Appreciation Right shall be exercisable after the expiration of ten (10) years from the date of its grant, and (iv) any other special rules and/or requirements which the Committee imposes upon the Stock Appreciation Right. Upon the exercise of some or all of the portion of a Stock Appreciation Right, the Holder shall receive a payment from the Company, in cash or in the form of Shares having an equivalent Fair Market Value or in a combination of both, as determined in the sole discretion of the Committee, equal to the product of:
(a) The excess of (i) the Fair Market Value of a Share on the date of exercise, over (ii) the Base Value, multiplied by,
(b) The number of Shares with respect to which the Stock Appreciation Right is exercised.
14.3 Tandem Stock Appreciation Rights. If the Committee grants a Stock Appreciation Right which is intended to be a Tandem Stock Appreciation Right, the Tandem Stock Appreciation Right shall be granted at the same time as the related Option, and the following special rules shall apply:
(a) The Base Value shall be equal to or greater than the per Share exercise price under the related Option;
(b) The Tandem Stock Appreciation Right may be exercised for all or part of the Shares which are subject to the related Option, but solely upon the surrender by the Holder of the Holder’s right to exercise the equivalent portion of the related Option (and when a Share is purchased under the related Option, an equivalent portion of the related Tandem Stock Appreciation Right shall be canceled);
(c) The Tandem Stock Appreciation Right shall expire no later than the date of the expiration of the related Option;
(d) The value of the payment with respect to the Tandem Stock Appreciation Right may be no more than one hundred percent (100%) of the difference between the per Share exercise price under the related Option and the Fair Market Value of the Shares subject to the related Option at the time the Tandem Stock Appreciation Right is exercised, multiplied by the number of the Shares with respect to which the Tandem Stock Appreciation Right is exercised; and
(e) The Tandem Stock Appreciation Right may be exercised solely when the Fair Market Value of the Shares subject to the related Option exceeds the per Share exercise price under the related Option.
18
Article
XV
RECAPITALIZATION OR REORGANIZATION
15.1 Adjustments to Shares. The shares with respect to which Awards may be granted under the Plan are Shares as presently constituted; provided, however, that if, and whenever, prior to the expiration or distribution to the Holder of Shares underlying an Award theretofore granted, the Company shall effect a subdivision or consolidation of the Shares or the payment of an Share dividend on Shares without receipt of consideration by the Company, the number of Shares with respect to which such Award may thereafter be exercised or satisfied, as applicable, (i) in the event of an increase in the number of outstanding Shares, shall be proportionately increased, and the purchase price per Share shall be proportionately reduced, and (ii) in the event of a reduction in the number of outstanding Shares, shall be proportionately reduced, and the purchase price per Share shall be proportionately increased. Notwithstanding the foregoing or any other provision of this Article XV, any adjustment made with respect to an Award (x) which is an Incentive Stock Option, shall comply with the requirements of Section 424(a) of the Code, and in no event shall any adjustment be made which would render any Incentive Stock Option granted under the Plan to be other than an “incentive stock option” for purposes of Section 422 of the Code, and (y) which is a Non-qualified Stock Option, shall comply with the requirements of Section 409A of the Code, and in no event shall any adjustment be made which would render any Non-qualified Stock Option granted under the Plan to become subject to Section 409A of the Code.
15.2 Recapitalization. If the Company recapitalizes or otherwise changes its capital structure, thereafter upon any exercise or satisfaction, as applicable, of a previously granted Award, the Holder shall be entitled to receive (or entitled to purchase, if applicable) under such Award, in lieu of the number of Shares then covered by such Award, the number and class of shares and securities to which the Holder would have been entitled pursuant to the terms of the recapitalization if, immediately prior to such recapitalization, the Holder had been the holder of record of the number of Shares then covered by such Award.
15.3 Other Events. In the event of changes to the outstanding Shares by reason of an extraordinary cash dividend, reorganization, merger, consolidation, combination, split-up, spin-off, exchange or other relevant change in capitalization occurring after the date of the grant of any Award and not otherwise provided for under this Article XV, any outstanding Awards and any Award Agreements evidencing such Awards shall be adjusted by the Board in its discretion in such manner as the Board shall deem equitable or appropriate taking into consideration the applicable accounting and tax consequences, as to the number and price of Shares or other consideration subject to such Awards. In the event of any adjustment pursuant to Sections 15.1, 15.2 or this Section 15.3, the aggregate number of Shares available under the Plan pursuant to Section 5.1 may be appropriately adjusted by the Board, the determination of which shall be conclusive. In addition, the Committee may make provision for a cash payment to a Holder or a person who has an outstanding Award.
19
15.4 Change of Control. The Committee may, in its sole discretion, at the time an Award is made or at any time prior to, coincident with or after the time of a Change of Control, cause any Award either (i) to be canceled in consideration of a payment in cash or other consideration in amount per share equal to the excess, if any, of the price or implied price per Share in the Change of Control over the per Share exercise, base or purchase price of such Award, which may be paid immediately or over the vesting schedule of the Award; (ii) to be assumed, or new rights substituted therefore, by the surviving corporation or a parent or subsidiary of such surviving corporation following such Change of Control; (iii) accelerate any time periods, or waive any other conditions, relating to the vesting, exercise, payment or distribution of an Award so that any Award to a Holder whose employment has been terminated as a result of a Change of Control may be vested, exercised, paid or distributed in full on or before a date fixed by the Committee; (iv) to be purchased from a Holder whose employment has been terminated as a result of a Change of Control, upon the Holder’s request, for an amount of cash equal to the amount that could have been obtained upon the exercise, payment or distribution of such rights had such Award been currently exercisable or payable; or (v) terminate any then outstanding Award or make any other adjustment to the Awards then outstanding as the Committee deems necessary or appropriate to reflect such transaction or change. The number of Shares subject to any Award shall be rounded to the nearest whole number.
15.5 Powers Not Affected. The existence of the Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board or of the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change of the Company’s capital structure or business, any merger or consolidation of the Company, any issue of debt or equity securities ahead of or affecting Shares or the rights thereof, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding.
15.6 No Adjustment for Certain Awards. Except as hereinabove expressly provided, the issuance by the Company of shares of any class or securities convertible into shares of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor or upon conversion of shares or obligations of the Company convertible into such shares or other securities, and in any case whether or not for fair value, shall not affect previously granted Awards, and no adjustment by reason thereof shall be made with respect to the number of Shares subject to Awards theretofore granted or the purchase price per Share, if applicable.
20
Article
XVI
AMENDMENT AND TERMINATION OF PLAN
The Plan shall continue in effect, unless sooner terminated pursuant to this Article XVI, until the tenth (10th) anniversary of the date on which it is adopted by the Board (except as to Awards outstanding on that date). The Board in its discretion may terminate the Plan at any time with respect to any shares for which Awards have not theretofore been granted; provided, however, that the Plan’s termination shall not materially and adversely impair the rights of a Holder with respect to any Award theretofore granted without the consent of the Holder. The Board shall have the right to alter or amend the Plan or any part hereof from time to time; provided, however, that without the approval by a majority of the votes cast at a meeting of stockholders at which a quorum representing a majority of the shares of the Company entitled to vote generally in the election of directors is present in person or by proxy, no amendment or modification of the Plan may (i) materially increase the benefits accruing to Holders, (ii) except as otherwise expressly provided in Article XV, materially increase the number of Shares subject to the Plan or the individual Award Agreements specified in Article V, (iii) materially modify the requirements for participation in the Plan, or (iv) amend, modify or suspend Section 7.7 (re-pricing prohibitions) or this Article XVI. In addition, no change in any Award theretofore granted may be made which would materially and adversely impair the rights of a Holder with respect to such Award without the consent of the Holder (unless such change is required in order to exempt the Plan or any Award from Section 409A of the Code).
Article
XVII
MISCELLANEOUS
17.1 No Right to Award. Neither the adoption of the Plan by the Company nor any action of the Board or the Committee shall be deemed to give an Employee, Director or Consultant any right to an Award except as may be evidenced by an Award Agreement duly executed on behalf of the Company, and then solely to the extent and on the terms and conditions expressly set forth therein.
17.2 No Rights Conferred. Nothing contained in the Plan shall (i) confer upon any Employee any right with respect to continuation of employment with the Company or any Affiliate, (ii) interfere in any way with any right of the Company or any Affiliate to terminate the employment of an Employee at any time, (iii) confer upon any Director any right with respect to continuation of such Director’s membership on the Board, (iv) interfere in any way with any right of the Company or an Affiliate to terminate a Director’s membership on the Board at any time, (v) confer upon any Consultant any right with respect to continuation of his or her consulting engagement with the Company or any Affiliate, or (vi) interfere in any way with any right of the Company or an Affiliate to terminate a Consultant’s consulting engagement with the Company or an Affiliate at any time.
17.3 Other Laws; No Fractional Shares; Withholding. The Company shall not be obligated by virtue of any provision of the Plan to recognize the exercise of any Award or to otherwise sell or issue Shares in violation of any laws, rules or regulations, and any postponement of the exercise or settlement of any Award under this provision shall not extend the term of such Award. Neither the Company nor its directors or officers shall have any obligation or liability to a Holder with respect to any Award (or Shares issuable thereunder) (i) that shall lapse because of such postponement, or (ii) for any failure to comply with the requirements of any applicable law, rules or regulations, including but not limited to any failure to comply with the requirements of Section 409A of this Code. No fractional Shares shall be delivered, nor shall any cash in lieu of fractional Shares be paid. The Company shall have the right to deduct in cash (whether under this Plan or otherwise) in connection with all Awards any taxes required by law to be withheld and to require any payments required to enable it to satisfy its withholding obligations. In the case of any Award satisfied in the form of Shares, no Shares shall be issued unless and until arrangements satisfactory to the Company shall have been made to satisfy any tax withholding obligations applicable with respect to such Award. Subject to such terms and conditions as the Committee may impose, the Company shall have the right to retain, or the Committee may, subject to such terms and conditions as it may establish from time to time, permit Holders to elect to tender, Shares (including Shares issuable in respect of an Award) to satisfy, in whole or in part, the amount required to be withheld.
21
17.4 No Restriction on Corporate Action. Nothing contained in the Plan shall be construed to prevent the Company or any Affiliate from taking any corporate action which is deemed by the Company or such Affiliate to be appropriate or in its best interest, whether or not such action would have an adverse effect on the Plan or any Award made under the Plan. No Employee, Director, Consultant, beneficiary or other person shall have any claim against the Company or any Affiliate as a result of any such action.
17.5 Restrictions on Transfer. No Award under the Plan or any Award Agreement and no rights or interests herein or therein, shall or may be assigned, transferred, sold, exchanged, encumbered, pledged or otherwise hypothecated or disposed of by a Holder except (i) by will or by the laws of descent and distribution, or (ii) where permitted under applicable tax rules, by gift to any Family Member of the Holder, subject to compliance with applicable laws. An Award may be exercisable during the lifetime of the Holder only by such Holder or by the Holder’s guardian or legal representative unless it has been transferred by gift to a Family Member of the Holder, in which case it shall be exercisable solely by such transferee. Notwithstanding any such transfer, the Holder shall continue to be subject to the withholding requirements provided for under Section 17.3 hereof.
17.6 Beneficiary Designations. Each Holder may, from time to time, name a beneficiary or beneficiaries (who may be contingent or successive beneficiaries) for purposes of receiving any amount which is payable in connection with an Award under the Plan upon or subsequent to the Holder’s death. Each such beneficiary designation shall serve to revoke all prior beneficiary designations, be in a form prescribed by the Company and be effective solely when filed by the Holder in writing with the Company during the Holder’s lifetime. In the absence of any such written beneficiary designation, for purposes of the Plan, a Holder’s beneficiary shall be the Holder’s estate.
17.7 Rule 16b-3. It is intended that the Plan and any Award made to a person subject to Section 16 of the Exchange Act shall meet all of the requirements of Rule 16b-3. If any provision of the Plan or of any such Award would disqualify the Plan or such Award under, or would otherwise not comply with the requirements of, Rule 16b-3, such provision or Award shall be construed or deemed to have been amended as necessary to conform to the requirements of Rule 16b-3.
22
17.8 Clawback Policy. Notwithstanding anything contained herein or in any incentive “performance based” award, Awards under the Plan shall be subject to reduction, forfeiture or repayment by reason of a correction or restatement of the Company’s financial information if and to the extent such reduction or repayment is required by any applicable law.
17.9 No Obligation to Notify or Minimize Taxes. The Company shall have no duty or obligation to any Holder to advise such Holder as to the time or manner of exercising any Award. Furthermore, the Company shall have no duty or obligation to warn or otherwise advise such Holder of a pending termination or expiration of an Award or a possible period in which the Award may not be exercised. The Company has no duty or obligation to minimize the tax consequences of an Award to any person.
17.10 Section 409A. Notwithstanding any other provision of the Plan, the Committee shall have no authority to issue an Award under the Plan with terms and/or conditions which would cause such Award to constitute non-qualified “deferred compensation” under Section 409A of the Code unless such Award shall be structured to be exempt from or comply with all requirements of Code Section 409A. The Plan and all Award Agreements are intended to comply with the requirements of Section 409A of the Code (or to be exempt therefrom) and shall be so interpreted and construed and no amount shall be paid or distributed from the Plan unless and until such payment complies with all requirements of Code Section 409A. If an Award is subject to Section 409A of the Code, (i) distributions shall only be made in a manner and upon an event permitted under Section 409A of the Code, (ii) payments to be made upon a termination of employment or service shall only be made upon a “separation from service” under section 409A of the Code, (iii) unless the Award specifies otherwise, each installment payment shall be treated as a separate payment for purposes of Section 409A of the Code, and (iv) in no event shall a Holder, directly or indirectly, designate the calendar year in which a distribution is made except in accordance with Section 409A of the Code. Any Award that is subject to Section 409A of the Code and that is to be distributed to a Key Employee (as defined below) upon separation from service shall be administered so that any distribution with respect to such Award shall be postponed for six months following the date of the Holder’s separation from service (unless an earlier death), if required by Section 409A. The determination of Key Employees, including the number and identity of persons considered Key Employees and the identification date, shall be made by the Committee or its delegate each year in accordance with section 416(i) of the Code and the “specified employee” requirements of Section 409A of the Code. It is the intent of the Company that the provisions of this Plan and all other plans and programs sponsored by the Company be interpreted to comply in all respects with Code Section 409A, however, the Company shall have no liability to the Holder, or any successor or beneficiary thereof, in the event taxes, penalties or excise taxes may ultimately be determined to be applicable to any payment or benefit received by the Holder or any successor or beneficiary thereof.
17.11 Indemnification. Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred thereby in connection with or resulting from any claim, action, suit, or proceeding to which such person may be made a party or may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid thereby in settlement thereof, with the Company’s approval, or paid thereby in satisfaction of any judgment in any such action, suit, or proceeding against such person; provided, however, that such person shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive and shall be independent of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or By-laws, by contract, as a matter of law, or otherwise.
23
17.12 Other Benefit Plans. No Award, payment or amount received hereunder shall be taken into account in computing an Employee’s salary or compensation for the purposes of determining any benefits under any pension, retirement, life insurance or other benefit plan of the Company or any Affiliate, unless such other plan specifically provides for the inclusion of such Award, payment or amount received. Nothing in the Plan shall be construed to limit the right of the Company to establish other plans or to pay compensation to its employees, in cash or property, in a manner which is not expressly authorized under the Plan.
17.13 Limits of Liability. Any liability of the Company with respect to an Award shall be based solely upon the contractual obligations created under the Plan and the Award Agreement. None of the Company, any member of the Board nor any member of the Committee shall have any liability to any party for any action taken or not taken, in good faith, in connection with or under the Plan.
17.14 Governing Law. Except as otherwise provided herein, the Plan shall be construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of law.
17.15 Subplans. The Board may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable blue sky, securities or tax laws of various jurisdictions. The Board shall establish such sub-plans by adopting supplements to the Plan setting forth (i) such limitations on the Committee’s discretion under the Plan as the Board deems necessary or desirable and (ii) such additional terms and conditions not otherwise inconsistent with the Plan as the Board shall deem necessary or desirable. All supplements adopted by the Board shall be deemed to be part of the Plan, but each supplement shall apply only to Holders within the affected jurisdiction and the Company shall not be required to provide copies of any supplement to Holders in any jurisdiction that is not affected.
17.16 Severability of Provisions. If any provision of the Plan is held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of the Plan, and the Plan shall be construed and enforced as if such invalid or unenforceable provision had not been included in the Plan.
17.17 No Funding. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of funds or assets to ensure the payment of any Award. Prior to receipt of Shares or a cash distribution pursuant to the terms of an Award, such Award shall represent an unfunded unsecured contractual obligation of the Company and the Holder shall have no greater claim to the Shares underlying such Award or any other assets of the Company or Affiliate than any other unsecured general creditor.
17.18 Headings. Headings used throughout the Plan are for convenience only and shall not be given legal significance.
25
Exhibit 10.4
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (“Agreement”) is made as of June 10, 2021 by and between indie Semiconductor, Inc., a Delaware corporation formerly known as indie Semiconductor, Inc. (the “Company”), and ______________ (“Indemnitee”). This Agreement supersedes and replaces any and all previous Agreements between the Company and Indemnitee covering the subject matter of this Agreement.
RECITALS
WHEREAS, the Board of Directors of the Company (the “Board”) believes that highly competent persons have become more reluctant to serve publicly-held corporations as directors and/or officers or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;
WHEREAS, the Board has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The amended and Restated Certificate of Incorporation of the Company (the “Certificate of Incorporation”) require indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the “DGCL”). The Certificate of Incorporation and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;
WHEREAS, the uncertainties relating to such insurance and to indemnification may increase the difficulty of attracting and retaining such persons;
WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company and its stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;
WHEREAS, this Agreement is a supplement to and in furtherance of the Amended and Restated Certificate of Incorporation, as amended from time to time (the “Certificate of Incorporation”) and any resolutions adopted pursuant thereto, as well as any rights of Indemnitees under any directors’ and officers’ liability insurance policy, and this Agreement shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder;
[WHEREAS, Indemnitee is a representative of Anthem/MIC Strategic Partners, L.P., a Cayman Islands limited partnership (the “Fund”), and has certain rights to indemnification and/or insurance provided by the Fund which Indemnitee and the Fund intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided herein, with the Company’s acknowledgement and agreement to the foregoing being a material condition to Indemnitee’s willingness to serve on the Board.]1
WHEREAS, Indemnitee does not regard the protection available under the Bylaws Certificate of Incorporation and insurance as adequate in the present circumstances, and may not be willing to serve or continue to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve or continue to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that Indemnitee be so indemnified.
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
Section 1. Services to the Company. Indemnitee agrees to serve as an officer and/or a director of the Company and also, at the request of the Company, as a director and/or officer Ay Dee Kay, LLC, a California limited liability company (“ADK”) or of another affiliated corporation, partnership, joint venture, trust or other enterprise. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee. Indemnitee specifically acknowledges that Indemnitee’s employment with the Company (or any of its subsidiaries or any Enterprise), if any, is at will, and the Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between Indemnitee and the Company (or any of its subsidiaries or any Enterprise), other applicable formal severance policies duly adopted by the Board, or, with respect to service as a director or officer of the Company, by the Certificate of Incorporation, the Bylaws, and the DGCL. The foregoing notwithstanding, this Agreement shall continue in force after Indemnitee has ceased to serve as an officer and director of the Company or ADK, LLC and, at the request of the Company, as a director and/or officer of another corporation, partnership, joint venture, trust or other enterprise, as provided in Section 16 hereof.
1 This section is only added for directors who are affiliated with funds that have separate D&O insurance
-2-
Section 2. Definitions. As used in this Agreement:
(a) References to “agent” shall mean any person who is or was a director, officer, or employee of the Company or a subsidiary of the Company or other person authorized by the Company to act for the Company, to include such person serving in such capacity as a director, officer, employee, fiduciary or other official of another corporation, partnership, limited liability company, joint venture, trust or other enterprise at the request of, for the convenience of, or to represent the interests of the Company or a subsidiary of the Company.
(b) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:
i. Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Company’s then outstanding securities unless the change in relative Beneficial Ownership of the Company’s securities by any Person results solely from a reduction in the aggregate number of outstanding shares of securities entitled to vote generally in the election of directors;
ii. Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 2(b)(i), 2(b)(iii) or 2(b)(iv)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board;
iii. Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the Surviving Entity) more than 50% of the combined voting power of the voting securities of the Surviving Entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such Surviving Entity;
iv. Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; and
v. Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement.
-3-
For purposes of this Section 2(b), the following terms shall have the following meanings:
(A) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.
(B) “Person” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any entity owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(C) “Beneficial Owner” shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.
(d) “Surviving Entity” shall mean the surviving entity in a merger or consolidation or any entity that controls, directly or indirectly, such surviving entity.
(c) “Corporate Status” describes the status of a person who is or was a director, trustee, partner, managing member, officer, employee, agent or fiduciary of the Company or of any other corporation, limited liability company, partnership or joint venture, trust or other enterprise which such person is or was serving at the request of the Company, including as a deemed fiduciary thereto.
(d) “Disinterested Director” shall mean a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(e) “Enterprise” shall mean the Company and any other corporation, limited liability company, partnership, joint venture, trust or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, employee, agent or fiduciary, including as a deemed fiduciary thereto.
(f) “Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees and other costs of experts and other professionals, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, ERISA excise taxes and penalties, and all other disbursements, obligations or expenses of the types customarily incurred in connection with, or as a result of, prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a deponent or witness in, or otherwise participating in, a Proceeding. Expenses also shall include (i) Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent, (ii) Expenses incurred in connection with recovery under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee is ultimately determined to be entitled to such indemnification, advancement or Expenses or insurance recovery, as the case may be, and (iii) for purposes of Section 14(d) only, Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement, the Certificate of Incorporation, the Bylaws or under any directors’ and officers’ liability insurance policies maintained by the Company, by litigation or otherwise. The parties agree that for the purposes of any advancement of Expenses for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such demand that are certified by affidavit of Indemnitee’s counsel as being reasonable in the good faith judgment of such counsel shall be presumed conclusively to be reasonable. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
-4-
(g) “Independent Counsel” shall mean a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(h) The term “Proceeding” shall include any threatened, pending or completed action, suit, claim, counterclaim, cross claim, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, legislative, regulatory or investigative (formal or informal) nature, including any appeal therefrom, in which Indemnitee was, is or will be involved as a party, potential party, non-party witness or otherwise by reason of Indemnitee’s Corporate Status, by reason of any action taken by Indemnitee (or a failure to take action by Indemnitee) or of any action (or failure to act) on Indemnitee’s part while acting pursuant to Indemnitee’s Corporate Status, in each case whether or not serving in such capacity at the time any liability or Expense is incurred for which indemnification, reimbursement, or advancement of Expenses can be provided under this Agreement. If the Indemnitee believes in good faith that a given situation may lead to or culminate in the institution of a Proceeding, this shall be considered a Proceeding under this paragraph.
(i) Reference to “other enterprise” shall include employee benefit plans; references to “fines” shall include any excise tax assessed with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.
-5-
Section 3. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal Proceeding had no reasonable cause to believe that Indemnitee’s conduct was unlawful. The parties hereto intend that this Agreement shall provide to the fullest extent permitted by law for indemnification in excess of that expressly permitted by statute, including, without limitation, any indemnification provided by the Certificate of Incorporation, the Bylaws, vote of the Company’s stockholders or disinterested directors or applicable law.
Section 4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court (as hereinafter defined) or any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.
Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by or on behalf of Indemnitee in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with or related to each successfully resolved claim, issue or matter to the fullest extent permitted by law. For purposes of this Section and without limitation, the termination of any claim, Indemnitee will be deemed to have been “successful on the merits” in circumstances including but not limited to the termination of any Proceeding or of any claim, issue or matter therein, by the winning of a dismissal (with or without prejudice), motion for summary judgment, settlement (with or without court approval), or upon a plea of nolo contendere or its equivalent.
-6-
Section 6. Indemnification For Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is, by reason of Indemnitee’s Corporate Status, a witness, is or was made (or asked) to respond to discovery requests in any Proceeding, or otherwise asked to participate in any Proceeding to which Indemnitee is not a party, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith.
Section 7. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
Section 8. Additional Indemnification.
(a) Notwithstanding any limitation in Sections 3, 4, or 5, the Company shall indemnify Indemnitee to the fullest extent permitted by applicable law if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) by reason of Indemnitee’s Corporate Status.
(b) For purposes of Section 8(a), the meaning of the phrase “to the fullest extent permitted by applicable law” shall include, but not be limited to:
i. to the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL, and
ii. to the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.
Section 9. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnification payment in connection with any claim involving Indemnitee:
(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; [provided, that the foregoing shall not affect the rights of the Indemnitee or the Fund Indemnitors set forth in Section 15(e)];2 or
| 2 | [Alt. provision for Fund directors] |
-7-
(b) for (i) an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act (as defined in Section 2(b) hereof) or similar provisions of state statutory law or common law, (ii) any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act) or (iii) any reimbursement of the Company by Indemnitee of any compensation pursuant to any compensation recoupment or clawback policy adopted by the Board or the compensation committee of the Board, including but not limited to any such policy adopted to comply with stock exchange listing requirements implementing Section 10D of the Exchange Act;
(c) except as provided in Section 14(d) of this Agreement, in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation, (ii) such payment arises in connection with any mandatory counterclaim or cross claim brought or raised by Indemnitee in any Proceeding (or any part of any Proceeding), or (iii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; or
(d) .
Section 10. Advances of Expenses. Notwithstanding any provision of this Agreement to the contrary (other than Section 14(d)), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding (or any part of any Proceeding) not initiated by Indemnitee or any Proceeding initiated by Indemnitee with the prior approval of the Board as provided in Section 9(c), and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding, but in no case shall Indemnitee be required to convey any information that would cause Indemnitee to waive any privilege accorded by applicable law. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay the Expenses, without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement, and without regard to the entitlement to and availability of insurance coverage, including advancement, payment or reimbursement of defense costs, expenses of covered loss under the provisions of any applicable insurance policy (including, without limitation, whether such advancement, payment or reimbursement is withheld, conditioned or delayed by the insurer(s)). In accordance with Section 14(d), advances shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. The Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement, which shall constitute an undertaking providing that the Indemnitee undertakes to repay the amounts advanced (without interest) by the Company pursuant to this Section 10, if and only to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company. No other form of undertaking shall be required other than the execution of this Agreement. Without limiting the generality or effect of the foregoing, within thirty days after any request by Indemnitee, the Company shall, in accordance with such request (but without duplication), (a) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses
-8-
Section 11. Procedure for Notification and Defense of Claim.
(a) Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification or advancement of Expenses hereunder as soon as reasonably practicable following the receipt by Indemnitee of written notice thereof; provided, however, that notice will be deemed to have been given without any action on the part of Indemnitee in the event the Company is a party to the same Proceeding. .. To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of such Proceeding. The omission by Indemnitee to notify the Company hereunder will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise than under this Agreement, and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights under this Agreement. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification.
(b) The Company will be entitled to participate in the Proceeding at its own expense.
(c) The Company shall not settle any Proceeding (in whole or in part) if such settlement would impose any Expense, judgment, liability, fine, penalty or limitation on Indemnitee in respect of which Indemnitee is not entitled to be indemnified hereunder without Indemnitee’s prior written consent, which shall not be unreasonably withheld. The Company shall not, on its own behalf, settle any part of any Proceeding to which Indemnitee is party with respect to other parties (including the Company) if any portion of such settlement is to be funded from corporate insurance proceeds unless approved by (i) the written consent of Indemnitee or (ii) a majority of the independent directors of the board; provided, however, that the right to constrain the Company’s use of corporate insurance as described in this section shall terminate at the time the Company concludes (per the terms of this Agreement) that (i) Indemnitee is not entitled to indemnification pursuant to this agreement, or (ii) such indemnification obligation to Indemnitee has been fully discharged by the Company.
Section 12. Procedure Upon Application for Indemnification.
(a) Upon written request by Indemnitee for indemnification pursuant to Section 11(a), a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case: (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee; or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (D) if so directed by the Board, by the stockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or Expenses (including attorneys’ fees and disbursements) incurred by or on behalf of Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. The Company promptly will advise Indemnitee in writing with respect to any determination that Indemnitee is or is not entitled to indemnification, including a description of any reason or basis for which indemnification has been denied.
-9-
(b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 12(a) hereof, the Independent Counsel shall be selected as provided in this Section 12(b). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board, and the Company shall give written notice to Indemnitee advising Indemnitee of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit. If, within twenty (20) days after the later of submission by Indemnitee of a written request for indemnification pursuant to Section 11(a) hereof and the final disposition of the Proceeding, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Delaware Court for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by such court or by such other person as such court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 12(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 14(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
(c) If the Company disputes a portion of the amounts for which indemnification is requested, the undisputed portion shall be paid and only the disputed portion withheld pending resolution of any such dispute.
-10-
Section 13. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 11(a) of this Agreement, and the Company shall, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption by clear and convincing evidence to the contrary in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(b) Subject to Section 14(e), if the person, persons or entity empowered or selected under Section 12 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall, to the fullest extent not prohibited by law, be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law as determined by a court of competent jurisdiction in a final adjudication not subject to further appeal; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 13(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 12(a) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 12(a) of this Agreement.
-11-
(c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful.
(d) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the directors or officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser, financial advisor or other expert selected with reasonable care by or on behalf of the Enterprise. The provisions of this Section 13(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.
(e) The knowledge and/or actions, or failure to act, of any director, officer, trustee, partner, managing member, fiduciary, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.
Section 14. Remedies of Indemnitee.
(a) Subject to Section 14(e), in the event that (i) a determination is made pursuant to Section 12 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 10 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 12(a) of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5, 6 or 7 or the second to last sentence of Section 12(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor, (v) payment of indemnification pursuant to Section 3, 4 or 8 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, or (vi) the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or Proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to the Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by a court of Indemnitee’s entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at Indemnitee’s option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 14(a). The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.
-12-
(b) In the event that a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 14 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 14 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 14, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law as determined by a court of competent jurisdiction in a final adjudication not subject to further appeal.
(d) The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 14 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. It is the intent of the Company that, to the fullest extent permitted by law, the Indemnitee not be required to incur legal fees or other Expenses associated with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Indemnitee hereunder. The Company shall, to the fullest extent permitted by law, indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Expenses to Indemnitee, which are incurred by or on behalf of Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company if, in the case of indemnification, Indemnitee is wholly successful on the underlying claims; if Indemnitee is not wholly successful on the underlying claims, then such indemnification shall be only to the extent Indemnitee is successful on such underlying claims or otherwise as permitted by law, whichever is greater.
(e) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement of Indemnitee to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.
-13-
Section 15. Non-exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement (i) shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise and (ii) shall be interpreted independently of, and without reference to, any other such rights to which Indemnitee may at any time be entitled. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by Indemnitee in Indemnitee’s Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Certificate of Incorporation and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now 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 right or remedy.
(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such claim or of the commencement of a Proceeding, as the case may be, to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies. Further, if requested by Indemnitee, within two business days of such request the Company will instruct the insurance carriers and the Company’s insurance broker that they may communicate directly with Indemnitee regarding such claim.
(c) In the event of any payment made by the Company under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
(e) The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of Expenses from such other corporation, limited liability company, partnership, joint venture, trust or other enterprise.3
| 3 | [For directors affiliated with funds with separate coverage, paragraph (e) is to be replaced with: |
-14-
(f) In the event of a Change of Control or the Company’s becoming insolvent, the Company shall maintain in force any and all insurance policies then maintained by the Company in providing insurance--directors’ and officers’ liability, fiduciary, employment practices or otherwise--in respect of the individual directors and officers of the Company, for a fixed period of six years thereafter (a “Tail Policy”). Such coverage shall be non-cancellable and shall be placed and serviced for the duration of its term by the Company’s incumbent insurance broker. Such broker shall place the Tail Policy with the incumbent insurance carriers using the policies that were in place at the time of the change of control event (unless the incumbent carriers will not offer such policies, in which case the Tail Policy placed by the Company’s insurance broker shall be substantially comparable in scope and amount as the expiring policies, and the insurance carriers for the Tail Policy shall have an AM Best rating that is the same or better than the AM Best ratings of the expiring policies).
“The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by the Fund and certain of its affiliates (collectively, the “Fund Indemnitors”). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of Expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the Certificate of Incorporation (or any agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Fund Indemnitors, and, (iii) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms hereof.”
-15-
Section 16. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director and/or officer of the Company, ADK, LLC and, at the request of the Company, as a director and/or of another corporation, partnership, joint venture, trust or other enterprise or (b) one (1) year after the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding (including any appeal thereof) commenced by Indemnitee pursuant to Section 14 of this Agreement relating thereto. The indemnification and advancement of expenses rights provided by or granted pursuant to this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other Enterprise, and shall inure to the benefit of Indemnitee and Indemnitee’s spouse, assigns, heirs, devisees, executors and administrators and other legal representatives. The Company shall require and shall cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to, by written agreement, expressly assume and agree to perform this Agreement to the fullest extent permitted by law.
Section 17. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
Section 18. Enforcement.
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving or continuing to serve as a director or officer of the Company.
(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Certificate of Incorporations, the Bylaws, any directors’ and officers’ insurance maintained by the Company and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.
(c) The Company and Indemnitee agree that a monetary remedy for breach of this Agreement may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm (having agreed that actual and irreparable harm will result in not forcing the Company to specifically perform its obligations pursuant to this Agreement) and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which he may be entitled. The Company and Indemnitee further agree that Indemnitee shall be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertaking in connection therewith. The Company acknowledges that in the absence of a waiver, a bond or undertaking may be required of Indemnitee by the Court, and the Company hereby waives any such requirement of a bond or undertaking. If Indemnitee seeks mandatory injunctive relief, it shall not be a defense to enforcement of the Company’s obligations set forth in this Agreement that Indemnitee has an adequate remedy at law for damages.
-16-
Section 19. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.
Section 20. Notice by Indemnitee or Company.
(a) Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise.
(b) If the Indemnitee is the subject of, or is, to the knowledge of the Company, implicated in any way during an investigation, whether formal or informal, that is related to Indemnitee’s Corporate Status and that reasonably could lead to a Proceeding for which indemnification can be provided under this Agreement, the Company shall notify the Indemnitee of such investigation and shall share (to the extent legally permissible) with Indemnitee any information it has provided to any third parties concerning the investigation (“Shared Information”). By executing this Agreement, Indemnitee agrees that such Shared Information is material non-public information that Indemnitee is obligated to hold in confidence and may not disclose publicly; provided, however, that Indemnitee may use the Shared Information and disclose such Shared Information to Indemnitee’s legal counsel and third parties, in each case solely in connection with defending Indemnitee from legal liability.
-17-
Section 21. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (c) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (d) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:
(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide to the Company.
(b) If to the Company to
indie Semiconductor, Inc.
32 Journey
Aliso Viejo, CA 92656
Attn: CFO and General Counsel
email: [email protected]
or to any other address as may have been furnished to Indemnitee by the Company.
Section 22. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s). The Company hereby agrees to fully indemnify and hold harmless Indemnitee from any claims for contribution which may be brought by officers, directors or employees of the Company (other than Indemnitee) who may be jointly liable with Indemnitee.
-18-
Section 23. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 14(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Court of Chancery of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably Corporate Creations Network Inc., 3411 Silverside Road, Tatnall Building #104, Wilmington, New Castle County, Delaware 19801 as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
Section 24. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
Section 25. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
-19-
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.
| INDIE SEMICONDUCTOR, INC. | ||
| By: | ||
| Name: | ||
| Title: | ||
| INDEMNITEE | ||
| Signature: | ||
| Print Name: | ||
| Address: | ||
-20-
Exhibit 10.5
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT (this “Agreement”), dated as of June 10, 2021, among Thunder Bridge II Surviving Pubco, Inc., a Delaware corporation, which will change its name to indie Semiconductor, Inc. in connection with the Closing (the “Corporation”), Ay Dee Kay, LLC, d/b/a indie Semiconductor, a California limited liability company (“Ay Dee Kay LLC”), and the holders of LLC Units (as defined herein) from time to time party hereto. Capitalized terms used herein and not otherwise defined shall have the meaning given to them in that certain Master Transactions Agreement by and among the Corporation, ADK Merger Sub LLC, a Delaware limited liability company, Ay Dee Kay LLC and certain other parties thereto, dated as of December 14, 2020 (the “MTA”).
WHEREAS, in accordance with MTA, the Corporation is entering into this Agreement pursuant to which the Principal Class A Unitholders (as defined below) and the Class B Unitholders (as defined below) shall have the right to elect to exchange their LLC Units for shares of Class A Common Stock (as defined herein), on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
SECTION 1.1. Definitions
The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement.
“Acceleration” has the meaning set forth in Section 2.4(b) of this Agreement.
“Agreement” has the meaning set forth in the Preamble to this Agreement.
“Ay Dee Kay LLC” has the meaning set forth in the Preamble to this Agreement.
“Ay Dee Kay LLC Agreement” means the Eighth Amended and Restated Operating Agreement of Ay Dee Kay, LLC, dated on or about the date hereof, as such agreement may be amended from time to time.
“Change of Control” means the occurrence of any of the following:
| a. | if the Corporation engages in a “going private” transaction pursuant to Rule 13e-3 under the Exchange Act or otherwise cease to be subject to reporting obligations under Sections 13 or 15(d) of the Exchange Act; |
| b. | if the Corporation Class A Common Stock or successor shares to the Class A Common Stock cease to be listed on a national securities exchange, other than for the failure to satisfy: |
| i. | any applicable minimum listing requirements, including minimum round lot holder requirements, of such national securities exchange, unless such failure is caused by an action or omission of the Corporation or its Subsidiaries taken after the Closing with the primary intent of causing, or which would otherwise reasonably be expected to cause, the Corporation to violate such applicable minimum listing requirements; or |
| ii. | a minimum price per share requirement of such national securities exchange; |
| c. | or if any of the following shall occur: |
| i. | there is consummated a merger or consolidation of the Corporation with any other corporation or other entity, and, immediately after the consummation of such merger or consolidation, either (x) the Corporation board of directors immediately prior to the merger or consolidation does not constitute at least a majority of the board of directors of the company surviving the merger or, if the surviving company is a Subsidiary, the ultimate parent thereof, or (y) the voting securities of the Corporation immediately prior to such merger or consolidation do not continue to represent or are not converted into more than 50% of the combined voting power of then outstanding voting securities of the Person resulting from such merger or consolidation or, if the surviving company is a Subsidiary, the ultimate parent thereof; or |
| ii. | the shareholders of the Corporation approve a plan of complete liquidation or dissolution of the Corporation or there is consummated an agreement or series of related agreements for the sale, lease or other disposition, directly or indirectly, by the Corporation of all or substantially all of the assets of the Corporation and its Subsidiaries, taken as a whole, other than such sale or other disposition by the Corporation of all or substantially all of the assets of the Corporation and its Subsidiaries, taken as a whole, to an entity at least 50% of the combined voting power of the voting securities of which are owned by shareholders of the Corporation in substantially the same proportions as their ownership of the Corporation immediately prior to such sale; or |
| iii. | any Person or any group of Persons acting together which would constitute a “group” for purposes of Section 13(d) of the Exchange Act or any successor provisions thereto (excluding a corporation or other entity owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporation representing more than 50% of the combined voting power of the Corporation’s then outstanding voting securities. |
“Class A Common Stock” means the Class A common stock, par value $0.0001 per share, of the Corporation.
“Class A Units” has the meaning given to them in the Ay Dee Kay LLC Agreement.
“Class B Units” has the meaning given to them in the Ay Dee Kay LLC Agreement.
“Class B Unitholders” means the holders of Class B Units in Ay Dee Kay LLC.
“Class V Common Stock” means the Class V common stock, par value $0.0001 per share, of the Corporation.
“Code” means the Internal Revenue Code of 1986, as amended.
“Corporation” has the meaning set forth in the Preamble to this Agreement.
“Earn Out Exchange” has the meaning set forth in Section 2.1(a)(iii) of this Agreement.
“Earn Out Unit” has the meaning set forth in Section 2.1(a)(iii) of this Agreement.
“Exchange” has the meaning set forth in Section 2.1(a)(iii) of this Agreement.
“Exchange Date” means the date on which an Exchanging Member exercises his, her or its Exchange right under this Agreement.
“Exchanging Member” mean each Principal Class A Unitholders and Class B Unitholders, in his, her or its capacity as a party to this Agreement, having the rights and obligations set out in this Agreement.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
2
“Exchange Rate” means 1.0, subject to adjustment pursuant to Section 2.2 hereof.
“Fair Market Value” means, with respect to any shares of Class A Common Stock, the product of (i) the number of such shares of Class A Common Stock, multiplied by (ii) the average of the VWAP of the Class A Common Stock for each of the seven (7) consecutive Trading Days ending on the Trading Day immediately preceding the date such Fair Market Value is to be determined pursuant to this Agreement.
“LLC Unit” means (i) each Class A Unit held by the Principal Class A Unitholders and each Class B Unit issued and outstanding, in each case as of the date hereof and (ii) each Class A Unit and each Class B Unit or other interest in Ay Dee Kay LLC that may be issued by Ay Dee Kay LLC in the future that is designated as an “LLC Unit”.
“LLC Unitholder” means each holder of one or more LLC Units that may from time to time be a party to this Agreement.
“Member” means a “Member” of Ay Dee Kay LLC, as such term is defined in the Ay Dee Kay LLC Agreement.
“MTA” has the meaning set forth in the Preamble to this Agreement.
“Permitted Transferee” has the meaning given to such term in Section 3.1 of this Agreement.
“Principal Class A Unitholders” means the following Members of Ay Dee Kay LLC: Bison Capital Partners IV, L.P., Donald McClymont, Ichiro Aoki, Scott Kee, and David Kang.
“Principal Exchange” has the meaning set forth in Section 2.1(a)(i) of this Agreement.
“Publicly Traded” means listed or admitted to trading on the New York Stock Exchange or another national securities exchange or designated for quotation on the NASDAQ National Market, or any successor to any of the foregoing.
“Securities Act” has the meaning set forth in Section 2.1(e) of this Agreement.
“Service Provider Exchange” has the meaning set forth in Section 2.1(a)(ii) of this Agreement.
“Service Provider Grant Award” means, with respect to each Class B Unitholder, that certain Class B Unit Purchase Agreement by and between such Class B Unitholder and Ay Dee Kay LLC.
“Trading Day” means any day on which Class A Common Stock is actually traded on the principal securities exchange or securities market on which Class A Common Stock is then traded.
“VWAP” means, for any security as of any date(s), the dollar volume-weighted average price for such security on the principal securities exchange or securities market on which such security is then traded during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “HP” function (set to weighted average) or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported by OTC Markets Group Inc. If the VWAP cannot be calculated for such security on such date(s) on any of the foregoing bases, the VWAP of such security on such date(s) shall be the fair market value per share on such date(s) as reasonably determined by a nationally recognized independent investment banking firm selected by the Corporation.
3
ARTICLE II
SECTION 2.1. Exchange of LLC Units for Class A Common Stock.
(a) The Exchanges.
(i) Principal Exchange. Effective immediately following the Closing, with respect to the Principal Class A Unitholders, from and after the six-month anniversary of the Closing, each Principal Class A Unitholder shall be entitled at any time and from time to time thereafter, upon the terms and subject to the conditions hereof, to surrender to the Corporation any LLC Units held by such Principal Class A Unitholder as of the Exchange Date, in exchange for the delivery by the Corporation to such exchanging Principal Class A Unitholder, of a number of shares of Class A Common Stock that is equal to the product of (i) the number of LLC Units surrendered multiplied by (ii) the Exchange Rate (such exchange, a “Principal Exchange”).
(ii) Service Provider Exchange. Effective at the Closing, with respect to each of the Class B Unitholders, from and after the later of (i) the six-month anniversary of the Closing and (ii) the date that is the two year anniversary of the Effective Date as defined in such Class B Unitholder’s Service Provider Grant Agreement (or if the Class B Unitholder has entered into more than one Service Provider Grant Agreement, then the date that is the two year anniversary of the Effective Date of the latest Service Provider Grant Agreement entered into by such Class B Unitholder), each Class B Unitholder shall be entitled at any time and from time to time thereafter, upon the terms and subject to the conditions hereof, to surrender to the Corporation any or all of the LLC Units held by such Class B Unitholder as of the Exchange Date, in exchange for the delivery by the Corporation to such exchanging Class B Unitholder, a number of shares of Class A Common Stock that is equal to the product of (i) the number of LLC Units surrendered multiplied by (ii) the Exchange Rate (such exchange, a “Service Provider Exchange”); provided, that any portion of the Class B Units held by a Class B Unitholder that remains subject to forfeiture in accordance with the Service Provider Grant Agreement shall not be eligible for the Service Provider Exchange until such time as such Class B Units are no longer subject to forfeiture pursuant to the terms of the applicable Service Provider Grant Agreement.
(iii) Earn Out Exchange. The parties to this Agreement acknowledge and agree that pursuant to Section 2.5 of the MTA (the Earn Out), the Principal Class A Unitholders and the Class B Unitholders are eligible to receive additional LLC Units in Ay Dee Kay LLC pursuant to the terms and conditions set forth in the MTA (“Earn Out Unit”), and from and after the six-month anniversary of the Closing, each Principal Class A Unitholder and Class B Unitholder shall be entitled at any time and from time to time thereafter, upon the terms and subject to the conditions hereof, to surrender to the Corporation any or all of the Earn Out Units held by such LLC Unitholder, in exchange for the delivery by the Corporation to such exchanging LLC Unitholder, a number of shares of Class A Common Stock that is equal to the product of (i) the number of Earn Out Units surrendered multiplied by (ii) the Exchange Rate (such exchange, an “Earn Out Exchange” and together with the Principal Exchange and the Service Provider Exchange, the “Exchange”); provided, however, with respect to the Class B Unitholders, a Class B Unitholder shall not be entitled to an Earn Out Exchange until the later of (x) the six-month anniversary of the Closing and (y) the date that is the two year anniversary of the Effective Date as defined in such Class B Unitholder’s Service Provider Grant Agreement (or if the Class B Unitholder has entered into more than one Service Provider Grant Agreement, then the date that is the two year anniversary of the Effective Date of the latest Service Provider Grant Agreement entered into by such Class B Unitholder).
(b) An LLC Unitholder shall exercise its right to make an Exchange as set forth in Section 2.1(a) above by delivering to the Corporation and to Ay Dee Kay LLC a written election of exchange in respect of the LLC Units to be exchanged, substantially in the form of Exhibit A hereto, duly executed by such holder or such holder’s duly authorized attorney, in each case delivered during normal business hours at the principal executive offices of the Corporation or of Ay Dee Kay LLC . As promptly as practicable following the delivery of such a written election of exchange (and the concurrent consummation of the transfer of LLC Units from such LLC Unitholder to the Corporation in connection therewith), the Corporation shall deliver or cause to be delivered at the offices of then-acting registrar and transfer agent of the Class A Common Stock or, if there is no then-acting registrar and transfer agent of the Class A Common Stock, at the principal executive offices of the Corporation, the number of shares of Class A Common Stock deliverable upon such Exchange, registered in the name of the relevant exchanging LLC Unitholder or its designee. Notwithstanding the foregoing, if the Class A Common Stock is settled through the facilities of The Depository Trust Company, and the exchanging LLC Unitholder is permitted to hold shares of Class A Common Stock through The Depository Trust Company, Ay Dee Kay LLC will, subject to Section 2.1(c) hereof, upon the written instruction of an exchanging LLC Unitholder, use its reasonable best efforts to deliver or cause to be delivered the shares of Class A Common Stock deliverable to such exchanging LLC Unitholder, through the facilities of The Depository Trust Company, to the account of the participant of The Depository Trust Company designated by such exchanging LLC Unitholder. The Corporation, including in its capacity as the Manager of Ay Dee Kay LLC, shall take such actions as may be required to ensure the performance by Ay Dee Kay LLC of its obligations under this Section 2(b) and the foregoing Section 2(a), including the issuance and sale of shares of Class A Common Stock to or for the account of Ay Dee Kay LLC in exchange for the delivery to the Corporation of a number of LLC Units that is equal to the number of LLC Units surrendered by an exchanging LLC Unitholder. Any LLC Unitholder that surrenders all of the LLC Units held by such LLC Unitholder to the Corporation, for the account of Ay Dee Kay LLC or to Ay Dee Kay LLC pursuant to this Section 2.1(b) shall concurrently surrender all shares of Class V Common Stock held by such LLC Unitholder (including any fractions thereof) to the Corporation for no additional consideration.
4
(c) Ay Dee Kay LLC and each exchanging LLC Unitholder shall bear its own expenses in connection with the consummation of any Exchange, whether or not any such Exchange is ultimately consummated, except that Ay Dee Kay LLC shall bear any transfer taxes, stamp taxes or duties, or other similar taxes in connection with, or arising by reason of, any Exchange; provided, however, that if any shares of Class A Common Stock are to be delivered in a name other than that of the LLC Unitholder that requested the Exchange, then such LLC Unitholder and/or the person in whose name such shares are to be delivered shall pay to Ay Dee Kay LLC the amount of any transfer taxes, stamp taxes or duties, or other similar taxes in connection with, or arising by reason of, such Exchange or shall establish to the reasonable satisfaction of Ay Dee Kay LLC that such tax has been paid or is not payable.
(d) Notwithstanding anything to the contrary herein, to the extent the Corporation or Ay Dee Kay LLC shall determine that LLC Units do not meet the requirements of Treasury Regulation section 1.7704-1(h), the Corporation or Ay Dee Kay LLC may impose such restrictions on an Exchange with respect to such LLC Units as the Corporation or Ay Dee Kay LLC may determine to be necessary or advisable so that Ay Dee Kay LLC is not treated as a “publicly traded partnership” under Section 7704 of the Code; provided, that each LLC Unitholder shall be entitled at any time to exchange LLC Units for Class A Common Stock, provided that the transfer satisfies the “block transfer” exception of Treasury Regulations Section 1.7704-1(e)(2) Notwithstanding anything to the contrary herein, no Exchange shall be permitted (and, if attempted, shall be void ab initio) if, in the good faith determination of the Corporation or of Ay Dee Kay LLC, such an Exchange would pose a material risk that Ay Dee Kay LLC would be a “publicly traded partnership” under Section 7704 of the Code.
(e) For the avoidance of doubt, and notwithstanding anything to the contrary herein, an LLC Unitholder shall not be entitled to effect an Exchange to the extent the Corporation determines that such Exchange (i) would be prohibited by law or regulation (including, without limitation, the unavailability of any requisite registration statement filed under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or any exemption from the registration requirements thereunder) or (ii) would not be permitted under any other agreements with the Corporation or its subsidiaries to which such LLC Unitholder may be party (including, without limitation, the Ay Dee Kay LLC Agreement) or any written policies of the Corporation related to unlawful or inappropriate trading applicable to its directors, officers or other personnel.
(f) The Corporation may adopt reasonable procedures for the implementation of the exchange provisions set forth in this Article II, including, without limitation, procedures for the giving of notice of an election of an Exchange.
SECTION 2.2. Adjustment. The Exchange Rate shall be adjusted accordingly, by the Corporation in good faith, if there is: (a) any subdivision (by any unit split, unit distribution, reclassification, reorganization, recapitalization or otherwise) or combination (by reverse unit split, reclassification, reorganization, recapitalization or otherwise) of the LLC Units that is not accompanied by an identical subdivision or combination of the Class A Common Stock or (b) any subdivision (by any stock split, stock dividend or distribution, reclassification, reorganization, recapitalization or otherwise) or combination (by reverse stock split, reclassification, reorganization, recapitalization or otherwise) of the Class A Common Stock that is not accompanied by an identical subdivision or combination of the LLC Units. If there is any reclassification, reorganization, recapitalization or other similar transaction in which the Class A Common Stock are converted or changed into another security, securities or other property, then upon any subsequent Exchange, an exchanging LLC Unitholder shall be entitled to receive the amount of such security, securities or other property that such exchanging LLC Unitholder would have received if such Exchange had occurred immediately prior to the effective time of such reclassification, reorganization, recapitalization or other similar transaction, taking into account any adjustment as a result of any subdivision (by any split, distribution or dividend, reclassification, reorganization, recapitalization or otherwise) or combination (by reverse split, reclassification, recapitalization or otherwise) of such security, securities or other property that occurs after the effective time of such reclassification, reorganization, recapitalization or other similar transaction. Except as may be required in the immediately preceding sentence, no adjustments in respect of distributions shall be made upon the exchange of any LLC Unit.
5
SECTION 2.3. Class A Common Stock to be Issued.
(a) The Corporation shall at all times reserve and keep available out of its authorized but unissued Class A Common Stock, solely for the purpose of issuance upon an Exchange, such number of shares of Class A Common Stock as may be deliverable upon any such Exchange; provided, that nothing contained herein shall be construed to preclude Ay Dee Kay LLC from satisfying its obligations in respect of the Exchange of the LLC Units by delivery of shares of Class A Common Stock which are held in the treasury of the Corporation or are held by Ay Dee Kay LLC or any of their subsidiaries or by delivery of purchased shares of Class A Common Stock (which may or may not be held in the treasury of the Corporation or held by any subsidiary thereof). The Corporation and Ay Dee Kay LLC covenant that all Class A Common Stock issued upon an Exchange will, upon issuance, be validly issued, fully paid and non-assessable.
(b) The Corporation and Ay Dee Kay shall at all times ensure that the execution and delivery of this Agreement by each of the Corporation and Ay Dee Kay and the consummation by each of the Corporation and Ay Dee Kay LLC of the transactions contemplated hereby (including without limitation, the issuance of the Class A Common Stock) have been duly authorized by all necessary corporate or limited liability company action, as the case may be, on the part of the Corporation and Ay Dee Kay LLC, including, but not limited to, all actions necessary to ensure that the acquisition of shares of Class A Common Stock pursuant to the transactions contemplated hereby, to the fullest extent of the Corporation’s board of directors’ power and authority and to the extent permitted by law, shall not be subject to any “moratorium,” “control share acquisition,” “business combination,” “fair price” or other form of anti-takeover laws and regulations of any jurisdiction that may purport to be applicable to this Agreement or the transactions contemplated hereby.
(c) The Corporation and Ay Dee Kay LLC covenant and agree that, to the extent that a registration statement under the Securities Act is effective and available for shares of Class A Common Stock to be delivered with respect to any Exchange, shares that have been registered under the Securities Act shall be delivered in respect of such Exchange. In the event that any Exchange in accordance with this Agreement is to be effected at a time when any required registration has not become effective or otherwise is unavailable, upon the request and with the reasonable cooperation of the LLC Unitholder requesting such Exchange, the Corporation and Ay Dee Kay LLC shall use commercially reasonable efforts to promptly facilitate such Exchange pursuant to any reasonably available exemption from such registration requirements. The Corporation and Ay Dee Kay LLC shall use commercially reasonable efforts to list the Class A Common Stock required to be delivered upon exchange prior to such delivery upon each national securities exchange or inter-dealer quotation system upon which the outstanding Class A Common Stock may be listed or traded at the time of such delivery.
SECTION 2.4. Mandatory Exchanges.
(a) Change of Control.
(i) In connection with a Change of Control, and subject to any approval of the Change of Control as required under the applicable organizational documents of the Corporation and the law, the Corporation shall have the right to require each Exchanging Member to surrender to the Corporation any LLC Units held by such Exchanging Member, effective immediately prior to the effectiveness or consummation, as applicable, of a Change of Control (and, for the avoidance of doubt, shall not be effective if such Change of Control is not consummated), in exchange for the delivery by the Corporation to such Exchanging Member, a number of shares of Class A Common Stock that is equal to the product of (i) the number of LLC Units surrendered multiplied by (ii) the Exchange Rate, without any action on the part of any Person, including the Corporation or the Exchanging Members.
6
(ii) The Corporation shall provide written notice of an expected Change of Control to each Exchanging Member who has not, as of such date, Exchanged his, her or its LLC Units, within the earlier of (x) five (5) Business Days following the execution of the definitive agreement with respect to such Change of Control or (y) ten (10) Business Days before the proposed date upon which the contemplated Change of Control is to be effected, indicating in such notice such information as may reasonably describe the Change of Control transaction, subject to applicable law, including the date of execution of such agreement or such proposed effective date, as applicable, the amount and types of consideration to be paid in the Change of Control. Notwithstanding the above, in the event that it is impracticable for the Corporation to notify the Exchanging Members of such a Change of Control within the time frame set forth in the preceding sentence, the Corporation shall provide written notice to each Exchanging Members who have not, as of such date, Exchanged his, her or its LLC Units of such Change of Control within five (5) Business Days of the Corporation’s discovery of such Change of Control.
(b) Acceleration of Exchanges. Notwithstanding anything contained in this Agreement to the contrary, on the date which is the date that (i) all Class B Units held by Class B Unitholders have ceased to be subject to forfeiture pursuant to each Class B Unitholder’s respective Service Provider Grant Award and (ii) all LLC Units held by the Principal Class A Members have exchanged his, her or its Class A Units in a Principal Exchange such that none of the Principal Class A Members is a Member of Ay Dee Kay LLC, the Corporation shall have the right to require each Class B Unitholder to surrender to the Corporation any LLC Units held by such Class B Unitholder that were issued to such Class B Unitholder pursuant to a Service Provider Grant Award with an Effective Date that is at least two years before such surrender, in exchange for the delivery by the Corporation to such exchanging Class B Unitholder a number of shares of Class A Common Stock that is equal to the product of the number of LLC Units surrendered multiplied by the Exchange Rate, without any action on the part of any Person, including the Corporation and the Class B Unitholder. The Corporation shall provide written notice of its intent to accelerate the surrender to the Corporation of any LLC Units held by such Class b Unitholder pursuant to Section 2.4(b) (the “Acceleration”) by delivering notice to each such affected Class b Unitholder not less than ten (10) Business Days before the proposed date upon which the Corporation contemplates to effectuate the Acceleration.
SECTION 2.5. Cash Exchange. Notwithstanding the foregoing or any other provision of this Agreement to the contrary, with respect to any Exchange, the Corporation shall be entitled to deliver to any exchanging LLC Unitholder, in lieu of delivering any or all of the shares of its Class A Common Stock it would otherwise be required to deliver pursuant to this Article II, cash in an amount equal to the Fair Market Value of such shares of its Class A Common Stock, with such Fair Market Value to be determined pursuant this Agreement as of the date the applicable written election of exchange to be delivered to the Corporation pursuant to Section 2.1(b) is received by the Corporation (or, with respect to a mandatory exchange pursuant to Section 2.4, as of immediately prior to the effectiveness or consummation, as the case may be, of the applicable Change of Control. Contemporaneously with its delivery of cash to an exchanging LLC Unitholder, the Corporation shall deliver to such LLC Unitholder a statement prepared by or at the direction of the Corporation setting forth in reasonable detail the determination of the Fair Market Value of the shares of Class A Common Stock in lieu of which cash is being delivered pursuant to this Section 2.5.
ARTICLE III
SECTION 3.1. Additional LLC Unitholders. To the extent an LLC Unitholder proposes to transfer any or all of such holder’s LLC Units to another person in a transaction in accordance with, and not in contravention of, the Ay Dee Kay LLC Agreement or any other agreement or agreements with the Corporation or any of its subsidiaries to which a transferring LLC Unitholder may be party (each, a “Permitted Transferee”), then such LLC Unitholder shall take all actions reasonably necessary to cause such Permitted Transferee to execute and deliver to the Corporation and Ay Dee Kay LLC a joinder to this Agreement, substantially in the form of Exhibit B hereto, whereupon such Permitted Transferee shall become an LLC Unitholder hereunder. To the extent Ay Dee Kay LLC issues LLC Units in the future, Ay Dee Kay LLC shall be entitled, in its sole discretion, to make any holder of such LLC Units an LLC Unitholder hereunder through such holder’s execution and delivery of a joinder to this Agreement, substantially in the form of Exhibit B hereto.
7
SECTION 3.2. Addresses and Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by courier service, by fax, by electronic mail (delivery receipt requested) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be as specified in a notice given in accordance with this Section 3.2):
(a) If to the Corporation, to:
indie Semiconductor, Inc.
32 Journey
Aliso Viejo, California 92656
Attention: Tom Schiller, CFO
949 608 0854
(b) If to Ay Dee Kay LLC, to:
indie Semiconductor
32 Journey
Aliso Viejo, California 92656
Attention: Tom Schiller, CFO
949 608 0854
(c) If to any LLC Unitholder, to the address and other contact information set forth in the records of Ay Dee Kay LLC from time to time.
SECTION 3.3. Further Action. The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.
SECTION 3.4. Binding Effect. This Agreement shall be binding upon and inure to the benefit of all of the parties and, to the extent permitted by this Agreement, their successors, executors, administrators, heirs, legal representatives and assigns.
SECTION 3.5. Severability. If any term or other provision of this Agreement is held to be invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions is not affected in any manner materially adverse to any party. Upon a determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.
8
SECTION 3.6. Amendment. The provisions of this Agreement may be amended only by the affirmative vote or written consent of each of (i) the Corporation, (ii) Ay Dee Kay LLC and (iii) LLC Unitholders holding at least a majority of then outstanding LLC Units (excluding LLC Units held by the Corporation); provided that no amendment may materially, disproportionately and adversely affect the rights of an LLC Unitholder (other than the Corporation and its subsidiaries) without the consent of such LLC Unitholder (or, if there is more than one such LLC Unitholder that is so affected, without the consent of a majority in interest of such affected LLC Unitholders (other than the Corporation and its subsidiaries) in accordance with their holdings of LLC Units).
SECTION 3.7. Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach of any other covenant, duty, agreement or condition.
SECTION 3.8. Submission to Jurisdiction; Waiver of Jury Trial.
(a) Any and all disputes which cannot be settled amicably with respect to this Agreement, including any action (at law or in equity), claim, litigation, suit, arbitration, hearing, audit, review, inquiry, proceeding, investigation or ancillary claims of any party, arising out of, relating to or in connection with the validity, negotiation, execution, interpretation, performance or non-performance of this Agreement or any matter arising out of or in connection with this Agreement and the rights and obligations arising hereunder or thereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder or thereunder brought by a party hereto or its successors or assigns, shall be brought and determined exclusively in the Delaware Chancery Court, or if such court shall not have jurisdiction, any federal court located in the State of Delaware, or, if neither of such courts shall have jurisdiction, any other Delaware state court. Each of the parties hereby irrevocably submits with regard to any such dispute for itself and in respect of its property, generally and unconditionally, to the sole and exclusive personal jurisdiction of the aforesaid courts and agrees that it will not bring any dispute relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than the aforesaid courts. Each party irrevocably consents to service of process in any dispute in any of the aforesaid courts by the mailing of copies thereof by registered or certified mail, postage prepaid, or by recognized overnight delivery service, to such party at such party’s address referred to in Section 3.2. Each party hereby irrevocably and unconditionally waives, and agrees not to assert as a defense, counterclaim or otherwise, in any action brought by any party with respect to this Agreement (i) any claim that it is not personally subject to the jurisdiction of the aforesaid courts for any reason other than the failure to serve process in accordance with this Section 3.8; (ii) any claim that it or its property is exempt or immune from the jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise); or (iii) any objection which such party may now or hereafter have (A) to the laying of venue of any of the aforesaid actions arising out of or in connection with this Agreement brought in the courts referred to above; (B) that such action brought in any such court has been brought in an inconvenient forum and (C) that this Agreement, or the subject matter hereof or thereof, may not be enforced in or by such courts.
(b) To the extent that any party has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself, or to such party’s property, each such party hereby irrevocably waives such immunity in respect of such party’s obligations with respect to this Agreement.
(c) EACH PARTY ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY AGREEING TO THE CHOICE OF DELAWARE LAW TO GOVERN THIS AGREEMENT AND TO THE JURISDICTION OF DELAWARE COURTS IN CONNECTION WITH PROCEEDINGS BROUGHT HEREUNDER. THE PARTIES INTEND THIS TO BE AN EFFECTIVE CHOICE OF DELAWARE LAW AND AN EFFECTIVE CONSENT TO JURISDICTION AND SERVICE OF PROCESS UNDER 6 DEL. C. § 2708.
(d) EACH PARTY, FOR ITSELF AND ITS AFFILIATES, HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THE ACTIONS OF THE PARTIES OR THEIR RESPECTIVE AFFILIATES PURSUANT TO THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF OR THEREOF.
(i) The parties hereby waive, to the fullest extent permitted by applicable law, any objection which they now or hereafter may have to personal jurisdiction or to the laying of venue of any such ancillary suit, action or proceeding brought in any court referred to in this Section 3.8(c) and such parties agree not to plead or claim the same.
9
SECTION 3.9. Counterparts. This Agreement may be executed and delivered (including by facsimile transmission or by e-mail delivery of a “.pdf” format data file) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Copies of executed counterparts transmitted by telecopy, by e-mail delivery of a “.pdf” format data file or other electronic transmission service shall be considered original executed counterparts for purposes of this Section 3.9.
SECTION 3.10. Tax Treatment. This Agreement shall be treated as part of the partnership agreement of Ay Dee Kay LLC as described in Section 761(c) of the Code and Sections 1.704-1(b)(2)(ii)(h) and 1.761-1(c) of the Treasury Regulations promulgated thereunder. As required by the Code and the Treasury Regulations, the parties shall report any Exchange consummated hereunder as a taxable sale of the LLC Units by an LLC Unitholder to the Corporation, and no party shall take a contrary position on any income tax return, amendment thereof or communication with a taxing authority unless an alternate position is permitted under the Code and Treasury Regulations and the Corporation consents in writing, such consent not to be unreasonably withheld, conditioned, or delayed. Further, in connection with any Exchange consummated hereunder, Ay Dee Kay LLC and/or the Corporation shall provide the exchanging LLC Unitholder with all reasonably necessary information to enable the exchanging LLC Unitholder to file its income Tax returns for the taxable year that includes the Exchange, including information with respect to Code Section 751 assets (including relevant information regarding “unrealized receivables” or “inventory items”) and Section 743(b) basis adjustments as soon as practicable and in all events within 60 days following the close of such taxable year (and use commercially reasonable efforts to provide estimates of such information within 90 days of the applicable Exchanges).
SECTION 3.11. Withholding. The Corporation and Ay Dee Kay LLC shall be entitled to deduct and withhold from any payment made to a LLC Unitholder pursuant to any Exchange consummated under this Agreement all Taxes that each of the Corporation and Ay Dee Kay LLC is required to deduct and withhold with respect to such payment under the Code (or any other provision of applicable law), including, without limitation, Section 1446(f) of the Code. Ay Dee Kay LLC may at its sole discretion reduce the Class A Common Stock issued to a LLC Unitholder in an Exchange in an amount that corresponds to the amount of the required withholding described in the immediately preceding sentence and all such amounts shall be treated as having been paid to such LLC Unitholder.
SECTION 3.12. Acknowledgement and Agreement with Respect to the MTA. By his, her or its execution hereof (jncluding by any joinder agreement hereto), (i) each LLC Unitholder acknowledges that it has received a copy of the MTA and carefully reviewed the same, with such advice in connection therewith from its advisors, including legal counsel, as such LLC Unitholder deems necessary or appropriate, (ii) each LLC Unitholder consents and agrees to the provisions of Section 1.7 of the MTA, including, without limitation, the appointment of the Company Securityholder Representative pursuant to the terms and conditions thereof, with authority to act on behalf of such LLC Unitholder (as a Company Equity Holder under the MTA), and such other authority, as provided in the MTA, and (iii) each Class A Unitholder who is an ADK Principal Owner consents to and agrees to the provisions of Section 2.1(b)(v) of the MTA under which such LLC Unitholder is deemed to have contributed to the Corporation all of his, her or its voting rights in Ay Dee Kay LLC to the Corporation in consideration for the receipt of the consideration specified therein.
SECTION 3.13. Specific Performance. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to specific performance of the terms and provisions hereof, in addition to any other remedy to which they are entitled at law or in equity.
SECTION 3.14. Independent Nature of LLC Unitholders’ Rights and Obligations. The obligations of each LLC Unitholder hereunder are several and not joint with the obligations of any other LLC Unitholder, and no LLC Unitholder shall be responsible in any way for the performance of the obligations of any other LLC Unitholder hereunder. The decision of each LLC Unitholder to enter into to this Agreement has been made by such LLC Unitholder independently of any other LLC Unitholder. Nothing contained herein, and no action taken by any LLC Unitholder pursuant hereto, shall be deemed to constitute the LLC Unitholders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the LLC Unitholders are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated hereby. The Corporation acknowledges that the LLC Unitholders are not acting in concert or as a group, and the Corporation will not assert any such claim, with respect to such obligations or the transactions contemplated hereby.
SECTION 3.15. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware, without regards to its principles of conflicts of laws.
[Remainder of Page Intentionally Left Blank]
10
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered, all as of the date first set forth above.
| Thunder Bridge II Surviving Pubco, Inc. | ||
| By: | /s/ Gary Simanson | |
| Name: | Gary Simanson | |
| Title: | CEO | |
| Ay Dee Kay LLC, d/b/a indie Semiconductor | ||
| By: | /s/ Donald McClymont | |
| Name: | Donald McClymont | |
| Title: | CEO | |
| LLC UNITHOLDER | ||
| By: | /s/ each LLC Unitholder | |
| Name: | ||
| Title: | ||
[Signature Page – Exchange Agreement]
EXHIBIT A
FORM OF
ELECTION OF EXCHANGE
indie Semiconductor, Inc.
32 Journey
Aliso Viejo, California 92656
Attention: Tom Schiller, CFO
Ay Dee Kay, LLC, d/b/a indie Semiconductor
32 Journey
Aliso Viejo, California 92656
Attention: Tom Schiller, CFO
Reference is hereby made to the Exchange Agreement, dated as of June 10, 2021 (the “Exchange Agreement”), among indie Semiconductor, Inc. (formerly known as Thunder Bridge II Surviving Pubco, Inc.,) a Delaware corporation, Ay Dee Kay, LLC, d/b/a indie Semiconductor, a California limited liability company, and the holders of LLC Units (as defined herein) from time to time party thereto. Capitalized terms used but not defined herein shall have the meanings given to them in the Exchange Agreement.
The undersigned LLC Unitholder hereby transfers to the Corporation, for the account of indie Semiconductor, Inc., the number of LLC Units set forth below in exchange for shares of Class A Common Stock to be issued in its name as set forth below, as set forth in the Exchange Agreement.
Legal Name of LLC Unitholder: ______________________________________________
Address: ______________________________________________________________
Number of LLC Units to be exchanged: ________________________________________
The undersigned hereby represents and warrants that (i) the undersigned has full legal capacity to execute and deliver this Election of Exchange and to perform the undersigned’s obligations hereunder; (ii) this Election of Exchange has been duly executed and delivered by the undersigned and is the legal, valid and binding obligation of the undersigned enforceable against it in accordance with the terms hereof, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and the availability of equitable remedies; (iii) the LLC Units subject to this Election of Exchange are being transferred to the Corporation free and clear of any pledge, lien, security interest, encumbrance, equities or claim; and (iv) no consent, approval, authorization, order, registration or qualification of any third party or with any court or governmental agency or body having jurisdiction over the undersigned or the LLC Units subject to this Election of Exchange is required to be obtained by the undersigned for the transfer of such LLC Units to the Corporation.
The undersigned hereby irrevocably constitutes and appoints any officer of the Corporation or of Ay Dee Kay, LLC as the attorney of the undersigned, with full power of substitution and resubstitution in the premises, to do any and all things and to take any and all actions that may be necessary to transfer to the Corporation, for the account of indie Semiconductor, Inc., the LLC Units subject to this Election of Exchange and to deliver to the undersigned the shares of Class A Common Stock to be delivered in exchange therefor.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Election of Exchange to be executed and delivered by the undersigned or by its duly authorized attorney.
| Name: | ||
| Dated: |
EXHIBIT B
FORM OF
JOINDER AGREEMENT
This Joinder Agreement (“Joinder Agreement”) is a joinder to the Exchange Agreement, dated as of June 10, 2021 (the “Exchange Agreement”), among Thunder Bridge II Surviving Pubco, Inc.), which is changing its name to indie Semicondctor, Inc., a Delaware corporation (the “Corporation”), Ay Dee Kay, LLC, d/b/a indie Semiconductor, a California limited liability company, and each of the LLC Unitholders from time to time party thereto. Capitalized terms used but not defined in this Joinder Agreement shall have their meanings given to them in the Exchange Agreement. This Joinder Agreement shall be governed by, and construed in accordance with, the law of the State of Delaware. In the event of any conflict between this Joinder Agreement and the Exchange Agreement, the terms of this Joinder Agreement shall control.
The undersigned hereby joins and enters into the Exchange Agreement having acquired LLC Units in Ay Dee Kay, LLC. By signing and returning this Joinder Agreement to the Corporation, the undersigned accepts and agrees to be bound by and subject to all of the terms and conditions of and agreements of an LLC Unitholder contained in the Exchange Agreement, with all attendant rights, duties and obligations of an LLC Unitholder thereunder. The parties to the Exchange Agreement shall treat the execution and delivery hereof by the undersigned as the execution and delivery of the Exchange Agreement by the undersigned and, upon receipt of this Joinder Agreement by the Corporation and by Ay Dee Kay, LLC, the signature of the undersigned set forth below shall constitute a counterpart signature to the signature page of the Exchange Agreement.
| Name: | |||
| Address for Notices: | With copies to: | ||
| Attention: | |||
Exhibit 10.6
TAX RECEIVABLE AGREEMENT
among
THUNDER BRIDGE II SURVIVING PUBCO, INC. AND ITS SUCCESSORS
and
THE PERSONS NAMED HEREIN
Dated as of June 10, 2021
Table of Contents
| Page | ||
| Article I DEFINITIONS | 2 | |
| Section 1.1 | Definitions | 2 |
| Section 1.2 | Other Definitions | 9 |
| Article II DETERMINATION OF CERTAIN REALIZED TAX BENEFIT | 9 | |
| Section 2.1 | Basis and Attribute Schedule | 9 |
| Section 2.2 | Tax Benefit Schedule | 10 |
| Section 2.3 | Procedures, Amendments | 11 |
| Article III TAX BENEFIT PAYMENTS | 11 | |
| Section 3.1 | Payments | 11 |
| Section 3.2 | No Duplicative Payments | 11 |
| Section 3.3 | Pro Rata Payments; Coordination of Benefits With Other Tax Receivable Agreements | 11 |
| Article IV TERMINATION | 12 | |
| Section 4.1 | Early Termination and Breach of Agreement | 12 |
| Section 4.2 | Early Termination Notice | 14 |
| Section 4.3 | Payment upon Early Termination | 14 |
| Section 4.4 | Scheduled Termination | 14 |
| Article V SUBORDINATION AND LATE PAYMENTS | 15 | |
| Section 5.1 | Subordination | 15 |
| Section 5.2 | Late Payments by the Corporate Taxpayer | 15 |
| Article VI NO DISPUTES; CONSISTENCY; COOPERATION | 15 | |
| Section 6.1 | Participation in the Corporate Taxpayer’s and OpCo’s Tax Matters | 15 |
| Section 6.2 | Consistency | 15 |
| Section 6.3 | Cooperation | 16 |
| Article VII MISCELLANEOUS | 16 | |
| Section 7.1 | Notices | 16 |
| Section 7.2 | Counterparts | 17 |
| Section 7.3 | Entire Agreement; Third Party Beneficiaries | 17 |
| Section 7.4 | Governing Law; Jurisdiction; Waiver of Jury Trial | 17 |
| Section 7.5 | Severability | 17 |
| Section 7.6 | Successors; Assignment; Amendments; Waivers | 18 |
| Section 7.7 | Titles and Subtitles | 19 |
| Section 7.8 | Reserved | 19 |
| Section 7.9 | Reconciliation | 19 |
| Section 7.10 | Withholding | 20 |
| Section 7.11 | Admission of the Corporate Taxpayer into a Consolidated Group; Transfers of Corporate Assets | 20 |
| Section 7.12 | Confidentiality | 21 |
| Section 7.13 | Change in Law | 21 |
| Section 7.14 | Reserved | 21 |
| Section 7.15 | Independent Nature of TRA Parties’ Rights and Obligations | 22 |
| Section 7.16 | TRA Party Representative | 22 |
i
TAX RECEIVABLE AGREEMENT
This TAX RECEIVABLE AGREEMENT (this “Agreement”), dated as of June 10, 2021, is hereby entered into by and among Thunder Bridge II Surviving Pubco, Inc., a Delaware corporation (the “Corporate Taxpayer”), each Person identified on Schedule A hereto (the “TRA Parties”) and the TRA Party Representative. Capitalized terms used but not otherwise defined herein have the respective meanings set forth in Article I hereof.
RECITALS
WHEREAS, the Corporate Taxpayer, Thunder Bridge Acquisition II, Ltd., Merger Subs described therein, Ay Dee Kay LLC, d/b/a indie Semiconductor, a California limited liability company (“OpCo”), each ADK Blocker, ADK Service Provider Holdco, LLC and the Company Securityholder Representative named therein entered into a Master Transactions Agreement, dated as of December 14, 2020 (as amended from time to time, the “Merger Agreement”);
WHEREAS, the TRA Parties directly or indirectly hold limited liability company units (the “Units”) in OpCo, which is classified as a partnership for United States federal income tax purposes;
WHEREAS, the Corporate Taxpayer is the Manager of OpCo, and holds and will hold, directly and/or indirectly, Units;
WHEREAS, each Blocker is taxable as a corporation for U.S. federal income tax purposes;
WHEREAS, in connection with the Mergers (as defined in the Merger Agreement), the shareholders of each Blocker will enter into certain reorganization transactions with the Corporate Taxpayer (the “Reorganization Transactions”), and as a result of such transactions the Corporate Taxpayer will obtain or be entitled to certain Tax benefits as further described herein;
WHEREAS, the Units held by the TRA Parties may be exchanged for Class A common stock (the “Class A Shares”) of the Corporate Taxpayer, subject to the provisions of the Eighth Amended and Restated Operating Agreement of OpCo (as amended from time to time, the “LLC Agreement”) and the Exchange Agreement, dated as of June 10, 2021, among the Corporate Taxpayer and the holders of Units from time to time party thereto (as amended from time to time, the “Exchange Agreement”);
WHEREAS, OpCo is currently treated as a partnership for United States federal income tax purposes and will have in effect an election under Section 754 of the United States Internal Revenue Code of 1986, as amended (the “Code”), for each Taxable Year in which a taxable acquisition (including a deemed taxable acquisition under Section 707(a) of the Code) of Units by the Corporate Taxpayer from the TRA Parties in exchange for Class A Shares or other consideration (each such acquisition in exchange for such consideration, an “Exchange”) occurs;
WHEREAS, the income, gain, loss, expense and other Tax items of the Corporate Taxpayer Group may be affected by the Basis Adjustments, the Blocker NOLs and the Imputed Interest; and
WHEREAS, the Parties hereto are entering into this Agreement to set forth the agreements regarding the sharing of certain Tax benefits realized by the Corporate Taxpayer Group.
NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:
Article
I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, the terms set forth in this Article I shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined).
“Affiliate” means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by, or is under common Control with, such first Person.
“Agreed Rate” means LIBOR plus 100 basis points.
“Basis Adjustment” means the adjustment to the tax basis of a Reference Asset under Sections 732, 734(b), 754 and 1012 of the Code (in situations where, as a result of one or more Exchanges, OpCo becomes an entity that is disregarded as separate from its owner for United States federal income tax purposes) or under Sections 734(b), 743(b) and 754 of the Code (in situations where, following an Exchange, OpCo remains in existence as an entity treated as a partnership for United States federal income tax purposes) and, in each case, comparable sections of state and local tax laws, as a result of an Exchange and the payments made pursuant to this Agreement. For the avoidance of doubt, the amount of any Basis Adjustment resulting from an Exchange of one or more Units shall be determined without regard to any Pre-Exchange Transfer of such Units and as if any such Pre-Exchange Transfer had not occurred.
A “Beneficial Owner” of a security is a Person who directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares: (i) voting power, which includes the power to vote, or to direct the voting of, such security and/or (ii) investment power, which includes the power to dispose of, or to direct the disposition of, such security. The terms “Beneficially Own” and “Beneficial Ownership” shall have correlative meanings.
“Blocker” means each of Anthem ADK Holdings, Inc., GoDubs Inc (Walden), indie Semi Blocker Corporation, and Reggae Semiconductor, Inc..
2
“Blocker NOLs” means the net operating losses, capital losses, disallowed interest expense carryforwards under Section 163(j) of the Code and credit carryforwards of each Blocker relating to taxable periods ending on or prior to the Closing Date.
“Board” means the Board of Directors of the Corporate Taxpayer.
“Business Day” means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States of America or the State of New York shall not be regarded as a Business Day.
“Change of Control” means the occurrence of any of the following events:
(i) any Person or any group of Persons acting together which would constitute a “group” for purposes of Section 13(d) of the Exchange Act or any successor provisions thereto (excluding (a) a corporation or other entity owned, directly or indirectly, by the stockholders of the Corporate Taxpayer in substantially the same proportions as their ownership of stock of the Corporate Taxpayer) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Corporate Taxpayer representing more than 50% of the combined voting power of the Corporate Taxpayer’s then outstanding voting securities; or
(ii) the following individuals cease for any reason to constitute a majority of the number of directors of the Corporate Taxpayer then serving: individuals who, on the Closing Date, constitute the Board and any new director whose appointment or election by the Board or nomination for election by the Corporate Taxpayer’s shareholders was approved or recommended by a vote of at least two-thirds of the directors then still in office who either were directors on the Closing Date or whose appointment, election or nomination for election was previously so approved or recommended by the directors referred to in this clause (ii); or
(iii) there is consummated a merger or consolidation of the Corporate Taxpayer with any other corporation or other entity, and, immediately after the consummation of such merger or consolidation, either (x) the board of directors immediately prior to the merger or consolidation does not constitute at least a majority of the board of directors of the company surviving the merger or, if the surviving company is a Subsidiary, the ultimate parent thereof, or (y) the voting securities of the Corporate Taxpayer immediately prior to such merger or consolidation do not continue to represent or are not converted into more than 50% of the combined voting power of the then outstanding voting securities of the Person resulting from such merger or consolidation or, if the surviving company is a Subsidiary, the ultimate parent thereof; or
(iv) the shareholders of the Corporate Taxpayer approve a plan of complete liquidation or dissolution of the Corporate Taxpayer or there is consummated an agreement or series of related agreements for the sale, lease or other disposition, directly or indirectly, by the Corporate Taxpayer of all or substantially all of the assets of the Corporate Taxpayer and its Subsidiaries, taken as a whole, other than such sale or other disposition by the Corporate Taxpayer of all or substantially all of the assets of the Corporate Taxpayer and its Subsidiaries, taken as a whole, to an entity at least 50% of the combined voting power of the voting securities of which are owned by shareholders of the Corporate Taxpayer in substantially the same proportions as their ownership of the Corporate Taxpayer immediately prior to such sale.
3
Notwithstanding the foregoing, except with respect to clause (ii) and clause (iii)(x) above, a “Change of Control” shall not be deemed to have occurred by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the shares of the Corporate Taxpayer immediately prior to such transaction or series of transactions continue to have substantially the same proportionate ownership in, and own substantially all of the shares of, an entity which owns all or substantially all of the assets of the Corporate Taxpayer immediately following such transaction or series of transactions.
“Closing Date” means the date of the consummation of the transactions contemplated by the Merger Agreement.
“Control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
“Corporate Taxpayer Group” means the Corporate Taxpayer, any direct or indirect Subsidiary of the Corporate Taxpayer and any consolidated, combined, unitary or similar group of entities that join in filing any Tax Return.
“Corporate Taxpayer Return” means the federal and/or state and/or local Tax Return, as applicable, of the Corporate Taxpayer filed with respect to Taxes of any Taxable Year.
“Cumulative Net Realized Tax Benefit” for a Taxable Year means the cumulative amount of Realized Tax Benefits for all Taxable Years of the Corporate Taxpayer, up to and including such Taxable Year, net of the cumulative amount of Realized Tax Detriments for the same period. The Realized Tax Benefit and Realized Tax Detriment for each Taxable Year shall be determined based on the most recent Tax Benefit Schedules or Amended Schedules, if any, in existence at the time of such determination.
“Default Rate” means the LIBOR plus 500 basis points.
“Determination” shall have the meaning ascribed to such term in Section 1313(a) of the Code or similar provision of state, foreign or local tax law, as applicable, or any other event (including the execution of IRS Form 870-AD) that finally and conclusively establishes the amount of any liability for Tax.
“Early Termination Date” means the date of an Early Termination Notice for purposes of determining the Early Termination Payment.
“Early Termination Rate” means the LIBOR plus 100 basis points.
4
“Exchange” shall have meaning provided in the Recitals; provided, however, that for the avoidance of doubt, a distribution of cash to the members of OpCo on or around the Closing Date, which will be treated for U.S. federal income tax purposes, in whole or in part, as a deemed sale of partnership interests in OpCo to the Corporate Taxpayer pursuant to Section 707(a) and 743(b) of the Code) shall each be treated as Exchanges. The terms “Exchanged” and “Exchanges” shall have correlative meanings.
“Exchange Date” means the date of any Exchange.
“Hypothetical Tax Liability” means, with respect to any Taxable Year, the liability for Taxes of (i) the Corporate Taxpayer and (ii) without duplication, OpCo, but only with respect to Taxes imposed on OpCo and allocable to the Corporate Taxpayer Group, in each case using the same methods, elections, conventions and similar practices used on the relevant Corporate Taxpayer Return, but (a) using the Non-Stepped Up Tax Basis as reflected on the Basis and Attribute Schedule including amendments thereto for the Taxable Year, (b) excluding any Blocker NOLs and (c) excluding any deduction attributable to Imputed Interest for the Taxable Year. For the avoidance of doubt, Hypothetical Tax Liability shall be determined without taking into account the carryover or carryback of any Tax item (or portions thereof) that is attributable to the Basis Adjustment, Blocker NOLs or Imputed Interest, as applicable.
“Imputed Interest” in respect of a TRA Party shall mean any interest imputed under Section 1272, 1274 or 483 or other provision of the Code and any similar provision of state, foreign or local tax law with respect to the Corporate Taxpayer’s payment obligations in respect of such TRA Party under this Agreement. For the avoidance of doubt, the deduction for the amount of Imputed Interest as determined with respect to any Net Tax Benefit payable by the Corporate Taxpayer to a TRA Party shall be excluded in determining the Hypothetical Tax Liability of the Corporate Taxpayer for purposes of calculating Realized Tax Benefits and Realized Tax Detriments pursuant to this Agreement.
“IRS” means the United States Internal Revenue Service.
“LIBOR” means during any period, an interest rate per annum equal to the one-year LIBOR reported, on the date two calendar days prior to the first day of such period, on the Telerate Page 3750 (or if such screen shall cease to be publicly available, as reported on Reuters Screen page “LIBOR01” or by any other publicly available source of such market rate) for London interbank offered rates for United States dollar deposits for such period. Notwithstanding the foregoing sentence: (i) if the Corporate Taxpayer reasonably determines, in good faith consultation with the TRA Party Representative, on or prior to the relevant date of determination that the relevant London interbank offered rate for U.S. dollar deposits has been discontinued or such rate has ceased to be published permanently or indefinitely, then “LIBOR” for the relevant interest period shall be deemed to refer to a substitute or successor rate that the Corporate Taxpayer reasonably determines, in good faith consultation with the TRA Party Representative, after consulting an investment bank of national standing in the United States and other reasonable sources, to be (a) the industry-accepted successor rate to the relevant London interbank offered rate for U.S. dollar deposits or (b) if no such industry-accepted successor rate exists, the most comparable substitute or successor rate to the relevant London interbank offered rate for U.S. dollar deposits; and (ii) if the Corporate Taxpayer has determined a substitute or successor rate in accordance with the foregoing, the Corporate Taxpayer may reasonably determine, in good faith consultation with the TRA Party Representative, after consulting an investment bank of national standing in the United States and other reasonable sources, any relevant methodology for calculating such substitute or successor rate, including any adjustment factor it reasonably determines, in good faith consultation with the TRA Party, is needed to make such substitute or successor rate comparable to the relevant London interbank offered rate for U.S. dollar deposits, in a manner that is consistent with industry-accepted practices for such substitute or successor rate. In the event that the TRA Party Representative disagrees with any determination by the Corporate Taxpayer set forth in this paragraph, and such disagreement is not resolved within thirty (30) days of submission by the TRA Party Representative of notice of such disagreement to the Corporate Taxpayer, such disagreement shall be deemed a “Reconciliation Dispute,” and shall be subject to the Reconciliation Procedures set forth in Section 7.9 hereof.
5
“Market Value” shall mean the closing price of the Class A Shares on the applicable Exchange Date on the national securities exchange or interdealer quotation system on which such Class A Shares are then traded or listed, as reported by the Bloomberg; provided, that if the closing price is not reported by the Bloomberg for the applicable Exchange Date, then the Market Value shall mean the closing price of the Class A Shares on the Business Day immediately preceding such Exchange Date on the national securities exchange or interdealer quotation system on which such Class A Shares are then traded or listed, as reported by the Bloomberg; provided, further, that if the Class A Shares are not then listed on a national securities exchange or interdealer quotation system, “Market Value” shall mean the cash consideration paid for Class A Shares, or the fair market value of the other property delivered for Class A Shares, as determined by the Board in good faith.
“Non-Stepped Up Tax Basis” means, with respect to any Reference Asset at any time, the Tax basis that such asset would have had at such time if no Basis Adjustments had been made.
“Person” means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity.
“Pre-Exchange Transfer” means any transfer (including upon the death of a Member) or distribution in respect of one or more Units (a) that occurs prior to an Exchange of such Units, and (b) to which Section 743(b) or 734(b) of the Code applies.
“Realized Tax Benefit” means, for a Taxable Year, the excess, if any, of the Hypothetical Tax Liability over the actual liability for Taxes of (a) the Corporate Taxpayer and (b) without duplication, OpCo, but only with respect to Taxes imposed on OpCo and allocable to the Corporate Taxpayer or to the other members of the consolidated group of which the Corporate Taxpayer is the parent for such Taxable Year. If all or a portion of the actual liability for such Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Benefit unless and until there has been a Determination.
6
“Realized Tax Detriment” means, for a Taxable Year, the excess, if any, of the actual liability over the Hypothetical Tax Liability for Taxes of (a) the Corporate Taxpayer and (b) without duplication, OpCo, but only with respect to Taxes imposed on OpCo and allocable to the Corporate Taxpayer or to the other members of the consolidated group of which the Corporate Taxpayer is the parent for such Taxable Year. If all or a portion of the actual liability for such Taxes for the Taxable Year arises as a result of an audit by a Taxing Authority of any Taxable Year, such liability shall not be included in determining the Realized Tax Detriment unless and until there has been a Determination.
“Reference Asset” means any tangible or intangible asset that is held by OpCo, or by any of its direct or indirect Subsidiaries at the time of an Exchange. A Reference Asset also includes any asset that is “substituted basis property” under Section 7701(a)(42) of the Code with respect to a Reference Asset.
“Schedule” means any of the following: (a) a Basis and Attribute Schedule, (b) a Tax Benefit Schedule, or (c) the Early Termination Schedule.
“Subsidiaries” means, with respect to any Person, as of any date of determination, any other Person as to which such Person, owns, directly or indirectly, or otherwise controls more than 50% of the voting power or other similar interests or the sole general partner interest or managing member or similar interest of such Person.
“Subsidiary Stock” means any stock or other equity interest in any subsidiary entity of OpCo that is treated as a corporation for United States federal income tax purposes.
“Tax Return” means any return, declaration, report or similar statement required to be filed with respect to Taxes (including any attached schedules), including (without limitation) any information return, claim for refund, amended return and declaration of estimated Tax.
“Taxable Year” means a taxable year of the Corporate Taxpayer as defined in Section 441(b) of the Code or comparable section of state or local tax law, as applicable (and, therefore, for the avoidance of doubt, may include a period of less than 12 months for which a Tax Return is made), ending on or after the Closing Date.
“Taxes” means any and all United States federal, state, local and foreign taxes, assessments or similar charges that are based on or measured with respect to net income or profits (including any franchise taxes based on or measured with respect to net income or profits), and any interest related to such Tax.
“Taxing Authority” shall mean any domestic, federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising any taxing authority or any other authority exercising Tax regulatory authority.
7
“TRA Party Representative” means, initially, Donald McClymont, or, if Mr. McClymont becomes unable to perform the TRA Party Representative’s responsibilities hereunder or resigns from such position, either (x) a replacement TRA Party Representative selected by Mr. McClymont, or (y) if Mr. McClymont has not selected a substitute TRA Party Representative at or prior to the time of such inability or resignation, that TRA Party or committee of TRA Parties determined by a plurality vote of the TRA Parties ratably in accordance with their right to receive Early Termination Payments hereunder if all TRA Parties had fully Exchanged their Units for Class A Shares or other consideration and the Corporate Taxpayer had exercised its right of early termination on the date of the most recent Exchange.
“Treasury Regulations” means the final, temporary and proposed regulations under the Code promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period.
“Valuation Assumptions” shall mean, as of an Early Termination Date, the assumptions that in each Taxable Year ending on or after such Early Termination Date, (a) the Corporate Taxpayer will have taxable income sufficient to fully utilize (i) the deductions arising from the Basis Adjustments, the Blocker NOLs and the Imputed Interest during such Taxable Year or future Taxable Years (including, for the avoidance of doubt, Basis Adjustments and Imputed Interest that would result from future Tax Benefit Payments that would be paid in accordance with the Valuation Assumptions) in which such deductions would become available and (ii) any loss or credit carryovers generated by deductions or losses arising from Basis Adjustments, the Blocker NOLs or Imputed Interest that are available in the Taxable year that includes the Early Termination Date and any Blocker NOLs that have not been previously utilized in determining a Tax Benefit Payment as of the Early Termination Date will be utilized by the Corporate Taxpayer in the earliest possible Taxable Year permitted by the Code and the Treasury Regulations from the Early Termination Date, (b) the United States federal, state and local income tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code and other law as in effect on the Early Termination Date, except to the extent any change to such tax rates for such Taxable Year has already been enacted into law, (c) any non-amortizable assets will be disposed of on the fifteenth anniversary of the applicable Basis Adjustment and any short-term investments will be disposed of 12 months following the Early Termination Date; provided that, in the event of a Change of Control, such non-amortizable assets shall be deemed disposed of at the time of sale of the relevant asset (if earlier than such fifteenth anniversary), and (d) if, at the Early Termination Date, there are Units that have not been Exchanged, then each such Unit is treated as Exchanged for the Market Value of the Class A Shares or the amount of cash that would be transferred to such Person if the Exchange occurred on the Early Termination Date.
8
Section 1.2 Other Definitions. As used in this Agreement, the following terms are defined in the Sections indicated below:
| Term | Section | ||
| Agreement | Recitals | ||
| Amended Schedule | Section 2.2 | ||
| Basis and Attribute Schedule | Section 2.1 | ||
| Blocker Parties | Schedule A | ||
| Catchup Payment | Schedule A | ||
| Class A Shares | Recitals | ||
| Code | Recitals | ||
| Corporate Taxpayer | Recitals | ||
| Dispute | Section 7.8(a) | ||
| Early Termination Effective Date | Section 4.2 | ||
| Early Termination Notice | Section 4.2 | ||
| Early Termination Payment | Section 4.3(b) | ||
| Early Termination Schedule | Section 4.2 | ||
| Exchange Agreement | Recitals | ||
| Expert | Section 7.9 | ||
| Held Back Amount | Schedule A | ||
| Joinder Requirement | Section 7.6(a) | ||
| LLC Agreement | Recitals | ||
| Material Objection Notice | Section 4.2 | ||
| Mergers | Recitals | ||
| Merger Agreement | Recitals | ||
| Net Tax Benefit | Section 3.1(b) | ||
| Objection Notice | Section 2.2(a) | ||
| Partial Payment | Schedule A | ||
| Reconciliation Dispute | Section 7.9 | ||
| Reconciliation Procedures | Section 2.2(a) | ||
| Reorganization Transactions | Recitals | ||
| Senior Obligations | Section 5.1 | ||
| Tax Benefit Payment | Section 3.1(b) | ||
| Tax Benefit Schedule | Section 2.2(a) | ||
| TRA Party | Recitals | ||
| Units | Recitals |
Article
II
DETERMINATION OF CERTAIN REALIZED TAX BENEFIT
Section 2.1 Basis and Attribute Schedule. Within one hundred twenty (120) calendar days after the filing of the United States federal income tax return of the Corporate Taxpayer for the Taxable Year in which the Reorganization Transactions are effected, and for each Taxable Year thereafter, the Corporate Taxpayer shall deliver to each TRA Party a schedule (the “Basis and Attribute Schedule”) that shows, in reasonable detail necessary to perform the calculations required by this Agreement, to the extent applicable in each case: (a) the Non-Stepped Up Tax Basis of the Reference Assets in respect of such TRA Party as of each applicable Exchange Date, (b) the Basis Adjustment with respect to the Reference Assets in respect of such TRA Party as a result of the Exchanges effected in such Taxable Year by such TRA Party, calculated in the aggregate, (c) the period (or periods) over which the Reference Assets in respect of such TRA Party are amortizable and/or depreciable, (d) the period (or periods) over which each Basis Adjustment in respect of such TRA Party is amortizable and/or depreciable, (e) the Blocker NOLs, and (f) any applicable limitations on the use of such Blocker NOLs for Tax purposes (including under Section 382 of the Code). For the avoidance of doubt, the Basis and Attribute Schedule shall reflect all changes in the bases of Reference Assets arising other than from a Basis Adjustment (e.g., as the result of an audit). Each Basis and Attribute Schedule will become final and binding on the Parties as provided in Section 2.3(a) and may be amended as provided in Section 2.3(b) (subject to the procedures set forth in Section 2.3(b)).
9
Section 2.2 Tax Benefit Schedule.
(a) Tax Benefit Schedule. Within one hundred twenty (120) calendar days after the filing of the United States federal income tax return of the Corporate Taxpayer for each Taxable Year in which there is a Realized Tax Benefit or Realized Tax Detriment, the Corporate Taxpayer shall provide to each TRA Party a schedule showing, in reasonable detail, the calculation of the Tax Benefit Payment or Realized Tax Detriment for such Taxable Year and the allocation of any Net Tax Benefit among the TRA Parties, which allocation shall be made in accordance with Schedule A (a “Tax Benefit Schedule”). Each Tax Benefit Schedule will become final and binding on the Parties as provided in Section 2.3(a) and may be amended as provided in Section 2.3(b) (subject to the procedures set forth in Section 2.3(b)).
(b) Applicable Principles. Subject to Section 3.3(a), the Realized Tax Benefit or Realized Tax Detriment for each Taxable Year is intended to measure the decrease or increase in the actual liability for Taxes of the Corporate Taxpayer for such Taxable Year attributable to the Basis Adjustments, the Blocker NOLs and Imputed Interest, determined using a “with and without” methodology. For the avoidance of doubt, the actual liability for Taxes will take into account the deduction of the portion of the Tax Benefit Payment that must be accounted for as interest under the Code based upon the characterization of Tax Benefit Payments as additional consideration payable by the Corporate Taxpayer for the Units acquired in an Exchange. Carryovers or carrybacks of any Tax item attributable to the Basis Adjustments, Blocker NOLs and Imputed Interest shall be considered to be subject to the rules of the Code and the Treasury Regulations or the appropriate provisions of U.S. state and local income and franchise tax law, as applicable, governing the use, limitation and expiration of carryovers or carrybacks of the relevant type. If a carryover or carryback of any Tax item includes a portion that is attributable to the Basis Adjustment, Blocker NOLs or Imputed Interest (a “TRA Portion”) and another portion that is not, such portions shall be considered to be used in accordance with the “with and without” methodology. For the avoidance of doubt, the TRA Portion of any Tax item when such item is incurred shall be determined using a marginal “with and without” methodology by calculating (i) the amount of such Tax item for all Tax purposes taking into account the Basis Adjustments, Blocker NOLs or Imputed Interest and (ii) the amount of such Tax item for all Tax purposes without taking into account the Basis Adjustments, Blocker NOLs or Imputed Interest, with the TRA Portion equal to the excess of the amount specified in clause (i) over the amount specified in clause (ii) (but only if such excess is greater than zero). The parties agree that (1) all Tax Benefit Payments made to a TRA Party (other than the Blocker Parties) and attributable to the Basis Adjustments (other than amounts accounted for as Imputed Interest) will be treated as subsequent upward purchase price adjustments that have the effect of creating additional Basis Adjustments to Reference Assets for the Corporate Taxpayer in the year of payment, and (2) as a result, such additional Basis Adjustments will be incorporated into the current year calculation and into future year calculations, as appropriate.
10
Section 2.3 Procedures, Amendments.
(a) Procedure. Every time the Corporate Taxpayer delivers to a TRA Party an applicable Schedule under this Agreement, including any Amended Schedule delivered pursuant to Section 2.2(b), and any Early Termination Schedule or amended Early Termination Schedule, the Corporate Taxpayer shall also (x) deliver to such TRA Party supporting schedules, valuation reports, if any, and work papers, as determined by the Corporate Taxpayer or requested by such TRA Party, providing reasonable detail regarding the preparation of the Schedule and (y) allow such TRA Party reasonable access, at no cost to the appropriate representatives at the Corporate Taxpayer, as determined by the Corporate Taxpayer or requested by such TRA Party, in connection with the review of such Schedule. Without limiting the generality of the preceding sentence, the Corporate Taxpayer shall ensure that each Tax Benefit Schedule delivered to a TRA Party, together with any supporting schedules and work papers, provides a reasonably detailed presentation of the calculation of the actual liability of the Corporate Taxpayer for Taxes, the Hypothetical Tax Liability, and identifies any material assumptions or operating procedures or principles that were used for purposes of such calculations. An applicable Schedule or amendment thereto shall become final and binding on all parties thirty (30) calendar days from the date on which all relevant TRA Parties are treated as having received the applicable Schedule or amendment thereto under Section 7.1 unless the TRA Party Representative (i) within thirty (30) calendar days from such date provides the Corporate Taxpayer with notice of an objection to such Schedule (“Objection Notice”) or (ii) provides a written waiver of such right of any Objection Notice within the period described in clause (i) above, in which case such Schedule or amendment thereto shall become binding on the date such waiver is received by the Corporate Taxpayer. If the Corporate Taxpayer and the TRA Party Representative, for any reason, are unable to successfully resolve the issues raised in the Objection Notice within thirty (30) calendar days after receipt by the Corporate Taxpayer of an Objection Notice, the Corporate Taxpayer and the TRA Party Representative shall employ the reconciliation procedures as described in Section 7.9 of this Agreement (the “Reconciliation Procedures”).
(b) Amended Schedule. The applicable Schedule for any Taxable Year may be amended from time to time by the Corporate Taxpayer (i) in connection with a Determination affecting such Schedule, (ii) to correct inaccuracies in the Schedule identified as a result of the receipt of additional factual information relating to a Taxable Year after the date the Schedule was provided to a TRA Party, (iii) to comply with the Expert’s determination under the Reconciliation Procedures, (iv) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to a carryback or carryforward of a loss or other Tax item to such Taxable Year, (v) to reflect a change in the Realized Tax Benefit or Realized Tax Detriment for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year, or (vi) to adjust an applicable Basis and Attribute Schedule to take into account payments made pursuant to this Agreement (any such Schedule, an “Amended Schedule”). The Corporate Taxpayer shall provide an Amended Schedule to each TRA Party within thirty (30) calendar days of the occurrence of an event referenced in clauses (i) through (vi) of the preceding sentence.
11
Article
III
TAX BENEFIT PAYMENTS
Section 3.1 Payments.
(a) Payments. Subject to Section 3.3, within ten (10) Business Days after all the Tax Benefit Schedules with respect to the taxable year delivered to the TRA Party become final in accordance with Article II of this Agreement, Corporate Taxpayer shall pay or cause to be paid to each applicable TRA Party for such taxable year such TRA Party’s Tax Benefit Payment (if any) determined in accordance with and subject to Section 3.1(b) and the applicable final Tax Benefit Schedule. Each such payment shall be made by wire or Automated Clearing House transfer of immediately available funds to the bank account previously designated by the applicable TRA Party to Corporate Taxpayer or as otherwise agreed by Corporate Taxpayer and the applicable Exchanged Owner. For the avoidance of doubt, no Tax Benefit Payment shall be made in respect of estimated tax payments, including, without limitation, estimated U.S. federal income tax payments.
(b) A “Tax Benefit Payment” in respect of a TRA Party for a Taxable Year means an amount, not less than zero, which Corporate Taxpayer is required to pay or cause to be paid pursuant to this Section 3.1, equal to the sum of the Net Tax Benefit that is allocable to such TRA Party and the Interest Amount with respect thereto (less any Held Back Amount). For the avoidance of doubt, for Tax purposes, the Interest Amount shall not be treated as interest but instead shall be treated as additional consideration for the acquisition of Units in Exchanges, unless otherwise required by law. Subject to Section 3.3(a), the “Net Tax Benefit” for a Taxable Year shall be an amount equal to eighty-five percent (85%) of the Cumulative Net Realized Tax Benefit, if any, as of the end of such Taxable Year, over the total amount of payments previously made under this Section 3.1 (excluding payments attributable to Interest Amounts); provided that, for the avoidance of doubt, no such recipient shall be required to return any portion of any previously made Tax Benefit Payment. The “Interest Amount” shall equal the interest on the Net Tax Benefit calculated at the Agreed Rate from the due date (without extensions) for filing the Corporate Taxpayer Return with respect to Taxes for such Taxable Year until the payment date under Section 3.1(a) and Schedule A. Notwithstanding the foregoing, for each Taxable Year ending on or after the date of a Change of Control that occurs after the Closing Date, all Tax Benefit Payments shall be calculated by utilizing Valuation Assumptions (a), (c) and (d), substituting in each case the terms “the closing date of a Change of Control” for an “Early Termination Date.”
Section 3.2 No Duplicative Payments. It is intended that the provisions of this Agreement will not result in duplicative payment of any amount (including interest) required under this Agreement. The provisions of this Agreement shall be construed in the appropriate manner to ensure such intentions are realized.
Section 3.3 Pro Rata Payments; Coordination of Benefits With Other Tax Receivable Agreements.
(a) Notwithstanding anything in Section 3.1 to the contrary, to the extent that the aggregate Tax benefit of the Corporate Taxpayer with respect to the Basis Adjustments, Blocker NOLs or Imputed Interest, as such terms are defined in this Agreement, is limited in a particular Taxable Year because the Corporate Taxpayer does not have sufficient taxable income, the Net Tax Benefit for the Corporate Taxpayer shall be allocated among all TRA Parties eligible for payments under this Agreement in proportion to the respective amounts of Net Tax Benefit that would have been allocated to each such TRA Party if the Corporate Taxpayer had sufficient taxable income so that there were no such limitation.
12
(b) If for any reason (including as contemplated by Section 3.3(a)) the Corporate Taxpayer does not fully satisfy its payment obligations to make all Tax Benefit Payments due under this Agreement in respect of a particular Taxable Year, then the Corporate Taxpayer and the TRA Parties agree that no Tax Benefit Payment shall be made in respect of any subsequent Taxable Year until all Tax Benefit Payments in respect of prior Taxable Years have been made in full.
(c) Any Tax Benefit Payment or Early Termination Payment required to be made by the Corporate Taxpayer to the TRA Parties under this Agreement shall rank senior in right of payment to any principal, interest or other amounts due and payable in respect of any similar agreement (“Other Tax Receivable Obligations”). The effect of any other similar agreement shall not be taken into account in respect of any calculations made hereunder.
Article
IV
TERMINATION
Section 4.1 Early Termination and Breach of Agreement.
(a) The Corporate Taxpayer may terminate this Agreement with respect to all amounts payable to the TRA Parties and with respect to all of the Units held by the TRA Parties at any time by paying to each TRA Party the Early Termination Payment in respect of such TRA Party; provided, however, that this Agreement shall only terminate upon the receipt of the Early Termination Payment by all TRA Parties; provided further that the Corporate Taxpayer may withdraw any notice to execute its termination rights under this Section 4.1(a) prior to the time at which any Early Termination Payment has been paid. Upon payment of the Early Termination Payment by the Corporate Taxpayer, none of the TRA Parties or the Corporate Taxpayer shall have any further payment obligations under this Agreement, other than for any (i) Tax Benefit Payment due and payable that remains outstanding as of the date the Early Termination Notice is delivered and (ii) Tax Benefit Payment due for the Taxable Year ending with or including the date of the Early Termination Notice (except to the extent that the amount described in clause (ii) is included in the Early Termination Payment). If an Exchange occurs after the Corporate Taxpayer makes all of the required Early Termination Payments, the Corporate Taxpayer shall have no obligations under this Agreement with respect to such Exchange.
13
(b) In the event that the Corporate Taxpayer (1) breaches any of its material obligations under this Agreement, whether as a result of failure to make any payment when due, failure to honor any other material obligation required hereunder or (2)(A) the Corporate Taxpayer commences any case, proceeding or other action (i) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts or (ii) seeking an appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or it shall make a general assignment for the benefit of creditors or (B) there shall be commenced against the Corporate Taxpayer any case, proceeding or other action of the nature referred to in clause (A) above that remains undismissed or undischarged for a period of sixty (60) days, all obligations hereunder shall be accelerated and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of such breach and shall include, but not be limited to, (i) the Early Termination Payments calculated as if an Early Termination Notice had been delivered on the date of a breach, (ii) any Tax Benefit Payment in respect of a TRA Party agreed to by the Corporate Taxpayer and such TRA Party as due and payable but unpaid as of the date of a breach, and (iii) any Tax Benefit Payment in respect of any TRA Party due for the Taxable Year ending with or including the date of a breach; provided, that procedures similar to the procedures of Section 4.2 shall apply with respect to the determination of the amount payable by the Corporate Taxpayer pursuant to this sentence. Notwithstanding the foregoing, in the event that the Corporate Taxpayer breaches this Agreement, each TRA Party shall be entitled to elect to receive the amounts set forth in clauses (i), (ii) and (iii) above or to seek specific performance of the terms hereof. The parties agree that the failure to make any payment due pursuant to this Agreement within three months of the date such payment is due shall be deemed to be a breach of a material obligation under this Agreement for all purposes of this Agreement, and that it will not be considered to be a breach of a material obligation under this Agreement to make a payment due pursuant to this Agreement within three months of the date such payment is due. Notwithstanding anything in this Agreement to the contrary, it shall not be a breach of this Agreement if the Corporate Taxpayer fails to make any Tax Benefit Payment when due to the extent that the Corporate Taxpayer has insufficient funds to make such payment in the Corporate Taxpayer’s sole judgment exercised in good faith; provided that the interest provisions of Section 5.2 shall apply to such late payment.
(c) In the event of a Change of Control, then all obligations hereunder with respect to any Exchanges occurring prior to such Change of Control shall be accelerated and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of such Change of Control and shall include (1) the Early Termination Payments calculated with respect to such prior Exchanges as if the Early Termination Date is the date of such Change of Control, (2) any Tax Benefit Payment due and payable and that remains unpaid as of the date of such Change of Control, and (3) any Tax Benefit Payment in respect of any TRA Party due for the Taxable Year ending with or including the date of such Change of Control. In the event of a Change of Control, any Early Termination Payment described in the preceding sentence shall be calculated utilizing Valuation Assumptions (1), (2), (3) and (4), substituting in each case the terms “date of a Change of Control” for an “Early Termination Date.” Any Exchanges with respect to which a payment has been made under this Section 4.1(c) shall be excluded in calculating any future Tax Benefit Payments, or Early Termination Payments, and this Agreement shall have no further application to such Exchanges.
14
Section 4.2 Early Termination Notice. If the Corporate Taxpayer chooses to exercise its right of early termination under Section 4.1 above, the Corporate Taxpayer shall deliver to each TRA Party a notice (“Early Termination Notice”) and a schedule (the “Early Termination Schedule”) specifying the Corporate Taxpayer’s intention to exercise such right and showing in reasonable detail the calculation of the Early Termination Payment(s) due for each TRA Party. Each Early Termination Schedule shall become final and binding on all parties thirty (30) calendar days from the first date on which all TRA Parties are treated as having received such Schedule or amendment thereto under Section 7.1 unless, prior to such thirtieth calendar day, the TRA Party Representative (a) provides the Corporate Taxpayer with notice of a material objection to such Schedule made in good faith (“Material Objection Notice”) or (b) provides a written waiver of such right of a Material Objection Notice, in which case such Schedule will become binding on the date the waiver is received by the Corporate Taxpayer (the “Early Termination Effective Date”). If the Corporate Taxpayer and the TRA Party Representative, for any reason, are unable to successfully resolve the issues raised in such notice within thirty (30) calendar days after receipt by the Corporate Taxpayer of the Material Objection Notice, the Corporate Taxpayer and the TRA Party Representative shall employ the Reconciliation Procedures in which case such Schedule shall become binding ten (10) calendar days after the conclusion of the Reconciliation Procedures.
Section 4.3 Payment upon Early Termination.
(a) Within three (3) calendar days after the Early Termination Effective Date, the Corporate Taxpayer shall pay to each TRA Party an amount equal to the Early Termination Payment in respect of such TRA Party. Such payment shall be made, at the sole discretion of Corporate Taxpayer, by wire or Automated Clearing House transfer of immediately available funds to a bank account or accounts designated by the applicable TRA Party or as otherwise agreed by Corporate Taxpayer or the TRA Party.
(b) “Early Termination Payment” in respect of a TRA Party shall equal the present value, discounted at the Early Termination Rate as of the applicable Early Termination Effective Date, of all Tax Benefit Payments in respect of such TRA Party that would be required to be paid by the Corporate Taxpayer beginning from the Early Termination Date and assuming that (i) the Valuation Assumptions in respect of such TRA Party are applied (ii) for each Taxable Year, the Tax Benefit Payment is paid ninety-five (95) calendar days after the due date, assuming an extension, of the U.S. federal income tax return of the Corporate Taxpayer and (iii) for purposes of calculating the Early Termination Rate, LIBOR shall be LIBOR as of the date of the Early Termination Notice.
Section 4.4 Scheduled Termination. No Tax Benefit Payment shall accrue, or shall become due or payable with respect to any Exchange, after the 40th anniversary (the “Scheduled Termination Date”) of the effective date of such Exchange. For avoidance of doubt, this Agreement shall continue to be in effect in periods after the Scheduled Termination Date with respect to Tax Benefit Payments that arise on or before such date, or any adjustment thereto, and shall terminate upon such time as all Tax Benefit Payments due and payable hereunder have been paid and the Determinations have been made with respect to all such payments.
15
Article
V
SUBORDINATION AND LATE PAYMENTS
Section 5.1 Subordination. Notwithstanding any other provision of this Agreement to the contrary, any Tax Benefit Payment or Early Termination Payment required to be made by the Corporate Taxpayer to the TRA Parties under this Agreement shall rank subordinate and junior in right of payment to any principal, interest or other amounts due and payable in respect of any obligations in respect of indebtedness for borrowed money of the Corporate Taxpayer and its Subsidiaries (“Senior Obligations”), shall rank senior in right of payment to any principal, interest or other amounts due and payable in respect of any Other Tax Receivable Obligation, and shall rank pari passu with all current or future unsecured obligations of the Corporate Taxpayer that are not Senior Obligations or Other Tax Receivable Obligations. To the extent that any payment under this Agreement is not permitted to be made at the time payment is due as a result of this Section 5.1 and the terms of agreements governing Senior Obligations, such payment obligation nevertheless shall accrue for the benefit of TRA Parties and the Corporate Taxpayer shall make such payments at the first opportunity that such payments are permitted to be made in accordance with the terms of the Senior Obligations.
Section 5.2 Late Payments by the Corporate Taxpayer. The amount of all or any portion of any Tax Benefit Payment, Early Termination Payment, Partial Payment or Catchup Payment not made to the TRA Parties when due under the terms of this Agreement shall be payable together with any interest thereon, computed at the Default Rate and commencing from the date on which such Tax Benefit Payment, Early Termination Payment, Partial Payment or Catchup Payment was due and payable.
Article
VI
NO DISPUTES; CONSISTENCY; COOPERATION
Section 6.1 Participation in the Corporate Taxpayer’s and OpCo’s Tax Matters. Except as otherwise provided herein, the Corporate Taxpayer shall have full responsibility for, and sole discretion over, all Tax matters concerning the Corporate Taxpayer and OpCo, including the preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to Taxes. Notwithstanding the foregoing, the Corporate Taxpayer shall notify the TRA Party Representative of, and keep the TRA Party Representative reasonably informed with respect to, the portion of any audit of the Corporate Taxpayer and OpCo by a Taxing Authority the outcome of which is reasonably expected to affect the rights and obligations of a TRA Party under this Agreement, and shall provide to the TRA Party Representative reasonable opportunity to provide information and other input to the Corporate Taxpayer, OpCo and their respective advisors concerning the conduct of any such portion of such audit; provided, however, that the Corporate Taxpayer and OpCo shall not be required to take any action that is inconsistent with any provision of the LLC Agreement or Exchange Agreement.
Section 6.2 Consistency. The Corporate Taxpayer and the TRA Parties agree to report and cause to be reported for all purposes, including federal, state and local Tax purposes and financial reporting purposes, all Tax-related items (including the Basis Adjustments and each Tax Benefit Payment) in a manner consistent with that specified by the Corporate Taxpayer in any Schedule required to be provided by or on behalf of the Corporate Taxpayer under this Agreement unless otherwise required by law.
16
Section 6.3 Cooperation. Each of the TRA Parties shall (a) furnish to the Corporate Taxpayer in a timely manner such information, documents and other materials as the Corporate Taxpayer may reasonably request for purposes of making any determination or computation necessary or appropriate under this Agreement, preparing any Tax Return or contesting or defending any audit, examination or controversy with any Taxing Authority, (b) make itself available to the Corporate Taxpayer and its representatives to provide explanations of documents and materials and such other information as the Corporate Taxpayer or its representatives may reasonably request in connection with any of the matters described in clause (a) above, and (c) reasonably cooperate in connection with any such matter, and the Corporate Taxpayer shall reimburse each such TRA Party for any reasonable third-party costs and expenses incurred pursuant to this Section.
Article
VII
MISCELLANEOUS
Section 7.1 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed duly given and received (a) on the date of delivery if delivered personally, or by facsimile or email with confirmation of transmission by the transmitting equipment or (b) on the first Business Day following the date of dispatch if delivered by a recognized next-day courier service. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:
If to the Corporate Taxpayer, to:
Thunder Bridge Acquisition II, Ltd.
32 Journey, Suite 100
Aliso Viejo, California 92656
Attention: Ellen Bancroft, General Counsel
(949) 933-8093 (phone)
[email protected]
with a copy (which shall not constitute notice to the Corporate Taxpayer) to:
Nelson Mullins Riley & Scarborough LLP
101 Constitution Ave NW, Suite 900
Washington, DC 20001
Attention: Jonathan Talcott
E. Peter Strand
(202) 689-2906 (phone)
[email protected]
[email protected]
And
If to the TRA Parties, to the address and other contact information set forth in the records of OpCo from time to time.
Any party may change its address, fax number or email by giving the other party written notice of its new address, fax number or email in the manner set forth above.
17
Section 7.2 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.
Section 7.3 Entire Agreement; Third Party Beneficiaries. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 7.4 Governing Law; Jurisdiction; Waiver of Jury Trial. This Agreement shall be governed by the laws of the state of Delaware. The parties irrevocably consent to the exclusive jurisdiction of the courts of the state of Delaware and of the federal courts sitting in the state of Delaware in connection with any action relating to this Agreement and each party agrees (a) to the extent such party is not otherwise subject to service of process in the State of Delaware, to appoint and maintain an agent in the State of Delaware as such party’s agent for acceptance of legal process, and (b) that, to the fullest extent permitted by applicable law, service of process may also be made on such party by prepaid certified mail with a proof of mailing receipt validated by the United States Postal Service constituting evidence of valid service, and that service made pursuant to (a) or (b) above shall, to the fullest extent permitted by applicable law, have the same legal force and effect as if served upon such party personally within the State of Delaware. To the extent not prohibited by applicable law, each party hereto waives and agrees not to assert, by way of motion, as a defense or otherwise, in any such proceeding brought in the above-named courts, any claim that such party is not subject personally to the jurisdiction of such courts, that such party’s property is exempt or immune from attachment or execution, that such proceeding is brought in an inconvenient forum, that the venue of such proceeding is improper, or that this Agreement or the subject matter thereof, may not be enforced in or by such courts. Each of the parties hereto hereby irrevocably and unconditionally waives trial by jury in any legal action or proceeding in relation to this Agreement and for any counterclaim herein.
Section 7.5 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.
18
Section 7.6 Successors; Assignment; Amendments; Waivers.
(a) Each TRA Party may assign any of its rights under this Agreement to any Person as long as such transferee has executed and delivered, or, in connection with such transfer, executes and delivers, a joinder to this Agreement, in form and substance reasonably satisfactory to the Corporate Taxpayer (the “Joinder Requirement”), agreeing to become a TRA Party for all purposes of this Agreement; provided, however, that to the extent any TRA Party sells, exchanges, distributes, or otherwise transfers Units to any Person (other than the Corporate Taxpayer or the OpCo) in accordance with the terms of the Exchange Agreement and/or LLC Agreement, such TRA Party shall have the option to assign to the transferee of such Units its rights under this Agreement with respect to such transferred Units; provided, further, that such transferee has satisfied the Joinder Requirement. For the avoidance of doubt, if a TRA Party transfers Units in accordance with the terms of the Exchange Agreement and/or LLC Agreement but does not assign to the transferee of such Units its rights under this Agreement with respect to such transferred Units, such TRA Party shall continue to be entitled to receive the Tax Benefit Payments arising in respect of a subsequent Exchange of such Units and such transferee may not enforce the provisions of this Agreement. Notwithstanding any other provision of this Agreement, an assignee of only rights to receive a Tax Benefit Payment in connection with an Exchange has no rights under this Agreement other than to enforce its right to receive a Tax Benefit Payment pursuant to this Agreement.
(b) No provision of this Agreement may be amended unless such amendment is approved in writing by the Corporate Taxpayer and by the TRA Party Representative and no provision of this Agreement may be waived unless such waiver is in writing and signed by the party against whom the waiver is to be effective (or, in the case of a waiver by all TRA Parties, signed by the TRA Party Representative); provided that no such amendment or waiver shall be effective if such amendment or waiver will have a disproportionate and adverse effect on the payments certain TRA Parties will or may receive under this Agreement unless such amendment or waiver is consented in writing by the TRA Parties disproportionately and adversely affected who would be entitled to receive at least majority of the total amount of the Early Termination Payments payable to all TRA Parties disproportionately and adversely affected hereunder if the Corporate Taxpayer had exercised its right of early termination on the date of the most recent Exchange prior to such amendment or waiver (excluding, for purposes of this sentence, all payments made to any TRA Party pursuant to this Agreement since the date of such most recent Exchange).
(c) All of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. The Corporate Taxpayer shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporate Taxpayer, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporate Taxpayer would be required to perform if no such succession had taken place.
19
Section 7.7 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
Section 7.8 Reserved.
Section 7.9 Reconciliation. In the event that the Corporate Taxpayer and the TRA Party Representative are unable to resolve a disagreement with respect to the matters (x) governed by Sections 2.2 and 4.2 or (y) described in the definition of “LIBOR” within the relevant period designated in this Agreement (“Reconciliation Dispute”), the Reconciliation Dispute shall be submitted for determination to a nationally recognized expert (the “Expert”) in the particular area of disagreement mutually acceptable to both parties. The Expert shall be a partner or principal in a nationally recognized accounting or law firm, and unless the Corporate Taxpayer and the TRA Party Representative agree otherwise, the Expert shall not, and the firm that employs the Expert shall not, have any material relationship with the Corporate Taxpayer or the TRA Party Representative or other actual or potential conflict of interest. If the Corporate Taxpayer and the TRA Party Representative are unable to agree on an Expert within fifteen (15) calendar days of receipt by the respondent(s) of written notice of a Reconciliation Dispute, the Expert shall be appointed by the International Chamber of Commerce Centre for Expertise. The Expert shall resolve any matter relating to the Basis and Attribute Schedule or an amendment thereto or the Early Termination Schedule or an amendment thereto within thirty (30) calendar days and shall resolve any matter relating to a Tax Benefit Schedule or an amendment thereto within fifteen (15) calendar days or as soon thereafter as is reasonably practicable, in each case after the matter has been submitted to the Expert for resolution. Notwithstanding the preceding sentence, if the matter is not resolved before any payment that is the subject of a disagreement would be due (in the absence of such disagreement) or any Tax Return reflecting the subject of a disagreement is due, the undisputed amount shall be paid on the date prescribed by this Agreement and such Tax Return may be filed as prepared by the Corporate Taxpayer, subject to adjustment or amendment upon resolution. The costs and expenses relating to the engagement of such Expert or amending any Tax Return shall be borne by the Corporate Taxpayer except as provided in the next sentence. The Corporate Taxpayer and the TRA Party Representative shall bear their own costs and expenses of such proceeding, unless (i) the Expert adopts the TRA Party Representative’s position, in which case the Corporate Taxpayer shall reimburse the TRA Party Representative for any reasonable out-of-pocket costs and expenses in such proceeding, or (ii) the Expert adopts the Corporate Taxpayer’s position, in which case the TRA Party Representative shall reimburse the Corporate Taxpayer for any reasonable out-of-pocket costs and expenses in such proceeding. Any dispute as to whether a dispute is a Reconciliation Dispute within the meaning of this Section 7.9 shall be decided by the Expert. The Expert shall finally determine any Reconciliation Dispute and the determinations of the Expert pursuant to this Section 7.9 shall be binding on the Corporate Taxpayer and each of the TRA Parties and may be entered and enforced in any court having jurisdiction.
Section 7.10 Withholding. The Corporate Taxpayer shall be entitled to deduct and withhold from any payment payable pursuant to this Agreement such amounts as the Corporate Taxpayer is required to deduct and withhold with respect to the making of such payment under the Code or any provision of state, local or foreign tax law. To the extent that amounts are so withheld and paid over to the appropriate Taxing Authority by the Corporate Taxpayer, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of whom such withholding was made. Each TRA Party shall promptly provide the Corporate Taxpayer with any applicable tax forms and certifications reasonably requested by the Corporate Taxpayer in connection with determining whether any such deductions and withholdings are required under the Code or any provision of state, local or foreign tax law.
20
Section 7.11 Admission of the Corporate Taxpayer into a Consolidated Group; Transfers of Corporate Assets.
(a) If the Corporate Taxpayer is or becomes a member of an affiliated or consolidated group of corporations that files a consolidated income tax return pursuant to Sections 1501 et seq. of the Code or any corresponding provisions of state or local law, then: (i) the provisions of this Agreement shall be applied with respect to the group as a whole; and (ii) Tax Benefit Payments, Early Termination Payments and other applicable items hereunder shall be computed with reference to the consolidated taxable income of the group as a whole.
(b) If any entity that is obligated to make a Tax Benefit Payment or Early Termination Payment hereunder transfers one or more assets to a corporation (or a Person classified as a corporation for United States federal income tax purposes) with which such entity does not file a consolidated tax return pursuant to Section 1501 of the Code, such entity, for purposes of calculating the amount of any Tax Benefit Payment or Early Termination Payment (e.g., calculating the gross income of the entity and determining the Realized Tax Benefit of such entity) due hereunder, shall be treated as having disposed of such asset in a fully taxable transaction on the date of such transfer. The consideration deemed to be received by such entity shall be equal to the gross fair market value of the transferred asset. For purposes of this Section 7.11(b), a transfer of a partnership interest shall be treated as a transfer of the transferring partner’s share of each of the assets and liabilities of that partnership allocated to such partner. If any member of a group described in Section 7.11(a) that is obligated to make a Tax Benefit Payment or Early Termination Payment hereunder deconsolidates from the group (or the Corporate Taxpayer deconsolidated from the group), then the Corporate Taxpayer shall cause such member (or the parent of the consolidated group in a case where the Corporate Taxpayer deconsolidates from the group) to assume the obligation to make Tax Benefit Payments in a manner consistent with the terms of its Agreement as the member actually realizes such Tax Benefits. If a member of a group described in Section 7.11(a) assumes an obligation to make Tax Benefit Payments hereunder, then the initial obligor is relieved of the obligation assumed
21
Section 7.12 Confidentiality.
(a) Each TRA Party and each of their assignees acknowledges and agrees that the information of the Corporate Taxpayer is confidential and, except in the course of performing any duties as necessary for the Corporate Taxpayer and its Affiliates, as required by law or legal process or to enforce the terms of this Agreement, such person shall keep and retain in confidence in accordance with this Agreement, and not disclose to any Person, any confidential matters acquired pursuant to this Agreement of the Corporate Taxpayer and its Affiliates and successors, concerning OpCo and its Affiliates and successors or the Members, learned by the TRA Party heretofore or hereafter. This Section 7.12 shall not apply to (i) any information that has been made publicly available by the Corporate Taxpayer or any of its Affiliates, becomes public knowledge (except as a result of an act of the TRA Party in violation of this Agreement) or is generally known to the business community, (ii) the disclosure of information to the extent necessary for the TRA Party to assert its rights hereunder or defend itself in connection with any action or proceeding arising out of, or relating to, this Agreement, (iii) any information that was in the possession of, or becomes available to, the TRA Party from a source other than the Corporate Taxpayer, its Affiliates or its or their respective representatives (provided that such source is not known by the TRA Party to be bound by a legal, contractual or fiduciary confidentiality obligation not to disclose such information) and (iv) the disclosure of information to the extent necessary for the TRA Party to prepare and file its Tax Returns, to respond to any inquiries regarding the same from any governmental or taxing authority or to prosecute or defend any action, proceeding or audit by any governmental or taxing authority with respect to such returns. Notwithstanding anything to the contrary herein, each TRA Party and each of their assignees (and each employee, representative or other agent of the TRA Party or its assignees, as applicable) may disclose to any and all Persons the tax treatment and tax structure of the Corporate Taxpayer, OpCo and their Affiliates, and any of their transactions, and all materials of any kind (including opinions or other tax analyses) that are provided to the TRA Party relating to such tax treatment and tax structure.
(b) If a TRA Party or an assignee commits a breach, or threatens to commit a breach, of any of the provisions of this Section 7.12, the Corporate Taxpayer shall have the right and remedy to seek to have the provisions of this Section 7.12 specifically enforced by injunctive relief or otherwise by any court of competent jurisdiction without the need to post any bond or other security. Such rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available at law or in equity.
Section 7.13 Change in Law. Notwithstanding anything herein to the contrary, if, in connection with an actual or proposed change in law, a TRA Party reasonably believes that the existence of this Agreement could cause income (other than income arising from receipt of a payment under this Agreement) recognized by the TRA Party upon any Exchange by such TRA Party to be treated as ordinary income rather than capital gain (or otherwise taxed at ordinary income rates) for United States federal income tax purposes or would have other material adverse tax consequences to such TRA Party, then at the election of such TRA Party and to the extent specified by such TRA Party, this Agreement (i) shall cease to have further effect with respect to such TRA Party, (ii) shall not apply to an Exchange by such TRA Party occurring after a date specified by such TRA Party, or (iii) shall otherwise be amended in a manner determined by such TRA Party; provided that such amendment shall not result in an increase in payments under this Agreement at any time as compared to the amounts and times of payments that would have been due in the absence of such amendment.
Section 7.14 Reserved.
22
Section 7.15 Independent Nature of TRA Parties’ Rights and Obligations. The obligations of each TRA Party hereunder are several and not joint with the obligations of any other TRA Party, and no TRA Party shall be responsible in any way for the performance of the obligations of any other TRA Party hereunder. The decision of each TRA Party to enter into this Agreement has been made by such TRA Party independently of any other TRA Party. Nothing contained herein, and no action taken by any TRA Party pursuant hereto, shall be deemed to constitute the TRA Parties as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the TRA Parties are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated hereby and the Corporate Taxpayer acknowledges that the TRA Parties are not acting in concert or as a group, and the Corporate Taxpayer will not assert any such claim, with respect to such obligations or the transactions contemplated hereby.
Section 7.16 TRA Party Representative.
(a) Without further action of any of the Corporate Taxpayer, the TRA Party Representative or any TRA Party, and as partial consideration in respect of the benefits conferred by this Agreement, the TRA Party Representative is hereby irrevocably constituted and appointed as the TRA Party Representative, with full power of substitution, to take any and all actions and make any decisions required or permitted to be taken by the TRA Party Representative under this Agreement.
(b) If at any time the TRA Party Representative shall incur out of pocket expenses in connection with the exercise of its duties hereunder, upon written notice to the Corporate Taxpayer from the TRA Party Representative of documented costs and expenses (including fees and disbursements of counsel and accountants) incurred by the TRA Party Representative in connection with the performance of its rights or obligations under this Agreement and the taking of any and all actions in connection therewith, the Corporate Taxpayer shall reduce the future payments (if any) due to the TRA Parties hereunder pro rata by the amount of such expenses which it shall instead remit directly to the TRA Party Representative. In connection with the performance of its rights and obligations under this Agreement and the taking of any and all actions in connection therewith, the TRA Party Representative shall not be required to expend any of its own funds (though, for the avoidance of doubt but without limiting the provisions of this Section 7.16(b), it may do so at any time and from time to time in its sole discretion).
23
(c) The TRA Party Representative shall not be liable to any TRA Party for any act of the TRA Party Representative arising out of or in connection with the acceptance or administration of its duties under this Agreement, except to the extent any liability, loss, damage, penalty, fine, cost or expense is actually incurred by such TRA Party as a proximate result of the bad faith or willful misconduct of the TRA Party Representative (it being understood that any act done or omitted pursuant to the advice of legal counsel shall be conclusive evidence of such good faith judgment). The TRA Party Representative shall not be liable for, and shall be indemnified by the TRA Parties (on a several but not joint basis) for, any liability, loss, damage, penalty or fine incurred by the TRA Party Representative (and any cost or expense incurred by the TRA Party Representative in connection therewith and herewith and not previously reimbursed pursuant to subsection (b) above) arising out of or in connection with the acceptance or administration of its duties under this Agreement, and such liability, loss, damage, penalty, fine, cost or expense shall be treated as an expense subject to reimbursement pursuant to the provisions of subsection (b) above, except to the extent that any such liability, loss, damage, penalty, fine, cost or expense is the proximate result of the bad faith or willful misconduct of the TRA Party Representative (it being understood that any act done or omitted pursuant to the advice of legal counsel shall be conclusive evidence of such good faith judgment); provided, however, in no event shall any TRA Party be obligated to indemnify the TRA Party Representative hereunder for any liability, loss, damage, penalty, fine, cost or expense to the extent (and only to the extent) that the aggregate amount of all liabilities, losses, damages, penalties, fines, costs and expenses indemnified by such TRA Party hereunder is or would be in excess of the aggregate payments under this Agreement actually remitted to such TRA Party.
(d) Subject to Section 7.6(b), a decision, act, consent or instruction of the TRA Party Representative shall constitute a decision of all TRA Parties and shall be final, binding and conclusive upon each TRA Party, and the Corporate Taxpayer may rely upon any decision, act, consent or instruction of the TRA Party Representative as being the decision, act, consent or instruction of each TRA Party. The Corporate Taxpayer is hereby relieved from any liability to any person for any acts done by the Corporate Taxpayer in accordance with any such decision, act, consent or instruction of the TRA Party Representative.
[The remainder of this page is intentionally blank]
24
IN WITNESS WHEREOF, the Corporate Taxpayer, the TRA Party Representative and each TRA Party have duly executed this Agreement as of the date first written above.
| Corporate Taxpayer: | ||
| THUNDER BRIDGE ACQUISITION II, LTD. | ||
| By: | /s/ Gary Simanson | |
| Name: | Gary Simanson | |
| Title: | CEO | |
| TRA Party Representative: | ||
| By: | /s/ Donald McClymont | |
| Name: | Donald McClymont | |
[Signature Page – Tax Receivable Agreement]
25
| TRA Parties: | ||
| By: | /s/ Donald McClymont | |
| Name: | Donald McClymont | |
| By: | /s/ Ichiro Aoki | |
| Name: | Ichiro Aoki | |
| By: | /s/ Scott Kee | |
| Name: | Scott Kee | |
| By: | /s/ David Kang | |
| Name: | David Kang | |
| BISON CAPITAL PARTNERS IV, LP | ||
| By: | /s/ Peter Macdonald | |
| Name: | Peter Macdonald | |
| Title: | Managing Member | |
| ANTHEM ADK HOLDINGS, INC. | ||
| By: | /s/ William Woodward | |
| Name: | William Woodward | |
| Title: | Managing Member | |
| INDIE SEMI BLOCKER CORPORATION | ||
| By: | /s/ Peter Macdonald | |
| Name: | Peter Macdonald | |
| Title: | President | |
| REGGAE SEMICONDUCTOR, INC | ||
| By: | /s/ Maurice Gunderson | |
| Name: | Maurice Gunderson | |
| Title: | Director | |
| GODUBS INC. (WALDEN) | ||
| By: | /s/ Steve Fu | |
| Name: | Steve Fu | |
| Title: | ||
[Signature Page – Tax Receivable Agreement]
26
SCHEDULE A
In accordance with Section 3,1, the entire Net Tax Benefit for each Taxable Year shall be paid within five (5) Business Days after the date on which the Tax Benefit Schedule for such Taxable Year becomes final in accordance with Section 2.2(a) (such final date, the “Payment Determination Date”), provided that with respect to a Tax Benefit Payment arising solely out of Blocker NOLs, if a TRA Party has Exchanged less than all of the Units held by such TRA Party immediately prior to the Closing Date (as indicated in the chart below), (i) such TRA Party’s Tax Benefit Payment in respect of such Blocker NOLs shall be reduced by a percentage equal to the percentage of the Units still held by such TRA Party on the Payment Determination Date (such partial amount paid, the “Partial Payment”), (ii) the amount by which such payment shall have been reduced (the “Held Back Amount”) shall be set aside, segregated and held in trust by the Corporate Taxpayer, and (iii) within [thirty (30) Business Days] after such TRA Party Exchanges any additional Units (an “Additional Exchange”), the TRA Party shall be paid out of such Held Back Amount an amount (such additional payment, a “Catchup Payment”) equal to (x) the amount such TRA Party would have been paid for such Taxable Year had such additional Units also been Exchanged prior to such Payment Determination Date minus (y) the Partial Payment (and the aggregate amount of any Catchup Payments previously made to such TRA Party out of such Held Back Amount).
All TRA Parties share in Net Tax Benefits derived from Blocker NOLs in accordance with the column below entitled “Relative Ownership Percentage (NOL Payments).” Net Tax Benefits derived from a Basis Adjustment resulting from an Exchange by a TRA Party shall be allocated solely to the TRA Party effecting such Exchange (in accordance with Section 2.1(b)) and the “Blocker Parties” identified below in accordance with the column below entitled “Relative Ownership Percentage (Basis Payments).”
[Table available in Company records]
27
Exhibit 10.7
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement” ), is dated as of June 10, 2021, Thunder Bridge II Surviving Pubco, Inc., a Delaware corporation (the “Company”) and the undersigned parties listed under Holders on the signature page hereto (each, a “Holder” and collectively, the “Holders”). Capitalized terms used herein and not otherwise defined shall have the meaning given to them in that certain Master Transactions Agreement by and among the Company, ADK Merger Sub LLC, a Delaware limited liability company, Ay Dee Kay LLC and certain other parties thereto, dated as of December 14, 2020 (as amended, the “MTA”).
WHEREAS, prior to the consummation of the transactions contemplated by the MTA, the Holders were Affiliates (as defined below) of Ay Dee Kay LLC, and therefore, pursuant to Rule 145 of the Securities Act (as defined below), may be presumed to be underwriters with respect to the resale of the Merger Shares (as defined below);
WHEREAS, in accordance with the MTA, the Company has agreed to register the Merger Shares held by the Holders for resale under the Securities Act, and the Holders and the Company desire to enter into this Agreement to provide the Holders with certain rights relating to the registration of the securities held by them as of the date hereof;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. The following capitalized terms used herein have the following meanings:
“Affiliate” means, with respect to any specified Person, any Person that, directly or indirectly through one or more entities, controls or is controlled by, or is under common control with, such specified Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by Contract or otherwise.
“Agreement” means this Agreement, as amended, restated, supplemented, or otherwise modified from time to time.
“Business Combination” means the acquisition of direct or indirect ownership through a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar type of transaction, of one or more businesses or entities.
“Commission” means the Securities and Exchange Commission, or any other Federal agency then administering the Securities Act or the Exchange Act.
“Common Stock” means the Class A common stock, par value $0.0001 per share, of the Company.
“Company” is defined in the preamble to this Agreement.
“Demand Registration” is defined in Section 2.2.1.
“Demanding Holder” is defined in Section 2.2.1.
“Effectiveness Date” means, with respect to the Initial Registration Statement, the 90th calendar day following the Filing Date (or in the event the Registration Statement receives a “full review” by the Commission, the 120th day following the Filing Date) and with respect to any additional Registration Statements which may be required pursuant to Sections 2.2 and 2.3, the 90th calendar day following the date on which an additional Registration Statement is required to be filed hereunder; provided, however, that in the event the Company is notified by the Commission that one or more of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Business Day following the date on which the Company is so notified if such date precedes the dates otherwise required above; provided, further, that, if the Effectiveness Date falls on a Saturday, Sunday or any other day which shall be a legal holiday or a day on which the Commission is authorized or required by law or other government actions to close, the Effectiveness Date shall be the following Business Day.
“Effectiveness Period” shall have the meaning set forth in Section 2.1.1
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time.
“Filing Date” means, with respect to the Initial Registration Statement required hereunder, the 30th calendar day following the date hereof and, with respect to any additional Registration Statements which may be required pursuant to Sections 2.2 and 2.3, the earliest practical date on which the Company is permitted by Commission Guidance to file such additional Registration Statement related to the Registrable Securities; provided, however, that, if the Filing Date falls on a Saturday, Sunday or any other day which shall be a legal holiday or a day on which the Commission is authorized or required by law or other government actions to close, the Filing Date shall be the following Business Day.
“Form S-3” is defined in Section 2.4.
“Holder” is defined in the preamble to this Agreement.
“Indemnified Party” is defined in Section 4.3.
“Indemnifying Party” is defined in Section 4.3.
“Initial Registration Statement” means the Registration Statement required to be filed pursuant to Section 2.1.
“Holder Indemnified Party” is defined in Section 4.1.
2
“Maximum Number of Shares” is defined in Section 2.2.4.
“Merger Shares” means the shares of Common Stock of the Company issued or issuable to the Holders pursuant to the terms of the Exchange Agreement.
“Notices” is defined in Section 6.3.
“Piggy-Back Registration” is defined in Section 2.3.1.
“Pro Rata” is defined in Section 2.2.4.
“Register,” “Registered” and “Registration” mean a registration effected by preparing and filing a registration statement or similar document in compliance with the requirements of the Securities Act, and the applicable rules and regulations promulgated thereunder, and such registration statement becoming effective.
“Registrable Securities” means (i) the Merger Shares, (ii) any shares of Common Stock acquired by the Holders in connection with the Business Combination, (iii) the Earn-out Shares, and (iii) any warrants, shares of capital stock or other securities of the Company issued as a dividend or other distribution with respect to or in exchange for or in replacement of such Merger Shares and/or such Earn-out Shares. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when: (a) a Registration Statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been sold, transferred, disposed of or exchanged in accordance with such Registration Statement; (b) such securities shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent public distribution of them shall not require registration under the Securities Act; (c) such securities shall have ceased to be outstanding, or (d) the Registrable Securities are freely saleable under Rule 144 without volume limitations.
“Registration Statement” means a registration statement filed by the Company with the Commission in compliance with the Securities Act and the rules and regulations promulgated thereunder for a public offering and sale of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, equity securities (other than a registration statement on Form S-4 or Form S-8, or their successors, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another entity).
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time.
“Underwriter” means, solely for the purposes of this Agreement, a securities dealer who purchases any Registrable Securities as principal in an underwritten offering and not as part of such dealer’s market-making activities.
3
2. REGISTRATION RIGHTS.
2.1 Shelf Registration.
2.1.1 On or prior to each Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all or such maximum portion of the Registrable Securities as permitted by SEC Guidance (provided that, the Company shall use diligent efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, the Manual of Publicly Available Telephone Interpretations D.29) that are not then registered on an effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415. Each Registration Statement filed hereunder shall be on Form S-1 (except if the Company is then eligible to register for resale the Registrable Securities on Form S-3, such registration shall be on Form S-3 in accordance herewith) and shall contain the “Plan of Distribution” attached hereto as Annex A. Subject to the terms of this Agreement, the Company shall use its commercially reasonable efforts to cause a Registration Statement to be declared effective under the Securities Act as promptly as practicable after the filing thereof, but in any event prior to the applicable Effectiveness Date, and shall use its commercially reasonable efforts to keep such Registration Statement continuously effective under the Securities Act until all Registrable Securities covered by such Registration Statement have been sold, or may be sold without volume or manner-of-sale restrictions pursuant to Rule 144, without the requirement for the Company to be in compliance with the current public information requirement under Rule 144, as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Transfer Agent and the affected Holders (the “Effectiveness Period”). The Company shall telephonically request effectiveness of a Registration Statement as of 5:00 p.m. New York City time on a Business Day. The Company shall promptly notify the Holders by e-mail of the effectiveness of a Registration Statement on the same Business Day that the Company telephonically confirms effectiveness with the Commission. The Company shall, no later than the second Business Day after the effective date of such Registration Statement, file a final Prospectus with the Commission as required by Rule 424.
2.1.2 Notwithstanding any other provision of this Agreement, if any SEC Guidance sets forth a limitation on the number of Registrable Securities permitted to be registered on a particular Registration Statement (and notwithstanding that the Company used diligent efforts to advocate with the Commission for the registration of all or a greater portion of Registrable Securities), the number of Registrable Securities to be registered shall be reduced on a on a pro rata basis based on the total number of Registrable Securities held by such Holders (such proportion is referred to herein as “Pro Rata”). In the event of a reduction hereunder, the Company shall give the Holder at least five (5) Business Days prior written notice along with the calculations as to such Holder’s allotment. Promptly after such SEC Guidance is no longer applicable with respect to some or all of the remaining unregistered Registrable Securities, the Company shall file an additional Registration Statement in accordance with this Section 2 to with respect to such shares.
2.1.3 Each Holder agrees to furnish to the Company a completed Selling Stockholder Questionnaire within five (5) Business Days following the date of this Agreement. Each Holder further acknowledges and agrees that it shall not be entitled to be named as a selling security holder in the Registration Statement or use the Prospectus for offers and resales of Registrable Securities at any time, unless such Holder has returned to the Company a completed and signed Selling Stockholder Questionnaire. If a Holder of Registrable Securities returns a Selling Stockholder Questionnaire after the deadline specified in the previous sentence, the Company shall use its commercially reasonable efforts to take such actions as are required to name such Holder as a selling security holder in the Registration Statement or any pre-effective or post-effective amendment thereto and to include (to the extent not theretofore included) in the Registration Statement the Registrable Securities identified in such late Selling Stockholder Questionnaire; provided that the Company shall not be required to file an additional Registration Statement solely for such shares. Each Holder acknowledges and agrees that the information in the Selling Stockholder Questionnaire will be used by the Company in the preparation of the Registration Statement and hereby consents to the inclusion of such information in the Registration Statement.
4
2.2 Demand Registration.
2.2.1 Request for Registration. At any time and from time to time on or after the date of this Agreement, the Holders of twenty-five percent (25%) of the Registrable Securities, or the transferees of the Holders, may make a written demand for registration under the Securities Act of all or part of their Registrable Securities, as the case may be (a “Demand Registration” ). Any demand for a Demand Registration shall specify the number of shares of Registrable Securities proposed to be sold and the intended method(s) of distribution thereof. The Company will within ten (10) days of the Company’s receipt of the Demand Registration notify all holders of Registrable Securities of the demand, and each holder of Registrable Securities who wishes to include all or a portion of such holder’s Registrable Securities in the Demand Registration (each such holder including shares of Registrable Securities in such registration, a “Demanding Holder”) shall so notify the Company within five (5) days after the receipt by the holder of the notice from the Company. Upon any such request, the Demanding Holders shall be entitled to have their Registrable Securities included in the Demand Registration, subject to Section 2.1.4 and the provisos set forth in Section 3.1.1. The Company shall not be obligated to effect no more than an aggregate of three (3) Demand Registrations under this Section 2.1.1 in respect of all Registrable Securities.
2.2.2 Effective Registration. A registration will not count as a Demand Registration until the Registration Statement filed with the Commission with respect to such Demand Registration has been declared effective and the Company has complied with all of its obligations under this Agreement with respect thereto; provided, however, that if, after such Registration Statement has been declared effective, the offering of Registrable Securities pursuant to a Demand Registration is interfered with by any stop order or injunction of the Commission or any other governmental agency or court, the Registration Statement with respect to such Demand Registration will be deemed not to have been declared effective, unless and until, (i) such stop order or injunction is removed, rescinded or otherwise terminated, and (ii) a majority-in-interest of the Demanding Holders thereafter elect to continue the offering; provided, further, that the Company shall not be obligated to file a second Registration Statement until a Registration Statement that has been filed is counted as a Demand Registration or is terminated.
2.2.3 Underwritten Offering. If a majority-in-interest of the Demanding Holders so elect and such holders so advise the Company as part of their written demand for a Demand Registration, the offering of such Registrable Securities pursuant to such Demand Registration shall be in the form of an underwritten offering. In such event, the right of any holder to include its Registrable Securities in such registration shall be conditioned upon such holder’s participation in such underwriting and the inclusion of such holder’s Registrable Securities in the underwriting to the extent provided herein. All Demanding Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the Underwriter or Underwriters selected for such underwriting by a majority-in-interest of the holders initiating the Demand Registration.
5
2.2.4 Reduction of Offering. If the managing Underwriter or Underwriters for a Demand Registration that is to be an underwritten offering advises the Company and the Demanding Holders in writing that the dollar amount or number of shares of Registrable Securities which the Demanding Holders desire to sell, taken together with all other shares of Common Stock or other securities which the Company desires to sell and the shares of Common Stock, if any, as to which registration has been requested pursuant to written contractual piggy-back registration rights held by other shareholders of the Company who desire to sell, exceeds the maximum dollar amount or maximum number of shares that can be sold in such offering without adversely affecting the proposed offering price, the timing, the distribution method, or the probability of success of such offering (such maximum dollar amount or maximum number of shares, as applicable, the “Maximum Number of Shares” ), then the Company shall include in such registration: (i) first, the Registrable Securities as to which Demand Registration has been requested by the Demanding Holders (Pro Rata in accordance with the number of shares that each such Person has requested be included in such registration, regardless of the number of shares held by each such Person) that can be sold without exceeding the Maximum Number of Shares; (ii) second, to the extent that the Maximum Number of Shares has not been reached under the foregoing clause (i), the shares of Common Stock or other securities that the Company desires to sell that can be sold without exceeding the Maximum Number of Shares; and (iii) third, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (i) and (ii), the shares of Common Stock or other securities for the account of other persons that the Company is obligated to register pursuant to written contractual arrangements with such persons and that can be sold without exceeding the Maximum Number of Shares.
2.2.5 Withdrawal. If a majority-in-interest of the Demanding Holders disapprove of the terms of any underwriting or are not entitled to include all of their Registrable Securities in any offering, such majority-in-interest of the Demanding Holders may elect to withdraw from such offering by giving written notice to the Company and the Underwriter or Underwriters of their request to withdraw prior to the effectiveness of the Registration Statement filed with the Commission with respect to such Demand Registration. If the majority-in-interest of the Demanding Holders withdraws from a proposed offering relating to a Demand Registration, then such registration shall not count as a Demand Registration provided for in Section 2.1.
6
2.3 Piggy-Back Registration.
2.3.1 Piggy-Back Rights. If at any time on or after the date of this Agreement the Company proposes to file a Registration Statement under the Securities Act with respect to an offering of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, equity securities, by the Company for its own account or for shareholders of the Company for their account (or by the Company and by shareholders of the Company including, without limitation, pursuant to Section 2.1), other than a Registration Statement (i) filed in connection with any employee stock option or other benefit plan, (ii) for an exchange offer or offering of securities solely to the Company’s existing shareholders, (iii) for an offering of debt that is convertible into equity securities of the Company or (iv) for a dividend reinvestment plan, then the Company shall (x) give written notice of such proposed filing to the holders of Registrable Securities as soon as practicable but in no event less than ten (10) days before the anticipated filing date, which notice shall describe the amount and type of securities to be included in such offering, the intended method(s) of distribution, and the name of the proposed managing Underwriter or Underwriters, if any, of the offering, and (y) offer to the holders of Registrable Securities in such notice the opportunity to register the sale of such number of shares of Registrable Securities as such holders may request in writing within five (5) days following receipt of such notice (a “Piggy-Back Registration” ). The Company shall cause such Registrable Securities to be included in such registration and shall use its best efforts to cause the managing Underwriter or Underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method(s) of distribution thereof. All holders of Registrable Securities proposing to distribute their securities through a Piggy-Back Registration that involves an Underwriter or Underwriters shall enter into an underwriting agreement in customary form with the Underwriter or Underwriters selected for such Piggy-Back Registration. Notwithstanding the provisions set forth in the immediately preceding sentences, the right to a Piggy-Back Registration set forth under this Section 2.2.1 with respect to the Registrable Securities shall terminate on the seventh anniversary of the Effective Date.
2.3.2 Reduction of Offering. If the managing Underwriter or Underwriters for a Piggy-Back Registration that is to be an underwritten offering advises the Company and the holders of Registrable Securities in writing that the dollar amount or number of shares of Common Stock which the Company desires to sell, taken together with the shares of Common Stock, if any, as to which registration has been demanded pursuant to written contractual arrangements with persons other than the holders of Registrable Securities hereunder, the Registrable Securities as to which registration has been requested under this Section 2.2, and the shares of Common Stock, if any, as to which registration has been requested pursuant to the written contractual piggy-back registration rights of other shareholders of the Company, exceeds the Maximum Number of Shares, then the Company shall include in any such registration:
a) If the registration is undertaken for the Company’s account: (A) first, the shares of Common Stock or other securities that the Company desires to sell that can be sold without exceeding the Maximum Number of Shares; (B) second, to the extent that the Maximum Number of Shares has not been reached under the foregoing clause (A), the shares of Common Stock or other securities, if any, comprised of Registrable Securities, as to which registration has been requested pursuant to the applicable written contractual piggy-back registration rights of such security holders, Pro Rata, that can be sold without exceeding the Maximum Number of Shares; and (C) third, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A) and (B), the shares of Common Stock or other securities for the account of other persons that the Company is obligated to register pursuant to written contractual piggy-back registration rights with such persons and that can be sold without exceeding the Maximum Number of Shares;
7
b) If the registration is a “demand” registration undertaken at the demand of persons other than the holders of Registrable Securities, (A) first, the shares of Common Stock or other securities for the account of the demanding persons that can be sold without exceeding the Maximum Number of Shares; (B) second, to the extent that the Maximum Number of Shares has not been reached under the foregoing clause (A), collectively the shares of Common Stock or other securities comprised of Registrable Securities, Pro Rata, as to which registration has been requested pursuant to the terms hereof, that can be sold without exceeding the Maximum Number of Shares; (C) third, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A) and (B), the shares of Common Stock or other securities that the Company desires to sell that can be sold without exceeding the Maximum Number of Shares; and (D) fourth, to the extent that the Maximum Number of Shares has not been reached under the foregoing clauses (A), (B) and (C), the shares of Common Stock or other securities for the account of other persons that the Company is obligated to register pursuant to written contractual arrangements with such persons, that can be sold without exceeding the Maximum Number of Shares.
2.3.3 Withdrawal. Any holder of Registrable Securities may elect to withdraw such holder’s request for inclusion of Registrable Securities in any Piggy-Back Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the Registration Statement. The Company (whether on its own determination or as the result of a withdrawal by persons making a demand pursuant to written contractual obligations) may withdraw a Registration Statement at any time prior to the effectiveness of such Registration Statement. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by the holders of Registrable Securities in connection with such Piggy-Back Registration as provided in Section 3.3.
2.2.4 Unlimited Piggy-Back Registration Rights. For purposes of clarity, any Registration effected pursuant to Section 2.2 hereof shall not be counted as a Registration pursuant to a Demand Registration effected under Section 2.1 hereof. The Holders shall have unlimited Piggy Back Registration Rights.
2.3.4 Registrations on Form S-3. The holders of Registrable Securities may at any time and from time to time, request in writing that the Company register the resale of any or all of such Registrable Securities on Form S-3 or any similar short-form registration which may be available at such time (“Form S-3” ); provided, however, that the Company shall not be obligated to effect such request through an underwritten offering. Upon receipt of such written request, the Company will promptly give written notice of the proposed registration to all other holders of Registrable Securities, and, as soon as practicable thereafter, effect the registration of all or such portion of such holder’s or holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities or other securities of the Company, if any, of any other holder or holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration pursuant to this Section 2.3: (i) if Form S-3 is not available for such offering; or (ii) if the holders of the Registrable Securities, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at any aggregate price to the public of less than $500,000. Registrations effected pursuant to this Section 2.3 shall not be counted as Demand Registrations effected pursuant to Section 2.1.
8
3. REGISTRATION PROCEDURES.
3.1 Filings; Information. Whenever the Company is required to effect the registration of any Registrable Securities pursuant to Section 2, the Company shall use its best efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method(s) of distribution thereof as expeditiously as practicable, and in connection with any such request:
3.1.1 Filing Registration Statement. The Company shall use its best efforts to, as expeditiously as possible after receipt of a request for a Demand Registration pursuant to Section 2.1, prepare and file with the Commission a Registration Statement on any form for which the Company then qualifies or which counsel for the Company shall deem appropriate and which form shall be available for the sale of all Registrable Securities to be registered thereunder in accordance with the intended method(s) of distribution thereof, and shall use its best efforts to cause such Registration Statement to become effective and use its best efforts to keep it effective for the period required by Section 3.1.3; provided, however, that the Company shall have the right to defer any Demand Registration for up to thirty (30) days, and any Piggy-Back Registration for such period as may be applicable to deferment of any demand registration to which such Piggy-Back Registration relates, in each case if the Company shall furnish to the holders a certificate signed by Chief Executive Officer or Chairman of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be materially detrimental to the Company and its shareholders for such Registration Statement to be effected at such time; provided further, however, that the Company shall not have the right to exercise the right set forth in this provision more than once in any 365-day period in respect of a Demand Registration hereunder.
3.1.2 Copies. The Company shall, prior to filing a Registration Statement or prospectus, or any amendment or supplement thereto, furnish without charge to the holders of Registrable Securities included in such registration, and such holders’ legal counsel, copies of such Registration Statement as proposed to be filed, each amendment and supplement to such Registration Statement (in each case including all exhibits thereto and documents incorporated by reference therein), the prospectus included in such Registration Statement (including each preliminary prospectus), and such other documents as the holders of Registrable Securities included in such registration or legal counsel for any such holders may request in order to facilitate the disposition of the Registrable Securities owned by such holders.
3.1.3 Amendments and Supplements. The Company shall prepare and file with the Commission such amendments, including post-effective amendments, and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and in compliance with the provisions of the Securities Act until all Registrable Securities and other securities covered by such Registration Statement have been disposed of in accordance with the intended method(s) of distribution set forth in such Registration Statement or such securities have been withdrawn.
9
3.1.4 Notification. After the filing of a Registration Statement, the Company shall promptly, and in no event more than two (2) business days after such filing, notify the holders of Registrable Securities included in such Registration Statement of such filing, and shall further notify such holders promptly and confirm such advice in writing in all events within two (2) business days of the occurrence of any of the following: (i) when such Registration Statement becomes effective; (ii) when any post-effective amendment to such Registration Statement becomes effective; (iii) the issuance or threatened issuance by the Commission of any stop order (and the Company shall take all actions required to prevent the entry of such stop order or to remove it if entered); and (iv) any request by the Commission for any amendment or supplement to such Registration Statement or any prospectus relating thereto or for additional information or of the occurrence of an event requiring the preparation of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of the securities covered by such Registration Statement, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and promptly make available to the holders of Registrable Securities included in such Registration Statement any such supplement or amendment; except that before filing with the Commission a Registration Statement or prospectus or any amendment or supplement thereto, including documents incorporated by reference, the Company shall furnish to the holders of Registrable Securities included in such Registration Statement and to the legal counsel for any such holders, copies of all such documents proposed to be filed sufficiently in advance of filing to provide such holders and legal counsel with a reasonable opportunity to review such documents and comment thereon, and the Company shall not file any Registration Statement or prospectus or amendment or supplement thereto, including documents incorporated by reference, to which such holders or their legal counsel shall object.
3.1.5 State Securities Laws Compliance. The Company shall use its best efforts to (i) register or qualify the Registrable Securities covered by the Registration Statement under such securities or “blue sky” laws of such jurisdictions in the United States as the holders of Registrable Securities included in such Registration Statement (in light of their intended plan of distribution) may request and (ii) take such action necessary to cause such Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental authorities as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be necessary or advisable to enable the holders of Registrable Securities included in such Registration Statement to consummate the disposition of such Registrable Securities in such jurisdictions; provided, however, that the Company shall not be required to qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph or subject itself to taxation in any such jurisdiction.
3.1.6 Agreements for Disposition. The Company shall enter into customary agreements (including, if applicable, an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities. The representations, warranties and covenants of the Company in any underwriting agreement which are made to or for the benefit of any Underwriters, to the extent applicable, shall also be made to and for the benefit of the holders of Registrable Securities included in such registration statement. No holder of Registrable Securities included in such registration statement shall be required to make any representations or warranties in the underwriting agreement except, if applicable, with respect to such holder’s organization, good standing, authority, title to Registrable Securities, lack of conflict of such sale with such holder’s material agreements and organizational documents, and with respect to written information relating to such holder that such holder has furnished in writing expressly for inclusion in such Registration Statement.
10
3.1.7 Cooperation. The principal executive officer of the Company, the principal financial officer of the Company, the principal accounting officer of the Company and all other officers and members of the management of the Company shall cooperate fully in any offering of Registrable Securities hereunder, which cooperation shall include, without limitation, the preparation of the Registration Statement with respect to such offering and all other offering materials and related documents, and participation in meetings with Underwriters, attorneys, accountants and potential Holders.
3.1.8 Records. The Company shall make available for inspection by the holders of Registrable Securities included in such Registration Statement, any Underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other professional retained by any holder of Registrable Securities included in such Registration Statement or any Underwriter, all financial and other records, pertinent corporate documents and properties of the Company, as shall be necessary to enable them to exercise their due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information requested by any of them in connection with such Registration Statement.
3.1.9 Opinions and Comfort Letters. Upon request, the Company shall furnish to each holder of Registrable Securities included in any Registration Statement a signed counterpart, addressed to such holder, of (i) any opinion of counsel to the Company delivered to any Underwriter and (ii) any comfort letter from the Company’s independent public accountants delivered to any Underwriter. In the event no legal opinion is delivered to any Underwriter, the Company shall furnish to each holder of Registrable Securities included in such Registration Statement, at any time that such holder elects to use a prospectus, an opinion of counsel to the Company to the effect that the Registration Statement containing such prospectus has been declared effective and that no stop order is in effect.
3.1.10 Earnings Statement. The Company shall comply with all applicable rules and regulations of the Commission and the Securities Act, and make available to its shareholders, as soon as practicable, an earnings statement covering a period of twelve (12) months, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.
3.1.11 Listing. The Company shall use its best efforts to cause all Registrable Securities included in any registration to be listed on such exchanges or otherwise designated for trading in the same manner as similar securities issued by the Company are then listed or designated or, if no such similar securities are then listed or designated, in a manner satisfactory to the holders of a majority of the Registrable Securities included in such registration.
11
3.1.12 Road Show. If the registration involves the registration of Registrable Securities involving gross proceeds in excess of $50,000,000, the Company shall use its reasonable efforts to make available senior executives of the Company to participate in customary “road show” presentations that may be reasonably requested by the Underwriter in any underwritten offering.
3.2 Obligation to Suspend Distribution. Upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.1.4(iv), or, in the case of a resale registration on Form S-3 pursuant to Section 2.3 hereof, upon any suspension by the Company, pursuant to a written insider trading compliance program adopted by the Company’s Board of Directors, of the ability of all “insiders” covered by such program to transact in the Company’s securities because of the existence of material non-public information, each holder of Registrable Securities included in any registration shall immediately discontinue disposition of such Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such holder receives the supplemented or amended prospectus contemplated by Section 3.1.4(iv) or the restriction on the ability of “insiders” to transact in the Company’s securities is removed, as applicable, and, if so directed by the Company, each such holder will deliver to the Company all copies, other than permanent file copies then in such holder’s possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice.
3.3 Registration Expenses. The Company shall bear all costs and expenses incurred in connection with any Demand Registration pursuant to Section 2.1, any Piggy-Back Registration pursuant to Section 2.2, and any registration on Form S-3 effected pursuant to Section 2.3, and all expenses incurred in performing or complying with its other obligations under this Agreement, whether or not the Registration Statement becomes effective, including, without limitation: (i) all registration and filing fees; (ii) fees and expenses of compliance with securities or “blue sky” laws (including fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities); (iii) printing expenses; (iv) the fees and expenses incurred in connection with the listing of the Registrable Securities as required by Section 3.1.11; (v) Financial Industry Regulatory Authority fees; (vi) fees and disbursements of counsel for the Company and fees and expenses for independent certified public accountants retained by the Company (including the expenses or costs associated with the delivery of any opinions or comfort letters requested pursuant to Section 3.1.9); and (viii) the reasonable fees and expenses of any special experts retained by the Company in connection with such registration. The Company shall have no obligation to pay any underwriting discounts or selling commissions attributable to the Registrable Securities being sold by the holders thereof, which underwriting discounts or selling commissions shall be borne by such holders. Additionally, in an underwritten offering, all selling shareholders and the Company shall bear the expenses of the Underwriter pro rata in proportion to the respective amount of shares each is selling in such offering.
3.4 Information. The holders of Registrable Securities shall provide such information as may reasonably be requested by the Company, or the managing Underwriter, if any, in connection with the preparation of any Registration Statement, including amendments and supplements thereto, in order to effect the registration of any Registrable Securities under the Securities Act pursuant to Section 2 and in connection with the Company’s obligation to comply with Federal and applicable state securities laws. In addition, the holders of Registrable Securities shall comply with all prospectus delivery requirements under the Securities Act and applicable SEC regulations.
12
4. INDEMNIFICATION AND CONTRIBUTION.
4.1 Indemnification by the Company. The Company agrees to indemnify and hold harmless each Holder and each other holder of Registrable Securities, and each of their respective officers, employees, affiliates, directors, partners, members, attorneys and agents, and each person, if any, who controls an Holder and each other holder of Registrable Securities (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) (each, an “Holder Indemnified Party” ), from and against any expenses, losses, judgments, claims, damages or liabilities, whether joint or several, arising out of or based upon any untrue statement (or allegedly untrue statement) of a material fact contained in any Registration Statement under which the sale of such Registrable Securities was registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arising out of or based upon any omission (or alleged omission) to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration; and the Company shall promptly reimburse the Holder Indemnified Party for any legal and any other expenses reasonably incurred by such Holder Indemnified Party in connection with investigating and defending any such expense, loss, judgment, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such expense, loss, claim, damage or liability arises out of or is based upon any untrue statement or allegedly untrue statement or omission or alleged omission made in such Registration Statement, preliminary prospectus, final prospectus, or summary prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to the Company, in writing, by such selling holder expressly for use therein. The Company also shall indemnify any Underwriter of the Registrable Securities, their officers, affiliates, directors, partners, members and agents and each person who controls such Underwriter on substantially the same basis as that of the indemnification provided above in this Section 4.1.
4.2 Indemnification by Holders of Registrable Securities. Each selling holder of Registrable Securities will, in the event that any registration is being effected under the Securities Act pursuant to this Agreement of any Registrable Securities held by such selling holder, indemnify and hold harmless the Company, each of its directors and officers and each Underwriter (if any), and each other selling holder and each other person, if any, who controls another selling holder or such Underwriter within the meaning of the Securities Act, against any losses, claims, judgments, damages or liabilities, whether joint or several, insofar as such losses, claims, judgments, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or allegedly untrue statement of a material fact contained in any Registration Statement under which the sale of such Registrable Securities was registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are based upon any omission or the alleged omission to state a material fact required to be stated therein or necessary to make the statement therein not misleading, if the statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company by such selling holder expressly for use therein, and shall reimburse the Company, its directors and officers, and each other selling holder or controlling person for any legal or other expenses reasonably incurred by any of them in connection with investigation or defending any such loss, claim, damage, liability or action. Each selling holder’s indemnification obligations hereunder shall be several and not joint and shall be limited to the amount of any net proceeds actually received by such selling holder.
13
4.3 Conduct of Indemnification Proceedings. Promptly after receipt by any person of any notice of any loss, claim, damage or liability or any action in respect of which indemnity may be sought pursuant to Section 4.1 or 4.2, such person (the “Indemnified Party”) shall, if a claim in respect thereof is to be made against any other person for indemnification hereunder, notify such other person (the “Indemnifying Party” ) in writing of the loss, claim, judgment, damage, liability or action; provided, however, that the failure by the Indemnified Party to notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability which the Indemnifying Party may have to such Indemnified Party hereunder, except and solely to the extent the Indemnifying Party is actually prejudiced by such failure. If the Indemnified Party is seeking indemnification with respect to any claim or action brought against the Indemnified Party, then the Indemnifying Party shall be entitled to participate in such claim or action, and, to the extent that it wishes, jointly with all other Indemnifying Parties, to assume control of the defense thereof with counsel satisfactory to the Indemnified Party. After notice from the Indemnifying Party to the Indemnified Party of its election to assume control of the defense of such claim or action, the Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that in any action in which both the Indemnified Party and the Indemnifying Party are named as defendants, the Indemnified Party shall have the right to employ separate counsel (but no more than one such separate counsel) to represent the Indemnified Party and its controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Indemnified Party against the Indemnifying Party, with the fees and expenses of such counsel to be paid by such Indemnifying Party if, based upon the written opinion of counsel of such Indemnified Party, representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, consent to entry of judgment or effect any settlement of any claim or pending or threatened proceeding in respect of which the Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such judgment or settlement includes an unconditional release of such Indemnified Party from all liability arising out of such claim or proceeding.
4.4 Contribution.
4.4.1 If the indemnification provided for in the foregoing Sections 4.1, 4.2 and 4.3 is unavailable to any Indemnified Party in respect of any loss, claim, damage, liability or action referred to herein, then each such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the Indemnified Parties and the Indemnifying Parties in connection with the actions or omissions which resulted in such loss, claim, damage, liability or action, as well as any other relevant equitable considerations. The relative fault of any Indemnified Party and any Indemnifying Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such Indemnified Party or such Indemnifying Party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
14
4.4.2 The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 4.4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding Section 4.4.1.
4.4.3 The amount paid or payable by an Indemnified Party as a result of any loss, claim, damage, liability or action referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4.4, no holder of Registrable Securities shall be required to contribute any amount in excess of the dollar amount of the net proceeds (after payment of any underwriting fees, discounts, commissions or taxes) actually received by such holder from the sale of Registrable Securities which gave rise to such contribution obligation. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
5. RULE 144.
5.1 Rule 144. The Company covenants that it shall file any reports required to be filed by it under the Securities Act and the Exchange Act and shall take such further action as the holders of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holders to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 under the Securities Act, as such Rules may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission.
6. MISCELLANEOUS.
6.1 Other Registration Rights. The Company represents and warrants that, except as disclosed in Section 4.5 of the MTA, no person, other than the holders of the Registrable Securities, has any right to require the Company to register any of the Company’s share capital for sale or to include the Company’s share capital in any registration filed by the Company for the sale of share capital for its own account or for the account of any other person.
6.2 Assignment; No Third Party Beneficiaries. This Agreement and the rights, duties and obligations of the Company hereunder may not be assigned or delegated by the Company in whole or in part. This Agreement and the rights, duties and obligations of the holders of Registrable Securities hereunder may be freely assigned or delegated by such holder of Registrable Securities in conjunction with and to the extent of any transfer of Registrable Securities by any such holder. This Agreement and the provisions hereof shall be binding upon and shall inure to the benefit of each of the parties, to the permitted assigns of the Holders or holder of Registrable Securities or of any assignee of the Holders or holder of Registrable Securities. This Agreement is not intended to confer any rights or benefits on any persons that are not party hereto other than as expressly set forth in Article 4 and this Section 6.2.
15
6.3 Notices. All notices, demands, requests, consents, approvals or other communications (collectively, “Notices” ) required or permitted to be given hereunder or which are given with respect to this Agreement shall be in writing and shall be personally served, delivered by reputable air courier service with charges prepaid, or transmitted by hand delivery, telegram, telex or facsimile, addressed as set forth below, or to such other address as such party shall have specified most recently by written notice. Notice shall be deemed given on the date of service or transmission if personally served or transmitted by telegram, telex or facsimile; provided, that if such service or transmission is not on a business day or is after normal business hours, then such notice shall be deemed given on the next business day. Notice otherwise sent as provided herein shall be deemed given on the next business day following timely delivery of such notice to a reputable air courier service with an order for next-day delivery.
To the Company:
indie Semiconductor
32 Journey
Aliso Viejo, California 92656
Attention: Tom Schiller, CFO
949 608 0854 (phone)
[email protected]
[email protected]
with a copy to:
Loeb & Loeb
345 Park Avenue
New York, New York 10154
Attention: Mitchell Nussbaum
Giovanni Caruso
(212) 407-4159
To an Holder, to the address set forth below such Holder’s name on Exhibit A hereto.
6.4 Severability. This Agreement shall be deemed severable, and the invalidity or unenforceability of any term or provision hereof shall not affect the validity or enforceability of this Agreement or of any other term or provision hereof. Furthermore, in lieu of any such invalid or unenforceable term or provision, the parties hereto intend that there shall be added as a part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible that is valid and enforceable.
16
6.5 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument.
6.6 Entire Agreement. This Agreement (including all agreements entered into pursuant hereto and all certificates and instruments delivered pursuant hereto and thereto) constitute the entire agreement of the parties with respect to the subject matter hereof and supersede all prior and contemporaneous agreements, representations, understandings, negotiations and discussions between the parties, whether oral or written.
6.7 Modifications and Amendments. No amendment, modification or termination of this Agreement shall be binding upon the Company unless executed in writing by the Company. No amendment, modification or termination of this Agreement shall be binding upon the holders of the Registrable Securities unless executed in writing by the holders of the majority Registrable Securities.
6.8 Titles and Headings. Titles and headings of sections of this Agreement are for convenience only and shall not affect the construction of any provision of this Agreement.
6.9 Waivers and Extensions. Any party to this Agreement may waive any right, breach or default which such party has the right to waive, provided that such waiver will not be effective against the waiving party unless it is in writing, is signed by such party, and specifically refers to this Agreement. Waivers may be made in advance or after the right waived has arisen or the breach or default waived has occurred. Any waiver may be conditional. No waiver of any breach of any agreement or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof nor of any other agreement or provision herein contained. No waiver or extension of time for performance of any obligations or acts shall be deemed a waiver or extension of the time for performance of any other obligations or acts.
6.10 Remedies Cumulative. In the event that the Company fails to observe or perform any covenant or agreement to be observed or performed under this Agreement, the Holder or any other holder of Registrable Securities may proceed to protect and enforce its rights by suit in equity or action at law, whether for specific performance of any term contained in this Agreement or for an injunction against the breach of any such term or in aid of the exercise of any power granted in this Agreement or to enforce any other legal or equitable right, or to take any one or more of such actions, without being required to post a bond. None of the rights, powers or remedies conferred under this Agreement shall be mutually exclusive, and each such right, power or remedy shall be cumulative and in addition to any other right, power or remedy, whether conferred by this Agreement or now or hereafter available at law, in equity, by statute or otherwise.
6.11 Governing Law. This Agreement shall be governed by, interpreted under, and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed within the State of New York, without giving effect to any choice-of-law provisions thereof that would compel the application of the substantive laws of any other jurisdiction.
6.12 Waiver of Trial by Jury. Each party hereby irrevocably and unconditionally waives the right to a trial by jury in any action, suit, counterclaim or other proceeding (whether based on contract, tort or otherwise) arising out of, connected with or relating to this Agreement, the transactions contemplated hereby, or the actions of the Holder in the negotiation, administration, performance or enforcement hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be executed and delivered by their duly authorized representatives as of the date first written above.
| COMPANY: | ||
| THUNDER BRIDGE II SURVIVING PUBCO, INC., | ||
| By: | /s/ Gary A. Simanson | |
| Name: | Gary A. Simanson | |
| Title: | Chief Executive Officer | |
| HOLDERS: | ||
| /s/ Donald McClymont | ||
| Donald McClymont | ||
| /s/ Ichiro Aoki | ||
| Ichiro Aoki | ||
| /s/ Scott Kee | ||
| Scott Kee | ||
| /s/ David Kang | ||
| David Kang | ||
| BISON CAPITAL PARTNERS IV, L.P. | ||
| By: | /s/ Peter Macdonald | |
| Name: | Peter Macdonald | |
| Title: | Managing Member of the General Partner | |
| /s/ Thomas Schiller | ||
| Thomas Schiller | ||
| GODUBS, INC. | ||
| By: | /s/ Steve Fu | |
| Name: | Steve Fu | |
| Title: | ||
18
Exhibit A
Name and Address of Holders
To all Holders:
19
ANNEX A
Once issued and upon effectiveness of the registration statement of which this prospectus forms a part, the securities beneficially owned by the Selling Stockholders covered by this prospectus may be offered and sold from time to time by the Selling Stockholders. The term “Selling Stockholders” includes donees, pledgees, transferees or other successors in interest selling securities received after the date of this prospectus from a Selling Stockholder as a gift, pledge, partnership distribution or other transfer. The Selling Stockholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. Such sales may be made on one or more exchanges or in the over-the-counter market or otherwise, at prices and under terms then prevailing or at prices related to the then current market price or in negotiated transactions. Each Selling Stockholder reserves the right to accept and, together with its respective agents, to reject, any proposed purchase of securities to be made directly or through agents. The Selling Stockholders and any of their permitted transferees may sell their securities offered by this prospectus on any stock exchange, market or trading facility on which the securities are traded or in private transactions.
Subject to the limitations set forth in any applicable registration rights agreement, the Selling Stockholders may use any one or more of the following methods when selling the securities offered by this prospectus:
| ● | purchases by a broker-dealer as principal and resale by such broker-dealer for its own account pursuant to this prospectus; |
| ● | ordinary brokerage transactions and transactions in which the broker solicits purchasers; |
| ● | block trades in which the broker-dealer so engaged will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; |
| ● | an over-the-counter distribution in accordance with the rules of the applicable exchange; |
| ● | settlement of short sales entered into after the date of this prospectus; |
| ● | agreements with broker-dealers to sell a specified number of the securities at a stipulated price per share; |
| ● | in “at the market” offerings, as defined in Rule 415 under the Securities Act, at negotiated prices, at prices prevailing at the time of sale or at prices related to such prevailing market prices, including sales made directly on a national securities exchange or sales made through a market maker other than on an exchange or other similar offerings through sales agents; |
| ● | directly to purchasers, including through a specific bidding, auction or other process or in privately negotiated transactions; |
20
| ● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| ● | through a combination of any of the above methods of sale; or |
| ● | any other method permitted pursuant to applicable law. |
In addition, a Selling Stockholder that is an entity may elect to make a pro rata in-kind distribution of securities to its members, partners or stockholders pursuant to the registration statement of which this prospectus is a part by delivering a prospectus with a plan of distribution. Such members, partners or stockholders would thereby receive freely tradeable securities pursuant to the distribution through a registration statement. To the extent a distributee is an affiliate of ours (or to the extent otherwise required by law), we may file a prospectus supplement in order to permit the distributees to use the prospectus to resell the securities acquired in the distribution.
The Selling Stockholders also may transfer the securities in other circumstances, in which case the transferees, pledgees or other successors-in-interest will be the selling beneficial owners for purposes of this prospectus. Upon being notified by a Selling Stockholder that a donee, pledgee, transferee, other successor-in-interest intends to sell our securities, we will, to the extent required, promptly file a supplement to this prospectus to name specifically such person as a Selling Stockholder.
21
Exhibit 10.8
FORM OF LOCK-UP AGREEMENT
THIS LOCK-UP AGREEMENT (this “Agreement”) is dated as of June 10, 2021, by and between the undersigned (the “Holder”) and Thunder Bridge II Surviving Pubco, Inc., a Delaware corporation which is changing its name to indie Semiconductor, Inc. (the “Company”).
Capitalized terms used, but not otherwise defined herein, shall have the meanings ascribed to such terms in the Master Transactions Agreement, by and among the Company, Thunder Bridge II Surviving Pubco, Inc., Thunder Bridge Acquisition II, Ltd., Ay Dee Kay LLC, d/b/a indie Semiconductor (“ADK”), the Merger Subs described therein, each ADK Blocker, ADK Service Provider Holdco LLC and Donald McClymont, as the Company Securityholder Representative, dated as of December 14, 2020, as amended, (the “MTA”).
BACKGROUND
WHEREAS, pursuant to the MTA, the Holder is entering into this Agreement with the Company with respect to (1) all of such Holder’s portion of the Class A Pubco Shares that constitute Holder’s allocable share of the Merger Consideration pursuant to the MTA (the “Closing Shares”) and (2) Earned Earn Out Shares (if and when issued in accordance with the MTA, collectively with the Closing Shares, the “Shares”), during the Lock-up Period (as defined below).
NOW, THEREFORE, for and in consideration of the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, agree as follows:
AGREEMENT
1. Lock-Up.
(a) Effective at the Closing, and subject to Section 1(b) below, during the Lock-up Period, the Holder irrevocably agrees that such Holder will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any of the Shares, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the Shares, whether any of these transactions are to be settled by delivery of any Shares, or otherwise, publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, or engage in any Short Sales (as defined below) with respect to any securities of Company.
(b) In furtherance of the foregoing, during the Lock-up Period, the Company will (i) place an irrevocable stop order on all the Shares, including those which may be covered by a registration statement, and (ii) notify the Company’s transfer agent in writing of the stop order and the restrictions on the Shares under this Agreement and direct the Company’s transfer agent not to process any attempts by the Holder to resell or transfer any Shares, except in compliance with this Agreement.
(c) For purposes hereof, “Short Sales” include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements (including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers.
(d) The term “Lock-up Period” means the earlier of (i) six (6) months after the Closing Date, and (ii) the consummation of a Surviving Pubco Sale after the Closing Date.
2. Beneficial Ownership. The Holder hereby represents and warrants that it does not beneficially own, directly or through its nominees (as determined in accordance with Section 13(d) of the Exchange Act, and the rules and regulations promulgated thereunder), any shares of the Company’s Class A Common Stock, or any economic interest in or derivative of such shares, other than the Shares specified on the signature page hereto.
Notwithstanding the foregoing, and subject to the conditions below, the undersigned may transfer the Shares in connection with (a) transfers or distributions to the Holder’s current or former general or limited partners, managers or members, stockholders, other equityholders or direct or indirect affiliates (within the meaning of Rule 405 under the Securities Act of 1933, as amended (the “Securities Act”)) or to the estates of any of the foregoing; (b) transfers by bona fide gift to a member of the Holder’s immediate family or to a trust, the beneficiary of which is the Holder or a member of the Holder’s immediate family for estate planning purposes; (c) by virtue of the laws of descent and distribution upon death of the Holder; or (d) pursuant to a qualified domestic relations order in each case where such transferee agrees to be bound by the terms of this Agreement; provided that in the case of any transfer pursuant to the foregoing clauses it shall be a condition to any such transfer that (i) the transferee/donee agrees with the Company, in a writing satisfactory in form and substance to the Company, to be bound by the terms of this Agreement (including, without limitation, the restrictions set forth in the preceding sentence) to the same extent as if the transferee/donee were an original Holder hereunder, and (ii) each party (donor, donee, transferor or transferee) shall not be required by law (including without limitation the disclosure requirements of the Securities Act and the Exchange Act) to make, and shall agree to not voluntarily make, any filing or public announcement of the transfer or disposition prior to the expiration of the Lock-Up Period.
3. Representations and Warranties. Each of the parties hereto, by their respective execution and delivery of this Agreement, hereby represents and warrants to the other that (a) such party has the full right, capacity and authority to enter into, deliver and perform its respective obligations under this Agreement, (b) this Agreement has been duly executed and delivered by such party and is a binding and enforceable obligation of such party and enforceable against such party in accordance with the terms of this Agreement, and (c) the execution, delivery and performance of such party’s obligations under this Agreement will not conflict with or breach the terms of any other agreement, contract, commitment or understanding to which such party is a party or to which the assets or securities of such party are bound. The Holder has independently evaluated the merits of its decision to enter into and deliver this Agreement, and such Holder confirms that it has not relied on the advice of the Company, the Company’s legal counsel, or any other advisor, consultant or affiliate of the Company.
4. No Additional Fees/Payment. Other than the consideration specifically referenced herein, the parties hereto agree that no fee, payment or additional consideration in any form has been or will be paid to the Holder in connection with this Agreement.
2
5. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy or e-mail or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 5):
(a) If to Company, to:
indie Semiconductor
32 Journey
Aliso Viejo, California 92656
Attention: Tom Schiller, CFO
Telephone: (949) 608-0854
Email: [email protected]
with a copy to:
Loeb & Loeb
345 Park Avenue
New York, New York 10154
Attention: Mitchell Nussbaum; Giovanni Caruso
Telephone: (212) 407-4159
Email: [email protected]; [email protected]
If to the Holder, to the email address set forth on the Holder’s signature page hereto, or to such other address as Holder may have furnished in writing in accordance herewith.
6. Enumeration and Headings. The enumeration and headings contained in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of any of the provisions of this Agreement.
7. Counterparts. This Agreement may be executed in facsimile and in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all of which shall together constitute one and the same agreement.
8. Successors and Assigns. This Agreement and the terms, covenants, provisions and conditions hereof shall be binding upon, and shall inure to the benefit of, the respective heirs, successors and assigns of the parties hereto. The Holder hereby acknowledges and agrees that this Agreement is entered into for the benefit of and is enforceable by the Company and its successors and assigns.
9. Severability. If any provision of this Agreement is held to be invalid or unenforceable for any reason, such provision will be conformed to prevailing law rather than voided, if possible, in order to achieve the intent of the parties and, in any event, the remaining provisions of this Agreement shall remain in full force and effect and shall be binding upon the parties hereto.
10. Amendment. This Agreement may be amended or modified by written agreement executed by each of the parties hereto.
3
11. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
12. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
13. Dispute Resolution. Sections 11.6 and 11.7 of the MTA are incorporated by reference herein to apply, mutatis mutandis, with full force to any disputes arising under this Agreement.
14. Governing Law. Section 11.5 of the MTA is incorporated by reference herein to apply, mutatis mutandis, with full force to any disputes arising under this Agreement.
15. Controlling Agreement. To the extent the terms of this Agreement (as amended, supplemented, restated or otherwise modified from time to time) directly conflicts with any provision in the MTA, the terms of the MTA shall control.
[Signature Page Follows]
4
IN WITNESS WHEREOF, the parties hereto have caused this Lock-Up Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
| Thunder Bridge II Surviving Pubco, Inc. | |
| By: | |
| Name: Gary Simanson | |
| Title: CEO |
[Signature Page to Lock-Up Agreement]
IN WITNESS WHEREOF, the parties hereto have caused this Lock-Up Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
| HOLDER | ||
| By: | ||
| Name: | ||
| Title: | ||
| Email: | ||
[Signature Page to Lock-Up Agreement]
Exhibit 10.12
AY DEE KAY LLC
LOAN AND SECURITY A GREEMENT
This LOAN AND SECURITY AGREEMENT (the “Agreement”) is entered into as of January 13, 2015, by and between Square 1 Bank (“Bank”) and AY DEE KAY LLC (“Borrower”).
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank desires to extend credit to Borrower. This Agreement sets forth the terms on which Bank will advance credit to Borrower, and Borrower will repay the amounts owing to Bank.
AGREEMENT
The parties agree as follows:
| 1. | DEFINITIONS AND CONSTRUCTION. |
1.1 Definitions. As used in this Agreement, all capitalized terms shall have the definitions set on Exhibit forth Any term used in the Code and not defined herein shall have the meaning given to the term A. Code. in the
1.2 Accounting Terms. Any accounting term not specifically defined on Exhibit A shall be construed in accordance with GAAP and all calculations shall be made in accordance with GAAP (except for non- compliance with FAS 123R in monthly reporting). The term “financial statements” shall include the accompanying notes and schedules.
| 2. | LOAN AND TERMS OF PAYMENT. |
2.1 Credit Extensions.
(a) Promise to Pay. Borrower promises to pay to Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all Credit Extensions made by Bank to Borrower, together with interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof.
(b) Advances Under Revolving Line.
(i) Amount. Subject to and upon the terms and conditions of this Agreement (I) Borrower may request Advances in an aggregate outstanding principal amount not to exceed the lesser of (A) the Revolving Line or (8) the Borrowing Base, in each case less any amounts outstanding under the Ancillary Services Sublimit, and (2) amounts borrowed pursuant to this Section 2.l(b) may be repaid and reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2. l(b) shall be immediately due and payable. Borrower may prepay any Advances without penalty or premium.
(ii) Form of Request. Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission, telephone or email no later than 3:30 p.m. Eastern time (2:30 p.m. Eastern time for wire transfers), on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Loan Advance/Paydown Request Form in substantially the form of Exhibit C. Bank is authorized to make Advances under this Agreement, based upon instructions received from an Authorized Officer, or without instructions if in Bank’s discretion such Advances arc necessary to meet Obligations which have become due and remain unpaid. Bank shall be entitled to rely on any telephonic or email notice given by a person whom Bank reasonably believes to be an Authorized Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages, loss, costs and expenses suffered by Bank as a result of such reliance. Bank will credit the amount of Advances made under this Section 2.1 (b) to Borrower’s deposit account.
(iii) Ancillary Services Sublimit. Subject to the availability under the Revolving Line, at any time and from time to time from the date hereof through the Business Day immediately prior to the Revolving Maturity Date, Borrower may request the provision of Ancillary Services from Bank. The aggregate limit of the Ancillary Services shall not exceed the Ancillary Services Sublimit, provided that availability under the Revolving Line shall be reduced by the aggregate limits of (i) any outstanding and undrawn amounts under all Letters of Credit issued hereunder, (ii) corporate credit card services provided to Borrower, (iii) the total amount of any Automated Clearing House processing reserves, (iv) the applicable Foreign Exchange Reserve Percentage, and (v) any other reserves taken by Bank in connection with other treasury management services requested by Borrower and approved by Bank. In addition, Bank may, in its sole discretion, charge as Advances any amounts for which Bank becomes liable to third parties in connection with the provision of the Ancillary Services. The terms and conditions (including repayment and fees) of such Ancillary Services shall be subject to the terms and conditions of the Bank’s standard forms of application and agreement for the applicable Ancillary Services, which Borrower hereby agrees to execute.
(iv) Collateralization of Obligations Extending Beyond Maturity. If Borrower has not secured to Bank’s satisfaction its obligations with respect to any Ancillary Services by the Revolving Maturity Date, then, effective as of such date, the balance in any deposit accounts held by Bank and the certificates of deposit or time deposit accounts issued by Bank in Borrower’s name (and any interest paid thereon or proceeds thereof, including any amounts payable upon the maturity or liquidation of such certificates or accounts), shall automatically secure such obligations to the extent of the then continuing or outstanding Ancillary Services. Borrower authorizes Bank to hold such balances in pledge and to decline to honor any drafts thereon or any requests by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the applicable Ancillary Services are outstanding or continue.
(b) Term Loan.
(i) Subject to and upon the terms and conditions of this Agreement, Bank agrees to make a term loan to Borrower in an amount equal to S2,000,000 on the Closing Date or as soon thereafter as all conditions precedent to the making thereof have been met. Thereafter, at any time through the Availability End Date, Borrower may request and Bank agrees to make one (1) or more additional term loans to Borrower in an aggregate principal amount not to exceed an additional $1,000,000 (each a “Term Loan” and collectively the “Term Loans”). The proceeds of the Term Loans shall be used for general working capital and to finance the transactions contemplated by the IP License Agreement.
(ii) Interest shall accrue from the date of each Term Loan at the rate specified in Section 2.3(a), and prior to the Availability End Date shall be payable monthly beginning on the 13th day of the month next following the making such Term Loan, and continuing on the same day of each month thereafter. Any Term Loans that are outstanding on the Availability End Date shall be payable in 36 equal monthly installments of principal, plus all accrued interest, beginning on February 13, 2016 and continuing on the same day of each month thereafter through the Term Loan Maturity Date, at which time all amounts due in connection with the Term Loans and any other amounts due under this Agreement shall be immediately due and payable. Tem1 Loans, once repaid, may not be reborrowed. Borrower may prepay any Term Loan without penalty or premium.
(iii) When Borrower desires to obtain a Tern Loan, Borrower shall notify Bank (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:30 p.m. Eastern time on the Business Day prior to the date on which the Term Loan is to be made. Such notice shall be substantially in the form of Exhibit C. The notice shall be signed by an Authorized Officer.
(c) Aggregate Cap on Credit Extensions. Notwithstanding any other provisions of this Agreement to the contrary, the aggregate principal amount of all Credit Extensions outstanding hereunder shall not exceed S5,000,000 at any time.
2.2 Overadvances. If the aggregate amount of the outstanding Advances exceeds the lesser of the Revolving Line or the Borrowing Base at any time, Borrower shall immediately pay lo Bank, in cash, the amount of such excess.
2
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rates.
(i) Advances. Except as set forth in Section 2.3(b), the Advances shall bear interest, on the outstanding daily balance thereof, at a variable annual rate equal to the greater of (A) 0.50% above the Prime Rate then in effect, or (B) 4.00%.
(ii) Term Loans. Except as set forth in Section 2.3(b), the Term Loans shall bear interest, on the outstanding daily balance thereof, at a variable annual rate equal to the greater of (A) 1.00% above the Prime Rate then in effect, or (B) 4.50%.
(b) Late Fee; Default Rate. If any payment is not made within 15 days after the date such payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) 5% of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to 5 percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.
(c) Payments. Interest under the Revolving Line shall be due and payable on the 13th calendar day of each month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments then due against any of Borrower’s deposit accounts or against the Revolving Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies, except that to the extent Borrower uses the Term Loans to purchase Collateral, Borrower’s repayment of the Term Loans shall apply on a “first-in-first-out” basis so that the portion of the Term Loans used to purchase a particular item of Collateral shall be paid in the chronological order the Borrower purchased the Collateral. After the occurrence and during the continuance of an Event of Default, Bank shall have the right, in its sole discretion, to immediately apply any wire transfer of funds, check, or other item of payment Bank may receive to conditionally reduce Obligations, but such applications of funds shall not be considered a payment on account unless such payment is of immediately available federal funds or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 5:30 p.m. Eastern time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, such payment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. On or before the Closing Date, a fee equal to $5,000, which shall be nonrefundable;
(b) Bank Expenses. On the Closing Date, all Bank Expenses incurred through the Closing Date (provided however that Bank Expenses for legal fees (other than out of pocket costs for due diligence searches and lien filings) shall not to exceed $15,000 on the Closing Date if there have been 2 or less reasonable turns of the Loan Documents), and, after the Closing Date, all Bank Expenses, as and when they become due.
3
2.6 Term. This Agreement shall become effective on the Closing Date and, subject to Section 12.7, shall continue in full force and effect for so long as any Obligations (other than inchoate indemnity obligations) remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under this Agreement immediately and without notice upon the occurrence and during the continuance of an Event of Default, and Borrower shall have the right to terminate this Agreement upon (i) prior written notice to Bank, and (ii) payment of all outstanding Obligations (other than inchoate indemnity obligations).
| 3. | CONDITIONS OF LOANS. |
3.1 Conditions Precedent to Closing. The agreement of Bank lo enter into this Agreement on the Closing Dale is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, each the following items and completed each of the following requirements:
(a) this Agreement;
(b) an officer’s certificate of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement;
(c) a financing statement (Form UCC-1);
(d) an intellectual property security agreement;
(e) payment of the fees and Bank Expenses then due specified in Section 2.5, which may be debited from any of Borrower’s accounts with Bank;
(f) current SOS Reports indicating that except for Permitted Liens, there are no other security interests or Liens of record in the Collateral;
(g) current financial statements, including audited statements (or such other level required by the Investment Agreement) for Borrower’s most recently ended fiscal year, together with an unqualified opinion (or an opinion qualified only for going concern so long as Borrower’s investors provide additional equity as needed), company prepared consolidated and consolidating balance sheets, income statements and statements of cash flows for the most recently ended month in accordance with Section 6.2, and such other updated financial information as Bank may reasonably request;
(h) current Compliance Certificate in accordance with Section 6.2;
(i) the IP License Agreement, in form and substance acceptable to Bank;
(j) a Subordination Agreement duly executed by Embry Empreendirnentos e Participacoes Ltda.;
(k) a Borrower Information Certificate;
(l) such other documents or certificates, and completion of such other matters, as Bank may reasonably request; and
(m) Borrower shall have opened and funded not less than $50,000 in deposit accounts held with Bank.
4
3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank to make each Credit Extension, including the initial Credit Extension, is contingent upon the Borrower’s compliance with Section 3.1 above, and is further subject to the following conditions:
(a) timely receipt by Bank of the Loan Advance/Paydown Request Form as provided in Section 2.1;
(b) Borrower shall be in compliance with Section 6.6 hereof;
(c) in Bank’s sole discretion, there has not been a Material Adverse Effect; and
(d) the representations and warranties contained in Section 5 shall be true and correct in all material respects on and as of the date of such Loan Advance/Paydown Request Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after giving effect to such Credit Extension (provided, however, that those representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of such date). The making of each Credit Extension shall be deemed to be a representation and warranty by Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.
| 4. | CREATION OF SECURITY INTEREST. |
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a continuing security interest in the Collateral to secure prompt repayment of any and all Obligations and to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Except for Permitted Liens or as disclosed in the Schedule, such security interest constitutes a valid, first priority security interest in the presently existing Collateral, and will constitute a valid, first priority security interest in later-acquired Collateral. Borrower also hereby agrees not to sell, transfer, assign, mortgage, pledge, lease, grant a security interest in, or encumber any of its Intellectual Property Collateral except for Permitted Liens. Notwithstanding any termination of this Agreement or of any filings undertaken related to Bank’s rights under the Code, Bank’s Lien on the Collateral shall remain in effect for so long as any Obligations (other than inchoate indemnity obligations) are outstanding.
4.2 Perfection of Security Interest. Borrower authorizes Bank to file at any time financing statements, continuation statements, and amendments thereto that (i) either specifically describe the Collateral or describe the Collateral as all assets of Borrower of the kind pledged hereunder, and (ii) contain any other information required by the Code for the sufficiency of filing office acceptance of any financing statement, continuation statement, or amendment, including whether Borrower is an organization, the type of organization and any organizational identification number issued to Borrower, if applicable. Borrower shall have possession of the Collateral, except where expressly otherwise provided in this Agreement or where Bank chooses to perfect its security interest by possession in addition to the filing of a financing statement. Where Collateral is in possession of a third party bailee, Borrower shall take such commercially reasonable steps as Bank reasonably requests for Bank to (i) subject to Section 7.10 below, obtain an acknowledgment, in form and substance satisfactory to Bank, of the bailee that the bailee holds such Collateral for the benefit of Bank, and (ii) obtain “control” of any Collateral consisting of investment property, deposit accounts (other than the Excluded Accounts), letter-of-credit rights or electronic chattel paper (as such items and the term “control” are defined in Revised Article 9 of the Code) by causing the securities intermediary or depositary institution or issuing bank to execute a control agreement in form and substance satisfactory to Bank. Borrower will not create any chattel paper without placing a legend on the chattel paper acceptable to Bank indicating that Bank has a security interest in the chattel paper. Borrower from time to time may deposit with Bank specific cash collateral to secure specific Obligations; Borrower authorizes Bank to hold such specific balances in pledge and to decline to honor any drafts thereon or any request by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the specific Obligations are outstanding. Borrower shall take such other actions as Bank reasonably requests to perfect its security interests granted under this Agreement.
| 5. | REPRESENTATIONS AND WARRANTIES. |
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is duly existing under the laws of the state in which it is organized and qualified and licensed to do business in any state in which the conduct of its business or its ownership of property requires that it be so qualified, except where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.
5
5.2 Due Authorization; No Conflict. The execution, delivery, and performance of the Loan Documents are within Borrower’s powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower’s Articles of Organization or Operating Agreement, nor will they constitute an event of default under any material agreement by which Borrower is bound, Borrower is not in default under any agreement by which it is bound, except to the extent such default would not reasonably be expected to cause a Material Adverse Effect.
5.3 Collateral. Borrower has rights in or the power to transfer the Collateral, and its title to the Collateral is free and clear of Liens, adverse claims, and restrictions on transfer or pledge except for Permitted Liens. Other than movable items of personal property such as laptop computers and inventory held outside of the United States having an aggregate book value in excess of $2,000,000, all Collateral is located solely in the Collateral States. The Eligible Accounts are bona fide existing obligations. The property or services giving rise to such Eligible Accounts has been delivered or rendered to the account debtor or its agent for immediate shipment to and unconditional acceptance by the account debtor. Borrower has not received notice of actual or imminent Insolvency Proceeding of any account debtor whose accounts are included in any Borrowing Base Certificate as an Eligible Account. All Inventory is in all material respects of good and merchantable quality, free from all material defects, except for Inventory for which adequate reserves have been made. Except as set forth in the Schedule or as otherwise disclosed to Bank in writing after the Closing Date, none of the Borrower’s Cash is maintained or invested with a Person other than Bank or Bank’s affiliates.
5.4 Intellectual Property Collateral. Borrower’s Intellectual Property Collateral is set forth on Schedule 5.4 hereto. Borrower is the sole owner of the Intellectual Property Collateral, except for licenses granted by Borrower to its customers in the ordinary course of business. To the best of Borrower’s knowledge, each of the Copyrights, Trademarks and Patents is valid and enforceable, and no part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part, and no claim has been made to Borrower that any part of the Intellectual Property Collateral violates the rights of any third party except to the extent such claim would not reasonably be expected to cause a Material Adverse Effect.
5.5 Name; Location of Chief Executive Office. Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof, and its exact legal name is as set forth in the first paragraph of this Agreement. The chief executive office of Borrower is located at the address indicated in Section IO hereof.
5.6 Litigation. Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which a likely adverse decision would reasonably be expected to have a Material Adverse Effect.
5.7 No Material Adverse Change in Financial Statements. All consolidated and consolidating financial statements related to Borrower and any Subsidiary (other than Ell-IOT, Inc.) that are delivered by Borrower to Bank fairly present in all material respects Borrower’s consolidated and consolidating financial condition as of the date thereof and Borrower’s consolidated and consolidating results of operations for the period then ended. There has not been a material adverse change in the consolidated or in the consolidating financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank.
5.8 Solvency, Payment of Debts. Borrower is able to pay its debts (including trade debts) as they mature; the fair saleable value of Borrower’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; and Borrower is not left with unreasonably small capital after the transactions contemplated by this Agreement.
5.9 Compliance with Laws and Regulations. Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrower’s failure to comply with ERISA that is reasonably likely to result in Borrower’s incurring any liability that could have a Material Adverse Effect. Borrower is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System). Borrower has not violated any statutes, laws, ordinances or rules applicable to it, the violation of which would reasonably be expected to have a Material Adverse Effect. Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have made adequate provision for the payment of, all taxes reflected therein except those being contested in good faith with adequate reserves under GAAP or where the failure to file such returns or pay such taxes would not reasonably be expected to have a Material Adverse Effect.
6
5.10 Subsidiaries. Borrower does not own any stock, partnership interest or other equity securities of any Person, except for Permitted Investments.
5.11 Government Consents. Borrower and each Subsidiary have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower’s business as currently conducted, except where the failure to do so would not reasonably be expected to cause a Material Adverse Effect.
5.12 Inbound Licenses. Except as disclosed on the Schedule, Borrower is not a party to, nor is bound by, any material license or other agreement important for the conduct of Borrower’s business that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property important for the conduct of Borrower’s business, other than this Agreement or the other Loan Documents.
| 6. | AFFIRMATIVE COVENANTS. |
Borrower covenants that, until payment in full of all outstanding Obligations (other than inchoate indemnity obligations), and for so long as Bank may have any commitment to make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing and Government Compliance. Borrower shall maintain its and each of its Subsidiaries’ corporate existence and good standing in the respective states of formation, shall maintain qualification and good standing in each other jurisdiction in which the failure to so qualify would reasonably be expected to have a Material Adverse Effect, and shall furnish to Bank the organizational identification number issued to Borrower by the authorities of the state in which Borrower is organized, if applicable. Borrower shall meet, and shall cause each Subsidiary lo meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws, ordinances and government rules o and regulations to which it is subject, and shall maintain, and shall cause each of its Subsidiaries to maintain, in frce all licenses, approvals and agreements, the loss of which or failure to comply with which would reasonably be expected to have a Material Adverse Effect.
6.2 Financial Statements, Reports, Certificates. Borrower shall deliver lo Bank: (i) as soon as available, but in any event within 30 days after the end of each calendar month, a company prepared consolidated and consolidating balance sheet, income statement and statement of cash flows covering Borrower’s operations during such period, in a form reasonably acceptable to Bank and certified by a Responsible Officer; (ii) as soon as available, but in any event within 150 days after the end of Borrower’s fiscal year, audited (or such other level as is required by the Investment Agreement) consolidated and consolidating (if applicable) financial statements of Borrower prepared in accordance with GAAP, consistently applied, together with an opinion which is either unqualified, qualified only for going concern so long as Borrower’s investors provide additional equity as needed or otherwise consented lo in writing by Bank on such financial statements of an independent certified public accounting fim1 reasonably acceptable to Bank; (iii) annual budget approved by Borrower’s Board of Directors as soon as available but not later than January 15th of each year during the term of this Agreement; (iv) if applicable, copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and all reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission; (v) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened against Borrower or any Subsidiary that could reasonably be expected to result in damages or costs to Borrower or any Subsidiary of $250,000 or more; (vi) promptly upon receipt, each management letter prepared by Borrower’s independent certified public accounting firm regarding Borrower’s management control systems; and (vii) such budgets, sales projections, operating plans or other financial information generally prepared by Borrower in the ordinary course of business as Bank may reasonably request from time to time; and (viii) within 30 days of the last day of each fiscal quarter, a report signed by Borrower, in form reasonably acceptable to Bank, listing any applications or registrations that Borrower has made or filed in respect of any Patents, Copyrights or Trademarks and the status of any outstanding applications or registrations, as well as any material change in Borrower’s Intellectual Property Collateral, including but not limited to any subsequent ownership right of Borrower in or to any Trademark, Patent or Copyright not specified in Exhibits A, B, and C of any Intellectual Property Security Agreement delivered to Bank by Borrower in connection with this Agreement.
7
(a) Within 30 days after the last day of each month, Borrower shall deliver to Bank a Borrowing Base Certificate calculated as of the last day of the applicable month and signed by a Responsible Officer in substantially the form of Exhibit D hereto, together with aged listings by invoice date of accounts receivable and accounts payable.
(b) Within JO days after the last day of each month, Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate certified as of the last day of the applicable month and signed by a Responsible Officer in substantially the form of Exhibit E hereto.
(c) As soon as possible and in any event within 3 calendar days after becoming aware of the occurrence or existence of an Event of Default hereunder, a written statement of a Responsible Officer setting forth details of the Event of Default, and the action which Borrower has taken or proposes to take with respect thereto.
(d) Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower’s usual business hours but no more than twice a year (unless an Event of Default has occurred and is continuing), to inspect Borrower’s Books and lo make copies thereof and to check, test, inspect, audit and appraise the Collateral at Borrower’s expense in order to verify Borrower’s financial condition or the amount, condition of, or any other matter relating to, the Collateral. The first such audit shall be completed prior to the initial Advance under the Revolving Line.
Borrower may deliver to Bank on an electronic basis any certificates, reports or information required pursuant to this Section 6.2, and Bank shall be entitled to rely on the information contained in the electronic files, provided that Bank in good faith believes that the files were delivered by a Responsible Officer. Borrower shall include a submission date on any certificates and reports to be delivered electronically.
6.3 Inventory and Equipment; Returns. Borrower shall keep all Inventory and Equipment in good and merchantable condition, free from all material defects except for Inventory and Equipment (i) sold in the ordinary course of business, and (ii) for which adequate reserves have been made, in all cases in the United States and such other locations as to which Borrower gives prior written notice. Returns and allowances, if any, as between Borrower and its account debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist on the Closing Date. Borrower shall promptly notify Bank of all returns and recoveries and of all disputes and claims involving inventory having a book value of more than $100,000.
6.4 Taxes. Borrower shall make, and cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, and local taxes, assessments, or contributions required of it by law, including, but not limited to, those laws concerning income taxes, F.I.C.A., F.U.T.A. and state disability, and will execute and deliver to Bank, on demand, proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits and any appropri.1te certificates attesting to the payment or deposit thereof; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of such payment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower or such Subsidiary.
6.5 Insurance. Borrower, at its expense, shall (i) keep the Collateral insured against loss or damage, and (ii) maintain liability and other insurance, in each case in as ordinarily insured against by other owners in businesses similar to Borrower’s. All such policies of insurance shall be in such form, with such companies, and in such amounts as reasonably satisfactory to Bank provided that, Bank acknowledges that such policies of insurance in place as of the Closing Date are satisfactory to Bank. All policies of property insurance shall contain a lender’s loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee, and all liability insurance policies shall show Bank as an additional insured and specify that the insurer must give at least 20 days notice to Bank before canceling its policy for any reason. Within 30 days of the Closing Date, Borrower shall cause to be furnished to Bank a copy of its policies or certificate of insurance including any endorsements covering Bank or showing Bank as an additional insured. Upon Bank’s request, Borrower shall deliver to Bank certified copies of the policies of insurance and evidence of all premium payments. Proceeds payable under any casualty policy will, at Borrower’s option, be payable to Borrower to replace the property subject to the claim, provided that any such replacement property shall be deemed Collateral in which Bank has been granted a first priority security interest, provided that if an Event of Default has occurred and is continuing, all proceeds payable under any such policy shall, at Bank’s option, be payable to Bank to be applied on account of the Obligations.
8
6.6 Primary Depository. Borrower shall maintain the majority of its depository and operating accounts with Bank and its primary investment accounts with Bank or Bank’s affiliates; provided that prior to maintaining any investment accounts with Bank’s affiliates, Borrower, Bank, and any such affiliate shall have entered into a securities account control agreement with respect to any such investment accounts, in form and substance satisfactory to Bank; provided further that Borrower may maintain up to 2 accounts outside Bank, each with aggregate balances not to exceed S 150,000 at any time (the “Excluded Accounts”), and such accounts shall not be required to be subject to control agreements in favor of Bank.
6.7 Financial Covenants. Borrower shall at all times maintain the following financial ratios and covenants:
(a) Cumulative GAAP EBITDA. Borrower shall maintain cumulative 2015 year lo date GAAP EBITDA of not less than (i) (S600,000) for the January 2015 measuring period, (ii) ($1,000,000) for the February 2015 measuring period (iii) ($250,000) for the March and April 2015 measuring periods, (iv) ($500,000) for the May 2015 measuring period and (iii) Sl.00 for each subsequent measuring period, measured monthly as of the last day of each month. Bank and Borrower hereby agree to reset the foregoing covenants based on Borrower’s board approved financial projections delivered to and approved in writing by Bank pursuant to an amendment to this Agreement which Borrower and Bank hereby agree to execute promptly after receipt of such projections.
(b) Capital Expenditures. Borrower shall not incur capital expenditures of more than S 1,000,000 in any calendar year; provided however that Borrower may make an additional $2,000,000 of capital expenditures in connection with the IP License Agreement in the 2015 calendar year.
6.8 Registration of Intellectual Property Rights.
(a) Borrower shall execute and deliver such additional instruments and documents from time to time as Bank shall reasonably request to perfect and maintain the perfection and priority of Bank’s security interest in the Intellectual Property Collateral.
(b) Borrower shall use commercially reasonable efforts to (i) protect, defend and maintain the validity and enforceability of the trade secrets, Trademarks, Patents and Copyrights, (ii) detect infringements of the Trademarks, Patents and Copyrights and promptly advise Bank in writing of material infringements detected and (iii) not allow any material Trademarks, Patents or Copyrights to be abandoned, forfeited or dedicated to the public without the written consent of Bank, which shall not be unreasonably withheld.
(c) Bank shall have the right, but not the obligation, to take, at Borrower’s sole expense, any actions that Borrower is required under this Section 6.8 to take but which Borrower fails to take, after 30 days’ notice to Borrower. Borrower shall reimburse and indemnify Bank for all reasonable costs and reasonable expenses incurred in the reasonable exercise of its rights under this Section 6.8.
6.9 Consent of Inbound Licensors. Prior to entering into or becoming bound by any material inbound license or agreement, Borrower shall: (i) provide written notice to Bank of the material terms of such license or agreement with a description of its likely impact on Borrower’s business or financial condition; and (ii) in good faith use commercially reasonable efforts to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for Borrower’s interest in such licenses or contract rights to be deemed Collateral and for Bank to have a security interest in it that might otherwise be restricted by the terms of the applicable license or agreement, whether now existing or entered into in the future, provided, however, that the failure to obtain any such consent or waiver shall not constitute a default under this Agreement.
9
6.10 Creation/Acquisition of Subsidiaries. In the event any Borrower or any Subsidiary of any Borrower creates or acquires any Subsidiary, Borrower or such Subsidiary shall promptly notify Dank of such creation or acquisition, and Borrower or such Subsidiary shall take all actions reasonably requested by Bank to achieve any of the following with respect to such “New Subsidiary” (defined as a Subsidiary formed after the date hereof during the term of this Agreement): (i} to cause New Subsidiary to become either a co-Borrower hereunder, if such New Subsidiary is organized under the laws of the United States, or a secured guarantor with respect to the Obligations; and (ii) to grant and pledge to Bank a perfected security interest in 100% of the stock, units or other evidence of ownership held by Borrower or its Subsidiaries of any such New Subsidiary which is organized under the laws of the United States, and 65% of the stock, units or other evidence of ownership held by Borrower or its Subsidiaries of any such New Subsidiary which is not organized under the laws of the United States. This clause 6.10 shall not apply to Borrower’s subsidiary, Ell-IOT, Inc.
6.11 Further Assurances. At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of th.is Agreement.
| 7. | NEGATIVE COVENANTS. |
Borrower covenants and agrees that, so long as any credit hereunder shall be available and until the outstanding Obligations (other than inchoate indemnity obligations) are paid in full or for so long as Bank may have any commitment to make any Credit Extensions, Borrower will not do any of the following without Bank’s prior written consent, which shall not be unreasonably withheld:
7.1 Dispositions. Convey, sell, lease, license, transfer or otherwise dispose of (collectively, to “Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, or move cash balances on deposit with Bank to accounts opened at another financial institution, other than Permitted Transfers.
7.2 Change in Name, Location, Executive Office, or Executive Management; Change in Business; Change in Fiscal Year; Change in Control. Change its name or the state of Borrower’s formation or relocate its chief executive office without IO days prior written notification to Bank; replace or suffer the departure of its chief executive officer or chief financial officer without delivering written notification to Bank within IO days; foil to appoint an interim replacement or fill a vacancy in the position of chief executive officer or chief financial officer for more than 90 consecutive days, take action to liquidate, wind up, or otherwise cease to conduct business in the ordinary course; engage in any business, or permit any of its Subsidiaries to engage in any business, other than or reasonably related or incidental to the businesses currently engaged in by Borrower; change its fiscal year end without 10 days’ prior written notification to Bank; have a Change in Control.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other business organization (other than mergers or consolidations of a Subsidiary into another Subsidiary or into Borrower}, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person except where (a) each of the following conditions is applicable:
(i) the cash consideration paid in connection with such transactions (including assumption of liabilities) does not in the aggregate exceed SS00,000 during any fiscal year, (ii) no Event of Default has occurred, is continuing or would exist after giving effect to such transactions, (iii} such transactions do not result in a Change in Control, and (iv} Borrower is the surviving entity; or (b) the Obligations are repaid in full concurrently with the closing of any merger or consolidation of Borrower in which Borrower is not the surviving entity; provided, however, that Borrower shall not, without Bank’s prior written consent, enter into any binding contractual arrangement with any Person to attempt to facilitate a merger or acquisition of Borrower, unless (i) no Event of Default exists when such agreement is entered into by Borrower, (ii) such agreement docs not give such Person the right to claim any fee, payment or damages from any parties, other than from Borrower or Borrower’s investors, in connection with a sale of Borrower’s stock or assets pursuant to or resulting from an assignment for the benefit of creditors, an asset turnover to Borrower’s creditors (including, without limitation, Bank), foreclosure, bankruptcy or similar liquidation, and (iii) Borrower notifies Bank in advance of entering into such an agreement {provided, the failure to give such notification shall not be deemed a material breach of this Agreement).
10
7.4 Indebtedness. Create, incur, assume, guarantee or be or remain liable with respect to any Indebtedness, or permit any Subsidiary (other than Ell-IOT, Inc.) so to do, other than Permitted Indebtedness, or prepay any Indebtedness (other than unsecured Indebtedness to trade creditors in the ordinary course of business) or take any actions which impose on Borrower an obligation to prepay any Indebtedness (other than unsecured Indebtedness to trade creditors in the ordinary course of business), except Indebtedness to Bank.
7.5 Encumbrances. Create, incur, assume or allow any Lien with respect to its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or pem1it any of its Subsidiaries (other than EII-IOT, Inc.) so to do, except for Permitted Liens, or covenant to any other Person other than (i) the licensors of in-licensed property with respect to such property or (ii) the lessors of specific equipment or lenders financing specific equipment with respect to such leased or financed equipment) that Borrower or such subsidiary in the future will refrain from creating, incurring, assuming or allowing any Lien with respect to any of Borrower’s property.
7.6 Distributions. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, except that Borrower and its Subsidiaries may (i) repurchase the stock of former employees or directors pursuant to stock repurchase agreements in an aggregate amount not to exceed $250,000 in any fiscal year, so long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase, (ii) repurchase the stock of former employees or directors pursuant to stock repurchase agreements in any amount where the consideration for the repurchase is the cancellation of indebtedness owed by such former employees or directors to Borrower regardless of whether an Event of Default exists, (iii) pay dividends in equity securities, (iv) convert any securities into other equity securities pursuant to the terms of such convertible securities; and (v) make payments in lieu of the issuance of fractional shares.
7.7 Investments. Directly or indirectly acquire or own an Investment in, or make any Investment in or to any Person, or pem1it any of its Subsidiaries (other than Ell-IOT, Inc.) so to do, other than Permitted Investments, or maintain or invest any of its investment property with a Person other than Bank or permit any Subsidiary (other than Ell-IOT, Inc.) to do so unless such Person has entered into a control agreement with Bank, in form and substance satisfactory to Bank, or suffer or permit any Subsidiary (other than Ell-JOT, Inc.) to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower.
7.8 Transactions with Affiliates. Directly or indirectly enter into or pem1it to exist any material transaction with any Affiliate of Borrower except for (i) transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable ten11s that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person, (ii) transactions between Borrower and any of its Subsidiaries that is not otherwise prohibited under this Agreement; (iii) reasonable and customary fees paid to, and the reimbursement of expenses incurred by, members of the board of directors of Borrower and its Subsidiaries; (iv) compensation arrangements and benefit plans for officers and other employees of Borrower and its Subsidiaries entered into or maintained in the ordinary course of business; and (v) equity and Subordinated Debt financings that do not result in a Change of Control.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries (other than Ell-IOT, Inc.) to make any such payment, except in compliance with the terms of such Subordinated Debt, or amend any provision affecting Bank’s rights contained in any documentation relating to the Subordinated Debt without Bank’s prior written consent.
11
7.10 Inventory and Equipment. Store the Inventory or the Equipment of a book value in excess of $250,000 with a bailee, warehouseman, collocation facility or similar third party unless the third party has been notified of Bank’s security interest and Bank (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Bank’s benefit or (b) is in possession of the warehouse receipt, where negotiable, covering such Inventory or Equipment. Except for Inventory sold in the ordinary course of business and for movable items of personal property having an aggregate book value not in excess ofS250,000, and except for such other locations as Bank may approve in writing, Borrower shall keep the Inventory and Equipment only at locations set forth in Section 10 and such other locations of which Borrower gives Bank prior written notice and as to which Bank is able to take such actions as may be necessary to perfect its security interest or to obtain a bailee’s acknowledgment of Bank’s rights in the Collateral; provided however that Borrower may maintain up to S2,000,000 of Inventory with ASE Global in ChungLi and Global Test or Sigurd in Hsinchu, Taiwan or other locations disclosed to Bank in writing without obtaining a bailee agreement.
7.11 No Investment Comp1my; Margin Regulation. Become or be controlled by an “investment company,” within the meaning of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extension for such purpose.
| 8. | EVENTS OF DEFAULT. |
Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay any of the Obligations when due;
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Sections 6.2 (financial reporting), 6.4 (taxes), 6.5 (insurance), 6.6 (primary accounts) or 6.7 (financial covenants), or violates any of the covenants contained in Article 7 of this Agreement; or
(b) If Borrower fails or neglects to perform or observe any other material term, provision, condition, covenant contained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within IO days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the 10 day period or cannot after diligent attempts by Borrower be cured within such 10 day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed 30 days) to attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions will be made;
8.3 Material Adverse Change. If there occurs any circumstance or any circumstances which would reasonably be expected to have a Material Adverse Effect;
8,4 Attachment. If any material portion of Borrower’s assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person acting in a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within 10 days, or if Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower’s assets, or if a notice of lien, levy, or assessment is filed of record with respect to any material portion of Borrower’s assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten days after Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that no Credit Extensions will be made during such cure period);
12
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within 45 days (provided that no Credit Extensions will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default or other failure to perform in any agreement to which Borrower is a party with a third party or parties (a) resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess ofS250,000, (b} in connection with any lease of real property, or (c) that would reasonably be expected to have a Material Adverse Effect;
8.7 Judgments. If a final, uninsured judgment or judgments for the payment of money in an amount, individually or in the aggregate, of at least $250,000 shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of IO days (provided that no Credit Extensions will be made prior to the satisfaction or stay of the judgment); or
8.8 Misrepresentations. If any material misrepresentation or material misstatement exists now or hereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document.
| 9. | BANK’S RIGHTS AND REMEDIES. |
9.1 Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5 (insolvency), all Obligations shall become immediately due and payable without any action by Bank);
(b) Demand that Borrower (i) deposit cash with Bank in an amount equal to the amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any future drawings under such Letters of Credit, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of the Letters of Credit, and Borrower shall promptly deposit and pay such amounts;
(c) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank;
(d) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable;
(e) Make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank’s determination appears to be prior or superior lo its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower’s owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, in order to exercise any of Bank’s rights or remedies provided herein, at law, in equity, or otherwise;
(f) Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, and (ii) indebtedness al any time owing to or for the credit or the account of Borrower held by Bank;
13
(g) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge, Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nahue, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section 9.1, Borrower’s rights under all licenses and all franchise agreements shall inure to Bank’s benefit;
(h) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower’s premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate. Bank may sell the Collateral without giving any warranties as to the Collateral. Bank may specifically disclaim any warranties of title or the like. This procedure will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. If Bank sells any of the Collateral upon credit, Borrower will be credited only with payments actually made by the purchaser, received by Bank, and applied to the indebtedness of the purchaser. If the purchaser fails to pay for the Collateral, Bank may resell the Collateral and Borrower shall be credited with the proceeds of the sale;
(i) Bank may credit bid and purchase at any public sale;
(j) Apply for the appointment of a receiver, trustee, liquidator or conservator of the Collateral, without notice and without regard to the adequacy of the security for the Obligations and without regard to the solvency of Borrower, any guarantor or any other Person liable for any of the Obligations; and
(k) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower.
Bank may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral.
9.2 Power of Attorney. effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank’s designated officers, or employees) as Borrower’s true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank’s security interest in the Accounts; (b) endorse Borrower’s name on any checks or other forms of payment or security that may come into Bank’s possession; (c) sign Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrower’s policies of insurance; (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; (g) enter into a short-form intellectual property security agreement consistent with the terms of this Agreement for recording purposes only or modify, in its sole discretion, any intellectual property security agreement entered into between Borrower and Bank without first obtaining Borrower’s approval of or signature to such modification by amending Exhibits A, B, and C, thereof, as appropriate, to include reference to any right, title or interest in any Copyrights, Patents or Trademarks acquired by Borrower after the execution hereof or to delete any reference to any right, title or interest in any Copyrights, Patents or Trademarks in which Borrower no longer has or claims to have any right, title or interest; and (h) file, in its sole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral; provided Bank may exercise such power of attorney to sign the name of Borrower on any of the documents described in clauses (g) and (h) above, regardless of whether an Event of Default has occurred. The appointment of Bank as Borrower’s attorney in fact, and each and every one of Bank’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank’s obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. At any time after the occurrence and during the continuation of an Event of Default, Bank may notify any Person owing funds to Borrower of Bank’s security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Bank’s trustee, and immediately deliver such payments to Bank in their original form as received from the account debtor, with proper endorsements for deposit.
14
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment of the same or any part thereof; (b) set up such reserves under the Revolving Line as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type discussed in Section 6.5 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Default under this Agreement.
9.5 Bank’s Liability for Collateral. Bank has no obligation to clean up or otherwise prepare the Collateral for sale. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 No Obligation to Pursue Others. Bank has no obligation to attempt to satisfy the Obligations by collecting them from any other person liable for them and Bank may release, modify or waive any collateral provided by any other Person to secure any of the Obligations, all without affecting Bank’s rights against Borrower. Borrower waives any right it may have to require Bank to pursue any other Person for any of the Obligations.
9.7 Remedies Cumulative. Bank’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver b)’ Bank of any Event of Default on Borrower’s part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall be effective only in the specific instance and for the specific purpose for which it was given. Borrower expressly agrees that this Section 9.7 may not be waived or modified by Bank by course of performance, conduct, estoppel or otherwise.
9.8 Demand; Protest. Except as otherwise provided in this Agreement, Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment and any other notices relating to the Obligations.
| 10. | NOTICES. |
Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service, certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below:
| If to Borrower: | AY DEE KAY LLC | |
32451 Golden Lantern #304 Laguna,
Attn: Donald McClymont
| ||
| If to Bank: | Square 1 Bank | |
406
Blackwell Street, |
15
| with a copy to: | Square I Bank | |
233 Wilshire Boulevard, Santa Monica, CA 90401 Attn: Chris Erro FAX: (310) 361-7686 |
The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other.
| 11. | CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. |
This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Jurisdiction shall lie in the State of California. All disputes, controversies, claims, actions and similar proceedings arising with respect to Borrower’s account or any related agreement or transaction shall be brought in the Superior Court of San Mateo County, California or the United States District Court for the Northern District of California, except as provided below with respect to arbitration of such matters. BANK AND BORROWER EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH OF THEM, AFTER CONSUL TING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARJLY AND INTENTIONALLY WAIVES ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY OF THEM. THESE PROVISIONS SH ALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM. If the jury waiver set forth in this Section 11 is not enforceable, then any dispute, controversy, claim, action or similar proceeding arising out of or relating to this Agreement, the Loan Documents or any of the transactions contemplated therein shall be settled by final and binding arbitration held in San Mateo County, California in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association by one arbitrator appointed in accordance with those rules. The arbitrator shall apply California law to the resolution of any dispute, without reference to rules of conflicts of law or rules of statutory arbitration. Judgment upon any award resulting from arbitration may be entered into and enforced by any state or federal court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this Section. The costs and expenses of the arbitration, including without limitation, the arbitrator’s fees and expert witness fees, and reasonable attomeys’ fees, incurred by the parties to the arbitration may be awarded to the prevailing party, in the discretion of the arbitrator, or may be apportioned between the parties in any manner deemed appropriate by the arbitrator. Unless and until the arbitrator decides that one party is to pay for all (or a share) of such costs and expenses, both parties shall share equally in the payment of the arbitrator’s fees as and when billed by the arbitrator.
| 12. | GENERAL PROVISIONS. |
12.l Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and pem1itted assigns of each of the parties and shall bind all persons who become bound as a debtor to this Agreement; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank’s prior written consent, which consent may be granted or withheld in Bank’s sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, assign, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights and benefits hereunder. Notwithstanding the foregoing, unless an Event of Default has occurred and is continuing, Bank shall not assign any interest in the Loan Documents to an operating company which is a direct competitor of Borrower.
12.2 Indemnification. Borrower shall defend, indemnify and hold harmless Bank and its officers, employees, and agents (each an “Indemnified Person”) against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank, its officers, employees and agents as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation reasonable attorney’s fees and expenses), except, in each case, for losses caused by Bank’s or any Indemnified Person’s gross negligence or willful misconduct.
16
12.3 Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. All amendments to or terminations of this Agreement or the other Loan Documents must be in writing. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the other Loan Documents, if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Executed copies of the signature pages of this Agreement sent by facsimile or transmitted electronically in Portable Document Format (“PDF”), or any similar format, shall be treated as originals, fully binding and with full legal force and effect, and the parties waive any rights they may have to object to such treatment.
12.7 Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations (other than inchoate indemnity obligations) remain outstanding or Bank has any obligation to make any Credit Extension to Borrower. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run.
12.8 Termination and Release.
(n) At such time as the Obligations shall have been paid in full (other than contingent indemnification obligations) and the Revolving Linc has been terminated, and Ancillary Services have been collateralized in accordance with the provisions of this Agreement, the Collateral shall be released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Borrower and its Subsidiaries hereunder shall terminate, all without delivery of any instrument or any further action by any party, and all rights to the Collateral shall revert to the Borrower and its Subsidiaries. At the request and sole expense of the Borrower following any such termination, the Bank shall deliver to Borrower any Collateral held by it, and execute and deliver to Borrower such documents as Borrower shall reasonably request to evidence such termination.
(b) If any of the Collateral shall be sold, transferred or otherwise disposed of by Borrower or its Subsidiaries in a transaction pem1itted by this Agreement, then the Lien created pursuant to this Agreement in such Collateral shall be released, and the Bank, at the request and sole expense of the Borrower, shall execute and deliver to Borrower all releases and other documents reasonably necessary or advisable for the release of the Liens created hereby on such Collateral; provided that the Borrower shall provide to the Bank evidence of such transaction’s compliance with the this Agreement and the other Loan Documents as the Bank shall reasonably request.
12.9 Confidentiality. In handling any confidential information, Bank and Borrower and all employees and agents of each such party shall exercise the same degree of care that such party exercises with respect to its own proprietary information of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) in the case of Bank, to the subsidiaries or Affiliates of Bank or Borrower in connection with their present or prospective business relations with Borrower, (ii) in the case of Bank, to prospective transferees or purchasers of any interest in the Credit Extensions, provided that they have entered into a comparable confidentiality agreement in favor of Borrower and have delivered a copy to Borrower, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) in the case of Bank, as may be required in connection with the examination, audit or similar investigation of Bank and (v) as Bank may determine in connection with the enforcement of any remedies hereunder. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledge or possession of the receiving party when disclosed to such party, or becomes part of the public domain after disclosure lo such receiving party through no fault of such receiving party; or (b) is disclosed to such receiving party by a third party, provided the receiving party does not have actual knowledge that such third party is prohibited from disclosing such information.
17
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the dale first above written.
| AY DEE KAY LLC | ||
| By: | ||
| Name: | ||
| Title: | ||
| SQUARE I BANK | ||
| By: | ||
| Name: | ||
| Title: | ||
18
EXHIBIT A
DEFINITIONS
“Accounts” means all presently existing and hereafter arising accounts, contract rights, payment intangibles and all other forms of obligations owing to Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by Borrower and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower’s Books relating to any of the foregoing.
“Advance” or “Advances” means a cash advance or cash advances under the Revolving Line.
“Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls or is controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, and general partners.
“Ancillary Services” means any of the following products or services requested by Borrower and approved by Bank under the Revolving Line, including, without limitation, Automated Clearing House transactions, Letters of Credit, corporate credit card services, FX Contracts or other treasury management services.
“Ancillary Services Sublimit” means a sublimit for Ancillary Services under the Revolving Line not to exceed $500,000.
“Authorized Officer” means someone designated as such in the corporate resolution provided by Borrower to Bank in which this Agreement and the transactions contemplated hereunder are authorized by Borrower’s board of directors. If Borrower provides subsequent corporate resolutions to Bank after the Closing Date, the individual(s) designated as “Authorized Officer(s)” in the most-recently provided resolution shall be the only “Authorized Officers” for purposes of this Agreement.
“Availability End Date” means January 13, 2016.
‘‘Bank Expenses” means all reasonable costs or expenses (including reasonable attorneys’ fees and expenses, whether generated in-house or by outside counsel) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents; reasonable Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses (whether generated in-house or by outside counsel) incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an Insolvency Proceeding, whether or not suit is brought.
“Borrower’s Books” means all of Borrower’s books and records including: ledgers; records concerning Borrower’s assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information.
“Borrowing Base” means an amount equal to 80% (the “Advance Rate”) of Eligible Accounts, as determined by Bank with reference to the most recent Borrowing Base Certificate delivered by Borrower pursuant to Section 6.2(a) of this Agreement.
“Borrowing Base Certificate” means a borrowing base certificate, in substantially the form of Exhibit D attached hereto, executed by a Responsible Officer of the Borrower.
“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in the State of North Carolina are authorized or required to close.
“Capitalized Expenditures” means current period unfinanced cash expenditures that are capitalized and amortized over a period of time in accordance with GAAP, including but not limited to capitalized cash expenditures for capital equipment, capitalized manufacturing and labor costs as they relate to inventory, and software development.
19
“Cash” means unrestricted cash and cash equivalents.
“Change in Control” shall mean a transaction other than a bona fide equity financing or series of financings on terms and from investors reasonably acceptable to Bank in which any “person” or “group” (within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule l 3d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number of shares of all classes of stock then outstanding of Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of Borrower, who did not have such power before such transaction.
“Closing Date” means the date of this Agreement.
“Code” means the California Uniform Commercial Code as amended or supplemented from time to time.
“Collateral” means the property described on Exhibit B attached hereto and all Negotiable Collateral and Intellectual Property Collateral to the extent not described on Exhibit B, except to the extent any such property (i) is nonassignable by its terms without the consent of the licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without limitation, 9406 and 9408 of the Code), (ii) the granting of a security interest therein is contrary to applicable law, provided that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral, (iii) constitutes the capital stock of a controlled foreign corporation (as defined in the IRC), in excess of 65% of the voting power of all classes of capital stock of such controlled foreign corporations entitled to vote, or (iv) property (including any attachments, accessions or replacements) that is subject to a Lien that is permitted pursuant to clause (c) of the definition of Permitted Liens, if the grant of a security interest with respect to such property pursuant to this Agreement would be prohibited by the agreement creating such Permitted Lien or would otherwise constitute a default thereunder, provided, that such property will be deemed “Collateral” hereunder upon the termination and release of such Permitted Lien.
“Collateral State” means the state or states where the Collateral is located, which is California.
“Compliance Certificate” means a compliance certificate, in substantially the form of Exhibit E attached hereto, executed by a Responsible Officer of the Borrower.
“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit, corporate credit cards or merchant services issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.
“Copyrights” means any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret, now or hereafter existing, created, acquired or held.
“Credit Extension” means each Advance, Term Loan, or any other extension of credit by Bank, to or for the benefit of Borrower hereunder.
20
“Eligible Accounts” means those Accounts that arise in the ordinary course of Borrower’s business that comply with all of Borrower’s representations and warranties to Bank set forth in Section 5.3; provided, that Bank may change the Advance Rate and the standards of eligibility based on the results of Bank’s collateral audits by giving Borrower 10 days prior written notice. Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following:
(a) Account balances that the account debtor has failed to pay in full within 90 days of invoice date;
(b) Account credit balances greater than 90 days from invoice date;
(c) Accounts with respect to an account debtor, 50% of whose Accounts the account debtor has failed to pay within 90 days of invoice date;
(d) Accounts with respect to an account debtor, including the account debtor’s subsidiaries and Affiliates, whose total obligations to Borrower exceed 25% of all Accounts, to the extent such obligations exceed the aforementioned percentage, except as approved in writing by Bank;
(e) Accounts with respect to which the account debtor does not have its principal place of business in the United States, except for Eligible Foreign Accounts;
(I) Accounts with respect to which the account debtor is the United States or any department, agency, or instrumentality of the United States, except for Accounts of the United States if the payee has assigned its payment rights to Bank and the assignment has been acknowledged under the Assignment of Claims Act of 1940 (31 U.S.C. 3727);
(g) Accounts with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower, but only to the extent of any amounts owing to the account debtor against amounts owed to Borrower;
(h) Accounts with respect to which the account debtor is an officer, employee, agent, Subsidiary or Affiliate of Borrower;
(i) Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, demo or promotional, or other terms by reason of which the payment by the account debtor may be conditional;
(j) “Advanced Billings,” i.e., accounts that have not yet been billed to the account debtor or that relate to deposits (such as good faith deposits) or other property of the account debtor held by Borrower for the performance of services or delivery of goods which Borrower has not yet perfom1ed or delivered;
(k) Accounts with respect to which the account debtor disputes liability or makes any claim with respect thereto as to which Bank believes, in its sole discretion, that there may be a basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business;
(1) Accounts the collection of which Bank reasonably determines after inquiry and consultation with Borrower to be doubtful;
(m) Retentions and hold-backs;
(n) “Progress Billings,” i.e., accounts that are billed based on project milestones and not on an actual time and materials basis; and
(o) Pre-Billed accounts (subject to review and pre-approval for inclusion).
21
“Eligible Foreign Accounts” means Accounts: (x) with respect to which the account debtor does not have its principal place of business in the United States; and (y) which do not otherwise fall within any of subsections (a) through (d) and (t) through (n) of the definition of “Eligible Accounts,” and that are: (i) supported by one or more letters of credit in an amount and of a tenor, and issued by a financial institution, acceptable to Bank, (ii) insured by the Export Import Bank of the United States or such other insurance company as approved by the Bank in writing, (iii) generated by an account debtor with its principal place of business in Canada, except for the Province of Quebec, or (iv) approved by Bank on a case-by-case basis. All Eligible Foreign Accounts must be calculated in U.S. Dollars, and must be billed by the Borrower from a location within the United States of America.
“Equipment” means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder.
“Event of Default” has the meaning assigned in Article 8.
“FX Contracts” means contracts between Borrower and Bank for foreign exchange transaction$.
“Foreign Exchange Reserve Percentage” means a percentage of reserves for FX Contracts as determined by Bank, in its sole discretion from time to time.
“GAAP” means generally accepted accounting principles, consistently applied, as in effect from time to time in the United States.
“GAAP EBJTDA” means with respect to any fiscal period an amount equal to the sum of (a) Consolidated Net Income of the Borrower and its Subsidiaries for such fiscal period, plus (b) in each case to the extent deducted in the calculation of the Borrower’s Consolidated Net Income and without duplication, (i) depreciation and amortization for such period, plus (ii) income tax expense for such period, plus (iii) Consolidated Total Interest Expense paid or accrued during such period, plus (iv) non-cash expense associated with granting stock options, and minus, to the extent added in computing Consolidated Net Income, and without duplication, all extraordinary and non-recurring revenue and gains (including income tax benefits) for such period, all as detem1ined in accordance with GAAP.
“Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including without limitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations, and (d) all Contingent Obligations, including but not limited to any sublimit contained herein.
“Insolvency Proceeding” means any proceeding commenced by or against any Person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
“Intellectual Property Collateral” means all of Borrower’s right, title, and interest in and to the following:
(a) Copyrights, Trademarks and Patents;
(b) Any and all trade secrets, and any and all intellectual property rights in computer software and computer software products now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower now or hereafter existing, created, acquired or held;
22
(d) Any and all claims for damages by way of past, present and fun1re infringement of any of the rights included above, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the intellectual property rights identified above;
(e) All licenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent pem1itted by such license or rights;
(f) All amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents; and
(g) All proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing. “Inventory” means all present and future inventory in which Borrower has any interest. “Investment” means any beneficial ownership of (including stock, partnership or limited liability company interest or other securities) any Person, or any loan, advance or capital contribution to any Person.
“Investment Agreement” means, collectively, Borrower’s stock purchase and other agreement(s) pursuant to which Borrower most recently issued its preferred stock.
“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
“IP License Agreement” means that certain License Agreement dated January 13, 2015 by and between Borrower and STMicroelectronics International NV.
“Letter of Credit” means a commercial or standby letter of credit or similar undertaking issued by Bank at Borrower’s request.
“Lien” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.
“Loan Documents” means, collectively, this Agreement, any note or notes executed by Borrower, and any other document, instrument or agreement entered into in connection with this Agreement, all as amended or extended from time to time.
“Material Adverse Effect” means a material adverse effect on (i) the operations, business or financial condition of Borrower and its Subsidiaries taken as a whole, (ii) the ability of Borrower to repay the Obligations or otherwise perform its obligations under the Loan Documents, or (iii) Borrower’s interest in, or the value, perfection or priority of Bank’s security interest in the Collateral.
‘‘Negotiable Collateral” means all of Borrower’s present and future letters of credit of which it is a beneficiary, drafts, instruments (including promissory notes), securities, documents of title, and chattel paper, and Borrower’s Books relating to any of the foregoing.
“Obligations” means all debt, principal, interest, Bank Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceeding and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise.
“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
23
“Periodic Payments” means all installments or similar recurring payments that Borrower may now or hereafter become obligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank.
“Permitted Indebtedness” means:
(a) Indebtedness of Borrower in favor of Bank arising under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the Schedule;
(c) Indebtedness not to exceed S250,000 in the aggregate at any time secured by a lien described in clause (c) of the defined term “Permitted Liens,” provided such Indebtedness does not exceed at the time it is incurred the lesser of the cost or fair market value of the property financed with such Indebtedness;
(d) Subordinated Debt;
(e) Indebtedness to trade creditors incurred in the ordinary course of business;
(a) Indebtedness with respect to surety bonds and similar obligations incurred in the ordinary course of business;
(g) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;
(h) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;
(i) Other unsecured Indebtedness not to exceed $250,000 outstanding at any time;
(j) Extensions, refinancing and renewals of any items of Permitted Indebtedness, provided that the principal amount is not increased or the terms modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.
“Permitted Investment” means:
(a) Investments existing on the Closing Date disclosed in the Schedule;
(b) (i) Marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency or any State thereof maturing within one year from the date of acquisition thereof, (ii) commercial paper maturing no more than one year from the date of creation thereof and currently having rating of at least A-2 or P-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (iii) Bank’s certificates of deposit maturing no more than one year from the date of investment therein, and (iv) Bank’s money market accounts; (v) Investments in regular deposit or checking accounts held with Bank or as otherwise permitted by, and subject to the terms and conditions of, Section 6.6 of this Agreement; and (vi) Investments consistent with any investment policy adopted by the Borrower’s board of directors;
(c) Investments accepted in connection with Permitted Transfers;
(d) Investments of Subsidiaries in or to other Subsidiaries or Borrower
(e) Investments by Borrower in Subsidiaries (other than Ell-JOT, Inc.) not to exceed S250,000 in the aggregate in any fiscal year;
24
(f) Investments by Borrower in EII-IOT, Inc. after the Closing Date not to exceed $200,000 in the aggregate;
(g) Investments not to exceed S250,000 outstanding in the aggregate at any time consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plan agreements approved by Borrower’s Board of Directors;
(h) Investments in unfinanced capital expenditures in any fiscal year, not to exceed $250,000;
(i) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of Borrower’s business;
(j) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business, provided that this subparagraph (h) shall not apply to Investments of Borrower or any Subsidi.1ry in any Subsidiary;
(k) Joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash Investments by Borrower do not exceed S250,000 in the aggregate in any fiscal year;
(l) Other Investments not otherwise permitted under Section 7.7, in an-aggregate amount not to exceed $250,000 in any fiscal year; and
(m) Investments permitted under Section 7.3. “Permitted Liens” means the following:
(a) Any Liens existing on the Closing Date and disclosed in the Schedule (excluding Liens to be satisfied with the proceeds of the Credit Extensions) or arising under this Agreement, the other Loan Documents, or any other agreement in favor of Bank;
(b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and for which Borrower maintains adequate reserves;
(c) Liens not to exceed S250,000 in the aggregate at any time (i) upon or in any Equipment (other than Equipment financed by a Credit Extension) acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such Equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such Equipment, or (ii) existing on such Equipment at the time of its acquisition, in each case provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such Equipment;
(d) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses (a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase;
(e) Liens securing Subordinated Debt; and
(f) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Sections 8.4 (attachment) or 8.7 (judgments).
25
(g) Liens incurred in connection with Permitted Transfers;
(h) Liens of materialmen, mechanics, warehousemen, carriers, artisans or other similar Liens arising in the ordinary course of Borrower’s business or by operation of law, which are not past due or which are being contested in good faith by appropriate proceedings and for which reserves have been established in accordance with GAAP;
(i) Liens in favor of customs and revenue authorities arising as a matter of law, in the ordinary course of Borrower’s business, to secure payment of customs duties in connection with the importation of goods;
(j) Deposits in the ordim1ry course of business under worker’s compensation, unemployment insurance, social security and other similar laws, or to secure the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure indemnity, performance or other similar bonds for the performance of bids, tenders or contracts (other than for the repayment of borrowed money) or to secure statutory obligations (other than liens arising under ERJSA or environmental liens) or surety or appeal bonds, or to secure indemnity, performance or other similar bonds; and
(k) Subject to Section 6.6, Liens in favor of other financial institutions arising in connection with Borrower’s deposit accounts held at such institutions to secure standard fees for deposit services charged by, but not financing made available by such institutions, provided that Bank has a perfected security interest in the amounts held in such deposit accounts. ♦
“Permitted Transfer” means the conveyance, sale, lease, transfer or disposition by Borrower or any Subsidiary of;
(a) Inventory in the ordinary course of business;
(b) licenses and similar arrangements for the use of the property of Borrower or its Subsidiaries in the ordinary course of business;
(c) worn-out, surplus or obsolete Equipment not financed with the proceeds of Credit Extensions;
(d) grants of security interests and other Liens that constitute Permitted Liens;
(e) equity interests in Ell-TOT, Inc. so long as the proceeds thereof are deposited into accounts at Bank or accounts subject to an account control agreement in favor of Bank;
(f) Cash in the ordinary course of its business for the payment of ordinary course business expenses in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents; and
(g) other assets of Borrower or its Subsidiaries that do not in the aggregate exceed $250,000 during any fiscal year.
“Person” means any individual, sole proprietorship, partnership, limited liability companyy, joint venture, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency.
“Prime Rate” means the variable rate of interest, per annum, most recently announced by Bank, as its “prime rate,” whether or not such announced rate is the lowest rate available from Bank.
“Responsible Officer” means each of the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, Vice President of Finance and the Controller of Borrower, as well as any other officer or employee identified as an Authorized Officer in the corporate resolution delivered by Borrower to Bank in connection with this Agreement.
26
“Revenue” means revenue recognized in accordance with GAAP.
“Revolving Line” means a Credit Extension of up to $5,000,000 (inclusive of any amounts outstanding under the Ancillary Services Sublimit).
“Revolving Maturity Date” means the date 364 days from the Closing Date.
“Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any.
“SOS Reports” means the official reports from the Secretaries of State of each Collateral State, the state where Borrower’s chief executive office is located, the state of Borrower’s formation and other applicable federal, state or local government offices identifying all current security interests filed in the Collateral and Liens of record as of the date of such report.
“Subordinated Debt” means any debt incurred by Borrower that is subordinated in writing to the debt owing by Borrower to Bank on terms reasonably acceptable to Bank (and identified as being such by Borrower and Bank).
“Subsidiary” means any corporation, partnership or limited liability company or joint venture in which (i) any general partnership interest or (ii) more than 50% of the stock, limited liability company interest or joint venture of which by the terms thereof ordinary voting power to elect the Board of Directors, managers or trustees of the entity, at the time as of which any determination is being made, is owned by Borrower, either directly or through an Affiliate.
“Term Loan Maturity Date” means January 13, 2019.
“Trademarks” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.
27
| DEBTOR SECURED PARTY: | AYDEE KAY LLC SQUARE 1 BANK |
EXHIBIT B
COLLATERAL DESCRIPTION ATTACHMENT TO LOAN AND SECURITY AGREEMENT
All personal property of Borrower (herein referred to as “Borrower” or “Debtor”) whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:
(a) all accounts {including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), deposit accounts, documents {including negotiable documents), equipment (including all accessions and additions thereto), financial assets, general intangibles (including patents, trademarks, copyrights, goodwill, payment intangibles, domain names and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books and records with respect to any of the foregoing, and the computers and equipment containing said books and records;
(b) any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time, including revised Division 9 of the Uniform Commercial Code- Secured Transactions.
28
EXHIBIT C
LOAN ADVANCE/ PAYDOWN REQUEST FORM
[Please refer to New Borrower Kit}
29
EXHIBIT D
BORROWING BASE CERTIFICATE
[Please refer to New Borrower Kit]
30
EXHIBIT E
COMPLIANCE CERTIFICATE
[Please refer to New Borrower Kit]
31
SCHEDULE OF EXCEPTIONS
Permitted Indebtedness (Exhibit A) - Loan on Agilent USB oscilloscope/analyzer in favor of Ascentium Capital, LLC in the amount of $65,280.
Permitted Investments (Exhibit A) - Borrower owns (i) approximately 80% of the issued and outstanding equity securities of Ell-IOT, Inc. and (ii) 100% of UK subsidiary, Ay Dee Kay, Ltd.
Permitted Liens (Exhibit A)- Lien on oscilloscope/analyzer (equipment) in favor of Asccntium Capital, LLC.
Intellectual Property (Section 5.4)- None.
Prior Names (Section 5.5)-None.
Litigation (Section 5.6) - None.
Inbound Licenses (Section 5.12)-None.
32
Ninth
Amendment to Loan and
Security Agreement
| Borrower: | Ay Dee Kay LLC |
| Date: | January 30, 2020 |
TIDS NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT is entered into between PACIFIC WESTERN BANK, a California state chartered bank (“Bank”) and the borrower named above (“Borrower”).
Bank and Borrower agree to amend the Loan and Security Agreement between them, dated January 13, 2015 (as amended, the “Loan Agreement”), as follows, effective as of the date hereof. (Capitalized terms used but not defined in this Amendment shall have the meanings set forth in the Loan Agreement.)
1. Limited Waiver of Certain Events of Default. Borrower has advised Bank that Borrower has failed to comply with the financial covenants set forth in Section 6.7 of the Loan Agreement for various compliance periods ending prior to the date of the Ninth Amendment (collectively, the “Existing Financial Covenant Defaults”). This will confirm that Bank hereby waives the Existing Financial Covenant Defaults. This waiver does not constitute a waiver of Borrower’s obligation to comply with the covenant at any other date or for any other period, nor does it constitute a waiver of any other term or provision of the Loan Agreement or any related document, nor an agreement to waive in the future this covenant or any other term or provision of the Loan Agreement or any related document, all of which are hereby ratified and confirmed.
2. Payment of Term Loan Obligations. Concurrently with the execution of the Ninth Amendment, Borrower shall request an Advance, and Bank shall make an Advance to Borrower, in the amount of all outstanding Obligations pertaining to the Te1m Loan, and the proceeds of such Advance shall repay in full all outstanding Obligations pertaining to the Term Loan. Upon such repayment in full of the Obligations pe1taining to the Term Loan, Borrower acknowledges and agrees that Section 2.1(c) of the Loan Agreement shall be of no further force and effect, and Borrower covenants and agrees that Borrower shall not request, and Bank shall be under no obligation to make, any Term Loan Credit Extensions.
3. Conditions Precedent to Future Advances. Borrower acknowledges and agrees that, as of the date of the Ninth Amendment and at all times thereafter, Borrower shall not request, and Bank shall be under no obligation to make, any Advances (other than Advances, if any, necessary to pay in full all outstanding Obligations pertaining to the Tem1 Loan as provided for in Section 1 of the Ninth Amendment) until such time as Bank shall have received each of the following: (i) the results of an updated inspection and audit (conducted by Bank through any of its officers, employees or agents), with the results thereof satisfactory to Bank in its good faith business judgment and (ii) evidence satisfactory to Bank in its good faith business judgment of Borrower’s satisfaction of the February Milestone.
| Pacific Western Bank | Amendment to Loan Agreement |
4. Modified Financial Covenants. Section 6.7 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
6.7 Financial Covenants. Borrower shall at all times maintain the following financial ratios and covenants:
(a) Minimum Cash. A balance of Cash at Bank at all times of not less than $1,500,000, monitored on a daily basis.
(b) February Milestone. By February 28, 2020, Borrower shall have received at least $2,500,000 net Cash proceeds from either (i) the issuance of Borrower’s equity securities after the date of the Ninth Amendment to investors and on terms acceptable to Bank in its good faith business judgment and provided evidence thereof acceptable to Bank in its good faith business judgment or (ii) the issuance of Subordinated Debt after the date of the Ninth Amendment provided that the holder of such Subordinated Debt executes and delivers a subordination agreement on Bank’s standard form with such changes thereto as are acceptable to Bank in its good faith business judgment (together with the equity securities described in clause (i), the “February Milestone Contribution”); provided that Bank acknowledges that as of the date hereof, Borrower has already received $2,000,000 of the February Milestone Contribution in the form of Subordinated Debt from Tropez Fund Limited, together with the requisite subordination agreement.
(c) Equity Milestone. By May 15, 2020, Borrower shall have received at least $15,000,000 net Cash proceeds from the issuance of Borrower’s equity securities after the date of the Ninth Amendment to investors and on terms acceptable to Bank acceptable to Bank in its good faith business judgment and provided evidence thereof acceptable to Bank acceptable to Bank in its good faith business judgment.
5. Modified Definition of Aggregate Borrowing Limit. The definition of “Aggregate Borrowing Limit” set forth in Exhibit A to the Loan Agreement, is hereby amended and restated to read as follows:
“Aggregate Borrowing Limit” means $5,000,000; provided, however, upon the satisfaction of the Equity Milestone (set forth in Section 6.7(c) of the Loan Agreement), the Aggregate Borrowing Limit will mean
$10,000,000.
2
| Pacific Western Bank | Amendment to Loan Agreement |
6. Modified Definition of Eligible Accounts Regarding Concentration Limit. Subclause (d) of the list identifying Accounts not deemed Eligible Accounts, which list is contained within the definition of “Eligible Accounts” set forth in Exhibit A of the Loan Agreement, is hereby amended and restated to read as follows:
(d) Accounts with respect to an account debtor, including the account debtor’s subsidiaries and Affiliates, whose total obligations to Borrower exceed 25% (the “Concentration Limit”) of all Accounts, to the extent such obligations exceed the aforementioned percentage, except for Accounts (i) of account debtor Delphi, for which the Concentration Limit shall be 50%, (ii) of account debtor Aptiv, for which the Concentration Limit shall be 50% and (iii) as approved by Bank;
7. Added Definition of Ninth Amendment. The definition of “Ninth Amendment” is hereby added, in alphabetical order, to Exhibit A to the Loan Agreement and shall read as follows:
“Ninth Amendment” means that certain Ninth Amendment to Loan and Security Agreement between Borrower and Bank and dated on or about January 30, 2020.
8. Modified Definition of Revolving Line. The definition of “Revolving Line’’ set forth in Exhibit A to the Loan Agreement is hereby amended and restated in its entirety to read as follows:
“Revolving Line” means a Credit Extension of up to $5,000,000 (inclusive of any amounts outstanding under the Ancilla1y Services Sublimit); provided, however, upon the satisfaction of the Equity Milestone (set forth in Section 6.7(c) of the Loan Agreement), the Revolving Line will mean a Credit Extension of up to $10,000,000.
9. Modified Definition of Revolving Maturity Date. The definition of “Revolving Maturity Date” set forth in Exhibit A to the Loan Agreement is hereby amended and restated in its entirety to read as follows:
“Revolving Maturity Date” means January I, 2021.
10. Modified Definition of Term Loan Maturity Date. The definition of “Term Loan Maturity Date” set forth in Exhibit A to the Loan Agreement is hereby amended and restated in its entirety to read as follows:
“Te1m Loan Maturity Date’, means September 30, 2020; provided, however, upon payment in full of the Term Loan in conjunction with the Ninth Amendment, Term Loan Maturity Date shall be omitted.
11. Fee. In consideration for Bank entering into this Amendment, Borrower shall concurrently pay Bank a fee in the amount of $5,000, which shall be non-refundable and in addition to all interest and other fees payable to Bank under the Loan Documents. Bank is authorized to charge said fee to Borrower’s loan account or any of Borrower’s deposit accounts with Bank.
3
| Pacific Western Bank | Amendment to Loan Agreement |
12. Representations True. Borrower represents and warrants to Bank that all representations and warranties set forth in the Loan Agreement, as amended hereby, are true and correct.
13. General Release, In consideration for Bank entering into this Amendment, Borrower hereby irrevocably releases and forever discharges Bank, and its successors, assigns, agents, shareholders, directors, officers, employees, agents, attorneys, parent corporations, subsidiary corporations, affiliated corporations, affiliates, participants, and each of them (collectively, the “Releasees”), from any and all claims, debts, liabilities, demands, obligations, costs, expenses, actions and causes of action; of every nature and description, known and unknown, which Borrower now has or at any time may hold, by reason of any matter, cause or thing occurred, done, omitted or suffered to be done prior to the date of this Amendment (collectively, the “Released Claims”). Borrower hereby irrevocably waives the benefits of any and all statutes and rules of law to the extent the same provide in substance that a general release does not extend to claims which the creditor does not know or suspect to exist in its favor at the time of executing the release, and, without limiting the foregoing, and without limiting the stipulation to governing law in Section 11 of the Loan Agreement, Borrower irrevocably waives any benefits it may have under California Civil Code Section 1542 which provides: “A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.” Borrower represents and warrants that it has not assigned to any other Person any Released Claim, and agrees to indemnify Bank against any and all actions, demands, obligations, causes of action, decrees, awards, claims, liabilities, losses and costs, including but not limited to reasonable attorneys’ fees of counsel of Bank’s choice and costs, which Bank may sustain or incur as a result of a breach or purported breach of the foregoing representation and warranty.
14. No Waiver. Nothing herein constitutes a waiver of any default or Event of Default under the Loan Agreement or any other Loan Documents, whether or not known to Bank, except as otherwise provided for in Section 1 above.
15. Governing Law; Jurisdiction; Venue; Arbitration. This Amendment and all acts, transactions, disputes and controversies arising hereunder or relating hereto, and all rights and obligations of the parties shall be governed by, and construed in accordance with, the internal laws (and not the conflict of laws rules) of the State of California. All disputes, controversies, claims, actions and other proceedings involving, directly or indirectly, any matter in any way arising out of, related to, or connected with, this Amendment or the relationship between Borrower and Bank, and ru1y and all other claims of B01Tower against Bank of any kind, shall be brought only in the Superior Court of San Mateo, California or the United States District Court for the Northern District of California, and each consents to the jurisdiction of any such court, and waives any and all rights the party may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding, including, without limitation, any objection to venue or request for change in venue based on the doctrine of forum non conveniens; provided that, notwithstanding the foregoing, nothing herein shall limit the right of Bank to bring proceedings against Borrower in the courts of any other jurisdiction. Borrower consents to service of process in any action or proceeding brought against it by Bank, by personal delivery, or by mail addressed as set forth in the Loan Agreement or by any other method permitted by law. If the jury waiver set forth in Section 17 below is not enforceable, then any dispute, controversy, claim, action or similar proceeding arising out of or relating to this Amendment, the Loan Documents or any of the transactions contemplated therein shall be settled by final and binding arbitration held in San Mateo County, California in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association by one arbitrator appointed in accordance with those rules. The arbitrator shall apply California law to the resolution of any dispute, without reference to rules of conflicts of law or rules of statutory arbitration. Judgment upon any award resulting from arbitration may be entered into and enforced by any state or federal court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this Section. The costs and expenses of the arbitration, including without limitation, the arbitrator’s fees and expert witness fees, and reasonable attorneys’ fees, incurred by the parties to the arbitration may be awarded to the prevailing patty, in the discretion of the arbitrator, or may be apportioned between the parties in any manner deemed appropriate by the arbitrator. Unless and until the arbitrator decides that one party is to pay for all (or a share) of such costs and expenses, both parties shall share equally in the payment of the arbitrator’s fees as and when billed by the arbitrator.
4
| Pacific Western Bank | Amendment to Loan Agreement |
16. General Provisions. Borrower hereby ratifies and confirms the continuing validity, enforceability and effectiveness of the Loan Agreement and all other Loan Documents. This Amendment, the Loan Agreement, any prior written amendments to the Loan Agreement signed by Bank and Borrower, and the other written documents and agreements between Bank and Borrower set forth in full all of the representations and agreements of the parties with respect to the subject matter hereof and supersede all prior discussions, representations, agreements and understandings between the patties with respect to the subject hereof. Except as herein expressly amended, all of the terms and provisions of the Loan Agreement, and all other documents and agreements between Bank and Borrower shall continue in full force and effect and the same are hereby ratified and confirmed. This Amendment may be executed in multiple counterparts, by different parties signing separate counterparts, and all of the same taken together shall constitute one and the same agreement.
17. Mutual Waiver of Jury Trial. BANK AND BORROWER EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT THAT IT MAY BE WAIVED. EACH OF THE PARTIES, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AMENDMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AMENDMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), ACTION OR INACTION OF ANY OF THEM. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM. IF FOR ANY REASON THE PROVISIONS OF THIS SECTION ARE VOID, INVALID OR UNENFORCEABLE, THE SAME SHALL NOT AFFECT ANY OTHER TERM OR PROVISION OF THIS AMENDMENT, AND ALL OTHER TERMS AND PROVISIONS OF THIS AMENDMENT SHALL BE UNAFFECTED BY THE SAME AND CONTINUE IN FULL ..FORCE AND EFFECT.
Version-5
[Signatures on Next Page]
5
| Pacific Western Bank | Amendment to Loan Agreement |
| Borrower: | ||
| AY DEE KAY LLC | ||
| By | ||
| Title | ||
| Bank: | ||
| PACIFIC WESTERN BANK | ||
| By | ||
| Title | ||
{Signature Page-Amendment to Loan Agreement]
6
Tenth Amendment to Loan and Security Agreement
| Borrower: | Ay Dee Kay LLC |
| Date: | April 17, 2020 |
THIS TENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT is entered into between PACIFIC WESTERN BANK, a California state chartered bank (“Bank”) and the borrower named above (“Borrower”).
Bank and Borrower agree to amend the Loan and Security Agreement between them, dated January 13, 2015 (as amended, the “Loan Agreement”), as follows, effective as of the date hereof. (Capitalized terms used but not defined in this Amendment shall have the meanings set forth in the Loan Agreement.)
1. Limited Waiver of Certain Reporting Covenant Events of Default. Borrower failed to deliver to Bank the reports and documents required under Section 6.2 of the Loan Agreement for the month ending January 31, 2020 within the time period required therein (collectively, the “January 2020 Reporting Defaults”). This will confirm that Bank hereby waives the January 2020 Reporting Defaults. This waiver does not constitute a waiver of Borrower’s obligation to comply with the covenant at any other date or for any other period, nor does it constitute a waiver of any other term or provision of the Loan Agreement or any related document, nor an agreement to waive in the future this covenant or any other term or provision of the Loan Agreement or any related document, all of which are hereby ratified and confirmed.
2. Limited Waiver of Minimum Cash Financial Covenant Events of Default. Borrower has advised Bank that Borrower has failed to comply with the Minimum Cash financial covenants set forth in Section 6.7(a) of the Loan Agreement for various compliance periods ending prior to the date of the Tenth Amendment (collectively, the “Existing Minimum Cash Defaults”). This will confirm that Bank hereby waives the Existing Minimum Cash Defaults. This waiver does not constitute a waiver of Borrower’s obligation to comply with the covenant at any other date or for any other period, nor does it constitute a waiver of any other term or provision of the Loan Agreement or any related document, nor an agreement to waive in the future this covenant or any other term or provision of the Loan Agreement or any related document, all of which are hereby ratified and confirmed.
3. Limited Waiver of February Milestone Contribution Default. Borrower failed to comply with the February Milestone Contribution requirement set forth in Section 6.7(b) of the Loan Agreement by failing to receive, by February 28, 2020, at least $2,500,000 from the issuance of either Borrower’s equity securities or Subordinated Debt in accordance with such Section 6.7(b) (the “February Milestone Default”). This will confirm that Bank hereby waives the February Milestone Default. This waiver does not constitute a waiver of Borrower’s obligation to comply with the covenant, if applicable, at any other date or for any other period, nor does it constitute a waiver of any other term or provision of the Loan Agreement or any related document, nor an agreement to waive in the future this covenant or any other term or provision of the Loan Agreement or any related document, all of which are hereby ratified and confirmed
Pacific Western Bank |
Amendment to Loan Agreement |
4. Modified Equity Milestone Financial Covenant. Section 6.7(c) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
| (c) | Equity Milestone. Borrower shall provide to Bank the following: |
| (i) | by June 1, 2020, a fully executed term sheet providing for (A) Borrower’s receipt of at least $15,000,000 net Cash proceeds (and exclusive of any proceeds received prior to June 1, 2020) from the issuance of Borrower’s equity securities to investors and on terms acceptable to Bank in its good faith business judgment and (B) a closing date of such transaction, and the receipt by Borrower of such funds, by July 15, 2020 and |
| (ii) | by July 15, 2020, evidence satisfactory to Bank in its good faith business judgment of Borrower’s receipt of such funds. |
5. Added Definition of Tenth Amendment. The definition of “Tenth Amendment” is hereby added, in alphabetical order, to Exhibit A to the Loan Agreement and shall read as follows:
“Tenth Amendment” means that certain Tenth Amendment to Loan and Security Agreement between Borrower and Bank and dated on or about April 17, 2020.
6. Fee. [Omitted].
7. Representations True. Borrower represents and warrants to Bank that all representations and warranties set forth in the Loan Agreement, as amended hereby, are true and correct.
8. General Release. In consideration for Bank entering into this Amendment, Borrower hereby irrevocably releases and forever discharges Bank, and its successors, assigns, agents, shareholders, directors, officers, employees, agents, attorneys, parent corporations, subsidiary corporations, affiliated corporations, affiliates, participants, and each of them (collectively, the “Releasees”), from any and all claims, debts, liabilities, demands, obligations, costs, expenses, actions and causes of action, of every nature and description, known and unknown, which Borrower now has or at any time may hold, by reason of any matter, cause or thing occurred, done, omitted or suffered to be done prior to the date of this Amendment (collectively, the “Released Claims”). Borrower hereby irrevocably waives the benefits of any and all statutes and rules of law to the extent the same provide in substance that a general release does not extend to claims which the creditor does not know or suspect to exist in its favor at the time of executing the release, and, without limiting the foregoing, and without limiting the stipulation to governing law in Section 11 of the Loan Agreement, Borrower irrevocably waives any benefits it may have under California Civil Code Section 1542 which provides: “A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.” Borrower represents and warrants that it has not assigned to any other Person any Released Claim, and agrees to indemnify Bank against any and all actions, demands, obligations, causes of action, decrees, awards, claims, liabilities, losses and costs, including but not limited to reasonable attorneys’ fees of counsel of Bank’s choice and costs, which Bank may sustain or incur as a result of a breach or purported breach of the foregoing representation and warranty.
-2-
Pacific Western Bank |
Amendment to Loan Agreement |
9. No Waiver. Nothing herein constitutes a waiver of any default or Event of Default under the Loan Agreement or any other Loan Documents, whether or not known to Bank, except as otherwise provided for in Sections 1, 2 and 3 above.
10. Governing Law; Jurisdiction; Venue; Arbitration. This Amendment and all acts, transactions, disputes and controversies arising hereunder or relating hereto, and all rights and obligations of the parties shall be governed by, and construed in accordance with, the internal laws (and not the conflict of laws rules) of the State of California. All disputes, controversies, claims, actions and other proceedings involving, directly or indirectly, any matter in any way arising out of, related to, or connected with, this Amendment or the relationship between Borrower and Bank, and any and all other claims of Borrower against Bank of any kind, shall be brought only in the Superior Court of San Mateo, California or the United States District Court for the Northern District of California, and each consents to the jurisdiction of any such court, and waives any and all rights the party may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding, including, without limitation, any objection to venue or request for change in venue based on the doctrine of forum non conveniens; provided that, notwithstanding the foregoing, nothing herein shall limit the right of Bank to bring proceedings against Borrower in the courts of any other jurisdiction. Borrower consents to service of process in any action or proceeding brought against it by Bank, by personal delivery, or by mail addressed as set forth in the Loan Agreement or by any other method permitted by law. If the jury waiver set forth in Section 12 below is not enforceable, then any dispute, controversy, claim, action or similar proceeding arising out of or relating to this Amendment, the Loan Documents or any of the transactions contemplated therein shall be settled by final and binding arbitration held in San Mateo County, California in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association by one arbitrator appointed in accordance with those rules. The arbitrator shall apply California law to the resolution of any dispute, without reference to rules of conflicts of law or rules of statutory arbitration. Judgment upon any award resulting from arbitration may be entered into and enforced by any state or federal court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this Section. The costs and expenses of the arbitration, including without limitation, the arbitrator’s fees and expert witness fees, and reasonable attorneys’ fees, incurred by the parties to the arbitration may be awarded to the prevailing party, in the discretion of the arbitrator, or may be apportioned between the parties in any manner deemed appropriate by the arbitrator. Unless and until the arbitrator decides that one party is to pay for all (or a share) of such costs and expenses, both parties shall share equally in the payment of the arbitrator’s fees as and when billed by the arbitrator.
-3-
Pacific Western Bank |
Amendment to Loan Agreement |
11. General Provisions. Borrower hereby ratifies and confirms the continuing validity, enforceability and effectiveness of the Loan Agreement and all other Loan Documents. This Amendment, the Loan Agreement, any prior written amendments to the Loan Agreement signed by Bank and Borrower, and the other written documents and agreements between Bank and Borrower set forth in full all of the representations and agreements of the parties with respect to the subject matter hereof and supersede all prior discussions, representations, agreements and understandings between the parties with respect to the subject hereof. Except as herein expressly amended, all of the terms and provisions of the Loan Agreement, and all other documents and agreements between Bank and Borrower shall continue in full force and effect and the same are hereby ratified and confirmed. This Amendment may be executed in multiple counterparts, by different parties signing separate counterparts, and all of the same taken together shall constitute one and the same agreement.
12. Mutual Waiver of Jury Trial. BANK AND BORROWER EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT THAT IT MAY BE WAIVED. EACH OF THE PARTIES, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AMENDMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AMENDMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), ACTION OR INACTION OF ANY OF THEM. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM. IF FOR ANY REASON THE PROVISIONS OF THIS SECTION ARE VOID, INVALID OR UNENFORCEABLE, THE SAME SHALL NOT AFFECT ANY OTHER TERM OR PROVISION OF THIS AMENDMENT, AND ALL OTHER TERMS AND PROVISIONS OF THIS AMENDMENT SHALL BE UNAFFECTED BY THE SAME AND CONTINUE IN FULL FORCE AND EFFECT.
Version-0
[Signatures on Next Page]
-4-
Pacific Western Bank |
Amendment to Loan Agreement |
| Borrower: | ||
| AY DEE KAY LLC | ||
| By | ||
| Title | ||
| Bank: | ||
| PACIFIC WESTERN BANK | ||
| By | ||
| Title | ||
[Signature Page – Amendment to Loan Agreement]
5
Eleventh Amendment to Loan and Security Agreement
| Borrower: | Ay Dee Kay LLC |
| Date: | October 1, 2020 |
THIS ELEVENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT is entered into between PACIFIC WESTERN BANK, a California state chartered bank (“Bank”) and the borrower named above (“Borrower”).
Bank and Borrower agree to amend the Loan and Security Agreement between them, dated January 13, 2015 (as amended, the “Loan Agreement”), as follows, effective as of the date hereof. (Capitalized terms used but not defined in this Amendment shall have the meanings set forth in the Loan Agreement.)
1. Limited Waiver of Annual Financial Statements Default. Borrower failed to provide Lender by May 31, 2020 the annual financial statements of Borrower for the fiscal year ending December 31, 2019 in accordance with Section 6.2(ii) of the Loan Agreement, as amended (the “2019 Annual Financial Statements Default”). Lender hereby waives the 2019 Annual Financial Statements Default. This waiver does not constitute a waiver of Borrower’s obligation to comply with the covenant at any other date or for any other period, nor does it constitute a waiver of any other term or provision of the Loan Agreement or any related document, nor an agreement to waive in the future this covenant or any other term or provision of the Loan Agreement or any related document, all of which are hereby ratified and confirmed.
2. Limited Waiver of Primary Depository Covenant Default. Borrower failed to comply with the Primary Depository covenant under Section 6.6 of the Loan Agreement at various times prior to the date of the Eleventh Amendment (collectively, the “Primary Depository Defaults”). This will confirm that Bank hereby waives the Primary Depository Defaults. This waiver does not constitute a waiver of Borrower’s obligation to comply with the covenant at any other date or for any other period, nor does it constitute a waiver of any other term or provision of the Loan Agreement or any related document, nor an agreement to waive in the future this covenant or any other term or provision of the Loan Agreement or any related document, all of which are hereby ratified and confirmed.
3. Potential Limited Waiver of Equity Milestone Default. Borrower failed to comply with the Equity Milestone financial covenant set forth in Section 6.7(c) of the Loan Agreement by failing to receive, by July 15, 2020, at least $15,000,000 from the issuance of Borrower’s equity securities in accordance with such Section 6.7(c) (the “Equity Milestone Default”). This will confirm that, upon Borrower’s satisfaction of both the Investor Requirement and the Trinity Capital Requirement (each as defined herein), the Equity Milestone Default will automatically be waived without further action by any party. This waiver, if it does occur, will not constitute a waiver of Borrower’s obligation to comply with the covenant, if applicable, at any other date or for any other period, nor will it constitute a waiver of any other term or provision of the Loan Agreement or any related document, nor an agreement to waive in the future this covenant or any other term or provision of the Loan Agreement or any related document, all of which are hereby ratified and confirmed.
4. Consent to Amended and Restated Trinity Loan Agreement. Borrower and Trinity Capital Inc. (as successor in interest to Trinity Capital Fund II, L.P.) (“Trinity”) are parties to that certain Loan and Security Agreement by and among Borrower and Trinity dated on or about March 30, 2018 (as amended, the “Trinity Loan Agreement”). Borrower has advised Bank that Borrower and Trinity are going to amend and restate the Trinity Loan Agreement or have amended and restated the Trinity Loan Agreement on or about the date hereof (the “Trinity Restated Loan Agreement”). Pursuant to the Trinity Restated Loan Agreement, among other things, Borrower will pay interest only on the obligations owed under the Trinity Restated Loan Agreement for the twelve (12) month period immediately following the date of the Trinity Restated Loan Agreement, and after such twelve (12) month period, Borrower shall repay the principal and interest obligations owed under the Trinity Restated Loan Agreement over a thirty- six (36) month amortization period. Borrower has requested that Bank consent to the Trinity Restated Loan Agreement, and Bank hereby consents to the same subject to Bank’s receipt of an executed copy of the Trinity Restated Loan Agreement reflecting the terms described above and an Amended and Restated Subordination Agreement executed by Trinity in form and substance satisfactory to Bank in its good faith business judgment (collectively, the “Trinity Documents”).
5. Modified Due Date for 2019 Annual Financial Statements. The date by which Borrower is to provide its annual financial statements, in accordance with 6.2(ii) of the Loan Agreement, for its fiscal year ending December 31, 2019 only is hereby extended to November 1, 2020.
6. Modified Primary Depository Covenant. Section 6.6 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
6.6 Primary Depository. Subject to the provisions of Section 3.2(b), Borrower (i) shall maintain all of its investment accounts with Bank or Bank’s affiliate, and (ii) on and after the date of the Eleventh Amendment, may maintain up to $2,000,000 in bank accounts held outside the United States for purposes of providing for current operating expenses of Borrower’s foreign Subsidiaries.
7. Potential Modified Financial Covenants. Upon Borrower’s satisfaction of both the Investor Requirement and the Trinity Capital Requirement, Section 6.7 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:
6.7 Financial Covenants. Borrower shall at all times maintain the following financial ratios and covenants:
| (a) | Minimum Cash. A balance of Cash at Bank at all times of not less than $2,300,000, monitored on a daily basis. Borrower acknowledges and agrees that any request by Borrower or any other Person to pay or otherwise transfer funds that would cause Borrower’s Cash at Bank to be less than the amount required pursuant to this Section 6.7(a) will constitute an immediate Event of Default under the Agreement. |
2
8. Modified Definition of Aggregate Borrowing Limit. The definition of “Aggregate Borrowing Limit” set forth in Exhibit A to the Loan Agreement, is hereby amended and restated to read as follows:
“Aggregate Borrowing Limit” means $2,000,000.
9. Modified Eligible Foreign Accounts. Subclause (iv) of the definition of Eligible Foreign Accounts set forth in Exhibit A to the Loan Agreement that currently reads as follows:
(iv) to the extent that such Accounts do not exceed $750,000 of total Eligible Accounts.
is hereby amended and restated to read as follows:
(iv) to the extent that such Accounts do not exceed $1,500,000 of total Eligible Accounts.
10. Added Definition of Eleventh Amendment. The definition of “Eleventh Amendment” is hereby added, in alphabetical order, to Exhibit A to the Loan Agreement and shall read as follows:
“Eleventh Amendment” means that certain Eleventh Amendment to Loan and Security Agreement between Borrower and Bank and dated on or about October 1, 2020.
11. Added Definition of Investor Requirement. The definition of “Investor Requirement” is hereby added, in alphabetical order, to Exhibit A to the Loan Agreement and shall read as follows:
“Investor Requirement” means Borrower’s receipt at least $7,000,000 net Cash proceeds from either (i) the issuance of Borrower’s equity securities after September 1, 2020 to investors and on terms acceptable to Bank in its good faith business judgment and Borrower having provided evidence thereof acceptable to Bank in its good faith business judgment or (ii) the issuance of Subordinated Debt in the form of Simple Agreement for Future Equity (SAFE) Notes dated after September 1, 2020 provided that the each holder of such Subordinated Debt executes and delivers a subordination agreement on Bank’s standard form with such changes thereto as are acceptable to Bank in its good faith business judgment or, if applicable, a Reaffirmation of Subordination Agreement in form acceptable to Bank in its good faith business judgment.
3
12. Modified Definition of Revolving Line. The definition of “Revolving Line” set forth in Exhibit A to the Loan Agreement is hereby amended and restated in its entirety to read as follows:
“Revolving Line” means a Credit Extension of up to $2,000,000 (inclusive of any amounts outstanding under the Ancillary Services Sublimit).
13. Added Definition of Trinity Capital Requirement. The definition of “Trinity Capital Requirement” is hereby added, in alphabetical order, to Exhibit A to the Loan Agreement and shall read as follows:
“Trinity Capital Requirement” means Bank’s receipt of the Trinity Documents (as defined in the Eleventh Amendment), including, without limitation, the Trinity Restated Loan Agreement (as defined in the Eleventh Amendment).
14. Fee. [Omitted].
15. Representations True. Borrower represents and warrants to Bank that all representations and warranties set forth in the Loan Agreement, as amended hereby, are true and correct.
16. General Release. In consideration for Bank entering into this Amendment, Borrower hereby irrevocably releases and forever discharges Bank, and its successors, assigns, agents, shareholders, directors, officers, employees, agents, attorneys, parent corporations, subsidiary corporations, affiliated corporations, affiliates, participants, and each of them (collectively, the “Releasees”), from any and all claims, debts, liabilities, demands, obligations, costs, expenses, actions and causes of action, of every nature and description, known and unknown, which Borrower now has or at any time may hold, by reason of any matter, cause or thing occurred, done, omitted or suffered to be done prior to the date of this Amendment (collectively, the “Released Claims”). Borrower hereby irrevocably waives the benefits of any and all statutes and rules of law to the extent the same provide in substance that a general release does not extend to claims which the creditor does not know or suspect to exist in its favor at the time of executing the release, and, without limiting the foregoing, and without limiting the stipulation to governing law in Section 11 of the Loan Agreement, Borrower irrevocably waives any benefits it may have under California Civil Code Section 1542 which provides: “A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.” Borrower represents and warrants that it has not assigned to any other Person any Released Claim, and agrees to indemnify Bank against any and all actions, demands, obligations, causes of action, decrees, awards, claims, liabilities, losses and costs, including but not limited to reasonable attorneys’ fees of counsel of Bank’s choice and costs, which Bank may sustain or incur as a result of a breach or purported breach of the foregoing representation and warranty.
17. No Waiver. Nothing herein constitutes a waiver of any default or Event of Default under the Loan Agreement or any other Loan Documents, whether or not known to Bank, except as otherwise provided for in Sections 1, 2 and 3 above.
4
18. Governing Law; Jurisdiction; Venue; Arbitration. This Amendment and all acts, transactions, disputes and controversies arising hereunder or relating hereto, and all rights and obligations of the parties shall be governed by, and construed in accordance with, the internal laws (and not the conflict of laws rules) of the State of California. All disputes, controversies, claims, actions and other proceedings involving, directly or indirectly, any matter in any way arising out of, related to, or connected with, this Amendment or the relationship between Borrower and Bank, and any and all other claims of Borrower against Bank of any kind, shall be brought only in the Superior Court of San Mateo, California or the United States District Court for the Northern District of California, and each consents to the jurisdiction of any such court, and waives any and all rights the party may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding, including, without limitation, any objection to venue or request for change in venue based on the doctrine of forum non conveniens; provided that, notwithstanding the foregoing, nothing herein shall limit the right of Bank to bring proceedings against Borrower in the courts of any other jurisdiction. Borrower consents to service of process in any action or proceeding brought against it by Bank, by personal delivery, or by mail addressed as set forth in the Loan Agreement or by any other method permitted by law. If the jury waiver set forth in Section 20 below is not enforceable, then any dispute, controversy, claim, action or similar proceeding arising out of or relating to this Amendment, the Loan Documents or any of the transactions contemplated therein shall be settled by final and binding arbitration held in San Mateo County, California in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association by one arbitrator appointed in accordance with those rules. The arbitrator shall apply California law to the resolution of any dispute, without reference to rules of conflicts of law or rules of statutory arbitration. Judgment upon any award resulting from arbitration may be entered into and enforced by any state or federal court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this Section. The costs and expenses of the arbitration, including without limitation, the arbitrator’s fees and expert witness fees, and reasonable attorneys’ fees, incurred by the parties to the arbitration may be awarded to the prevailing party, in the discretion of the arbitrator, or may be apportioned between the parties in any manner deemed appropriate by the arbitrator. Unless and until the arbitrator decides that one party is to pay for all (or a share) of such costs and expenses, both parties shall share equally in the payment of the arbitrator’s fees as and when billed by the arbitrator.
19. General Provisions. Borrower hereby ratifies and confirms the continuing validity, enforceability and effectiveness of the Loan Agreement and all other Loan Documents. This Amendment, the Loan Agreement, any prior written amendments to the Loan Agreement signed by Bank and Borrower, and the other written documents and agreements between Bank and Borrower set forth in full all of the representations and agreements of the parties with respect to the subject matter hereof and supersede all prior discussions, representations, agreements and understandings between the parties with respect to the subject hereof. Except as herein expressly amended, all of the terms and provisions of the Loan Agreement, and all other documents and agreements between Bank and Borrower shall continue in full force and effect and the same are hereby ratified and confirmed. This Amendment may be executed in multiple counterparts, by different parties signing separate counterparts, and all of the same taken together shall constitute one and the same agreement.
20. Mutual Waiver of Jury Trial. BANK AND BORROWER EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT THAT IT MAY BE WAIVED. EACH OF THE PARTIES, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AMENDMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AMENDMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), ACTION OR INACTION OF ANY OF THEM. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM. IF FOR ANY REASON THE PROVISIONS OF THIS SECTION ARE VOID, INVALID OR UNENFORCEABLE, THE SAME SHALL NOT AFFECT ANY OTHER TERM OR PROVISION OF THIS AMENDMENT, AND ALL OTHER TERMS AND PROVISIONS OF THIS AMENDMENT SHALL BE UNAFFECTED BY THE SAME AND CONTINUE IN FULL FORCE AND EFFECT.
Version-3f
[Signatures on Next Page]
5
| Borrower: | Bank: | |||
| AYDEEKAYLLC | PACIFIC WESTERN BANK | |||
| By | By | |||
| Title | Title | |||
[Signature Page - Amendment to loan Agreement]
6
TWELFTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This Twelfth Amendment to Loan and Security Agreement (this “Amendment”) is made and entered into as of February 26, 2021 by and between PACIFIC WESTERN BANK, a California state chartered bank (“Bank”), and AY DEE KAY LLC (“Borrower”).
RECITALS
Borrower and Bank are parties to that certain Loan and Security Agreement dated as of January 13, 2015 (as amended from time to time, the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
| 1) | Pursuant to Section 6.2(ii) of the Agreement, Borrower is required to deliver to Bank its audited consolidated and consolidating financial statements for each fiscal year (the “Audited Financials”) within 150 days after the end of such fiscal year. Bank previously extended to November 1, 2020 the deadline for Borrower to deliver to Bank its Audited Financials for its 2019 fiscal year (the “2019 Audited Financials”). As of such date, Borrower had not delivered to Bank the 2019 Audited Financials, resulting in a violation of the Agreement (the “2019 Audited Financials Violation”). Bank hereby waives the 2019 Audited Financials Violation. The foregoing waiver does not constitute a waiver of Borrower’s obligation to comply with the covenant at any other date or for any other period, nor does it constitute a waiver of any other term or provision of the Agreement or any related document, nor an agreement to waive in the future this covenant or any other term or provision of the Agreement or any related document, all of which are hereby ratified and confirmed. |
| 2) | Pursuant to Section 6.2(a) of the Agreement, Borrower is required to deliver to Bank certain monthly reporting, including, without limitation, a Borrowing Base Certificate within 30 days after the last day of each month (the “Borrowing Base Reporting”). Borrower failed to deliver the Borrowing Base Reporting for the month ending October 31, 2020 within 30 days thereafter, resulting in a violation of the Agreement (the “October 2020 BB Violation”). Bank hereby waives the October 2020 BB Violation. The foregoing waiver does not constitute a waiver of Borrower’s obligation to comply with the covenant at any other date or for any other period, nor does it constitute a waiver of any other term or provision of the Agreement or any related document, nor an agreement to waive in the future this covenant or any other term or provision of the Agreement or any related document, all of which are hereby ratified and confirmed. |
| 3) | The following defined term in Exhibit A to the Agreement is hereby amended and restated, as follows: |
“Revolving Maturity Date” means April 1, 2021.
| 4) | A dispute currently exists between Borrower and Bank with respect to Section 6.12 of the Agreement and the obligation of Borrower to deliver a fully executed Warrant to Purchase Stock to Bank (such dispute, the “Warrant Claim”). Nothing contained herein, nor the execution, delivery, or performance of this Amendment shall operate as a waiver of, or as an amendment of, any right, power, or remedy of either party with respect to the Warrant Claim, and the parties hereby expressly reserve any and all rights related to the Warrant Claim. |
| 5) | Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Borrower ratifies and reaffirms the continuing effectiveness of all agreements entered into in connection with the Agreement. |
| 6) | Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing. |
| 7) | This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. |
| 8) | As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following: |
| (a) | this Amendment, duly executed by Borrower; |
| (b) | payment of all Bank Expenses, including Bank’s expenses for the documentation of this Amendment and any related documents, and any UCC, good standing or intellectual property search or filing fees, which may be debited from any of Borrower’s accounts; and |
| (c) | such other documents and completion of such other matters, as Bank may reasonably deem necessary or appropriate. |
[Signature Page Follows]
2
IN WITNISS WHEREOF, the undersigned have executed this amendment as of the first date ____ above written.
Borrower
AY DEE KAY
By:
Its:
Bank:
PACIFIC WESTERN BANK
By:
Its:
Thirteenth Amendment to Loan and Security Agreement
Borrower: Ay Dee Kay LLC
Date: June 3, 2021
THIS THIRTEENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT is entered into between PACIFIC WESTERN BANK, a California state chartered bank (“ Bank”) and the borrower named above (“Borrower”).
Bank and Borrower agree to amend the Loan and Security Agreement between them, dated January 13, 2015 (as amended, the “Loan Agreement”), as follows, effective as of April 1, 2021. (Capitalized terms used but not defined in this Amendment shall have the meanings set forth in the Loan Agreement.)
1. Modified Definition of Revolving Maturity Date. The definition of “ Revolving Maturity Date’’ set forth in Exhibit A to the Loan Agreement is hereby amended and restated in its entirety to read as follows:
“Revolving Maturity Date” means July 20, 2021.
2. Added Definition of Thirteenth Amendment. The definition of “Thirteenth Amendment” is hereby added, in alphabetical order, to Exhibit A to the Loan Agreement and shall read as follows:
“Thirteenth Amendment’’ means that certain Thirteenth Amendment to Loan and Security Agreement between Borrower and Bank and dated on or about June 3, 2021.
3. Fee. In consideration for Bank entering into this Amendment, Borrower shall concurrently pay Bank a fee in the amount of $2,500, which shall be non-refundable and in addition to all interest and other fees payable to Bank under the Loan Documents. Bank is authorized to charge said fee to Borrower’s loan account or any of Borrower’s deposit accounts with Bank.
4. Representations True. Borrower represents and warrants to Bank that all representations and warranties set forth in the Loan Agreement, as amended hereby, are true and correct.
5. No Waiver. Nothing herein constitutes a waiver of any default or Event of Default under the Loan Agreement or any other Loan Documents, whether or not known to Bank.
| Pacific Western Bank | Amendment to Loan Agreement |
6. Governing Law; Jurisdiction; Venue; Arbitration. This Amendment and all acts, transactions, disputes and controversies arising hereunder or relating hereto, and all rights and obligations of the parties shall be governed by, and construed in accordance with, the internal laws (and not the conflict of laws rules) of the State of California. All disputes, controversies, claims, actions and other proceedings involving, directly or indirectly, any matter in any way arising out of, related to, or connected with, this Amendment or the relationship between Borrower and Bank, and any and all other claims of Borrower against Bank of any kind, shall be brought only in the Superior Court of San Mateo, California or the United States District Court for the Northern District of California, and each consents to the jurisdiction of any such court, and waives any and all rights the party may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding, including, without limitation, any objection to venue or request for change in venue based on the doctrine of forum non conveniens; provided that, notwithstanding the foregoing, nothing herein shall limit the right of Bank to bring proceedings against Borrower in the courts of any other jurisdiction. Borrower consents to service of process in any action or proceeding brought against it by Bank, by personal delivery, or by mail addressed as set forth in the Loan Agreement or by any other method permitted by law. If the jury waiver set forth in Section 8 below is not enforceable, then any dispute, controversy, claim, action or similar proceeding arising out of or relating to this Amendment, the Loan Documents or any of the transactions contemplated therein shall be settled by final and binding arbitration held in San Mateo County, California in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association by one arbitrator appointed in accordance with those rules. The arbitrator shall apply California law to the resolution of any dispute, without reference to rules of conflicts of law or rules of statutory arbitration. Judgment upon any award resulting from arbitration may be entered into and enforced by any state or federal court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this Section. The costs and expenses of the arbitration, including without limitation, the arbitrator’s fees and expert witness fees, and reasonable attorneys’ fees, incurred by the parties to the arbitration may be awarded to the prevailing party, in the discretion of the arbitrator, or may be apportioned between the parties in any manner deemed appropriate by the arbitrator. Unless and until the arbitrator decides that one party is to pay for all (or a share) of such costs and expenses, both parties shall share equally in the payment of the arbitrator’s fees as and when billed by the arbitrator.
7. General Provisions. Borrower hereby ratifies and confirms the continuing validity, enforceability and effectiveness of the Loan Agreement and all other Loan Documents. This Amendment, the Loan Agreement, any prior written amendments to the Loan Agreement signed by Bank and Borrower, and the other written documents and agreements between Bank and Borrower set forth in full all of the representations and agreements of the parties with respect to the subject matter hereof and supersede all prior discussions, representations, agreements and understandings between the parties with respect to the subject hereof. Except as herein expressly amended, all of the terms and provisions of the Loan Agreement, and all other documents and agreements between Bank and Borrower shall continue in full force and effect and the. same are hereby ratified and confirmed. This Amendment may be executed in multiple counterparts, by different parties signing separate counterparts, and all of the same taken together shall constitute one and the same agreement.
| Pacific Western Bank | Amendment to Loan Agreement |
8. Mutual Waiver of Jury Trial. BANK AND BORROWER EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT THAT IT MAY BE WAIVED. EACH OF THE PARTIES, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AMENDMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AMENDMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), ACTION OR INACTION OF ANY OF THEM. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY BANK OR BORROWER, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM. IF FOR ANY REASON THE PROVISIONS OF THIS SECTION ARE VOID, INVALID OR UNENFORCEABLE, THE SAME SHALL NOT AFFECT ANY OTHER TERM OR PROVISION OF THIS AMENDMENT, AND ALL OTHER TERMS AND PROVISIONS OF THIS AMENDMENT SHALL BE UNAFFECTED BY THE SAME AND CONTINUE IN FULL FORCE AND EFFECT.
Version-2
[Signatures on Next Page]
| Pacific Western Bank | Amendment to Loan Agreement |
| Borrower: | Bank: | |||
| AY DEE KAY LLC | PACIFIC WESTERN BANK | |||
| By | By | |||
| Title | By | |||
[Signature Page-Amendment to Loan Agreement]
Exhibit 21.1
Subsidiaries of indie Semiconductor
| Ay Dee Kay LLC | California |
| Wuxi indie Microelectronics Ltd. | China |
| Indie Semiconductor HK, Ltd. | Hong Kong |
| Indie Services Corp. | Delaware |
| Ay Dee Kay Limited | UK |
| Indie Semiconductor GmbH | Germany |
| Indie City LLC | California |
| Indie LLC | California |
Exhibit 99.2
AY DEE KAY, LLC D/B/A INDIE SEMICONDUCTOR AND SUBSIDIARIES
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| Page | |
| Condensed Consolidated Financial Statements as of March 31, 2021 and December 31, 2020 and for the three months ended March 31, 2021 and 2020 (Unaudited) | |
| Condensed Consolidated Balance Sheets | F-1 |
| Condensed Consolidated Statements of Operations | F-2 |
| Condensed Consolidated Statements of Comprehensive Income (Loss) | F-3 |
| Condensed Consolidated Statements of Members’ Deficit and Noncontrolling Interest | F-4 |
| Condensed Consolidated Statements of Cash Flows | F-5 |
| Notes to Condensed Consolidated Financial Statements | F-6 |
AY DEE KAY, LLC D/B/A INDIE SEMICONDUCTOR,
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except unit and per unit amounts)
(Unaudited)
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 8,873 | $ | 18,698 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $282 as of March 31, 2021 and $185 as of December 31, 2020 | 7,022 | 5,913 | ||||||
| Inventory, net | 3,638 | 2,900 | ||||||
| Prepaid expenses and other current assets | 2,813 | 2,465 | ||||||
| Total current assets | 22,346 | 29,976 | ||||||
| Property and equipment, net | 2,153 | 2,169 | ||||||
| Intangible assets, net | 665 | 1,088 | ||||||
| Goodwill | 1,739 | 1,739 | ||||||
| Other assets and deposits | 154 | 154 | ||||||
| Total assets | $ | 27,057 | $ | 35,126 | ||||
| Liabilities and members’ deficit | ||||||||
| Accounts payable | $ | 5,103 | $ | 4,554 | ||||
| Accrued expenses and other current liabilities | 3,184 | 2,522 | ||||||
| Intangible asset contract liability | 2,098 | 2,270 | ||||||
| Deferred revenue | 1,101 | 1,665 | ||||||
| Simple agreements for future equity | 83,600 | 102,700 | ||||||
| Current debt obligations | 9,410 | 8,488 | ||||||
| Total current liabilities | 104,496 | 122,199 | ||||||
| Long-term debt, net of current portion | 11,524 | 12,345 | ||||||
| Intangible asset contract liability, net of current portion | 250 | 400 | ||||||
| Other long-term liabilities | 1,970 | 1,674 | ||||||
| Total liabilities | 118,240 | 136,618 | ||||||
| Commitments and contingencies (Note 16) | ||||||||
| Members’ deficit: | ||||||||
| Class A and B units, $.0001 par value, 3,650,364 units authorized as of March 31, 2021 and December 31, 2020, respectively; 1,279,427 units issued as of March 31, 2021 and December 31, 2020, respectively; 1,163,934 and 1,141,232 units outstanding as of March 31, 2021 and December 31, 2020, respectively | - | - | ||||||
| Class C, D, E, F, G and H units, $.0001 par value, 1,258,029 units authorized as of March 31, 2021 and December 31, 2020; 1,146,047 units issued as of March 31, 2021 and as of December 31, 2020, respectively; 1,146,047 units outstanding as of March 31, 2021 and December 31, 2020, respectively | 42,179 | 42,179 | ||||||
| Additional paid-in capital | 982 | 982 | ||||||
| Accumulated deficit | (142,449 | ) | (153,264 | ) | ||||
| Accumulated other comprehensive income | (297 | ) | (209 | ) | ||||
| Total Ay Dee Kay LLC members’ deficit | (99,585 | ) | (110,312 | ) | ||||
| Noncontrolling interest | 8,402 | 8,820 | ||||||
| Total members’ deficit | (91,183 | ) | (101,492 | ) | ||||
| Total liabilities and member deficit | $ | 27,057 | $ | 35,126 | ||||
See accompanying notes to the condensed consolidated financial statements.
F-1
AY DEE KAY, LLC D/B/A INDIE SEMICONDUCTOR,
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except unit and per unit amounts)
(Unaudited)
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenue: | ||||||||
| Product revenue | $ | 7,483 | $ | 4,225 | ||||
| Contract revenue | 631 | 438 | ||||||
| Total revenue | 8,114 | 4,663 | ||||||
| Operating expenses: | ||||||||
| Cost of goods sold | 4,848 | 2,880 | ||||||
| Research and development | 8,677 | 4,835 | ||||||
| Selling, general, and administrative | 2,695 | 1,486 | ||||||
| Total operating expenses | 16,220 | 9,201 | ||||||
| Loss from operations | (8,106 | ) | (4,538 | ) | ||||
| Other income (expense), net: | ||||||||
| Interest income | 7 | 6 | ||||||
| Interest expense | (620 | ) | (552 | ) | ||||
| Other income (expense) | 19,093 | (293 | ) | |||||
| Total other income (expense), net | 18,480 | (839 | ) | |||||
| Net income (loss) before income taxes | 10,374 | (5,377 | ) | |||||
| Income tax expense | (13 | ) | (3 | ) | ||||
| Net income (loss) | 10,361 | (5,380 | ) | |||||
| Less: Net loss attributable to noncontrolling interest | (454 | ) | (259 | ) | ||||
| Net income (loss) attributable to Ay Dee Kay, LLC | $ | 10,815 | $ | (5,121 | ) | |||
| Net income (loss) attributable to common unitholders—basic | $ | 5,443 | $ | (5,121 | ) | |||
| Net income (loss) attributable to common unitholders—diluted | $ | (13,657 | ) | $ | (5,121 | ) | ||
| Net income (loss) per unit attributable to common unitholders—basic | $ | 4.69 | $ | (4.60 | ) | |||
| Net income (loss) per unit attributable to common unitholders—diluted | $ | (9.68 | ) | $ | (4.60 | ) | ||
| Weighted average common units outstanding—basic | 1,161,326 | 1,114,116 | ||||||
| Weighted average common units outstanding—diluted | 1,410,720 | 1,114,116 | ||||||
See accompanying notes to the condensed consolidated financial statements.
F-2
AY DEE KAY, LLC D/B/A INDIE SEMICONDUCTOR,
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
(Unaudited)
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Net income (loss) | $ | 10,361 | $ | (5,380 | ) | |||
| Other comprehensive loss: | ||||||||
| Foreign currency translation adjustments | (88 | ) | (68 | ) | ||||
| Comprehensive income (loss) | 10,273 | (5,448 | ) | |||||
| Less: Comprehensive loss attributable to noncontrolling interest | (418 | ) | (269 | ) | ||||
| Comprehensive income (loss) attributable to Ay Dee Kay, LLC | $ | 10,691 | $ | (5,179 | ) | |||
See accompanying notes to the condensed consolidated financial statements.
F-3
AY DEE KAY, LLC D/B/A INDIE SEMICONDUCTOR,
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF MEMBERS’ DEFICIT AND NONCONTROLLING INTEREST
(Amounts in thousands, except unit amounts)
(Unaudited)
| Class A and B units | Class C, D, E, F, G and H convertible units | Additional paid-in | Accumulated | Accumulated other comprehensive | Noncontrolling | Total members’ | ||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | capital | deficit | income | interest | deficit | ||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | 1,109,473 | $ | - | 1,141,547 | $ | 41,468 | $ | 577 | $ | (55,766 | ) | $ | (241 | ) | $ | 3,380 | $ | (10,582 | ) | |||||||||||||||||
| Vesting of Class B units | 7,686 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Issuance of Class H units | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Proceeds from sale of noncontrolling interest | - | - | - | - | - | - | - | 1,452 | 1,452 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (5,121 | ) | - | (259 | ) | (5,380 | ) | ||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | (68 | ) | (10 | ) | (78 | ) | ||||||||||||||||||||||||
| Balance as of March 31, 2020 | 1,117,159 | $ | - | 1,141,547 | $ | 41,468 | $ | 577 | $ | (60,887 | ) | $ | (309 | ) | $ | 4,563 | $ | (14,588 | ) | |||||||||||||||||
| Balance as of December 31, 2020 | 1,141,232 | $ | - | 1,146,047 | $ | 42,179 | $ | 982 | $ | (153,264 | ) | $ | (209 | ) | $ | 8,820 | $ | (101,492 | ) | |||||||||||||||||
| Vesting of Class B units | 22,702 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Net income (loss) | - | - | - | - | - | 10,815 | - | (454 | ) | 10,361 | ||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | - | - | (88 | ) | 36 | (52 | ) | |||||||||||||||||||||||||
| Balance as of March 31, 2021 | 1,163,934 | $ | - | 1,146,047 | $ | 42,179 | $ | 982 | $ | (142,449 | ) | $ | (297 | ) | $ | 8,402 | $ | (91,183 | ) | |||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
F-4
AY DEE KAY, LLC D/B/A INDIE SEMICONDUCTOR,
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 10,361 | $ | (5,380 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 643 | 620 | ||||||
| Inventory impairment charges | 8 | 261 | ||||||
| Amortization of discount and cost of issuance of debt | 72 | 50 | ||||||
| Bad debts | 49 | - | ||||||
| Non-cash interest expense | 202 | 65 | ||||||
| Loss (gain) on remeasurement of SAFE notes | (19,100 | ) | 349 | |||||
| Accrued contingent consideration related to acquisition | 60 | - | ||||||
| Deferred City Semi compensation | 125 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (1,163 | ) | 30 | |||||
| Inventory | (746 | ) | (341 | ) | ||||
| Accounts payable | 536 | (1,102 | ) | |||||
| Accrued expenses and other current liabilities | 432 | - | ||||||
| Deferred revenue | (564 | ) | (438 | ) | ||||
| Prepaid and other current assets | (6 | ) | (54 | ) | ||||
| Other long term liabilities | - | (209 | ) | |||||
| Net cash used in operating activities | (9,091 | ) | (6,149 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (140 | ) | (259 | ) | ||||
| Purchases of intangible assets | (21 | ) | - | |||||
| Net cash used in investing activities | (161 | ) | (259 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of SAFE Notes | - | 1,875 | ||||||
| Proceeds from sale of noncontrolling interest | - | 1,451 | ||||||
| Proceeds from issuance of debt | - | 2,000 | ||||||
| Payments on debt obligations | - | (1,196 | ) | |||||
| Payments on financed software | (300 | ) | - | |||||
| Payments on deferred financing costs | (332 | ) | - | |||||
| Net cash provided by (used in) financing activities | (632 | ) | 4,130 | |||||
| Effect of exchange rate changes on cash and cash equivalents | 59 | 5 | ||||||
| Net decrease in cash and cash equivalents | (9,825 | ) | (2,273 | ) | ||||
| Cash and cash equivalents at beginning of period | 18,698 | 7,155 | ||||||
| Cash and cash equivalents at end of period | $ | 8,873 | $ | 4,882 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 340 | $ | 406 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Purchases of property and equipment, accrued but not paid | $ | 56 | $ | 76 | ||||
| Deferred financing costs incurred | $ | 491 | $ | - | ||||
See accompanying notes to the condensed consolidated financial statements.
F-5
AY DEE KAY, LLC D/B/A INDIE SEMICONDUCTOR,
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except unit and per unit amounts)
(Unaudited)
| 1. | Nature of the Business and Basis of Presentation |
Ay Dee Kay, LLC, d/b/a indie Semiconductor, and Subsidiaries (“indie” or the “Company”) offers highly innovative automotive semiconductors and software solutions for Advanced Driver Assistance Systems (ADAS), including light detection and ranging (“LiDAR”), connected car, user experience and electrification applications. These functions represent the core underpinnings of both electric and autonomous vehicles, while the advanced user interfaces are transforming the in-cabin experience to mirror and seamlessly connect to the mobile platforms we rely on every day. indie is an approved vendor to Tier 1 automotive suppliers and its platforms can be found in marquee automotive manufacturers around the world. Headquartered in Aliso Viejo, California, indie has design centers and sales offices in Austin, Texas, Boston, Massachusetts, Detroit, Michigan, San Francisco and San Jose, California, Dresden, Germany, Edinburgh, Scotland, and various locations in China. The Company engages subcontractors to manufacture its products. The majority of these subcontractors are located in Asia.
Risks and Uncertainties
In December 2019, COVID-19 was first reported to the World Health Organization (“WHO”), and in January 2020, the WHO declared the outbreak to be a public health emergency. In March 2020, the WHO characterized COVID-19 as a pandemic. Since then, the COVID-19 pandemic (the “Pandemic”) and efforts to control its spread have significantly curtailed the movement of people, goods, and services worldwide. The duration and extent of the Pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment and mitigation actions. It has already had an adverse effect on the global economy, and the ultimate societal and economic impact of the Pandemic remains unknown.
The Company experienced a decrease in customer demand and product shipments in the second quarter of fiscal year 2020. This decrease was primarily the result of closures or reduced capacity at customer manufacturing facilities in China. During the second half of fiscal year 2020, customer manufacturing facilities re-opened and demand increased. The Company has transitioned to a remote work environment for its employees and starting the second fiscal quarter of 2020 to date and reduced discretionary spending. As customer demand increased during the second half of fiscal year 2020 and the first quarter of 2021, the semiconductor industry, and automotive semiconductors in particular, experienced material shortages and supply constraints. Given the Company’s reliance on third-party manufacturing suppliers, these industry dynamics have resulted in certain instances of extended production lead times, increased production and expedite costs, and delays in meeting increasing customer demand for its products, which if unabated, present a significant risk to the Company. In certain circumstances, the Company has increased order lead times, and placed purchase orders with suppliers based on its anticipated demand requirements for the balance of 2021 in efforts to secure production capacity allocation. However, the Company cannot predict the duration or magnitude of the Pandemic or the full impact that it may have on the Company’s financial condition, operations, and workforce. The Company will continue to actively monitor the rapidly evolving situation related to the Pandemic and may take further actions that alter the Company’s operations, including those that may be required by federal, state or local authorities, or that the Company determines are in the best interests of its employees and other third parties with whom the Company does business.
Basis of Presentation
The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The condensed consolidated financial statements include the accounts of Ay Dee Kay, LLC, its wholly owned subsidiaries indie LLC, a California entity, Ay Dee Kay Limited, a private limited company incorporated under the laws of Scotland, indie GmbH, a private limited liability company incorporated under the laws of Germany, indie Kft, a limited liability company incorporated under the laws of Hungary, its majority owned subsidiary, Wuxi indie Microelectronics Ltd. (“Wuxi”), a Chinese entity 50% owned by the Company as of March 31, 2021 and Wuxi’s wholly-owned subsidiary, indie Semiconductor HK, Ltd. All significant intercompany accounts and transactions of the subsidiaries have been eliminated in consolidation. The noncontrolling interest attributable to the Company’s less-than-wholly-owned subsidiary is presented as a separate component from members’ deficit in the condensed consolidated balance sheets, and a noncontrolling interest in the condensed consolidated statements of operations and condensed consolidated statements of members’ deficit and noncontrolling interest.
F-6
Unaudited Interim Financial Information
In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of its financial position and its results of operations, changes in members’ deficit and cash flows. The condensed consolidated balance sheet at December 31, 2020, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the fiscal year ended December 31, 2020.
Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), whereby lessees will be required to recognize for all leases at the commencement date a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. A modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the condensed consolidated financial statements must be applied. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. The FASB issued ASU 2019-10-Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates in November 2019 and ASU 2020-05-Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities in June 2020. The ASUs change some effective dates for ASU 2016-02 on leasing. After applying ASU 2019-10 and 2020-05, ASU 2016-02 is effective for annual periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. The adoption of the new standard is expected to result in the recognition of additional lease liabilities and right-of-use assets as of January 1, 2022. The Company is currently evaluating the impact of the new standard on the Company’s condensed consolidated financial statements and related disclosures.
In June 2016, the FASB amended guidance related to impairment of financial instruments as part of ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate of expected credit loss. This ASU requires entities to measure the impairment of certain financial instruments, including accounts receivable, based on expected losses rather than incurred losses. For non-public business entities, this ASU is effective for fiscal years beginning after December 15, 2022, with early adoption permitted, and will be effective for the Company beginning in 2023. The Company is currently evaluating the impact of the new standard on the Company’s condensed consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles of ASC 740, Income Taxes. The amendments also improve consistent application of and simplify GAAP for other areas of ASC 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 (and December 15, 2021 for nonpublic companies) and early adoption is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective, or prospective basis. The Company is currently assessing the impact that this standard will have on its condensed consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions to contract modifications and hedging relationships that reference the London Interbank Offered Rate or another reference rate expected to be discontinued. The standard is effective upon issuance through December 31, 2022 and may be applied at the beginning of the interim period that includes March 12, 2020 or any date thereafter. However, ASU 2020-04 will only be available for a limited time (generally through December 31, 2022). The Company is currently evaluating the impact of the reference rate reform and ASU 2020-04 on its financial statements and disclosures.
F-7
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The new standard reduces the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current U.S. GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The standard also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity. For non-public entities, ASU 2020-06 is effective for annual reporting periods beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company is in the process of completing its review of its existing convertible instruments under ASU 2020-06 and does not expect the adoption of ASU 2020-06 to have a material impact on its financial position, results of operations, or cash flows.
| 2. | Acquisition of City Semiconductor, Inc. |
On May 13, 2020, the Company acquired certain assets and liabilities of City Semiconductor, Inc. (“City Semi”), which has developed technology related to analog and mixed-signal integrated circuitry, with a focus on high-speed analog-to-digital converters and digital-to analog-intellectual property cores. The Company accounted for the acquisition as a business combination. The transaction costs associated with the acquisition were not material and were expensed as incurred. The acquisition date fair value of the consideration transferred for City Semi was approximately $2,029, which consisted of the following:
| Fair Value | ||||
| As of May 13, 2020 | ||||
| Class H units issued | $ | 711 | ||
| Contingent consideration | 1,180 | |||
| Cash consideration to be transferred at a later date | 138 | |||
| Total | $ | 2,029 | ||
The maximum contingent consideration payable in connection with the acquisition is $2,000. The acquisition date fair value of the contingent consideration was determined based on the Company’s assessment of the probability of achieving the performance targets that ultimately obligate the Company to transfer additional consideration to the seller. The contingent consideration is comprised of two tranches. The first tranche is payable, up to a maximum of $500, upon the achievement of cash collection targets within twelve months of the acquisition, and this target was achieved in May 2021. The second tranche is payable, up to a maximum of $1,500 upon the shipment of a product incorporating the acquired developed technology. The fair value of any outstanding contingent consideration liabilities will be remeasured as of the end of each reporting period with any resulting remeasurement gains or losses recognized in the condensed consolidated statement of operations. The fair value of the first and second tranche contingent consideration liabilities was $500 and $960, respectively, as of March 31, 2021, and $500 and $900, respectively, as of December 31, 2020. The fair value of the first tranche contingent consideration liability is reflected in other current liabilities within the condensed consolidated balance sheet and the fair value of the second tranche contingent consideration liability is reflected in other long-term liabilities.
In connection with this acquisition, the two existing employees of City Semi, including the founder and sole shareholder of City Semi, entered into employment agreements with the Company. As there is a service condition associated with these agreements, the related compensation expense is accounted for separately from the acquisition. The Company recognizes the related compensation expense as research and development expense in the condensed consolidated statement of operations on a straight-line basis over the requisite service period.
F-8
The following table summarizes the fair values of assets acquired and liabilities assumed as of the date of acquisition:
| Fair Value | ||||
| As of May 13, 2020 | ||||
| Intangible asset – Software license | $ | 139 | ||
| Intangible asset - Developed technology | 369 | |||
| Goodwill | 1,739 | |||
| Deferred revenue | (41 | ) | ||
| Accrued expenses | (177 | ) | ||
| Net assets acquired | $ | 2,029 | ||
The Company estimates that the useful life of the acquired developed technology intangible asset is seven years and the useful life of the acquired software license intangible asset is approximately one year, which represents the remaining duration of the software license. The excess of purchase consideration over the fair value of net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce. None of the goodwill recognized is expected to be deductible for income tax purposes.
There are no amounts of revenue and earnings of City Semi included in the Company’s condensed consolidated statement of operations for the three months ended March 31, 2020.
The unaudited pro forma financial information shown below summarizes the combined results of operations for the Company and City Semi as if the closing of the acquisition had occurred on January 1, 2020.
| Three months ended March 31, 2020 | ||||
| Combined revenue | $ | 5,189 | ||
| Combined net loss before income taxes | (5,362 | ) | ||
The unaudited pro forma financial information includes adjustments that are directly attributable to the business combination and are factually supportable. The adjustments primarily reflect the amortization of acquired developed technology and compensation expense related to consideration to be transferred to the founder upon the second anniversary of his employment. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been realized if the acquisition had taken place on January 1, 2020.
| 3. | Inventory, Net |
Inventory, net consists of the following:
| March 31, 2021 | December 31, 2020 | |||||||
| Work-in-process | $ | 4,516 | $ | 4,277 | ||||
| Finished goods | 925 | 882 | ||||||
| Inventory, gross | 5,441 | 5,159 | ||||||
| Less: Inventory reserves | 1,803 | 2,259 | ||||||
| Inventory, net | $ | 3,638 | $ | 2,900 | ||||
During the three months ended March 31, 2021 and 2020, the Company recognized write-downs in the value of inventory of $8 and $261, respectively.
F-9
| 4. | Intangible Assets, Net |
Intangible assets, net consist of the following:
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||||||||||
| Weighted average remaining useful life | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Weighted average remaining useful life | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||
| Software Licenses | 0.3 | $ | 4,347 | $ | (4,090 | ) | $ | 257 | 0.6 | $ | 4,391 | $ | (3,759 | ) | $ | 632 | ||||||||||||||||
| Intellectual Property Licenses | 1.5 | 1,736 | (1,649 | ) | 87 | 1.7 | 1,736 | (1,614 | ) | 122 | ||||||||||||||||||||||
| Developed technology | 6.1 | 369 | (48 | ) | 321 | 6.4 | 369 | (35 | ) | 334 | ||||||||||||||||||||||
| Total | $ | 6,452 | $ | (5,787 | ) | $ | 665 | $ | 6,496 | $ | (5,408 | ) | $ | 1,088 | ||||||||||||||||||
The Company obtained IP licenses which it uses for its research and development efforts related to its products.
Amortization of intangible assets for the three months ended March 31, 2021 and 2020 was $422 and $394, respectively, and is included in research and development expense in the condensed consolidated statements of operations.
Based on the amount of intangible assets subject to amortization as of March 31, 2021, amortization expense for each of the next five fiscal years is expected to be as follows:
| 2021 (remaining nine months) | $ | 335 | ||
| 2022 | 82 | |||
| 2023 | 72 | |||
| 2024 | 53 | |||
| 2025 | 53 | |||
| Thereafter | 70 | |||
| $ | 665 |
| 5. | Goodwill |
The following table sets for the carrying amount and activity of goodwill as of March 31, 2021:
| Amount | ||||
| Balance as of December 31, 2020 | $ | 1,739 | ||
| Impairment of goodwill | - | |||
| Additions | - | |||
| Balance as of March 31, 2021 | $ | 1,739 | ||
There was no goodwill recorded as of March 31, 2020.
| 6. | Debt |
The following table sets forth the components of debt as of March 31, 2021 and December 31, 2020:
| March 31, 2021 | December 31, 2020 | |||||||||||||||||||||||
| Principal outstanding | Unamortized discount and issuance cost | Carrying amount | Principal outstanding | Unamortized discount and issuance cost | Carrying amount | |||||||||||||||||||
| Trinity term loan, due 2022 | $ | 12,000 | $ | (593 | ) | $ | 11,407 | $ | 12,000 | $ | (665 | ) | $ | 11,335 | ||||||||||
| Short term loans, due 2021 | 458 | — | 458 | 459 | — | 459 | ||||||||||||||||||
| PPP Loan, due 2022 | 1,868 | — | 1,868 | 1,868 | — | 1,868 | ||||||||||||||||||
| Tropez loan, due 2021 | 2,000 | — | 2,000 | 2,000 | — | 2,000 | ||||||||||||||||||
| Total term loans | 16,326 | (593 | ) | 15,733 | 16,327 | (665 | ) | 15,662 | ||||||||||||||||
| Revolving line of credit | 1,675 | — | 1,675 | 1,675 | — | 1,675 | ||||||||||||||||||
| Embry convertible notes, due 2021 | 3,606 | (80 | ) | 3,526 | 3,606 | (110 | ) | 3,496 | ||||||||||||||||
| Total debt | $ | 21,607 | $ | (673 | ) | $ | 20,934 | $ | 21,608 | $ | (775 | ) | $ | 20,833 | ||||||||||
F-10
The outstanding debt as of March 31, 2021 and December 31, 2020 is classified in the condensed consolidated balance sheets as follows:
| March 31, 2021 | December 31, 2020 | |||||||
| Current liabilities - Current debt obligations | $ | 9,410 | $ | 8,488 | ||||
| Noncurrent liabilities - Long-term debt, net of current maturities | 11,524 | 12,345 | ||||||
| $ | 20,934 | $ | 20,833 | |||||
Embry Convertible Subordinated Notes Payable
On December 4, 2012, the Company entered into two convertible note and exchange agreements with an investor, pursuant to which the entire outstanding principal of $3,500 and corresponding accrued interest of $107 held under existing loan agreements were exchanged for two convertible subordinated notes with aggregate principal amounts of $2,604 and $1,003. The convertible subordinated notes bore interest of 0.93% per annum, which is compounded annually. The aggregate principal and all accrued and unpaid interest were due in full on December 4, 2017. On December 3, 2017, the Company entered into a 12-month extension of these two convertible note and exchange agreements.
On December 3, 2018, the Company entered into a 36-month extension of these two convertible note and exchange agreements. The interest rate on the 36-month extension was amended to 3.07% per annum. The Company recorded a discount on this convertible debt extension and a corresponding increase in additional paid-in capital related to the enhanced value of the embedded conversion options. The Company is amortizing the discount to interest expense over the 36-month extension period.
The amendments to extend the maturity date were treated as modifications of the debt.
The convertible subordinated notes with aggregate principal of $2,604 and $1,003 may be converted to an aggregate 185,000 Class A Units and 100,000 Class C Units, respectively, at the investors’ discretion prior to the maturity date or automatically upon a liquidity event, as defined in the loan agreement. The Company determined that the embedded conversion options should not be bifurcated from their host instruments.
In December 2020, Embry assigned the notes to its affiliate, Cézanne Investments Ltd. (“Cézanne”). Cézanne subsequently submitted a written notice of conversion to the Company in February 2021 to exercise its right to convert at the SPAC transaction closing on or before December 31, 2021. As the conversion is contingent upon the successful closure of the closing of the SPAC transaction, the Company concluded a conversion event did not occur and the Embry convertible notes should remain as debt as of March 31, 2021.
At March 31, 2021 and December 31, 2020, the total carrying value of the convertible subordinated notes payable, net of unamortized discount, was $3,526 and $3,496, respectively. Total accrued interest as of March 31, 2021 and December 31, 2020 was $488 and $458, respectively, and is included in accrued expenses and other current liabilities on the Company’s condensed consolidated balance sheets. Contractual interest incurred related to the convertible subordinated notes was $31 and $30 for the three months ended March 31, 2021 and 2020, respectively, and is included in interest expense in the Company’s condensed consolidated statements of operations.
F-11
PacWest Term Loan and Revolving Line of Credit
The Company entered into a loan and security agreement with Pacific Western Bank (“PacWest”, formerly Square 1 Bank) in January 2015, that provided a term loan of up to $10,000 with a maturity date of September 2020. The term loan bore interest equal to the greater of one percent above the prime rate in effect, or 4.5% on outstanding borrowings. In addition, the loan and security agreement provided for a revolving line of credit. The revolving line of credit bore interest equal to the greater of seventy-five basis points above the prime rate in effect, or 4.25% on outstanding borrowings. The terms of the loan and security agreement have been amended from time to time, with the most recent amendment dated June 8, 2021 (see Note 16 – Subsequent Events for further information). The amendments have extended the maturity date of the loan and adjusted the financial covenants’ borrowing limits. In August 2017 and as part of an amendment to the loan and security agreement, the Company issued warrants to PacWest to purchase 3,388 Membership Units.
During 2020, the Company entered into three amendments to the PacWest loan agreement. Pursuant to the terms of the amendments, $889, the full amount of unpaid principal and interest was transferred from the PacWest term loan to the revolving line of credit as of January 30, 2020. In addition, the amendments modified certain financial covenants, including the Company maintain a minimum cash balance of $2,300 and adjusted the borrowing limits to $2,000. The maturity date of the revolving line of credit has been amended to the earlier of July 20, 2021 (see Note 16 – Subsequent Events for further information regarding the transaction).
As of March 31, 2021 and December 31, 2020, the Company had no outstanding balance on the term loan.
Contractual interest incurred related to the term loan and line of credit was $18 and $8 for the three months ended March 31, 2021 and 2020, respectively, and is included in interest expense in the Company’s condensed consolidated statements of operations. The amortization of the debt discount resulted in interest expense of $0 and $6 for the three months ended March 31, 2021 and March 31, 2020, respectively, and is also included in interest expense in the Company’s condensed consolidated statements of operations.
As of March 31, 2021 and December 31, 2020, the revolving line of credit had an outstanding balance of $1,675. The Company’s borrowings under the term loan and revolving line of credit were subject to an aggregate borrowing limit of $2,000 as of March 31, 2021 and December 31, 2020. Total borrowings at any given time under the agreement are limited to a percentage of domestic accounts receivables less than 90 days past due and other factors.
Trinity Term Loan
In March 2018, the Company entered into a term loan agreement with Trinity Capital Fund (“Trinity”) to borrow $15,000 at a rate of 11.25%. In connection with such loan, the Company issued 6,250 warrants to Trinity to acquire Class G units at an exercise price per unit of $35.42.
In October 2020, the Company entered into a new loan agreement with Trinity, which replaced the March 2018 agreement. The new loan has a principal of $12,000, which was exchanged for the old loan’s principal balance of $11,325, lender fees of $474 and a cash payment to the Company of $194. In addition, the Company issued to Trinity 1,844 additional warrants to purchase the Company’s Class G Units, which had a fair value of $405. The new loan agreement was treated as a modification for accounting purposes. The unamortized discount from the old loan was treated as additional debt discount on the new loan along with the lender fees paid to and additional warrants issued to Trinity in October 2020.
The new loan has a maturity date of October 1, 2024 and bears interest equal to the greater of 10.75% or the Prime Rate plus 7.5%. The term loan may be prepaid by paying the principal and interest plus a prepayment fee ranging from 4.0% to 1.0% of the principal being repaid, depending on the length of time between the effective date and the prepayment date. Upon final repayment, an end-of-term fee of $720 must be paid by the Company to Trinity. The term loan is collateralized by substantially all of the Company’s assets to the extent they are not already securing the senior debt of PacWest.
As of March 31, 2021 and December 31, 2020, the Company had $11,407 and $11,335 outstanding under the Trinity Term loans, respectively, net of the unamortized discount and issuance cost generated as a result of the warrant issuance described in Note 9 – Members’ Equity. The debt discount and issuance costs are being amortized through interest expense over the term of the loan using the effective interest method. The old loan required monthly interest only payments of $141 until November 2019 when repayment of principal began, and payments increased to $493 per month. The new loan requires interest only payments of $108 until October 2021 when repayment of principal begins, and payments increase to $391 per month with an effective interest rate of 15.8%.
F-12
Contractual interest incurred related to the term loans was $395 and $418 for the three months ended March 31, 2021 and 2020, respectively, and is included in interest expense in the Company’s condensed consolidated statements of operations. The amortization of the debt discount and cost of issuance resulted in interest expense of $131 and $13 for the three months ended March 31, 2021 and 2020, respectively, and is also included in interest expense in the Company’s condensed consolidated statements of operations.
This loan, along with other outstanding debt are subject to debt covenants which, if violated, could result in the outstanding balance becoming immediately due. The Company has complied with or obtained waivers for all such covenants as of the date these financial statements were issued.
Short Term Loans
On November 13, 2019, Wuxi entered into a short term loan agreement with CITIC Group Corporation Ltd. with aggregate principal balance of CNY 2,000, or approximately $285, and bearing interest of 4.785% per annum. The principal balance is denominated in Chinese Yuan and the outstanding balance is adjusted for changes in foreign currency exchange rates at each reporting period. On November 13, 2020, the terms of the agreement were extended for twelve months, and the principal and interest are due on November 15, 2021. On October 15, 2020, Wuxi entered into a short term loan agreement with Netherlands China Business Council (“NCBC”) with aggregate principal balance of CNY1,000 or approximately $151 and bearing interest of 4.785%. As of March 31, 2021 and December 31, 2020, the aggregate outstanding principal balance of the short term loans was $458.
Tropez Note
On January 31, 2020, the Company entered into a convertible loan agreement with Tropez Fund Limited (“Tropez”) with principal amount of $2,000 and subject to interest of 12% per annum. The terms of the loan provide for a renewable 180-day period for a maximum term of twelve months. The Company renewed the loan on July 29, 2020 for the additional 180-day period. The note was amended on January 21, 2021 to extend the maturity date to the earlier of December 31, 2021 or the closing of the potential transaction with Thunder Bridge II. Additionally, the January 21, 2021 amendment removed the conversion rights associated with the loan. The loan is terminated upon full repayment of principal and interest. Interest expense related to the loan was $65 and $40 for the three months ended March 31, 2021 and 2020, respectively, and is included in interest expense in the Company’s condensed consolidated statements of operations.
Paycheck Protection Program
In April 2020, the Company applied for a loan pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) as administered by the U.S. Small Business Administration (the “SBA”). In May 2020, the loan was approved, and the Company received the proceeds from the loan in the amount of $1,868 (the “PPP Loan”). The PPP Loan took the form of a promissory note that matures two years after the date of the note and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below). The PPP Loan provides for customary events of default, including, among others, those relating to failure to make payments thereunder. The Company may prepay the principal of the PPP Loan at any time without incurring any prepayment penalties. The PPP Loan is non-recourse against any individual shareholder, except to the extent that such party uses the loan proceeds for an unauthorized purpose.
All or a portion of the PPP Loan may be forgiven by the SBA and lender upon application by the Company and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, and covered utilities during the applicable period beginning on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 25% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. No assurance can be given that the Company will obtain forgiveness of the PPP Loan either in whole or in part. Accordingly, the Company accounts for the PPP Loan as part of long-term debt.
F-13
The future maturities of the convertible debt, term loans, PPP loan, and revolving line of credit are collectively as follows:
| 2021 (remaining nine months) | $ | 8,570 | ||
| 2022 | 5,377 | |||
| 2023 | 4,006 | |||
| 2024 and thereafter | 2,981 | |||
| $ | 20,934 |
| 7. | Simple Agreements for Future Equity |
During the year ended December 31, 2020, the Company entered into SAFEs with existing investors and third-party investors for total proceeds of $25,765. The SAFEs require that the Company issue equity to the SAFE holders in exchange for their investment upon an equity raise of at least $35,000. The conversion price of the equity to be issued in exchange for the SAFE investment would be equal to the lower of a 25% discount to the equity issued or such price that implies the pre-money valuation of the Company is $250,000 for the SAFEs issued to existing investors while the SAFEs issued to new third-party investors have a pre-money valuation of $350,000 (all other features are the same). In the event of a dissolution, the SAFE holders are entitled to receive payment in the amount of the original purchase amount, in preference to any membership units. In the event of a liquidation, the SAFE holders are entitled to redeem the SAFE for two times the original purchase amount. In the event of a change in control of the Company, the SAFE holders receive a return of their purchase price for the SAFE. Certain SAFE holders may convert the SAFE into preferred units of the Company if change of control or another exit event has not occurred prior to December 31, 2021. The SAFEs have no interest rate or maturity date, and the SAFE holders have no voting rights prior to conversion.
The SAFEs are recorded at fair value at issuance and remeasured at each reporting date. Changes in fair value are recorded in other income (expense), net in the condensed consolidated statement of operations. The fair value of the SAFEs was $83,600 and $102,700 as of March 31, 2021 and December 31, 2020, respectively. The changes in the fair value of the SAFEs are reflective of changes in the valuation of the Company as the Company evaluates strategic opportunities. See Note 8 – Fair Value Measurements.
| 8. | Fair Value Measurements |
The Company’s debt instruments are recorded at their carrying values in its condensed consolidated balance sheets, which may differ from their respective fair values. The fair values of the Company’s convertible notes are estimated using the valuation of the securities into which the debt is convertible, external pricing data, based on interest rates and credit ratings for similar issuances with the same remaining term as the Company’s outstanding borrowings. The fair value of the Embry convertible notes was determined using valuation inputs categorized as Level 3. The fair values of the Company’s term loans and Tropez note generally approximate their carrying values. The following table presents the Company’s Embry convertible notes carrying and fair values:
| March 31, 2021 | December 31, 2020 | |||||||||||||||
| Carrying value | Fair value | Carrying value | Fair value | |||||||||||||
| Embry convertible notes | $ | 3,526 | $ | 80,400 | $ | 3,496 | $ | 103,200 | ||||||||
The following table presents the Company’s fair value hierarchy for financial assets and liabilities:
| Fair Value Measurements as of March 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| SAFEs | $ | - | $ | - | $ | 83,600 | $ | 83,600 | ||||||||
| First Tranche Contingent Consideration | $ | - | $ | - | $ | 500 | $ | 500 | ||||||||
| Second Tranche Contingent Consideration | $ | - | $ | - | $ | 960 | $ | 960 | ||||||||
| Fair Value Measurements as of December 31, 2020 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities: | ||||||||||||||||
| SAFEs | $ | - | $ | - | $ | 102,700 | $ | 102,700 | ||||||||
| First Tranche Contingent Consideration | $ | - | $ | - | $ | 500 | $ | 500 | ||||||||
| Second Tranche Contingent Consideration | $ | - | $ | - | $ | 900 | $ | 900 | ||||||||
F-14
Level 3 Disclosures
The SAFEs were valued using a probability-weighted expected return method (“PWERM”) valuation approach aligned to the SAFE provisions, including (i) conversion through qualified equity financing, (ii) conversion through acquisition of a special purpose acquisition company, (iii) no conversion through equity or acquisition prior to December 31, 2021, (iv) a liquidation event, and (v) a dissolution event. Determining the fair value of the SAFEs using the PWERM requires assumptions and estimates for both the probability of each scenario and the fair value determined under each scenario. The SAFEs were valued through each scenario using an appropriate valuation approach, including calculations based on the terms of the SAFEs and a Monte Carlo simulation, which utilized the Geometric Brownian Motion formula to simulate the conversion and payout of the SAFEs. The significant unobservable inputs include the discount rate, constant volatility factor and the Geometric Brownian Motion. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement.
| As of | As of | |||||||
| March 31, 2021 | December 31, 2020 | |||||||
| Input | Input | |||||||
| Liabilities: | ||||||||
| SAFEs | ||||||||
| Discount rate | 75 | % | 75 | % | ||||
| Constant volatility factor | 55 | % | 40 | % | ||||
| Geometric Brownian Motion | 0.98 | 0.98 | ||||||
The first and second tranche of contingent consideration associated with the City Semi business combination is recorded at fair value and remeasured as of March 31, 2021 and December 31, 2020 using the present value of cash flows method with assumed market yield and probability of success.
| 9. | Members’ Equity |
As of March 31, 2021 and December 31, 2020, the following members’ equity were authorized, issued, and outstanding:
| At March 31, 2021 | At December 31, 2020 | |||||||||||||||||||||||
| Authorized | Issued | Outstanding | Authorized | Issued | Outstanding | |||||||||||||||||||
| Class A | 3,136,518 | 911,500 | 911,500 | 3,136,518 | 911,500 | 911,500 | ||||||||||||||||||
| Class B | 513,846 | 367,927 | 252,434 | 513,846 | 367,927 | 229,732 | ||||||||||||||||||
| Class C | 400,000 | 300,000 | 300,000 | 400,000 | 300,000 | 300,000 | ||||||||||||||||||
| Class D | 236,521 | 236,521 | 236,521 | 236,521 | 236,521 | 236,521 | ||||||||||||||||||
| Class E | 112,916 | 112,916 | 112,916 | 112,916 | 112,916 | 112,916 | ||||||||||||||||||
| Class F | 492,110 | 492,110 | 492,110 | 492,110 | 492,110 | 492,110 | ||||||||||||||||||
| Class G | 11,482 | — | — | 11,482 | — | — | ||||||||||||||||||
| Class H | 5,000 | 4,500 | 4,500 | 5,000 | 4,500 | 4,500 | ||||||||||||||||||
| Total | 4,908,393 | 2,425,474 | 2,309,981 | 4,908,393 | 2,425,474 | 2,287,279 | ||||||||||||||||||
In connection with its formation on February 9, 2007, the Company issued 911,500 Class A Units to the four initial members. On December 28, 2012, the Company issued 300,000 Class C Units to an investor at an original issue price of $10 per unit for total consideration of $3,000.
The Company reserved 185,000 Class A units and 100,000 Class C Units in connection with the convertible note described in Note 6 — Debt. These units are not issued or outstanding until conversion of the outstanding principal in accordance with the terms of the notes.
The Fifth Amended and Restated LLC Agreement authorized an increase of Class B Units from 243,000 units to 513,846 units. The Class B Units are profit interests issued to employees, directors, and consultants. See Note 12 – Unit-Based Compensation.
F-15
On July 24, 2015, the Company issued 221,739 Class D units to an investor at an original issue price of $33.82 per unit for cash consideration of approximately $7,215, net of issuance costs of $285. On August 28, 2015, the Company issued an additional 14,782 Class D units to an existing investor at an original issue price of $33.82 per unit for cash consideration of $500.
On July 25, 2017, the Company issued 112,916 Class E units to investors at an original issue price of $35.42 per unit for cash consideration of $3,963, net of issuance costs of $37.
The Company has issued warrants to purchase Class G Units as part of amendments to the terms of debt agreements with Trinity and PacWest, see Note 6 – Debt. In connection with entering into the term loan agreement with Trinity in March 2018, the Company issued an aggregate of 6,250 warrants with a strike price of $35.42 to purchase Class G Units. In April 2018, as part of an amendment to the loan and security agreement, the Company issued warrants to PacWest to purchase 3,388 Class G Units with a strike price of $35.42. On October 1, 2020, in connection with the new loan agreement with Trinity, the Company issued additional warrants to Trinity to purchase 1,844 Class G units at a strike price of $35.42 under the same terms and features as previously issued Class G warrants. All warrants can be exercised through payment of the exercise price or by net share settlement and the holders of Class G units do not have voting rights.
Following the Company’s announcement of the Master Transactions Agreement (“MTA”), PacWest issued a letter dated February 3, 2021 to the Company demanding 52,632 warrants in satisfaction of the provisions contained in the August 9, 2017 credit facility amendment. On June 8, 2021, the Company and PacWest entered into a settlement agreement and mutual release where both parties acknowledged and agreed that the original 3,388 warrants issued were in full compliance of the credit facility amendment.
In June 2018, the Company issued 492,110 Class F units to investors at an issue price of $54.87 per unit for cash consideration of $26,790, net of issuance costs of $210.
In May 2020, the Company issued 4,500 Class H units to the owners of City Semi as part of the business combination, see Note 2 – Acquisition of City Semiconductor.
As of March 31, 2021 and December 31, 2020, the Company owned 50% of its subsidiary, Wuxi. From time to time, Wuxi has sold equity ownership and the transactions have reduced the Company’s controlling interest in Wuxi on the condensed consolidated balance sheets. As of March 31, 2021, the Company maintained majority ownership interest in Wuxi and a controlling financial interest.
The rights and privileges of the holders of the equity units are as follows:
Liquidation Rights and Distributions with Respect to Liquidity Event Rights
The Company’s Operating Agreement outlines the liquidation and other preferential rights granted to holders of Class C, D, E, F, G and H units. These rights include preferential treatment in the case of an extraordinary distribution by the Company to its members (not including any distribution of units), a sale of the Company, a liquidation event or unwind of the Company. The distribution provisions are complex and depend on the amount of proceeds to be distributed. In the scenario where the proceeds are sufficient to return the capital investment of each class and provide greater than another 50% of the capital investment of each class on a participating basis, then Class F as the most senior preference and would be entitled to the amount of the original issue price of the Class F Units, followed by Classes E, D, and C in that order, each in the respective amount of the original issue price of its units, followed by Class H and G up to the original issue price. The remaining amounts available to be distributed are shared among all of the classes of Units (except for Class G) according to their fully diluted percentages. If distribution proceeds are not sufficient to return the capital investment of each class and provide greater than another 50% of the capital investment of each class on a participating basis, then, the Operating Agreement provides numerous distribution waterfalls that are designed to achieve the rights of each class in each scenario based on the specific amount of proceeds. Generally, if a preferred class would receive through a fixed preference of 150% of its capital as compared to 100% of its capital plus its participation in the residual tranche, then the preferred class would receive up to 150% of its capital with no participation. Class A and Class B receive distributions only in the residual tranche to the extent proceeds remain after the preferences.
F-16
Conversion Rights
Each unit of Classes C, D, E, F, G and H shall be convertible, at the option of the holder thereof, into such number of fully paid and nonassessable Class A units as is determined by dividing the original issue price for the units of Classes C, D, E, F, G or H as applicable, by the conversion price (original issue price) applicable to such Class C, D, E, F, G and H unit in effect on the conversion date. Additionally, each Class C, D, E, F, G, or H unit shall automatically be converted into Class A units at the Conversion Price applicable to such units of Classes C, D, E, F, G or H immediately upon the Company’s sale of its securities in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act in which (i) the public offering per unit price is not less than $180.53 (adjusted for splits and reverse splits and other adjustments of Class F Units) and (ii) the anticipated aggregate offering price is at least $200,000. The conversion price shall be the initial issuance price as adjusted for any antidilution provisions as defined in the operating agreement.
Voting Rights
Each Class A unit shall be entitled to one point four seven (1.47) votes per Class A unit. This ratio is revised from time to time to equal (X) divided by (Y), where (X) equals the sum of (i) the Class A units issued to the initial members and their successors and assigns plus (ii) the total number of authorized B units and G units, and (Y) equals the total number of Class A units issued to the initial members and their successors and assigns.
Holders of Class B units shall not be entitled to vote except as otherwise required by law. Each holder of Class C, D, E and F units shall be entitled one vote per Class A unit into which such Class C, D, E and F units are convertible. Holders of Class G and H units shall not be entitled to vote except as otherwise required by law or in the event the holders of Class G or H units convert their units to Class A units as in the operating agreement.
| 10. | Noncontrolling Interest |
The Company’s ownership of Wuxi was 50% as of March 31, 2021 and December 31, 2020. From time to time, Wuxi has sold equity ownership and the transactions have reduced the Company’s controlling interest in Wuxi on the condensed consolidated balance sheets. As of March 31, 2021, the Company maintained majority ownership interest in Wuxi and a controlling financial interest.
| 11. | Revenue |
Disaggregation of Revenue
The Company disaggregates revenue from contracts with customers by geographic region, as the Company’s management believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
The following tables present revenue disaggregated by geography of the customer’s shipping location for the three months ended March 31, 2021 and 2020:
| Product revenue | Contract revenue | |||||||||||||||
| Three months ended March 31, | Three months ended March 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| China | $ | 6,322 | $ | 2,773 | $ | - | $ | - | ||||||||
| Canada | 390 | - | - | - | ||||||||||||
| Netherlands | 430 | 86 | 177 | 30 | ||||||||||||
| Brazil | 301 | 201 | - | - | ||||||||||||
| United States | 40 | 531 | 454 | 408 | ||||||||||||
| South Korea | - | 634 | - | - | ||||||||||||
| Total | $ | 7,483 | $ | 4,225 | $ | 631 | $ | 438 | ||||||||
F-17
Contract Balances
Contract assets or contract liabilities are recorded depending on the timing of revenue recognition, billings and cash collections on a contract-by-contract basis. Contract liabilities primarily relate to deferred revenue, including advance consideration received from customers for contracts prior to the transfer of control to the customer, and therefore revenue is recognized upon delivery of products and services or as the services are performed. The Company recorded contract assets of $0 and $55 at March 31, 2021 and December 31, 2020, respectively. The balance represents unbilled revenue and is included in prepaid expenses and other current assets in the accompanying consolidated balance sheets.
The following table presents the contract liabilities as of March 31, 2021 and December 31, 2020:
| March 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Deferred revenue | $ | 1,101 | $ | 1,665 | ||||
As of March 31, 2021 and December 31, 2020, contract liabilities were included as deferred revenue and classified as current liabilities in the condensed consolidated balance sheets.
During the three months ended March 31, 2021 and 2020, the Company recognized $631 and $420, respectively, of revenue related to amounts that were previously included in contract liabilities at the beginning of the period. Deferred revenue decreased $564 from December 31, 2020 to March 31, 2021 due to the timing of payments received from customers.
Revenue related to remaining performance obligations represents the amount of contracted development arrangements that has not been recognized, which includes deferred revenue on the on the unaudited condensed consolidated balance sheet and unbilled amounts that will be recognized as revenue in future periods. As of March 31, 2021, the amount of performance obligations that have not been recognized as revenue was $2,127, of which approximately 62% is expected to be recognized as revenue over the next twelve months and the remainder thereafter. This amount excludes the value of remaining performance obligations for contracts with an original expected length of one year or less. Variable consideration that has been constrained is excluded from the amount of performance obligations that have not been recognized.
Concentrations
Revenues for the three months ended March 31, 2021 and 2020 include sales to one significant customer and their subcontractors, totaling approximately $4,972, or 61%, and $3,348, or 72%, of total revenue and percentage of total revenue, respectively, for the three months ended March 31, 2021 and 2020, respectively. The loss of this customer would have a material impact on the Company’s condensed consolidated financial results.
The two largest customers represented 59% and 12% of accounts receivable as of March 31, 2021 and the two largest customers represented 35% and 12% of accounts receivable as of December 31, 2020. No other individual customer represented more than 10% of accounts receivable at either March 31, 2021 or December 31, 2020.
| 12. | Unit-Based Compensation |
Per the Company’s operating agreement, the Company may issue Class B Units (“profits interests”, “units”) to employees, directors and consultants of the Company. Class B Units entitle the holders of such units to a share of the Company’s profits and distributions of the Company’s assets to the extent their capital accounts are positive. Holders of Class B Units do not have voting rights except to the extent required by law.
The board of directors has authorized 513,846 units for grant under the operating agreement. As of March 31, 2021, 367,927 Class B Units were granted, and 145,919 units remained available for grant. All awards are subject to the terms of the Company’s operating agreement and the related Class B Unit purchase agreements, including forfeiture.
F-18
The Class B units are incentive units of the Company subject to vesting and certain restrictions. The Class B unit generally has a four-year vesting schedule, in which 25% of units vest after 12 months and the remaining 75% vest monthly over the following three-year period.
In the event of voluntary or involuntary termination of the holder of the profit interest, the Company has the right, but not the obligation, to repurchase the profit interest at fair market value (the “Repurchase Right”), at any time during the 180-day period following the cessation of service from the unit holder.
The profit interests are equity-classified awards. The Company has had a history of net losses and is in an accumulated deficit position. No compensation cost will be recognized until a change of control qualifying event is deemed probable to occur as the vested units are considered to have no value until distributions are made. Upon occurrence of a qualifying change of control performance condition, the compensation cost will be recognized in full for vested awards.
The following table summarizes activity related to profit interests for the three months ended March 31, 2021:
| Weighted- | ||||||||
| average | ||||||||
| Number of | grant date | |||||||
| units | fair value | |||||||
| Nonvested profit interests as of December 31, 2020 | 138,195 | $ | 72.68 | |||||
| Granted | - | $ | - | |||||
| Vested | (22,702 | ) | $ | 44.56 | ||||
| Forfeited | - | $ | - | |||||
| Nonvested profit interests as of March 31, 2021 | 115,493 | $ | 80.44 | |||||
As of March 31, 2021 and December 31, 2020, there was $11,745 and $11,573, respectively, of total unrecognized compensation cost related to profit interests. These unrecognized compensation costs will be recognized in full when a change of control satisfying the in-substance performance condition becomes probable.
The grant date fair value of the profit interests is determined using the Monte Carlo simulation. The significant assumptions used in valuation include the constant risk-free rate, constant volatility factor and the Geometric Brownian Motion. The following table presents the weighted average assumptions used in the valuations for grants in the three months ended March 31, 2021:
| March 31, | ||||
| 2021 | ||||
| Constant risk free rate | 0.8 | % | ||
| Constant volatility factor | 40 | % | ||
| Geometric Brownian Motion | 0.981 | |||
There were no awards granted in the three months ended March 31, 2020.
On January 29, 2021, the Company entered into agreements with employees and nonemployees for a total of 62,998 contingently issuable restricted stock awards with a grant date fair value of $6.83 per share. The awards are restricted stock awards that are issued upon the closing of the potential transaction with Thunder Bridge II and vest upon the later of 180 days after the closing date of such transaction or the stated vesting schedule. The agreements contain stated vesting terms that include performance and service conditions. The performance conditions are not considered probable, and no expense has been recognized for the awards in the three months ended March 31, 2021. The awards are settleable by the Company in common stock of the surviving entity of the potential transaction with Thunder Bridge II or in cash, at the Company’s discretion. As of March 31, 2021, there was $430 of total unrecognized compensation cost related to the contingently issuable restricted stock awards. The unrecognized compensation costs will be recognized if the performance condition becomes probable and over the required service period.
F-19
| 13. | Net Income (Loss) Per Common Unit |
Basic and diluted net income (loss) per common unit was calculated as follows:
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Numerator: | ||||||||
| Net income (loss) | $ | 10,361 | $ | (5,380 | ) | |||
| Less: Net income (loss) attributable to noncontrolling interest | (454 | ) | (259 | ) | ||||
| Net income (loss) attributable to common unitholders | $ | 10,815 | $ | (5,121 | ) | |||
| Less: Earnings attributable to participating securities | 5,372 | - | ||||||
| Net income (loss) attributable to common shareholders - basic | $ | 5,443 | $ | (5,121 | ) | |||
| Less: Change in fair value of SAFEs | 19,100 | - | ||||||
| Net income (loss) attributable to common shareholders - diluted | $ | (13,657 | ) | $ | (5,121 | ) | ||
| Denominator: | ||||||||
| Weighted average shares used to compute net income (loss) per unit attributable to common unitholders—basic | 1,161,326 | 1,114,116 | ||||||
| Effect of potential conversion of SAFEs | 249,394 | - | ||||||
| Weighted average units outstanding—diluted | 1,410,720 | 1,114,116 | ||||||
| Net income (loss) per unit attributable to unit holders— basic | $ | 4.69 | $ | (4.60 | ) | |||
| Net income (loss) per unit attributable to unit holders— diluted | $ | (9.68 | ) | $ | (4.60 | ) | ||
Prior to the issuance of the financial statements as of March 31, 2021, but after the period then ended, the Company completed a series of business transactions with Thunder Bridge II pursuant to the MTA. This transaction has materially impacted the number of shares outstanding. See Note 16 – Subsequent Events for more information regarding the transaction.
The Company’s potentially dilutive securities, which include unvested Class B Units, preferred units, warrants for Class A units, warrants for Class G units, and convertible debt, have been excluded from the computation of diluted net income (loss) per unit as the effect would be to reduce the net loss per unit. Therefore, in the three months ended March 31, 2020, the weighted average number of shares outstanding used to calculate both basic and diluted net loss per unit attributable to unitholders is the same. The Company excluded the following potential units, presented based on amounts outstanding at each period end, from the computation of diluted net loss per unit attributable to unitholders for the periods indicated because including them would have had an antidilutive effect:
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| SAFEs | - | 19,554 | ||||||
| Class B unvested units | 115,493 | 43,348 | ||||||
| Convertible preferred units | 1,146,047 | 1,141,547 | ||||||
| Warrants to purchase Class G units | 10,205 | 9,638 | ||||||
| Convertible debt into Class A and preferred units | 285,000 | 285,000 | ||||||
| 1,556,745 | 1,499,087 | |||||||
F-20
| 14. | Income Taxes |
The Company recorded a provision for income taxes of $13 and $3 for the three months ended March 31, 2021 and 2020, respectively, related to its operations in the UK. As of March 31, 2021, the Company continues to maintain a full valuation allowance against certain deferred tax assets due primarily from its history of generating net operating losses and future projection of tax losses.
| 15. | Commitments and Contingencies |
Litigation
The Company may be a party to routine claims or litigation incidental to its business. The Company does not believe that it is a party to any pending legal proceeding that is likely to have a material adverse effect on its business, financial condition or results of operations.
Lease Commitments
In July 2015, the Company entered into a five-year operating lease for its 14,881 square foot headquarters in Aliso Viejo, California, which is payable monthly with periodic rent adjustments over the lease term. The lease requires a security deposit of $30, which is recorded in other assets on the Company’s condensed consolidated balance sheets as well as a tiered, time-based letter of credit that has now reached its lowest tier of $200. Subsequently, the lease was extended through the end of June 2023.
In October 2015, the Company entered into a five-year operating lease for its Scotland Design Center in Edinburgh, Scotland, which is payable monthly with periodic rent adjustments over the lease term. The lease expired in October 2020. During 2019, the Company entered into a sub-lease agreement with a third party for the Scotland Design Center facility. Separately, effective January 2020, the Company entered into a lease for a property in Scotland. The lease agreement has a term through December 2022 and monthly rent of approximately $19.
In August 2017, the Company entered into a lease assignment and assumption agreement for its design center in Austin, Texas. Rent for the associated office is payable monthly with periodic rent adjustments over the lease term, which expires in April 2021.
In October 2017, the Company entered into a 26-month operating lease for its Wuxi sales and design center. Rent for the associated office is payable monthly with periodic rent adjustments over the lease term. The lease was subsequently extended through December 2021.
In April 2020, the Company entered into a lease for a location in Shanghai, China. The lease expires in February 2022. Rent is approximately $3 per month.
In June 2020, the Company entered into a month-to-month lease for a location in San Francisco for approximately $1 a month.
Total rent expense related to the Company’s operating leases was $236 and $212 for the three month period ended March 31, 2021 and 2020, respectively. Rent expense is recognized on a straight-lined basis over the lease term and is included in the condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 as follows:
| Three months ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Research and development | $ | 198 | $ | 170 | ||||
| Selling, general, and administrative | 37 | 42 | ||||||
| $ | 235 | $ | 212 | |||||
F-21
The following table summarizes the future minimum lease payments due under operating leases as of March 31, 2021:
| 2021 (remaining nine months) | $ | 580 | ||
| 2022 | 667 | |||
| 2023 | 237 | |||
| 2024 | - | |||
| 2025 and thereafter | - | |||
| $ | 1,484 |
Tax Distributions
To the extent the Company has funds legally available, the board of directors will approve distributions to each member, prior to March 15 of each year, in an amount per unit that, when added to all other distributions made to such member with respect to the previous calendar year, equals the estimated federal and state income tax liabilities applicable to such member as the result of its, his or her ownership of the units and the associated net taxable income allocated with respect to such units for the previous calendar year. There were no distributions approved by the board of directors or paid by the Company during the months ended March 31, 2021 and 2020.
| 16. | Subsequent Events |
For its condensed consolidated financial statements as of March 31, 2021 and the three months then ended, management reviewed and evaluated material subsequent events from the condensed consolidated balance sheet date of March 31, 2021 through June 16, 2021, the date the condensed consolidated financial statements were issued.
SAFE Issuance
During April 2021, the Company entered into SAFEs with a third-party investor for a total purchase amount of $5,000. The SAFEs require that the Company issue equity to the SAFE holders in exchange for their investment upon an equity financing (including a SPAC transaction) with an aggregate purchase price of at least $35,000.
The equity issued in exchange for the SAFEs was determined based on using a conversion price assuming a valuation cap of $460,000 at the close of the transaction with Thunder Bridge II on June 10, 2021.
PacWest Revolving Line of Credit Amendment
On June 8, 2021, the Company entered into an amendment that extended the maturity date of the revolving credit facility with PacWest to July 21, 2021. Other than the change in maturity date, there were no material changes to the terms of the credit facility.
F-22
Transactions with Thunder Bridge II
On June 10, 2021, the Company completed a series of transactions (the “Transaction”) with Thunder Bridge II pursuant to the Master Transactions Agreement dated December 14, 2020, as amended on May 31, 2021. In connection with the Transaction, Thunder Bridge II Surviving Pubco, Inc, a Delaware corporation (“Surviving Pubco”), was formed to be the successor public company to Thunder Bridge II, and a merger subsidiary of Surviving Pubco was merged with and into Thunder Bridge II. Immediately prior to the closing of the Transaction (the “Closing”), shareholders of Thunder Bridge II redeemed an aggregate of approximately 9.9 million common shares of Thunder Bridge II and the outstanding common shares and warrants of Thunder Bridge II were converted into approximately 24.6 million Class A shares of Surviving Pubco and 12.3 million warrants to purchase Class A shares of Surviving Pubco. Concurrent with the Closing, Thunder Bridge II raised $150,000 in a PIPE financing, pursuant to which Surviving Pubco issued 15 million Class A shares. Surviving Pubco changed its name to indie Semiconductor, Inc.
Immediately prior to the Transaction, (i) the Company’s existing warrants to purchase the Company’s Class G units were net exercised and 10,021 Class G units of the Company were issued to the holders of the warrants; (ii) the SAFEs were converted into an aggregate of 284,925 Class A units; (iii) the Cezanne notes and the interest accrued thereunder were converted into an aggregate of 185,000 Class A units and 100,000 Class C units; and (iv) all of the Class C, D, E, F and G units of the Company were converted into an aggregate of 1,251,566 Class A Units of the Company. Immediately thereafter, each outstanding Class A Unit and Class B units was split into approximately 27.8 Class A units and Class B units, respectively.
The Transaction was accounted for as a reverse recapitalization in accordance with GAAP. Under the guidance in ASC 805, indie Semiconductor is treated as the “acquirer” for financial reporting purposes. As such, the Company is deemed the accounting predecessor of the combined business and is the successor SEC registrant, meaning that the Company’s financial statements for previous periods will be disclosed in the registrant’s future periodic reports filed with the SEC. The most significant change in our future reported financial position and results is an estimated $400,000 in gross cash proceeds from the merger transaction and a net increase in cash (as compared to our consolidated balance sheet at December 31, 2020) of approximately $335,000. The estimate includes roughly $150,000 in proceeds from a private placement (“PIPE Investment”) that was consummated in conjunction with the Transaction offset by additional transaction costs incurred in connection with the Transaction plus the retirement of indie’s long-term debt.
F-23
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as of March 31, 2021 combines the unaudited historical condensed balance sheet of Thunder Bridge II as of March 31, 2021 with the unaudited historical condensed consolidated balance sheet of indie as of March 31, 2021, giving effect to the Business Combination, the PIPE Financing, and the Additional SAFE Agreement as if they had been consummated as of that date.
The following unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2021 and for the year ended December 31, 2020 combine the historical statements of operations of Thunder Bridge II and the historical consolidated statements of operations of indie for such periods, giving effect to the Business Combination, the PIPE Financing, and the Additional SAFE Agreement as if they had been consummated on January 1, 2020, the beginning of the earliest period presented.
The unaudited pro forma condensed combined financial statements have been derived from and should be read in conjunction with:
| ● | the accompanying notes to the unaudited pro forma condensed combined financial statements; |
| ● | the (i) audited historical financial statements of Thunder Bridge II as of and for the year ended December 31, 2020 and (ii) unaudited historical condensed financial statements of Thunder Bridge II as of and for the three months ended March 31, 2021 and the related notes, in each case, incorporated by reference in this Current Report; |
| ● | the (i) audited historical consolidated financial statements of indie as of and for the year ended December 31, 2020 and (ii) unaudited historical condensed consolidated financial statements of indie as of and for the three months ended March 31, 2021 and the related notes, in each case, incorporated by reference in this Current Report; and |
| ● | the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Thunder Bridge II” and other financial information incorporated by reference and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of indie” and other financial information included elsewhere and incorporated by reference in this Current Report. |
The unaudited pro forma condensed combined financial information is for illustrative purposes only and is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination, the PIPE Financing, and the Additional SAFE Agreement taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the combined company.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE
SHEET
AS OF MARCH 31, 2021
(in thousands, except share and per share amounts)
| Actual | ||||||||||||||||||||||||
| Historical | Redemptions | |||||||||||||||||||||||
| Business | ||||||||||||||||||||||||
| 5(A) Thunder | 5(B) | Additional SAFE | Combination and PIPE | Pro Forma Balance | ||||||||||||||||||||
| Bridge II | indie | Agreement | Financing | Sheet | ||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | 76 | $ | 8,873 | $ |
5,000 | 5 | (a) | $ | 335,733 | 5 | (b) | $ | 349,682 | ||||||||||
| Accounts receivable, net | - | 7,022 | - | - | 7,022 | |||||||||||||||||||
| Inventory, net | - | 3,638 | - | - | 3,638 | |||||||||||||||||||
| Prepaid expenses and other current assets | 93 | 2,813 | - | (1,707 | ) | 5 | (c) | 1,199 | ||||||||||||||||
| Total current assets | 169 | 22,346 | 5,000 | 334,026 | 361,541 | |||||||||||||||||||
| Property and equipment, net | - | 2,153 | - | - | 2,153 | |||||||||||||||||||
| Intangible assets, net | - | 665 | - | - | 665 | |||||||||||||||||||
| Goodwill | - | 1,739 | - | - | 1,739 | |||||||||||||||||||
| Other assets and deposits | - | 154 | - | - | 154 | |||||||||||||||||||
| Cash and marketable securities held in trust account | 349,592 | - | - | (349,592 | ) | 5 | (d) | - | ||||||||||||||||
| Total assets | $ | 349,761 | $ | 27,057 | $ | 5,000 | $ | (15,566 | ) | $ | 366,252 | |||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||
| Accounts payable | $ | 1,033 | $ | 5,103 | $ | - | $ | (1,033 | ) | 5 | (e) | $ | 5,103 | |||||||||||
| Accrued expenses and other current liabilities | - | 3,184 | - | (881 | ) | 5 | (f) | 2,303 | ||||||||||||||||
| Promissory note payable - related party | 937 | - | - | (937 | ) | 5 | (e) | - | ||||||||||||||||
| Intangible asset contract liability | - | 2,098 | - | - | 2,098 | |||||||||||||||||||
| Deferred revenue | - | 1,101 | - | - | 1,101 | |||||||||||||||||||
| Simple agreements for future equity | - | 83,600 | 9,679 | 5 | (a) | (93,279 | ) | 5 | (g) | - | ||||||||||||||
| Current debt obligations | - | 9,410 | - | (7,277 | ) | 5 | (h) | 2,133 | ||||||||||||||||
| Warrant liability | 57,615 | - | - | - | 57,615 | |||||||||||||||||||
| Total current liabilities | 59,585 | 104,496 | 9,679 | (103,407 | ) | 70,353 | ||||||||||||||||||
| Long-term debt, net of current portion | - | 11,524 | - | (11,524 | ) | 5 | (h) | - | ||||||||||||||||
| Intangible asset contract liability, net of current portion | - | 250 | - | - | 250 | |||||||||||||||||||
| Other long-term liabilities | - | 1,970 | - | (161 | ) | 5 | (f) | 1,809 | ||||||||||||||||
| Contingent consideration | - | - | - | 127,860 | 5 | (i) | 127,860 | |||||||||||||||||
| Deferred underwriting fee payable | 12,075 | - | - | (12,075 | ) | 5 | (e) | - | ||||||||||||||||
| Total liabilities | 71,660 | 118,240 | 9,679 | 693 | 200,272 | |||||||||||||||||||
| Thunder Bridge II Ordinary shares subject to possible redemption | 349,592 | - | - | (349,592 | ) | 5 | (j) | - | ||||||||||||||||
| Shareholders’ Equity | ||||||||||||||||||||||||
| indie Class A and B units | - | - | - | - | - | |||||||||||||||||||
| indie Class C, D, E, F, G and H units | - | 42,179 | - | (42,179 | ) | 5 | (k) | - | ||||||||||||||||
| Thunder Bridge II Preferred shares, $0.0001 par value | - | - | - | - | - | |||||||||||||||||||
| Thunder Bridge II Class A ordinary shares, $0.0001 par value | - | - | - | - | - | |||||||||||||||||||
| Thunder Bridge II Class B ordinary shares, $0.0001 par value | 1 | - | - | (1 | ) | 5 | (k) | - | ||||||||||||||||
| Surviving Pubco Preferred stock, $0.0001 par value | - | - | - | - | - | |||||||||||||||||||
| Surviving Pubco Class A common stock, $0.0001 par value | - | - | - | 10 | 5 | (k) | 10 | |||||||||||||||||
| Surviving Pubco Class V common stock, no par value | - | - | - | - | - | |||||||||||||||||||
| Additional paid-in capital | - | 982 | - | 296,325 | 5 | (k) | 297,307 | |||||||||||||||||
| Accumulated deficit | (71,492 | ) | (142,449 | ) | (4,679 | ) | 5 | (a) | 104,356 | 5 | (k) | (114,264 | ) | |||||||||||
| Accumulated other comprehensive loss | - | (297 | ) | - | 75 | 5 | (k) | (222 | ) | |||||||||||||||
| Total shareholders’ equity attributable to common shareholders | (71,491 | ) | (99,585 | ) | (4,679 | ) | 358,586 | 5 | (k) | 182,831 | ||||||||||||||
| Noncontrolling interest | - | 8,402 | - | (25,253 | ) | 5 | (l) | (16,851 | ) | |||||||||||||||
| Total shareholders’ equity | (71,491 | ) | (91,183 | ) | (4,679 | ) | 333,333 | 165,980 | ||||||||||||||||
| Total liabilities, ordinary shares subject to possible redemption and shareholders’ equity | $ | 349,761 | $ | 27,057 | $ | 5,000 | $ | (15,566 | ) | $ | 366,252 | |||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial information.
2
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(in thousands, except share and per share amounts)
| Actual | |||||||||||||||||||||||
| Historical | Redemptions | ||||||||||||||||||||||
| 6(A) Thunder |
6(B) | Additional SAFE |
Business Combination and PIPE |
Pro Forma Statement of |
|||||||||||||||||||
| Bridge II | indie | Agreement | Financing | Operations | |||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Product revenue | $ | - | $ | 7,483 | $ | - | $ | - | $ | 7,483 | |||||||||||||
| Contract revenue | - | 631 | - | - | 631 | ||||||||||||||||||
| Total Revenue | - | 8,114 | - | - | 8,114 | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Cost of goods sold | - | 4,848 | - | - | 4,848 | ||||||||||||||||||
| Research and development | - | 8,677 | - | 818 | 6 | (b) | 9,495 | ||||||||||||||||
| Selling, general, and administrative | - | 2,695 | - | 188 | 6 | (b) | 2,883 | ||||||||||||||||
| Formation costs and other operating expenses | 1,068 | - | - | (90 | ) | 6 | (c) | 978 | |||||||||||||||
| Total operating expenses | 1,068 | 16,220 | - | 916 | 18,204 | ||||||||||||||||||
| Loss from operations | (1,068 | ) | (8,106 | ) | - | (916 | ) | (10,090 | ) | ||||||||||||||
| Other income (expense), net: | |||||||||||||||||||||||
| Interest income | 9 | 7 | - | (9 | ) | 6 | (d) | 7 | |||||||||||||||
| Interest expense | - | (620 | ) | - | 598 | 6 | (e) | (22 | ) | ||||||||||||||
| Change in fair value of warrant liability | 39,567 | - | - | - | 39,567 | ||||||||||||||||||
| Other income (expense) | - | 19,093 | - | (19,100 | ) | 6 | (f) | (7 | ) | ||||||||||||||
| Total other income (expense), net | 39,576 | 18,480 | - | (18,511 | ) | 39,545 | |||||||||||||||||
| Income (loss) before income taxes | 38,508 | 10,374 | - | (19,427 | ) | 29,455 | |||||||||||||||||
| Income tax expense | - | (13 | ) | - | - | 6 | (g) | (13 | ) | ||||||||||||||
| Net income (loss) | 38,508 | 10,361 | - | (19,427 | ) | 29,442 | |||||||||||||||||
| Net loss attributable to noncontrolling interest | - | (454 | ) | - | 7,581 |
6 | (h) | 7,127 |
|||||||||||||||
| Net income (loss) attributable to common shareholders | $ | 38,508 | $ | 10,815 | $ | - | $ | (27,008 |
) | $ | 22,315 | ||||||||||||
| Weighted average common shares outstanding - basic | 8,625,000 | 1,161,326 | 98,032,485 | 6(i) | |||||||||||||||||||
| Weighted average common shares outstanding - diluted | 8,625,000 | 1,410,720 | 98,032,485 | 6(i) | |||||||||||||||||||
| Basic net income (loss) per share | $ | 4.46 | $ | 4.69 | $ | 0.23 | 6(i) | ||||||||||||||||
| Diluted net income (loss) per share | $ | 4.46 | $ | (9.68 | ) | $ | 0.23 | 6(i) | |||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial information.
3
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2020
(in thousands, except share and per share amounts)
| Actual | ||||||||||||||||||||||||||
| Historical | Redemptions | |||||||||||||||||||||||||
| Business | Pro Forma | |||||||||||||||||||||||||
| 6(C) | 6(D) | Additional | Combination | Statement | ||||||||||||||||||||||
| Thunder Bridge II | indie | SAFE Agreement | and PIPE Financing | of Operations |
||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||
| Product revenue | $ | - | $ | 19,488 | $ | - | $ | - | $ | 19,488 | ||||||||||||||||
| Contract revenue | - | 3,122 | - | - | 3,122 | |||||||||||||||||||||
| Total Revenue | - | 22,610 | - | - | 22,610 | |||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||
| Cost of goods sold | - | 13,042 | - | - | 13,042 | |||||||||||||||||||||
| Research and development | - | 22,013 | - | 827 | 6 | (b) | 22,840 | |||||||||||||||||||
| Selling, general, and administrative | - | 6,796 | - | 759 | 6 | (b) | 7,555 | |||||||||||||||||||
| Formation costs and other operating expenses | 1,621 | - | - | (360 | ) | 6 | (c) | 1,261 | ||||||||||||||||||
| Total operating expenses | 1,621 | 41,851 | - | 1,226 | 44,698 | |||||||||||||||||||||
| Loss from operations | (1,621 | ) | (19,241 | ) | - | (1,226 | ) | (22,088 | ) | |||||||||||||||||
| Other income (expense), net: | ||||||||||||||||||||||||||
| Interest income | 2,122 | 25 | - | (2,122 | ) | 6 | (d) | 25 | ||||||||||||||||||
| Interest expense | - | (2,193 | ) | - | 435 | 6 | (e) | (1,758 | ) | |||||||||||||||||
| Change in fair value of warrant liability | (73,794 | ) | - | - | - | (73,794 | ) | |||||||||||||||||||
| Other income (expense) | - | (76,926 | ) | (4,679 | ) | 6 | (a) | 81,614 | 6 | (f) | 9 | |||||||||||||||
| Total other income (expense), net | (71,672 | ) | (79,094 | ) | (4,679 | ) | 79,927 | (75,518 | ) | |||||||||||||||||
| Income (loss) before income taxes | (73,293 | ) | (98,335 | ) | (4,679 | ) | 78,701 | (97,606 | ||||||||||||||||||
| Income tax expense | - | (29 | ) | - | - | 6 | (g) | (29 | ) | |||||||||||||||||
| Net income (loss) | (73,293 | ) | (98,364 | ) | (4,679 | ) | 78,701 | (97,635 | ||||||||||||||||||
| Net loss attributable to noncontrolling interest | - | (866 | ) | - | (24,539 | ) | 6 | (h) | (25,405 | ) | ||||||||||||||||
| Net income (loss) attributable to common shareholders | $ | (73,293 | ) | $ | (97,498 | ) | $ | (4,679 | ) | $ | 103,240 | $ | (72,230 | ) | ||||||||||||
| Weighted average common shares outstanding, basic and diluted | 8,625,000 | 1,124,864 | 98,032,485 | 6(i) | ||||||||||||||||||||||
| Basic and diluted net loss per share | $ | (8.74 | ) | $ | (86.68 | ) | $ | (0.74 | ) | 6(i) | ||||||||||||||||
See accompanying notes to the unaudited pro forma condensed combined financial information.
4
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. Description of the Transactions
The Business Combination
On December 14, 2020, Thunder Bridge II entered into the MTA with Surviving Pubco, the Merger Subs, indie, the ADK Blocker Group, ADK Service Provider Holdco and the indie Securityholder Representative.
As a result of the Domestication and the Business Combination, each issued and outstanding Class A ordinary share and Class B ordinary share of Thunder Bridge II was converted into a share of Class A common stock of the Company, and each issued and outstanding warrant to purchase Class A ordinary shares of Thunder Bridge II is exercisable by its terms to purchase an equal number of shares of Class A common stock of the Company.
Subject to the terms and conditions set forth in the MTA, at the Effective Time, the limited liability company interests of each indie Equity Holder automatically converted into the right to receive (i) the Merger Consideration consisting of either Class A common stock of the Company or the right to exchange Post-Merger indie Units into Class A common stock of the Company, and (ii) any shares of Class A common stock of the Company or Post-Merger indie Units issued pursuant to an earn-out as discussed elsewhere in this Current Report.
The Merger Consideration paid by Thunder Bridge II pursuant to the MTA was $894.6 million, subject to adjustment, paid as an aggregate of 89,462,823 shares of Class A common stock of the Company or rights to receive shares of Class A common stock of the Company (valued at $10.00 per share) or Post-Merger indie Units (valued at $10.00 per unit) (each of which units will be exchangeable on a one-for-one basis for shares of Class A common stock pursuant to the Exchange Agreement, subject to customary conversion rate adjustments, including common stock splits, stock dividends and reclassifications). The Merger Consideration was reduced by any amount that the Target Companies’ indebtedness at Closing exceeded the Target Companies’ cash and cash equivalents at Closing. Additionally, certain recipients of Post-Merger indie Units received an identical amount of shares of Class V common stock of the Company having no economic rights, each of which shares of Class V common stock entitles the holder thereof the right to one vote as a stockholder of the Company. After the six-month anniversary of the Closing, holders of Post-Merger indie Units will be permitted to exchange such units for shares of Class A common stock of the Company on a one-for-one basis pursuant to the Exchange Agreement (subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications), and upon any such conversion an identical number of Class V common stock shall be automatically cancelled.
In addition to the consideration set forth above, the indie Equity Holders and holders of Phantom Equity Units (once vested) will also have a contingent earn-out right to receive the Earn-Out Shares after the Closing based on the stock price of the Company at any time prior to December 31, 2027 as set forth below:
| ● | If prior to December 31, 2027, the volume weighted average price of the Class A common stock is greater than or equal to $12.50 over any 20 trading days within any 30 trading day period, the indie Equity Holders will be entitled to receive 5,000,000 Earn-Out Shares; and |
| ● | If prior to December 31, 2027, the volume weighted average price of the Class A common stock is greater than or equal to $15.00 over any 20 trading days within any 30 trading day period, the indie Equity Holders will be entitled to receive another 5,000,000 Earn-Out Shares. |
Certain indie Equity Holders who hold Post-Merger indie Units and holders of Phantom Equity Units shall receive their respective share of the Earn-Out Shares as additional Post-Merger indie Units, calculated in accordance with the MTA and subject to exchange into Class A common stock pursuant to the Exchange Agreement.
Notwithstanding the foregoing, if there is a Company Sale (as defined in the MTA) after the Closing and prior to December 31, 2027, where the implied per share consideration received by the stockholders of the Company in such sale is greater than $10.00 per share, then all of the remaining unpaid Earn-Out Shares will be deemed to be earned and paid out to the indie Equity Holders (less any Earn-Out Shares paid in satisfaction of certain transaction expenses).
5
The Earn-Out Shares issuable to indie Equity Holders are accounted for as contingent consideration in accordance with ASC 805, Business Combinations. The contingent consideration is not considered indexed to the Company’s own stock and is therefore classified as a liability in the unaudited pro forma condensed combined balance sheet and will be remeasured to fair value at each reporting date (see Note 5(i)).
The PIPE Financing
Contemporaneously with the execution of the MTA, Thunder Bridge II entered into separate Subscription Agreements with a number of subscribers (the “PIPE Investors”), pursuant to which the subscribers agreed to purchase, and Thunder Bridge II agreed to sell, an aggregate of up to 15,000,000 shares of Class A common stock of the Company (the “PIPE Shares”), in a private placement for a purchase price of $10.00 per share and an aggregate purchase price of $150 million (the “PIPE Financing”).
The closing of the sale of the PIPE Shares pursuant to the Subscription Agreements occurred concurrently Closing of the Business Combination. The purpose of the PIPE Financing was to raise additional capital for use by the Company following the Closing.
The Additional SAFE Agreement
During April 2021, indie entered into a simple agreement for future equity (SAFE) with a third-party investor for a total purchase amount of $5.0 million (the “Additional SAFE Agreement”). The terms of the Additional SAFE Agreement are substantially the same as those issued in March and October 2020, except that the conversion cap is based on a $460 million valuation cap. Such cap will be reduced to $350 million if the Business Combination is not closed within 75 days of the funding of the Additional SAFE. The Additional SAFE Agreement issued in April 2021 has not been reflected in indie’s historical consolidated financial statements as of March 31, 2021 but is a converting security with respect to the Business Combination.
2. Basis of Presentation
The unaudited pro forma condensed combined financial statements were prepared in accordance with Article 11 of SEC Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or reasonably expected to occur (“Management’s Adjustments”). Thunder Bridge II has elected not to present Management’s Adjustments and will only be presenting Transaction Accounting Adjustments in the unaudited pro forma condensed combined financial information. The adjustments presented in the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an understanding of the combined company upon consummation of the Business Combination, the PIPE Financing, and the Additional SAFE Agreement.
The unaudited pro forma condensed combined balance sheet as of March 31, 2021 gives effect to the Business Combination, the PIPE Financing, and the Additional SAFE Agreement as if they occurred on March 31, 2021. The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2021 and for the year ended December 31, 2020 give effect to the Business Combination, the PIPE Financing, and the Additional SAFE Agreement as if they occurred on January 1, 2020, the beginning of the earliest period presented.
The pro forma adjustments reflecting the consummation of the Business Combination, the PIPE Financing, and the Additional SAFE Agreement are based on certain currently available information and certain assumptions and methodologies that Thunder Bridge II believes are reasonable under the circumstances. Thunder Bridge II believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination, the PIPE Financing, and the Additional SAFE Agreement based on information available to management at this time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial information.
6
The unaudited pro forma condensed combined financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Business Combination. Thunder Bridge II and indie have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies. Amounts are presented in thousands, except for share and per share amounts or as otherwise specified.
The unaudited pro forma condensed combined financial information has been prepared using actual redemptions of 9,877,106 Thunder Bridge II outstanding ordinary shares for aggregate redemption payments of $100.1 million out of the trust account on the closing date of the Business Combination. No other Thunder Bridge II ordinary shares are subject to redemption.
These unaudited pro forma condensed combined financial statements and related notes have been derived from and should be read in conjunction with:
| ● | the (i) audited historical financial statements of Thunder Bridge II as of and for the year ended December 31, 2020 and (ii) unaudited historical condensed financial statements of Thunder Bridge II as of and for the three months ended March 31, 2021 and the related notes, in each case, incorporated by reference in this Current Report; |
| ● | the (i) audited historical consolidated financial statements of indie as of and for the year ended December 31, 2020 and (ii) unaudited historical condensed consolidated financial statements of indie as of and for the three months ended March 31, 2021 and the related notes, in each case, incorporated by reference in this Current Report; and |
| ● | the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Thunder Bridge II” and other financial information incorporated by reference and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of indie” and other financial information included elsewhere and incorporated by reference in this Current Report. |
The unaudited pro forma condensed combined financial information is for illustrative purposes only and is not necessarily indicative of what the actual results of operations and financial position would have been had the Business Combination, the PIPE Financing, and the Additional SAFE Agreement taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the combined company.
3. Accounting for the Business Combination
The Business Combination will be accounted for as a reverse recapitalization, in accordance with GAAP. Under this method of accounting, although Thunder Bridge II will issue shares for outstanding equity interests of indie in the Business Combination, Thunder Bridge II will be treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination will be treated as the equivalent of indie issuing stock for the net assets of Thunder Bridge II, accompanied by a recapitalization. The net assets of Thunder Bridge II will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be those of indie.
indie has been determined to be the accounting acquirer based on the evaluation of the following facts and circumstances:
| ● | The former owners of indie hold the largest portion of voting rights in the combined company; |
| ● | indie has the right to appoint a majority of the directors in the combined company; |
| ● | indie’s existing senior management team will comprise senior management of the combined company; |
| ● | The operations of the combined company will represent the operations of indie; |
| ● | The combined company will assume indie’s name and headquarters. |
7
4. Capitalization
The following summarizes the pro forma ownership of Class A common stock of the Surviving Pubco following the Business Combination, the PIPE Financing, and the Additional SAFE Agreement:
| Equity Capitalization Summary | Class A | Class V | Total | Voting % | ||||||||||||
| indie Equity Holders(1) | 53,234,591 | 33,827,355 | 87,061,946 | 64.3 | % | |||||||||||
| Thunder Bridge II Public Shareholders(2) | 24,622,894 | - | 24,622,894 | 18.2 | % | |||||||||||
| Thunder Bridge II Sponsor(3) | 8,625,000 | - | 8,625,000 | 6.4 | % | |||||||||||
| PIPE Investors(4) | 15,000,000 | - | 15,000,000 | 11.1 | % | |||||||||||
| Total common stock of Surviving Pubco | 101,482,485 | 33,827,355 | 135,309,840 | 100.0 | % | |||||||||||
| (1) | As a result of the Business Combination, indie Equity Holders received an aggregate of 53,234,591 shares of Surviving Pubco Class A common stock, 33,827,355 shares of Surviving Pubco Class V common stock, 34,476,864 Post-Merger indie Units, and 1,751,368 Phantom Equity Units in indie. |
| (2) | Reflects Redemptions of 9,877,106 Class A ordinary shares of Thunder Bridge II for aggregate Redemption payments of $100.1 million at a per-share Redemption Price of $10.13 (due to investment related gains in the Trust Account). |
| (3) | Includes 3,450,000 shares of Class A common stock placed in escrow and subject to return and cancellation by the Company pursuant to the Sponsor Letter Agreement. |
| (4) | Reflects the consummation of the PIPE Financing for aggregate proceeds of $150 million, with 15,000,000 shares of Class A common stock issued to the PIPE Investors. |
5. Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2021
The pro forma notes and adjustments are as follows (in thousands):
Pro forma notes
| (A) | Derived from the unaudited condensed balance sheet of Thunder Bridge II as of March 31, 2021. |
| (B) | Derived from the unaudited condensed consolidated balance sheet of indie as of March 31, 2021. |
Pro forma adjustments
| (a) | To reflect the impact of the Additional SAFE Agreement issued in the second quarter of 2021, including cash proceeds of $5,000, the fair value of $9,679, and the resulting charge to Other income (expense) at issuance of $4,679. |
| (b) | To reflect the net cash proceeds from the Business Combination and the PIPE Financing as follows: |
| Release of Trust Account | $ | 349,592 | 5 | (d) | ||||
| Redemptions of Thunder Bridge II Class A shares | (100,087 | ) | 5 | (k) | ||||
| Payment of Thunder Bridge II accounts payable | (1,033 | ) | 5 | (e) | ||||
| Payment of Thunder Bridge II promissory note payable | (937 | ) | 5 | (e) | ||||
| Payment of Thunder Bridge II deferred underwriting fee payable | (12,075 | ) | 5 | (e) | ||||
| Redemption of indie Class H Units | (900 | ) | 5 | (k) | ||||
| Repayment of indie long-term debt | (15,868 | ) | 5 | (h) | ||||
| Payment of accrued interest on indie long-term debt | (554 | ) | 5 | (f) | ||||
| Payment of early-payment penalties and termination fees on indie long-term debt | (1,080 | ) | 5 | (k) | ||||
| Payment of transaction expenses | (31,325 | ) | 5 | (k) | ||||
| Proceeds from PIPE Financing | 150,000 | 5 | (k) | |||||
| Cash and cash equivalents | $ | 335,733 |
| (c) | To reflect the reclassification of $1,707 of deferred transaction expenses to additional paid-in capital (see Note 5(k)). |
8
| (d) | To reflect the release of $349,592 from the Trust Account (see Note 5(b)). |
| (e) | To reflect the payment of Thunder Bridge II’s pre-combination liabilities, including $1,033 of accounts payable, a $937 promissory note payable and the settlement of $12,075 of deferred underwriting fees incurred during Thunder Bridge II’s IPO that are contractually due upon completion of the Business Combination (see Note 5(b)). |
| (f) | To reflect the settlement of accrued interest as follows: |
| Payment of accrued interest on indie long-term debt | $ | (554 | ) | 5 | (b) | |||
| Conversion of accrued interest on indie convertible debt | (488 | ) | 5 | (k) | ||||
Accrued expenses and other current liabilities and Other long-term liabilities | $ | (1,042 | ) |
| (g) | To reflect the conversion of indie’s SAFE agreements into indie membership units and simultaneous exchange for shares of Surviving Pubco common stock, including $83,600 outstanding at March 31, 2021 and $9,679 Additional SAFE Agreement issued during the second quarter of 2021 (see Notes 5(a) and 5(k)). |
| (h) | To reflect the repayment and conversion of indie’s long-term debt as follows: |
| Repayment of indie long-term debt | $ | (15,868 | ) | 5 | (b) | |||
| Write-off of unamortized discount and debt issuance costs in connection with repayment of indie long-term debt | |
|
593 |
|
|
|
5 |
(k) |
| Conversion of indie convertible debt | (3,526 | ) | 5 | (k) | ||||
| Long-term debt | $ | (18,801 | ) |
| (i) | To record contingent consideration for the estimated fair value of the Earn-Out Shares to be issued to indie Equity Holders pursuant to the MTA and Sponsor Escrow Shares to be issued to the Sponsor pursuant to the Sponsor Letter Agreement upon the achievement of the Earn Out Milestones (see Note 5(k)). |
| (j) | To reflect the redemption of 9,877,106 Class A ordinary shares of Thunder Bridge II for aggregate Redemption payments of $100,087 and the transfer of $249,505 to permanent equity upon consummation of the Business Combination as no other Thunder Bridge II ordinary shares remain subject to redemption (see Notes 5(b) and 5(k)). |
| (k) | To reflect the recapitalization of the combined company through the exchange of all the share capital of Thunder Bridge II and indie for common stock of Surviving Pubco and the following equity transactions: |
| Reclassification of ordinary shares subject to possible redemption | $ | 349,592 | 5 | (j) | ||||
| Redemptions of Thunder Bridge II Class A shares | (100,087 | ) | 5 | (b) | ||||
| Conversion of indie SAFE agreements | 93,279 | 5 | (g) | |||||
| Conversion of indie convertible debt | 3,526 | 5 | (h) | |||||
| Conversion of accrued interest on indie convertible debt | 488 | 5 | (f) | |||||
| Redemption of indie Class H Units | (900 | ) | 5 | (b) | ||||
| Payment of early-payment penalties and termination fees on indie long-term debt | (1,080 | ) | 5 | (b) | ||||
| Write-off of unamortized discount and debt issuance costs in connection with repayment of indie long-term debt | |
|
(593 |
) |
|
|
5 |
(h) |
| Payment of transaction expenses | (33,032 | ) | 5 | (b) | ||||
| Proceeds from PIPE Financing | 150,000 | 5 | (b) | |||||
| Contingent consideration | (127,860 | ) | 5 | (i) | ||||
| Reclassification of noncontrolling interest in indie | 25,253 | 5 | (l) | |||||
| Total shareholders’ equity | $ | 358,586 |
| (l) | In connection with the Business Combination, certain indie Equity Holders received their merger consideration in the form of 34,476,864 Post-Merger indie Units. These Post-Merger indie Units retained in indie represent a noncontrolling interest in the consolidated financial statements of the Surviving Pubco. The noncontrolling interest is measured based on the pre-combination carrying amounts of indie’s net assets (see Note 5(k)). |
9
6. Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations for the Three Months Ended March 31, 2021 and for the Year Ended December 31, 2020
The pro forma notes and adjustments are as follows (in thousands):
Pro forma notes
| (A) | Derived from the unaudited condensed statement of operations of Thunder Bridge II for the three months ended March 31, 2021. |
| (B) | Derived from the unaudited condensed consolidated statement of operations of indie for the three months ended March 31, 2021. |
| (C) | Derived from the audited statement of operations of Thunder Bridge II for the year ended December 31, 2020. |
| (D) | Derived from the audited consolidated statement of operations of indie for the year ended December 31, 2020. |
Pro forma adjustments
| (a) | To reflect the impact of the Additional SAFE Agreement issued in the second quarter of 2021 and the resulting charge to Other income (expense) at issuance of $4,679 as of January 1, 2020. |
| (b) | To record share-based compensation expense related to vested indie Class B Units. |
| (c) | To eliminate fees incurred by Thunder Bridge II under the administrative services and advisory agreements which will cease upon closing of the Business Combination. |
| (d) | To eliminate interest income earned on the Trust Account which will be released upon closing of the Business Combination. |
| (e) | To write off unamortized discount and debt issuance costs and recognize the payment of early-payment penalties as of January 1, 2020 and eliminate interest expense and amortization of discount and debt issuance costs on indie’s long-term debt to be repaid or converted to equity upon closing of the Business Combination. |
| (f) | To eliminate the loss on remeasurement of the SAFEs to be converted to equity upon closing of the Business Combination. |
| (g) | As a result of the combined company’s Up-C structure, the Surviving Pubco will be a tax-paying entity. However, as the Company has historically been loss-making, any deferred tax assets created as a result of net operating losses would be offset by a full valuation allowance resulting in no income tax expense adjustments to be presented in the unaudited pro forma condensed combined statement of operations. |
| (h) | In connection with the Business Combination, certain indie Equity Holders received their merger consideration in the form of 34,476,864 Post-Merger indie Units. These Post-Merger indie Units retained in indie represent a noncontrolling interest in the consolidated financial statements of the Surviving Pubco. |
| (i) | The pro forma basic and diluted earnings per share amounts presented in the unaudited pro forma condensed combined statement of operations are based upon the number of Surviving Pubco shares outstanding at the closing of the Business Combination, the PIPE Financing, and the Additional SAFE Agreement assuming they each occurred on January 1, 2020. |
10
Exhibit 99.4
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF INDIE
Unless the context otherwise requires, all references in this section to the “Company,” “we,” “us, or “our” refer to the business of indie and its subsidiaries prior to the consummation of the Business Combination. Throughout this section, unless otherwise noted, “indie” refers to indie Semiconductor, and its consolidated subsidiaries.
The following discussion and analysis provides information that management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. You should read this discussion and analysis in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Current Report on Form 8-K and our unaudited pro forma financial information as of and for the three months ended March 31, 2021 included elsewhere in this Current Report on Form 8-K, of which this Management’s Discussion and Analysis of Financial Condition and Results of Operations forms a part. Certain amounts may not foot due to rounding. This discussion and analysis contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included in the final Proxy Statement/Prospectus dated May 14, 2021 and filed with the Securities and Exchange Commission. We assume no obligation to update any of these forward-looking statements except as required by law. Actual results may differ materially from those contained in any forward-looking statements.
OUR COMPANY
indie Semiconductor offers highly innovative automotive semiconductors and software solutions for Advanced Driver Assistance Systems (ADAS), including light detection and ranging (“LiDAR”), connected car, user experience and electrification applications. These functions represent the core underpinnings of both electric and autonomous vehicles, while the advanced user interfaces are transforming the in-cabin experience to mirror and seamlessly connect to the mobile platforms we rely on every day. We are an approved vendor to Tier 1 automotive suppliers and its platforms can be found in marquee automotive manufacturers around the world. Headquartered in Aliso Viejo, California, we have design centers and sales offices in Austin, Texas, Boston, Massachusetts, Detroit, Michigan, San Francisco and San Jose, California, Dresden, Germany, Edinburgh, Scotland, and various locations in China.
We maintain design centers for our semiconductor engineers and designers in the United States, Scotland and China. We engage subcontractors to manufacture our products. These subcontractors, as well as the majority of our customers’ locations, are primarily in Asia. For the three months ended March 31, 2021 and 2020, approximately 84% and 66%, respectively, of our product revenues were recognized for shipments to customer locations in Asia.
Since our inception, we have devoted substantially all of our efforts to organizing and staffing our company, research and development activities, producing devices and making sales to customers, raising capital and providing general and administrative support for these operations. Historically, we principally raised capital through the issuance and sale of our member units to outside investors in private equity financings, convertible debt financing and SAFEs. On June 10, 2021, we completed a series of transactions (the “Transaction”) with Thunder Bridge Acquisition II, Ltd (“Thunder Bridge II”) pursuant to the Master Transactions Agreement dated December 14, 2020, as amended on May 31, 2021 (the “MTA”). In connection with the Transaction, Thunder Bridge II Surviving Pubco, Inc, a Delaware corporation (“Surviving Pubco”), was formed to be the successor public company to Thunder Bridge II, and a merger subsidiary of Surviving Pubco was merged with and into Thunder Bridge II. The most significant change in our future reported financial position and results is an estimated $400 million in gross cash proceeds from the merger transaction and a net increase in cash (as compared to our consolidated balance sheet at December 31, 2020) of approximately $335 million. The estimate includes roughly $150 million in proceeds from a private placement (“PIPE Investment”) that was consummated in conjunction with the Transaction, offset by additional transaction costs incurred in connection with the Transaction plus the retirement of indie’s long-term debt.
We have incurred significant operating losses since inception. Our net operating losses were $8.1 million and $4.5 million for the three months ended March 31, 2021 and 2020, respectively, of which $0.5 million and $0.3 million, respectively, was attributable to the non-controlling interest. In addition, as of March 31, 2021 and December 31, 2020, we had an accumulated deficit of $142.4 million and $153.3, respectively.
Impact of COVID-19
In December 2019, COVID-19 was first reported to the World Health Organization (“WHO”), and in January 2020, the WHO declared the outbreak to be a public health emergency. In March 2020, the WHO characterized COVID-19 as a pandemic. Since then, the COVID-19 pandemic (the “Pandemic”) and efforts to control its spread have significantly curtailed the movement of people, goods, and services worldwide. The duration and extent of the Pandemic depends on future developments that cannot be accurately predicted at this time, such as the extent and effectiveness of containment and mitigation actions. It has already had an adverse effect on the global economy, and the ultimate societal and economic impact of the Pandemic remains unknown.
We experienced a decrease in customer demand and product shipments in the second quarter of fiscal year 2020. This decrease was primarily the result of closures or reduced capacity at customer manufacturing facilities in China. During the second half of fiscal year 2020, customer manufacturing facilities re-opened and demand increased. We have transitioned to a remote work environment for our employees since second fiscal quarter of 2020 and reduced discretionary spending. As customer demand increased during the second half of fiscal year 2020, the semiconductor industry, and automotive semiconductors in particular, experienced material shortages and supply constraints. Given our reliance on third-party manufacturing suppliers, these industry dynamics have resulted in certain instances of extended production lead times, increased production and expedite costs, and delays in meeting increasing customer demand for its products, which if unabated, present a significant risk us. In certain circumstances, we have increased order lead times and placed purchase orders with suppliers based on our anticipated demand requirements for the balance of 2021 in efforts to secure production capacity allocation. However, we cannot predict the duration or magnitude of the pandemic or the full impact that it may have on our financial condition, operations, and workforce. We will continue to actively monitor the rapidly evolving situation related to the Pandemic and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of its employees and other third parties with whom we do business.
2
Comparison of the Three Months Ended March 31, 2021 and 2020
The table and discussion below present our results of operations for the three months ended March 31, 2021 and 2020:
| Three Months Ended March 31, | Change | Change | ||||||||||||||
| (dollars in thousands) | 2021 | 2020 | $ | % | ||||||||||||
| Revenue: | ||||||||||||||||
| Product revenue | $ | 7,483 | $ | 4,225 | $ | 3,258 | 77 | % | ||||||||
| Contract revenue | 631 | 438 | 193 | 44 | % | |||||||||||
| Total revenue | 8,114 | 4,663 | 3,451 | 74 | % | |||||||||||
| Operating expenses: | ||||||||||||||||
| Cost of goods sold | (4,848 | ) | (2,880 | ) | (1,968 | ) | 68 | % | ||||||||
| Research and development | (8,677 | ) | (4,835 | ) | (3,842 | ) | 79 | % | ||||||||
| Selling, general and administrative | (2,695 | ) | (1,486 | ) | (1,209 | ) | 81 | % | ||||||||
| Total operating expenses | (16,220 | ) | (9,201 | ) | ||||||||||||
| Loss from operations | (8,106 | ) | (4,538 | ) | ||||||||||||
| Other income (expense), net: | ||||||||||||||||
| Interest income | 7 | 6 | 1 | 17 | % | |||||||||||
| Interest expense | (620 | ) | (552 | ) | (68 | ) | 12 | % | ||||||||
| Other income (expense): | 19,093 | (293 | ) | 19,386 | NM | |||||||||||
| Total other income (expense), net | 18,480 | (839 | ) | |||||||||||||
| Net loss before income taxes | 10,374 | (5,377 | ) | |||||||||||||
| Income tax expense | (13 | ) | (3 | ) | (10 | ) | 333 | % | ||||||||
| Net loss | 10,361 | (5,380 | ) | 15,741 | -293 | % | ||||||||||
| Less: Net loss attributable to non-controlling interest | (454 | ) | (259 | ) | ||||||||||||
| Total net loss attributable to Ay Dee Kay, LLC | $ | 10,815 | $ | (5,121 | ) | $ | 15,936 | -311 | % | |||||||
Revenue
Revenue for the three months ended March 31, 2021 was $8.1 million, compared to $4.7 million for the three months ended March 31, 2020, an increase of $3.5 million or 74%, which was primarily driven by $3.2 million higher product volume (units sold).
Cost of Goods Sold
Cost of goods sold for the three months ended March 31, 2021 was $4.8 million, compared to $2.9 million for the three months ended March 31, 2020. The increase of $2.0 million or 68% was primarily due to $1.7 million increase in production volume and $0.5 million increase in product cost, which is offset by $0.3 million increase in production efficiency.
3
Research and Development Expense
Research and development expense for the three months ended March 31, 2021 increased by $3.8 million to $8.7 million, or 79%, as compared to the three months ended March 31, 2020. This increase is primarily driven by a $1.7 million increase in the compensation costs as we increased the number of employees working on product development. We expect research and development expense to continue to increase as we grow our headcount to support pent-up customer demand.
Selling, General and Administrative Expense
Selling, general and administrative expense for the three months ended March 31, 2021 increased by $1.2 million to $2.7 million, or 81%, when compared to the three months ended March 31, 2020. The increase is primarily due to a $0.4 million increase in audit and tax consulting costs, $0.4 million increased compensation expense related to headcount growth and $0.3 million increase in the Transaction related expenses. We expect selling, general, and administrative expense to continue to increase as we grow our headcount to support our global expansion.
Interest Income
Interest income for the three months ended March 31, 2021 increased by 17% from the three months ended March 31, 2020. The increase was a result of higher cash balances held in interest bearing accounts.
Interest Expense
Interest expenses for the three months ended March 31, 2021 was $0.6 million, compared to $0.5 million for the three months ended March 31, 2020, an increase of $0.1 million, or 12%. Interest expense relates primarily to interest on outstanding debt obligations and has increased based on the mix of outstanding debt and the associated interest rates.
Other Income (Expense)
Other expenses for the three months ended March 31, 2021 increased to $19.4 million, compared to the three months ended March 31, 2020. The change was primarily due to the non-cash gain from the fair value of SAFEs as a result of changes in the valuation inputs in the current fiscal quarter.
Income Tax Expense
Income tax expenses for the three months ended March 31, 2021 primarily a result of operations in the United Kingdom.
Liquidity and Capital Resources
The following table summarizes our consolidated cash flows for the three months ended March 31, 2021 and 2020:
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| (in thousands) | ||||||||
| Consolidated Statements of Cash Flows Data: | ||||||||
| Net cash provided by (used in) operating activities | $ | (9,091 | ) | $ | (6,149 | ) | ||
| Net cash provided by (used in) investing activities | (161 | ) | (259 | ) | ||||
| Net cash provided by (used in) financing activities | (632 | ) | 4,130 | |||||
4
Historically, we derive liquidity primarily from debt and equity financing activities as we have historically had negative cash flows from operations. As of March 31, 2021, our balance of cash and cash equivalents was $8.9 million, which is an increase of $4 million or 82% compared to March 31, 2020.
Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, working capital requirements related to inventory, accounts payable and accounts receivable, and general and administrative expenditures. In addition, we use cash to fund our debt service obligations, and purchases of capital and software assets.
We expect to continue to incur net operating losses and negative cash flows from operations and we expect our research and development expenses, general and administrative expenses and capital expenditures will continue to increase as we continue to expand our operations. We also anticipate our expenses and capital requirements to increase in connection with our ongoing initiatives to expand our operations, product offerings and customer base.
Operating Activities
Cash flows from operating activities during 2021 mostly consisted of net loss adjusted for certain non-cash items and changes in operating assets and liabilities.
For the three months ended March 31, 2021, net cash used in the operating activities was $9.1 million, which included net income of $10.4 million. Non-cash charges primarily consisted of a $19.1 million gain on remeasurement of SAFEs and $0.6 million in depreciation and amortization.
Cash used in operating activities during 2020 mostly consisted of net loss of $5.4 million adjusted for certain non-cash items and changes in operating assets and liabilities. Non-cash charges primarily consisted of $0.6 million in depreciation and amortization and $0.3 million of loss on remeasurement of SAFEs.
Investing Activities
Net cash used in investing activities for the three months ended March 31, 2021 of $0.2 million was primarily due to $0.1 million used for the purchase of property and equipment.
Net cash used in investing activities for the three months ended March 31, 2020 of $0.3 million was used for the purchase of property and equipment.
Financing Activities
Cash used by financing activities for the three months ended March 31, 2021 of $0.6 million was due to $0.3 million of payments on financed software used in the research and development for our products and $0.3 million of payments on deferred financing costs.
Cash provided by financing activities for the three months ended March 31, 2020 of $4.1 million was primarily the result of $3.9 million in proceeds from the issuance of debt and SAFE notes, and $1.5 million in proceeds from the sale of noncontrolling interest. Proceeds received from issuance of debt related to the outstanding debt obligation of our Chinese subsidiary, Wuxi, which used the proceeds to fund operations.
5
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- indie Semiconductor, Inc. (INDI) on Watch Following Unconfirmed Rumors
- BlackRock Activates Retirement Solution Offering A Paycheck For Life
- Nokia Corporation - Managers' transactions (Hook)
Create E-mail Alert Related Categories
SEC FilingsSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
