8-K
XTI Aerospace, Inc. (XTIA)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the SecuritiesExchange Act of 1934
Date of Report (Date of earliest event reported):November 10, 2025
XTI AEROSPACE, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 001-36404 | 88-0434915 |
|---|---|---|
| (State or other jurisdiction<br><br>of incorporation) | (Commission File Number) | (I.R.S. Employer<br><br>Identification No.) |
| 8123 InterPort Blvd., Suite C<br><br> <br>Englewood, CO | 80112 | |
| --- | --- | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:
(800) 680-7412
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K 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 |
|---|---|---|
| Common Stock | XTIA | The Nasdaq Capital Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§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. ☐
Item 1.01 Entry into a Material DefinitiveAgreement.
The information contained in Item 5.03 of this Current Report on Form 8-K is incorporated by reference herein to the extent required to be disclosed under this Item 1.01.
Acquisitions of Drone Nerds, LLC and AnzuRobotics, LLC
On November 10, 2025 (the “Closing Date”), XTI Drones Holdings, LLC, a Texas limited liability company (“XTI Drones Holdings”) and a subsidiary of XTI Drones, LLC, which is a wholly-owned subsidiary of XTI Aerospace, Inc. (the “Company”), acquired 100% of the issued and outstanding equity interests of two enterprise drone solutions providers, Drone Nerds, LLC, a Florida limited liability company (“Drone Nerds”), and Anzu Robotics, LLC, a Delaware limited liability company (“Anzu Robotics”) (such equity interests, respectively, the “Drone Nerds Interests” and the “Anzu Robotics Interests”), pursuant to the terms of two separate membership interest purchase agreements: (i) a Membership Interest Purchase Agreement (the “DN Purchase Agreement”) by and among XTI Drones Holdings, The Origin Group DN, Inc., a Delaware corporation (“DN Seller”), Drone Nerds, the owners of DN Seller listed on Annex A-1 thereto (such individuals together with DN Seller, the “DN Seller Group”) and Jeremy Schneiderman, solely in his capacity as representative of the DN Seller Group, and (ii) a Membership Interest Purchase Agreement (the “AR Purchase Agreement” and, together with the DN Purchase Agreement, the “Purchase Agreements”) by and among XTI Drones Holdings, The Origin Group AZ, Inc., a Delaware corporation (“AR Seller”), Anzu Robotics, the owners of AR Seller listed on Annex A-1 thereto (such individuals together with AR Seller, the “AR Seller Group”) and Jeremy Schneiderman, solely in his capacity as representative of the AR Seller Group (such transactions, respectively, the “Drone Nerds Acquisition” and the “Anzu Robotics Acquisition” and collectively, the “Acquisitions”). The consummation of the Acquisitions occurred concurrently with the execution of the Purchase Agreements. Prior to the Drone Nerds Acquisition, Drone Nerds was known as Drone Nerds, Inc., a Florida corporation, which was converted into a Florida limited liability company as part of a reorganization for tax purposes.
Pursuant to the DN Purchase Agreement, in exchange for the Drone Nerds Interests, XTI Drones Holdings (i) paid DN Seller $16,727,356.00 in cash in exchange for 46% of the Drone Nerds Interests, (ii) issued DN Seller a promissory note in the original principal amount of $10,976,284.58 (the “DN Note”) in exchange for 30% of the Drone Nerds Interests and (iii) issued DN Seller 6,002,610 Class B Units of XTI Drones Holdings (the “Class B Units”) with a fair market value of $8,955,894.25 in exchange for 24% of the Drone Nerds Interests.
Pursuant to the AR Purchase Agreement, in exchange for the Anzu Robotics Interests, XTI Drones Holdings (i) paid AR Seller $1,442,446.80 in cash in exchange for 45% of the Anzu Robotics Interests, (ii) issued AR Seller a promissory note in the original principal amount of $954,459.53 (the “AR Note” and, together with the DN Note, the “Notes”) in exchange for 30% of the Anzu Robotics Interests and (iii) issued AR Seller 521,966 Class B Units with a fair market value of $778,773.41 in exchange for 30% of the Anzu Robotics Interests.
Pursuant to the Purchase Agreements, at the closing of the Acquisitions, XTI Drones Holdings paid certain transaction expenses incurred by the DN Seller Group, Drone Nerds, the AR Seller Group and Anzu Robotics in connection with the respective Acquisition in the aggregate amount of approximately $1.8 million.
Drone Nerds and Anzu Robotics have a $25.0 million secured line of credit (the “Banesco Line of Credit”) established pursuant to and evidenced by (i) that certain Loan Agreement, dated July 10, 2025, by and among Drone Nerds Inc, Anzu Robotics, LLC and Banesco USA (the “Banesco Loan Agreement”), (ii) that certain Revolving Promissory Note, dated July 10, 2025, from Drone Nerds Inc and Anzu Robotics, LLC (collectively, the “Borrower”) in favor of Banesco USA in the maximum principal amount of $25.0 million (the “Banesco Note”), (iii) that certain Security Agreement, dated July 10, 2025, by and among Drone Nerds Inc, Anzu Robotics, LLC and Banesco USA (the “Banesco Security Agreement”), and (iv) the other Loan Documents (as defined in the Banesco Loan Agreement). The Banesco Note matures on July 10, 2027, accrues interest at the Term SOFR Rate plus the Interest Rate Margin (each, as defined in the Banesco Note), subject to adjustment as set forth in the Banesco Note, and the Loan Documents contain certain customary covenants to Banesco USA, including financial covenants that require the Borrower to comply with specified financial ratios and tests.
Pursuant to the Purchase Agreements, XTI Drones Holdings agreed to, and to cause Drone Nerds and Anzu Robotics to, use best efforts to amend the Banesco Loan Agreement in connection with Banesco USA’s formal approval of the transactions contemplated by the Purchase Agreements, on terms reasonably satisfactory to XTI Drones Holdings, the DN Seller Group and the AR Seller Group, by no later than November 14, 2025.
The aggregate purchase price for each Acquisition is subject to customary post-closing adjustments for cash, indebtedness, transaction expenses and net working capital at closing as set forth in the applicable Purchase Agreement. The Company paid ThinkEquity LLC (“ThinkEquity”) fees of approximately $1.2 million as compensation for advisory services in connection with the transactions contemplated by the Purchase Agreements.
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The Purchase Agreements contain customary representations and warranties by the parties. The Purchase Agreements also contain various covenants, including non-competition and non-solicitation covenants by DN Seller and AR Seller. In addition, the Purchase Agreements contain customary mutual indemnification provisions, subject to certain limitations, including threshold amounts, maximum amounts and survival periods.
The foregoing description of the DN Purchase Agreement, the AR Purchase Agreement and the Banesco Line of Credit does not purport to be complete and is qualified in its entirety by reference to the full text of the DN Purchase Agreement, the AR Purchase Agreement, the Banesco Loan Agreement, the Banesco Note and the Banesco Security Agreement, which are filed as Exhibits 2.1, 2.2, 10.1, 4.1 and 10.2, respectively, to this Current Report on Form 8-K and are incorporated by reference herein.
Organizational Structure
The diagram set forth below depicts the Company’s organizational structure immediately following the closing of the Acquisitions. The diagram does not include inactive Company subsidiaries.
Promissory Notes
The principal of and interest on each Note will be payable as follows: (i) no later than November 30, 2025 (the “First Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $3,680,000 with respect to the DN Note and $320,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the First Required Payment Date, (ii) no later than March 31, 2026 (the “Second Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $1,840,000 with respect to the DN Note and $160,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the Second Required Payment Date, (iii) no later than June 30, 2026 (the “Third Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $1,380,000 with respect to the DN Note and $120,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the Third Required Payment Date, (iv) no later than September 30, 2026 (the “Fourth Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $1,380,000 with respect to the DN Note and $120,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the Fourth Required Payment Date, (v) the entire outstanding principal amount, together with all accrued and unpaid interest, of each Note will be repaid on or prior to the one year anniversary of each Note (the “Due Date”), and (vi) all outstanding accrued interest and the unpaid principal amount of each Note will be due and payable in full on the earlier of (A) the Due Date, (B) 90 days following a capital raise (or the last capital raise, in connection with a series of transactions, whether related or unrelated) where the Company or one or more of its affiliates raise, as a result of a single transaction or a series of transactions occurring pursuant to one or more closings, in any case after the date of the Note, an aggregate amount of $40 million or more, qualified by the limitation that not more than 20% of net proceeds from any single financing will be applied towards payment of each Note, or (C) the date on which the Note becomes immediately due and payable as a result of the occurrence of an event of default thereunder, as further described below. Each of DN Seller and AR Seller, may, in its absolute and sole discretion, elect to waive any payment of accrued and unpaid interest due under the DN Note or the AR Note, as applicable, in whole or in part upon prior written notice to XTI Drones Holdings.
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Interest will accrue on the outstanding principal balance of each Note at an annual rate of 7.25%, computed based upon a 365-day year (the “Interest Rate”). If interest is not paid as it becomes due, it will be added to the principal. Pursuant to the applicable Purchase Agreement, the outstanding principal amount of each Note is subject to reduction in connection with the indemnification obligations of the DN Seller Group and the AR Seller Group under the applicable Purchase Agreement.
XTI Drones Holdings may prepay the Note, in whole or in part, at any time and from time to time, without premium or penalty, provided that, each such prepayment is accompanied by a payment of all accrued and unpaid interest on the Note together with all accrued and unpaid interest on the portion of the principal balance so prepaid. All partial prepayments will be applied to the indebtedness owing under each Note in such order and manner as DN Seller or AR Seller, as applicable, may from time to time determine in its reasonable discretion.
The Notes include customary representations and warranties and customary events of default, subject to certain cure periods (provided that Bankruptcy-Related Events of Default (as defined below) are not subject to a cure period). Upon the occurrence of an event of default (except a default due to the occurrence of bankruptcy or insolvency proceedings (a “Bankruptcy-Related Event of Default”)), DN Seller or AR Seller, as applicable, may declare the entire unpaid balance of principal and accrued but unpaid interest on the Note, and all other obligations of XTI Drones Holdings under the applicable Note, to be immediately due and payable and/or exercise any other rights or remedies under any other instrument or applicable law. Upon the occurrence of a Bankruptcy-Related Event of Default, the outstanding principal amount of the Note together with all accrued and unpaid interest and all other obligations of XTI Drones Holdings under the Note will become due and payable automatically. Following the occurrence of an event of default, interest will accrue on the outstanding principal balance of each Note at an annual rate equal to the Interest Rate plus 2.00%.
The foregoing description of the Notes does not purport to be complete and is qualified in its entirety by reference to the full text of the DN Note and the AR Note, which are filed as Exhibits 4.2 and 4.3, respectively, to this Current Report on Form 8-K and are incorporated by reference herein.
Class B Units Exchange Rights and MandatoryExchange of Class B Units
On the Closing Date, DN Seller and AR Seller entered into the Amended and Restated Company Agreement of XTI Drones Holdings, LLC, dated November 10, 2025 (the “Company Agreement”), as Class B Members of XTI Drones Holdings with XTI Drones, LLC, which holds 32,786,816 Class A Units of XTI Drones Holdings and is the sole Class A Member of XTI Drones Holdings. The Class B Units held by DN Seller and AR Seller and the Class A Units held by XTI Drones, LLC represent 100% of the membership interests of XTI Drones Holdings. Following the exchange of all outstanding Class B Units into shares of Common Stock as described below, XTI Drones Holdings will be wholly owned by XTI Drones, LLC, and Drone Nerds and Anzu Robotics will be indirect, wholly-owned subsidiaries of the Company.
Pursuant to the Company Agreement, at any time after May 1, 2026, each Class B Member has the right to exchange all or any portion of its outstanding Class B Units for (i) a number of shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), equal to the number of Class B Units exchanged multiplied by the Exchange Ratio (as defined below) then in effect, together with the payment of cash in lieu of any fractional shares in an amount equal to such fraction multiplied by the volume-weighted average price of Common Stock for the ten trading days ending on (and including) the trading day prior to the exchange date, and (ii) a cash payment equal to the XTI Distribution Amount (as defined below) with respect to each such Class B Unit. The “XTI Distribution Amount” means for each Class B Unit, an amount equal to the excess, if any, of (x) the aggregate amount of dividends or other distributions, equal to the amount of cash or the fair market value of any property distributed in kind, per share of Common Stock made by the Company to holders of Common Stock during the period from the date of issuance of such Class B Unit through the exchange date multiplied by the Exchange Ratio, over (y) the aggregate amount per Class B Unit distributed by XTI Drones Holdings during such period. The “Exchange Ratio” is initially one share of Common Stock for each Class B Unit exchanged, and will be equitably adjusted for stock splits, stock dividends, reclassifications and similar transactions affecting the Common Stock.
In addition, the Company Agreement provides for the mandatory exchange of all outstanding Class B Units 15 months after the effective date of the Company Agreement. On that date, each outstanding Class B Unit will be exchanged for (i) a number of shares of Common Stock equal to the one Class B Unit multiplied by the Exchange Ratio then in effect, together with the payment of cash in lieu of any fractional shares in an amount equal to such fraction multiplied by the volume-weighted average price of Common Stock for the ten trading days ending on (and including) the trading day prior to the mandatory exchange date, and (ii) a cash payment equal to the XTI Distribution Amount with respect to such Class B Unit.
The foregoing description of the Company Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Company Agreement, which is filed as Exhibit 10.3 to this Current Report on Form 8-K and is incorporated by reference herein.
Jeremy Schneiderman, the Chief Executive Officer of Drone Nerds, and Alex Nafissy, the President of Drone Nerds, who will each continue to serve in those respective positions following the Closing Date, each beneficially own 2,583,732 Class B Units held by DN Seller and AR Seller. The actual timing for the exchange of Class B Units for shares of Common Stock after May 1, 2026 is at the discretion of the holder, subject to the mandatory exchange described above.
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Lock-Up Agreements
On the Closing Date, the Company entered into lock-up agreements with DN Seller and AR Seller (respectively, the “DN Lock-Up Agreement” and the “AR Lock-Up Agreement” and collectively, the “Lock-Up Agreements”), pursuant to which DN Seller and AR Seller agreed not to, without the Company’s prior written consent, during the period commencing on November 10, 2025 and ending on the 365th day thereafter, (i) directly or indirectly, transfer, sell, offer, exchange, assign, pledge, gift, donate or otherwise dispose of or encumber any legal or beneficial ownership in any shares of Common Stock or enter into any contract, option or other agreement with respect to, or consent to, a Transfer (as defined below) of, any shares of Common Stock or DN Seller’s or AR Seller’s, as applicable, voting or economic interest therein, subject to customary exceptions, (ii) enter into any swap, option (including, without limitation, put or call options), short sale, future, forward or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the shares of Common Stock (any of the foregoing described in clause (i) above and this clause (ii), a “Transfer”) or (iii) publicly disclose the intention to do any of the foregoing.
The foregoing description of the Lock-Up Agreements does not purport to be complete and is qualified in its entirety by reference to the full text of the DN Lock-Up Agreement and the AR Lock-Up Agreement, which are filed as Exhibits 10.4 and 10.5, respectively, to this Current Report on Form 8-K and are incorporated by reference herein.
Registration Rights Agreements
On the Closing Date, the Company entered into a Registration Rights Agreement with DN Seller and AR Seller (the “Registration Rights Agreement”), pursuant to which the Company granted certain demand and piggyback registration rights to DN Seller and AR Seller with respect the shares of Common Stock issuable or issued upon exchange of the Class B Units (the “Registrable Securities”), subject to the Company’s rights to delay registration in certain circumstances.
The Registration Rights Agreement permits the holders of at least 50% shares of the initial aggregate Registrable Securities to demand that the Company register for resale such holders’ Registrable Securities and those of all other holders who elect to participate in the registration, provided that the Company is only required to effect one registration on demand for any and all holders of Registrable Securities in each calendar year, subject to certain exceptions. As soon as reasonably practicable and prior to the 45th day following a demand but not sooner than May 1, 2026, the Company will file a registration statement covering the resale of such Registrable Securities. The Company agreed to use commercially reasonable efforts to cause the registration statement to become effective as soon as possible following the filing thereof and to keep the registration statement in effect until all Registrable Securities have been sold by the holders (the “Registration Period”).
Additionally, if at any time prior to the expiration of the Registration Period the Company determines to register any of its equity securities, either for its own account or for the account of a security holder or holders, the Company will promptly give the holders of Registrable Securities written notice thereof and, subject to certain limitations, include in such registration all of the Registrable Securities specified in a written request or requests made by the holders, provided that the aggregate amount of Registrable Securities specified in such written request is not less than 50% of the outstanding Registrable Securities. The Company agreed to use its commercially reasonable efforts to keep the registration statement in effect for the Registration Period.
The Registration Rights Agreement provides that securities will cease to be Registrable Securities when such securities become eligible for sale pursuant to Rule 144 without volume or manner-of-sale restrictions and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144(c)(1).
The foregoing description of the Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Registration Rights Agreement, which is filed as Exhibit 10.6 to this Current Report on Form 8-K and is incorporated by reference herein.
Private Placement
On November 10, 2025, the Company entered into a Securities Purchase Agreement (the “PIPE Purchase Agreement”) with Unusual Machines, Inc., a Nevada corporation (“Unusual Machines”), pursuant to which the Company sold Unusual Machines 25,000 shares of the Company’s newly designated Series 10 Convertible Preferred Stock, par value $0.001 per share (the “Series 10 Preferred Stock”), at a subscription amount of $1,000 per share of Series 10 Preferred Stock for an aggregate subscription amount of $25,000,000 (the “Subscription Amount”), pursuant to a private placement that closed on November 12, 2025 (the “PIPE Offering”).
On November 10, 2025, prior to the closing of the PIPE Offering, Unusual Machines advanced to the Company $10,500,000 (the “Advance”), which was automatically applied to the Subscription Amount at the closing of the PIPE Offering. The Company used the Advance to satisfy certain obligations under the Banesco Line of Credit.
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To the extent that the issuance of shares of Common Stock upon conversion of, or as a dividend on, the Series 10 Preferred Stock would result in the holder exceeding the Beneficial Ownership Limitation (as defined below), then, in lieu of the issuance of such shares, at the election of the holder, (i) the holder will be issued such shares in the form of pre-funded warrants, substantially in the form issued by the Company in September 2025 (the “Pre-Funded Warrants” and the shares of Common Stock issuable upon exercise of the Pre-Funded Warrants, the “Pre-Funded Warrant Shares”), or (ii) such shares will be held by the Company in abeyance for the benefit of such holder. The Pre-Funded Warrant will be immediately exercisable, will have an exercise price of $0.001 per share and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full, provided that such exercise price is deemed pre-paid as part of the Subscription Amount.
Pursuant to the PIPE Purchase Agreement, the Company agreed to hold an annual or special meeting of shareholders no later than January 31, 2026 (the “Shareholder Meeting Deadline”) for the purchase of obtaining shareholder approval of the removal of the limitations on conversion set forth in the Certificate of Designation of the Series 10 Preferred Stock in compliance with Nasdaq Listing Rule 5635 (the “Shareholder Approval”, and the date the Shareholder Approval is obtained, the “Shareholder Approval Date”), and to use its commercially reasonable efforts to solicit such Shareholder Approval and to cause its board of directors to recommend to the shareholders that they so approve. If Shareholder Approval is not obtained on or prior to the Shareholder Meeting Deadline, the Company will call a special or annual meeting of shareholders 180 days thereafter until such Shareholder Approval is obtained, provided, however, that such obligation will terminate on the two year anniversary of the closing date of the PIPE Offering.
Pursuant to the PIPE Purchase Agreement, the Company agreed to file a registration statement covering the resale by Unusual Machines of the shares of common stock underlying the Series 10 Preferred Stock and the Pre-Funded Warrants, if any (such shares, the “Underlying Shares” and such registration statement, the “Registration Statement”), within 90 days of the closing date of the PIPE Offering. The Company agreed to use commercially reasonable efforts to cause such registration to become effective within 60 days (or 90 days if the United States Securities and Exchange Commission (the “Commission”) notifies the Company that it will “review” the Registration Statement) following the initial filing of such Registration Statement and to keep such Registration Statement effective at all times until the earlier of (i) the time that Unusual Machines does not own any Series 10 Preferred Stock, Pre-Funded Warrants or Underlying Shares or (ii) the date on which the Underlying Shares may be sold without restriction, including volume or manner-of-sale restrictions, pursuant to Rule 144.
From the date of the PIPE Purchase Agreement until the later of the date that is 5 days from the date (a) Shareholder Approval is obtained and (b) the date that the Registration Statement has been declared effective by the Commission, the Company agreed to not enter into any transaction for the sale of any of its equity securities or securities convertible into its equity securities unless the price per share of Common Stock or per unit price (or conversion price or exercise price, as applicable) is equal to or greater than $2.50, subject to certain customary exempt issuance exceptions.
The Company engaged ThinkEquity to act as its exclusive placement agent in connection with the PIPE Offering pursuant to a placement agency agreement, dated November 10, 2025 (the “PAA”), by and between the Company and ThinkEquity. Pursuant to the PAA, the Company agreed to pay ThinkEquity a cash fee equal to 7.0% of the gross proceeds of the PIPE Offering and to reimburse ThinkEquity for certain of its expenses in an aggregate amount up to $175,000.
Pursuant to the PAA, the Company also agreed to issue ThinkEquity or its designees warrants (the “Placement Agent’s Warrants”) to purchase an aggregate of 837,801 shares of Common Stock (the “PA Warrant Shares”). The Placement Agent’s Warrants have an initial exercise price of $1.492 per share and are exercisable, in whole or in part, commencing on the closing of the PIPE Offering and expiring on the five-year anniversary of the date thereof; provided that, if a holder exercises its Placement Agent’s Warrants prior to the Shareholder Approval Date such holder will receive the right to receive on the Shareholder Approval Date the number of PA Warrant Shares so issuable upon such exercise and, on the Shareholder Approval Date, the Company will issue such PA Warrant Shares to such holder.
The foregoing description of the PIPE Purchase Agreement, the PAA and the Placement Agent’s Warrants does not purport to be complete and is qualified in its entirety by reference to the full text of the PIPE Purchase Agreement, the PAA and the form of Placement Agent’s Warrant, which are filed as Exhibits 10.7, 10.8 and 4.4, respectively, to this Current Report on Form 8-K and are incorporated by reference herein.
Item 2.01 Completion of Acquisition or Dispositionof Assets.
The information contained in Item 1.01 of this Current Report on Form 8-K is incorporated by reference herein to the extent required to be disclosed under this Item 2.01.
Item 2.03 Creation of a Direct Financial Obligationor an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information contained in Item 1.01 of this Current Report on Form 8-K is incorporated by reference herein to the extent required to be disclosed under this Item 2.03.
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Item 3.02 Unregistered Sales of Equity Securities.
The information contained in Item 1.01 of this Current Report on Form 8-K is incorporated by reference herein to the extent required to be disclosed under this Item 3.02.
The Class B Units, the Series 10 Preferred Stock, the Pre-Funded Warrants, the Placement Agent’s Warrants, the Pre-Funded Warrant Shares, the PA Warrant Shares and the shares of Common Stock issuable upon any exchange of the Class B Units, and upon any conversion of, or as a dividend on, the Series 10 Preferred Stock were, or will be, as the case may be, offered and sold pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), under Section 4(a)(2) and Rule 506(b) of Regulation D of the Securities Act.
Each of DN Seller, AR Seller and Unusual Machines represented that it was an “accredited investor” as such term is defined in Regulation D under the Securities Act, and was acquiring the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The Class B Units, the Series 10 Preferred Stock, the Pre-Funded Warrants, the Placement Agent’s Warrants, the Pre-Funded Warrant Shares, the PA Warrant Shares and the shares of Common Stock issuable upon any exchange of the Class B Units, and upon any conversion of, or as a dividend on, the Series 10 Preferred Stock have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws. This Current Report on Form 8-K does not constitute an offer to sell or the solicitation of an offer to buy, nor will there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state.
Item 3.03 Material Modifications to Rightsof Security Holders.
The information contained in Item 1.01 and Item 5.03 of this Current Report on Form 8-K is incorporated by reference herein to the extent required to be disclosed under this Item 3.03.
Item 5.03. Amendments to Articles of Incorporationor Bylaws; Change in Fiscal Year.
The information contained in Item 1.01 of this Current Report on Form 8-K is incorporated by reference herein to the extent required to be disclosed under this Item 5.03.
Pursuant to the PIPE Purchase Agreement, the Company filed a certificate of designation (the “Certificate of Designation”) on November 10, 2025, with the Secretary of State of the State of Nevada designating the rights, preferences and limitations of the shares of the Series 10 Preferred Stock. The Series 10 Preferred Stock has a stated value of $1,000 per share (the “Stated Value”), and is initially convertible at a conversion price of $1.492 per share (the “Conversion Price”), subject to adjustment pursuant to the Certificate of Designation for stock dividends and stock splits, subsequent rights offerings, pro rata distributions of dividends or the occurrence of a Fundamental Transaction (as defined in the Certificate of Designation).
On the Shareholder Approval Date, each outstanding share of Series 10 Preferred Stock will automatically convert into that number of shares of Common Stock determined by dividing the Stated Value of such share of Series 10 Preferred Stock plus all unpaid accrued and accumulated Preferential Dividends on such share (whether or not declared) by the Conversion Price. To the extent not converted in connection with a mandatory conversion, each share of Series 10 Preferred Stock will be convertible, from and after the Shareholder Approval Date, at the option of the holder, into that number of shares of Common Stock determined in accordance with the formula in the preceding sentence.
Each outstanding share of Series 10 Preferred Stock is entitled to receive, in preference to shares of Junior Securities (as defined in the Certificate of Designation), cumulative dividends (“Preferential Dividends”), payable quarterly in arrears, at an annual rate of 12.0% of the Stated Value (the “Preferential Dividend Rate”). Preferential Dividends will be payable, at the option of the Company, either in-kind in shares of Common Stock, through an accrual on the Stated Value of the Series 10 Preferred Stock or in cash, subject to, with respect to the issuance of shares of Common Stock, the receipt of Shareholder Approval and the Beneficial Ownership Limitation (defined below). In addition, each holder of Series 10 Preferred Stock will be entitled to receive dividends equal to, on an as-converted to shares of the Common Stock basis, and in the same form as, dividends actually paid on shares of the Common Stock when, as, and if such dividends are paid on shares of the Common Stock.
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No shares of Common Stock may be issued upon conversion of, or as a dividend on, the Series 10 Preferred Stock, if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, 9.99%) of the number of shares of Common Stock outstanding immediately after giving effect to such conversion (the “Beneficial Ownership Limitation”). To the extent that the issuance of shares of Common Stock upon conversion of, or as a dividend on, the Series 10 Preferred Stock would result in the holder exceeding the Beneficial Ownership Limitation, then, in lieu of the issuance of such shares, at the election of the holder, (i) the holder will be issued such shares in the form of Pre-Funded Warrants or (ii) such shares will be held by the Company in abeyance for the benefit of such holder.
The Series 10 Preferred Stock has no voting rights, except as required by law and for certain customary protective provisions set forth in the Certificate of Designation.
Upon any liquidation, dissolution or winding-up of the Company (but excluding a Fundamental Transaction), whether voluntary or involuntary, the holders of the Series 10 Preferred Stock are entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under the Certificate of Designation, for each share of Series 10 Preferred Stock before any distribution or payment is made to the holders of any Junior Securities.
The foregoing description of the Certificate of Designation does not purport to be complete and is qualified in its entirety by reference to the full text of the Certificate of Designation, which is filed as Exhibit 3.1 to this Current Report on Form 8-K and is incorporated by reference herein.
Item 7.01 Regulation FD Disclosure.
On November 12, 2025, the Company issued a press release announcing the completion of the Acquisitions and the closing of the PIPE Offering. Also on November 12, 2025, the Company made available an investor presentation regarding the Company and the Acquisitions. Copies of the press release and the investor presentation are attached as Exhibits 99.1 and Exhibit 99.2, respectively, to this Current Report on Form 8-K and incorporated by referenced herein.
The information furnished under this Item 7.01 of this Current Report on Form 8-K, including Exhibits 99.1 and 99.2, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be incorporated by reference into any filings made by the Company pursuant to the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 8.01 Other Events.
Risks Related to the Acquisitions
There are a number of significant risks related to the Acquisitions, including the risk factors enumerated below. Accordingly, the Company is providing these additional risk factors to supplement the risks described in “Risk Factors” in the Company’s 2024 Form 10-K, Q1 2025 Form 10-Q and Q2 2025 Form 10-Q and other filings made with the Commission. All references to “we,” “us” or “our” mean the Company and its subsidiaries, including Drone Nerds and Anzu Robotics, unless stated otherwise or the context otherwise requires.
Drone Nerds operates in evolving markets,which makes it difficult to evaluate its business and future prospects.
Drone Nerds’ drone, camera and sensor technologies and software and training, operational support and repair services are and will be sold in new and rapidly evolving markets. The commercial unmanned aerial vehicles (“UAV”) industry is in the early stages of customer adoption and the FAA’s definition of regulations relating to the integration of commercial drones into the U.S. National Airspace System is rapidly evolving. Accordingly, Drone Nerds’ business and future prospects may be difficult to evaluate. We cannot accurately predict the extent to which demand for the drone systems and solutions will increase, if at all. The challenges, risks and uncertainties frequently encountered by companies in rapidly evolving markets could impact our ability to do the following in connection with our acquisition of Drone Nerds:
| ● | Generate<br>sufficient revenue to maintain its historical profitability; |
|---|---|
| ● | Acquire<br>and maintain market share; |
| --- | --- |
| ● | Achieve<br>or manage growth in our business operations; |
| --- | --- |
| ● | Renew<br>contracts; |
| --- | --- |
| ● | Successfully<br>stock for the commercial market products and end-to-end solutions; |
| --- | --- |
| ● | Adapt<br>to new or changing polices and spending priorities of current and prospective clients; and |
| --- | --- |
| ● | Access<br>to additional financing or capital when required and on reasonable terms. |
| --- | --- |
If we fail to address these and other challenges, risks and uncertainties successfully, our business, results of operations and financial condition would be materially harmed.
7
The supplier base of Drone Nerds is highlyconcentrated. In addition, Drone Nerds is subject to risks arising from ongoing regulatory discussions and potential legislative actionstargeting its primary supplier from China, SZ DJI Technology Co, Ltd. and affiliates (“DJI”), who represented a majority ofDrone Nerds’ vendor purchases during the 1H 2025.
Drone Nerds has relationships with various global suppliers of drones and electronics, however the top 1 2 and 3 suppliers represent 53%, 10% and 7% of purchases, respectively, for the six months ended June 30, 2025. If any of those suppliers decided to no longer work with Drone Nerds, this could impact Drone Nerds ability to source products.
In addition, under the 2025 National Defense Authorization Act (“NDAA”), a U.S. national-security agency is required to complete a security review of certain suppliers, including DJI, by December 23, 2025. If no agency completes this review by the deadline, the law instructs the Federal Communications Commission (the “FCC”) to automatically add these suppliers to the FCC “Covered List,” which would effectively block new FCC equipment authorizations for their technology and drones in the U.S. (i.e., new models could not be approved).
Drone Nerds relies on DJI for a significant portion of its drone sales, creating significant regulatory and operational risk. Also, in September 2025, Drone Nerds signed an additional one-year contract with DJI to be the official non-exclusive dealer of its products in the U.S. DJI is already listed on certain U.S. government watchlists for national security and data concerns, which could restrict imports and limit access to government or defense-related contracts. This dependence exposes Drone Nerds to potential supply disruptions.
In addition, while existing FCC equipment authorizations for previously approved DJI products would remain valid, federal agencies have indicated that continued use of legacy or in-service DJI equipment may become restricted or phased out over time. Such actions could include procurement bans, limits on participation in government-funded projects, or heightened data-security and export-control scrutiny. Even absent formal revocation of existing approvals, these measures could discourage public-sector or enterprise customers from purchasing or deploying DJI-based systems, thereby reducing demand for Drone Nerds’ products.
Although the NDAA establishes the deadline for the national-security review, the ongoing federal government shutdown has created uncertainty around whether agencies will complete the review on time. Many federal departments responsible for technology and security evaluations are operating with reduced staffing or suspended programs, which may delay interagency coordination and risk assessments. If the review is not completed by the statutory deadline, DJI and other covered suppliers would be automatically added to the FCC Covered List by operation of law. This outcome—caused indirectly by administrative delay—could occur even without any final security determination.
If regulatory developments, including delayed or adverse NDAA determinations, restrict DJI’s market access, Drone Nerds may be forced to renegotiate or terminate this agreement, seek alternative suppliers, or incur substantial transition costs. Failure to diversify its supply base or mitigate these risks could materially and adversely affect Drone Nerds’ business, financial condition, and operating results.
The nature of the Drone Nerds business involvessignificant risks and uncertainties that may not be covered by insurance or indemnification.
Drone Nerds has developed and sold products and services in circumstances where insurance or indemnification may not be available, for example, in connection with the collection and analysis of various types of information. In addition, its products and services raise questions with respect to issues of civil liberties, intellectual property, trespass, conversion, and similar concepts, which may create legal issues. Indemnification to cover potential claims or liabilities resulting from the failure of any technologies that we deploy may be available in certain circumstances but not in others. Currently, the uncrewed aerial systems industry lacks a formative insurance market. We may not be able to maintain insurance to protect against all operational risks and uncertainties that our customers confront. Substantial claims resulting from an accident, product failure, or personal injury or property liability arising from our products and services in excess of any indemnity or insurance coverage (or for which indemnity or insurance coverage is not available or is not obtained) could harm our financial condition, cash flows and operating results. Any accident, even if fully covered or insured, could negatively affect our reputation among our customers and the public, and make it more difficult for us to compete effectively.
8
The Drone Nerds and Anzu Robotics acquisitionsmay trigger contractual rights under certain agreements.
Drone Nerds and Anzu Robotics are parties to certain agreements that may contain termination or other rights following a “change in control” or “sale of all or substantially all” of such party’s assets. Any counterparty to such agreements may request modifications of its respective agreements as a condition to granting a waiver or consent under such agreements, or they may elect not to grant a waiver or consent. To the extent any counterparty to such agreements requests modifications of its respective agreements as a condition to granting a waiver or consent under such agreements, Drone Nerds and Anzu Robotics will use reasonable efforts to accommodate such modification, but such modifications may not be satisfactory to such counterparty or may not occur. There is no assurance that such counterparties will not assert otherwise and seek to exercise any such rights, including termination rights where available, that the exercise of any such rights will not adversely affect Drone Nerds or Anzu Robotics or that any modifications of such agreements will not materially and adversely affect the Company.
For example, the documentation governing Drone Nerds’ and Anzu Robotics’ $25.0 million secured revolving credit facility contains customary covenants, including a prohibition against a change of control without the lender’s prior written approval. The consummation of the Drone Nerds and Anzu Robotics acquisitions resulted in a change of control under the revolving credit facility, and the lender’s written approval was not obtained prior to the acquisitions, which constitutes an event of default under the revolving credit facility. We are currently in discussions with the lender to obtain a waiver of such event of default or an amendment to the revolving credit facility. In the absence of such a waiver or an amendment, the lender has the right to declare all outstanding obligations under the revolving credit facility immediately due and payable, cancel the facility, cease making advances under the facility, and proceed against the collateral securing the indebtedness under the facility. As of November 11, 2025, Drone Nerds and Anzu Robotics had outstanding borrowings under the revolving credit facility of approximately $9.2 million. There can be no assurance that the lender will agree to such a waiver or an amendment or that we will have sufficient resources available to satisfy all of the obligations under the revolving credit facility if no waiver or amendment is obtained.
We may be unable to repay the Notes issuedin connection with the Acquisitions.
In connection with the Acquisitions, XTI Drone Holdings issued (i) DN Seller the DN Note in the original principal amount of $10,976,284.58 and (ii) AR Seller the AR Note in the original principal amount of $954,459.53. The principal of and interest on each Note will be payable as follows: (i) no later than November 30, 2025 (the “First Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $3,680,000 with respect to the DN Note and $320,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the First Required Payment Date, (ii) no later than March 31, 2026 (the “Second Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $1,840,000 with respect to the DN Note and $160,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the Second Required Payment Date, (iii) no later than June 30, 2026 (the “Third Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $1,380,000 with respect to the DN Note and $120,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the Third Required Payment Date, (iv) no later than September 30, 2026 (the “Fourth Required Payment Date”), the outstanding principal amount of each Note will be repaid in an amount equal to $1,380,000 with respect to the DN Note and $120,000 with respect to the AR Note, together with all accrued and unpaid interest on each Note as of the Fourth Required Payment Date, (v) the entire outstanding principal amount, together with all accrued and unpaid interest, of each Note will be repaid on or prior to the one year anniversary of each Note (the “Due Date”), and (vi) all outstanding accrued interest and the unpaid principal amount of each Note will be due and payable in full on the earlier of (A) the Due Date, (B) 90 days following a capital raise (or the last capital raise, in connection with a series of transactions, whether related or unrelated) where the Company or one or more of its affiliates raise, as a result of a single transaction or a series of transactions occurring pursuant to one or more closings, in any case after the date of the Note, an aggregate amount of $40 million or more, qualified by the limitation that not more than 20% of net proceeds from any single financing will be applied towards payment of each Note, or (C) the date on which the Note becomes immediately due and payable as a result of the occurrence of an event of default thereunder.
Interest will accrue on the outstanding principal balance of each Note at an annual rate of 7.25%, computed based upon a 365-day year (the “Interest Rate”). If interest is not paid as it becomes due, it will be added to the principal. Our failure to pay the principal and interest of each Note when required will constitute an event of default under the Notes. Upon the occurrence of an event of default (except a Bankruptcy-Related Event of Default), DN Seller or AR Seller, as applicable, may declare the entire unpaid balance of principal and accrued but unpaid interest on the Note, and all other obligations of XTI Drones Holdings under the applicable Note, to be immediately due and payable and/or exercise any other rights or remedies under any other instrument or applicable law. Upon the occurrence of a Bankruptcy-Related Event of Default, the outstanding principal amount of the Note together with all accrued and unpaid interest and all other obligations of XTI Drones Holdings under the Note will become due and payable automatically. Following the occurrence of an event of default, interest will accrue on the outstanding principal balance of each Note at an annual rate equal to the Interest Rate plus 2.00%. An event of default under the Notes could also lead to a default under agreements governing our future indebtedness.
We may not have or be able to secure financing for sufficient funds to satisfy all amounts under the Notes when due. If there is an event of default under the Notes, our business, financial condition and results of operations could be materially and adversely affected. In addition, to the extent we complete capital raises in an aggregate amount of $40 million or more, we will be required to repay the outstanding balance of each Note, which may reduce our working capital and impact our ability to operate as planned.
9
We may incur substantial product liabilityclaims relating to our products.
As a distributor of drone and electronic products, and with aircraft and aviation sector companies under increased scrutiny in recent years, claims could be brought against us if use or misuse of one of the drones we sell causes, or merely appears to have caused, personal injury or death. In addition, defects in our products may lead to other potential life, health and property risks. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management and other resources. We are unable to predict if we will be able to obtain or maintain product liability insurance for any of our products.
Changes in U.S. and foreign government administrativepolicy, including the imposition of or increases in tariffs and changes to existing trade agreements, and other changes to macroeconomicconditions could have a material adverse effect on global economic conditions and our business, results of operations, prospects and financialcondition.
As a result of changes to U.S. and foreign government administrative policy, there may be changes to existing trade agreements, greater restrictions on free trade generally, the imposition of or significant increases in tariffs on goods imported into the U.S., particularly those manufactured in Canada, Mexico, Europe, and China, and adverse responses by foreign governments to U.S. trade policies, among other possible changes. China is currently a leading global source of hardware products, including the hardware products that we use. As the implementation of tariffs is ongoing, more tariffs may be added in the future. These tariffs could have an adverse impact on our business, results of operations, prospects and financial condition, and if we are unable to pass such price increases through to our customers, it would likely increase our cost of sales and, as a result, decrease our gross margins, operating income and net income. As of the date of this report, discussions remain ongoing in respect of certain trade restrictions and tariffs on imports from Canada, China, Mexico and Europe, as well as retaliatory tariffs enacted in response to such actions. In light of these events, there continues to exist significant uncertainty about the future relationship between the U.S. and other countries with respect to such trade policies, treaties, and tariffs. These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States. Any of these factors could depress economic activity and restrict our access to suppliers or customers and, in turn, have a material adverse effect on the business and financial condition of such suppliers and customers or other counterparties we do business with, which in turn would negatively impact us.
Deteriorating macroeconomic conditions, including slower growth or a recession, inflation, changes in the U.S. presidential administration, bank failures, supply chain disruption, increases in interest rates, increases to fuel and other energy costs or vehicle costs, geopolitical events, including escalating tariff and non-tariff trade measures imposed by the U.S., Mexico, China, Canada and other countries, the potential for new or unforeseen conflicts such as the impact of the Russia and Ukraine conflict and Hamas and Israel conflict, changes in the labor market, or decreases in government spending power, could in the future result in a decline in customer spending, which could materially adversely affect our business, results of operations, prospects and financial condition. A trade war, other governmental action related to tariffs or trade agreements, changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently do business, and any resulting negative sentiments towards the U.S. as a result of such changes, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Licenses for new products may be difficultto obtain in the future
The drones and other electronic products sold by Drone Nerds and Anzu Robotics require FCC licenses to be imported into the US and sold to customers. Suppliers may face difficulties in the future obtaining these licenses. In such cases, Drone Nerds and Anzu Robotics will not be able to sell products where suppliers are not able to obtain licenses. This can be a major impact to Drone Nerds and Anzu Robotics’ business.
Difficult conditions in the global capitalmarkets and the economy generally may materially adversely affect our business and results of operations, and we do not expect these conditionsto improve in the near future.
Our results of operations are materially affected by conditions in the global capital markets and the economy generally, both in the U.S. and elsewhere around the world. Weak economic conditions generally, sustained uncertainty about global economic conditions, or a prolonged or further tightening of credit markets could cause our customers and potential customers to postpone or reduce spending on technology products or services or put downward pressure on prices, which could have an adverse effect on our business, results of operations or cash flows. Concerns over inflation, energy costs, geopolitical issues and the availability of credit in the U.S. have contributed to increased volatility and diminished expectations for the economy and the markets going forward. These factors, combined with volatile oil prices and wavering business and consumer confidence, have precipitated an economic slowdown and uncertain global outlook. Domestic and international equity markets have been experiencing heightened volatility and turmoil. These events and the continuing market upheavals may have an adverse effect on our business. In the event of extreme prolonged market events, such as the global economic recovery, we could incur significant losses.
The existence of inflation in certain economies has resulted in, and may continue to result in, rising interest rates and capital costs, supply shortages, increased costs of labor, components, manufacturing and shipping, as well as weakening exchange rates and other similar effects. As a result, we have experienced and may continue to experience cost increases. Although we take measures to mitigate the effects of inflation and rising interest rates, if these measures are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, there could be a difference between the timing of when those beneficial actions impact our results or operations and when the cost of inflation is incurred.
10
The Drone Nerds and Anzu Robotics acquisitions,and any future acquisitions that we may make, could disrupt our business, cause dilution to our stockholders and harm our business, financialcondition or operating results.
The Drone Nerds and Anzu Robotics acquisitions, and any future acquisitions that we successfully consummate, could subject us to a number of risks, including, but not limited to:
| ● | the<br>purchase price we pay and/or unanticipated costs could significantly deplete our cash reserves or result in dilution to our existing<br>stockholders; |
|---|---|
| ● | we<br>may find that the acquired company or technologies do not improve our market position as planned; |
| --- | --- |
| ● | we<br>may have difficulty integrating the operations and personnel of the acquired company, as the combined operations will place significant<br>demands on the Company’s management, technical, financial and other resources; |
| --- | --- |
| ● | personnel,<br>vendors, suppliers and customers of the acquired company may terminate their relationships with the acquired company as a result of the<br>acquisition; |
| --- | --- |
| ● | we<br>may experience additional financial and accounting challenges and complexities in areas such as tax planning and financial reporting; |
| --- | --- |
| ● | we<br>may assume or be held liable for risks and liabilities (including environmental-related costs) as a result of our acquisitions, some<br>of which we may not be able to discover during our due diligence investigation or adequately adjust for in our acquisition arrangements<br>(for example, even if we secure indemnification protections in connection with these acquisitions from undisclosed liabilities, there<br>may not be adequate resources to cover such indemnity); |
| --- | --- |
| ● | our<br>ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity<br>of managing geographically or culturally diverse enterprises; |
| --- | --- |
| ● | we<br>may incur one-time write-offs or restructuring charges in connection with the acquisition; |
| --- | --- |
| ● | we<br>may acquire goodwill and other intangible assets that are subject to amortization or impairment tests, which could result in future charges<br>to earnings; and |
| --- | --- |
| ● | we<br>may not be able to realize the cost savings or other financial benefits we anticipated. |
| --- | --- |
We cannot assure you that, following the acquisitions of Drone Nerds or Anzu Robotics or any future acquisition, our continued business will achieve sales levels, profitability, efficiencies or synergies that justify the acquisition or that the acquisition will result in increased earnings for us in any future period. These factors could have a material adverse effect on our business, financial condition and operating results.
We may not be able to successfully integratethe business and operations of Drone Nerds, Anzu Robotics or other entities that we have acquired or may acquire in the future into ourongoing business operations, which may result in our inability to fully realize the intended benefits of these acquisitions, or may disruptour current operations, which could have a material adverse effect on our business, financial position and/or results of operations.
We plan to integrate the operations of Drone Nerds and Anzu Robotics into our business, and this process involves complex operational, technological and personnel-related challenges, which are time-consuming and expensive and may disrupt our ongoing business operations. Furthermore, integration involves a number of risks, including, but not limited to:
| ● | difficulties<br>or complications in combining the companies’ operations; |
|---|---|
| ● | differences<br>in controls, procedures and policies, regulatory standards and business cultures among the combined companies; |
| --- | --- |
| ● | the<br>diversion of management’s attention from our ongoing core business operations; |
| --- | --- |
| ● | increased<br>exposure to certain governmental regulations and compliance requirements; |
| --- | --- |
| ● | the<br>potential increase in operating costs; |
| --- | --- |
| ● | the<br>potential loss of key personnel; |
| --- | --- |
| ● | the<br>potential loss of key customers or suppliers who choose not to do business with the combined business; |
| --- | --- |
11
| ● | difficulties<br>or delays in consolidating the acquired companies’ technology platforms, including implementing systems designed to maintain effective<br>disclosure controls and procedures and internal control over financial reporting for the combined company and enable the Company to continue<br>to comply with U.S. GAAP and applicable U.S. securities laws and regulations; |
|---|---|
| ● | unanticipated<br>costs to successfully integrate operations, technologies, personnel of acquired businesses and other assumed contingent liabilities; |
| --- | --- |
| ● | difficulty<br>comparing financial reports due to differing financial and/or internal reporting systems; |
| --- | --- |
| ● | making<br>any necessary modifications to internal financial control standards to comply with the Sarbanes-Oxley Act of 2002 and the rules and regulations<br>promulgated thereunder; and/or |
| --- | --- |
| ● | possible<br>tax costs or inefficiencies associated with integrating the operations of the combined company. |
| --- | --- |
These factors could cause us to not fully realize the anticipated financial and/or strategic benefits of the acquisitions, which could have a material adverse effect on our business, financial condition and/or results of operations.
Even if we are able to successfully operate the acquired businesses, we may not be able to realize the revenue and other synergies and growth that we anticipated from these acquisitions in the time frame that we currently expect, and the costs of achieving these benefits may be higher than what we currently expect, because of a number of risks, including, but not limited to:
| ● | the<br>possibility that the acquisition may not further our business strategy as we expected; |
|---|---|
| ● | the<br>possibility that we may not be able to expand the reach and customer base for the acquired companies’ current and future products<br>as expected; |
| --- | --- |
| ● | the<br>possibility that we may have entered a market with no prior experience and may not succeed in the manner expected; and |
| --- | --- |
| ● | the<br>possibility that the carrying amounts of goodwill and other purchased intangible assets may not be recoverable. |
| --- | --- |
In addition, a significant portion of the aggregate purchase price of Drone Nerds and Anzu Robotics may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. For the purposes of the unaudited pro forma condensed combined financial information included in this report, the Company has assumed the excess consideration over the net assets acquired is goodwill. The Company will perform a more comprehensive assessment of assets acquired that may result in other intangible assets being identified in that analysis. If the Acquisitions do not yield expected returns or fair value estimates deteriorate, we may be required to take charges to our results of operations based on this impairment assessment process, which could adversely affect our results of operations.
As a result of these risks, the acquisitions of Drone Nerds and Anzu Robotics and integration may not contribute to our earnings as expected, we may not achieve expected revenue synergies or our return on invested capital targets when expected, or at all, and we may not achieve the other anticipated strategic and financial benefits of the acquisitions.
The risks arising with respect to the historicbusiness and operations of Drone Nerds and Anzu Robotics may be different from what we anticipate, which could significantly increasethe costs and decrease the benefits of the acquisitions and materially and adversely affect our operations going forward.
Although we performed significant financial, legal, technological and business due diligence with respect to Drone Nerds and Anzu Robotics, we may not have appreciated, understood or fully anticipated the extent of the risks associated with the acquisitions. We have secured indemnification for certain matters in connection with the Drone Nerds and Anzu Robotics acquisitions in order to mitigate the consequences of breaches of representations, warranties and covenants under the applicable acquisition agreements and the risks associated with historic operations, including those with respect to compliance with laws, accuracy of financial statements, financial reporting controls and procedures, tax matters and undisclosed liabilities, and certain matters known to us. We believe that the indemnification provisions of the acquisition agreements, together with insurance policies that we have in place will limit the economic consequences of the issues we have identified in our due diligence to acceptable levels. Notwithstanding our exercise of due diligence and risk mitigation strategies, the Drone Nerds and Anzu Robotics acquisitions may expose us to unanticipated risks or unknown or contingent liabilities and the costs associated with these risks or liabilities may be greater than we anticipate. We may not be able to contain or control the costs associated with unanticipated risks or liabilities, which could materially and adversely affect our business, liquidity, capital resources or results of operations.
12
Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of businesses or fundsacquired.
The audited consolidated financial statements of Drone Nerds, Inc. for the years ended December 31, 2024 and 2023 are filed as Exhibit 99.3 to this Current Report on Form 8-K and are incorporated by reference herein.
The unaudited condensed consolidated financial statements of Drone Nerds, Inc. for the six months ended June 30, 2025 and 2024 are filed as Exhibit 99.4 to this Current Report on Form 8-K and are incorporated by reference herein.
(b) Pro forma financial information.
The unaudited pro forma condensed combined financial information identified below giving effect to the Acquisitions is filed as Exhibit 99.5 to this Current Report on Form 8-K and is incorporated by reference herein:
| ● | Unaudited pro forma condensed combined balance<br>sheet as of June 30, 2025 |
|---|---|
| ● | Unaudited pro forma condensed combined statement<br>of operations for the six months ended June 30, 2025 |
| --- | --- |
| ● | Unaudited pro forma condensed combined statement<br>of operations for the year ended December 31, 2024 |
| --- | --- |
13
(d) Exhibits
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| XTI AEROSPACE, INC. | ||
|---|---|---|
| Date: November 12, 2025 | By: | /s/ Brooke Turk |
| Name: | Brooke Turk | |
| Title: | Chief Financial Officer |
15
Exhibit 2.1
MEMBERSHIP INTEREST PURCHASE AGREEMENT,
DATED AS OF NOVEMBER 10, 2025
by and among
XTI DRONES HOLDINGS, LLC,
as the “Buyer,”
THE PERSONS SET FORTH ON ANNEX A-1,
as the “Seller Owners,”
THE ORIGIN GROUP DN, INC.,
as the “Seller,”
DRONE NERDS, LLC,
as the “Company,”
and
JEREMY SCHNEIDERMAN,
as the “Seller’s Representative”
TABLE OF CONTENTS
| Page | ||
|---|---|---|
| Article 1 DEFINITIONS | 2 | |
| 1.1 | Definitions | 2 |
| Article 2 CONTRIBUTION, SALE AND TRANSFER OF ACQUIRED INTERESTS | 18 | |
| 2.1 | Contribution, Purchase and Sale | 18 |
| 2.2 | Consideration | 18 |
| 2.3 | Closing | 18 |
| 2.4 | Closing Deliverables; Payments | 18 |
| 2.5 | Consideration Allocation | 20 |
| 2.6 | Withholding | 20 |
| 2.7 | Net Working Capital Adjustment | 21 |
| Article 3 REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY | 23 | |
| 3.1 | Organization | 23 |
| 3.2 | Capitalization | 23 |
| 3.3 | Authorization; Enforceability | 24 |
| 3.4 | No Conflicts | 24 |
| 3.5 | Financial Statements; No Undisclosed Liabilities; Indebtedness | 24 |
| 3.6 | Absence of Certain Changes | 25 |
| 3.7 | Reserved | 27 |
| 3.8 | Tax | 27 |
| 3.9 | Ethical Practices | 29 |
| 3.10 | Material Contracts | 30 |
| 3.11 | Title to Assets | 32 |
| 3.12 | Intellectual Property | 32 |
| 3.13 | Legal Proceedings | 34 |
| 3.14 | Real Property | 35 |
| 3.15 | Insurance | 36 |
| 3.16 | Permits | 36 |
| 3.17 | Compliance with Law | 37 |
| 3.18 | Employee Benefits | 37 |
| 3.19 | Environmental Matters | 39 |
| 3.20 | Transactions with Related Parties and Affiliates. | 39 |
| 3.21 | Accounts Payable; Accounts Receivable | 40 |
| 3.22 | Employees | 40 |
| 3.23 | Material Customers | 42 |
-i-
| 3.24 | Material Suppliers | 42 |
|---|---|---|
| 3.25 | Data Privacy | 43 |
| 3.26 | Books and Records | 43 |
| 3.27 | COVID-19 and COVID-19 Measures | 43 |
| 3.28 | No Brokers or Finders | 44 |
| 3.29 | No Other Representations and Warranties | 44 |
| Article 4 REPRESENTATIONS AND WARRANTIES REGARDING THE SELLER GROUP | 44 | |
| 4.1 | Organization | 44 |
| 4.2 | Title | 44 |
| 4.3 | Authorization; Enforceability | 45 |
| 4.4 | No Conflicts | 45 |
| 4.5 | Disclaimer | 45 |
| 4.6 | No Brokers or Finders | 45 |
| 4.7 | Legal Proceedings | 45 |
| 4.8 | Investment Representations | 46 |
| Article 5 REPRESENTATIONS AND WARRANTIES OF THE BUYER | 47 | |
| 5.1 | Organization | 47 |
| 5.2 | Authorization; Enforceability | 47 |
| 5.3 | No Conflicts | 48 |
| 5.4 | No Brokers or Finders | 48 |
| 5.5 | Investment Intent | 48 |
| 5.6 | Buyer Interests | 48 |
| Article 6 COVENANTS | 48 | |
| 6.1 | Allocation | 48 |
| 6.2 | Further Assurances; Cooperation | 49 |
| 6.3 | Non-Competition; Non-Solicitation | 49 |
| 6.4 | Confidentiality | 51 |
| 6.5 | Seller’s Release | 51 |
| 6.6 | Certain Tax Matters | 52 |
| 6.7 | D&O Indemnification | 56 |
| 6.8 | 401(k) Plan Termination | 56 |
| 6.9 | R&W Insurance | 56 |
| 6.10 | Acknowledgements | 56 |
| 6.11 | Banesco Line of Credit | 57 |
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| Article 7 INDEMNIFICATION | 57 | |
|---|---|---|
| 7.1 | Obligation of the Seller Group | 57 |
| 7.2 | Obligation of the Buyer | 57 |
| 7.3 | Survival | 58 |
| 7.4 | Limitations on Indemnification | 58 |
| 7.5 | Third Party Claims | 59 |
| 7.6 | Direct Claims | 60 |
| 7.7 | Other Limitations | 60 |
| 7.8 | Assertion of Claims; Payment of Claims | 62 |
| 7.9 | Exclusive Remedy | 62 |
| Article 8 GENERAL | 63 | |
| 8.1 | Seller’s Representative | 63 |
| 8.2 | Amendments and Waivers | 63 |
| 8.3 | Schedules; Exhibits; Integration | 64 |
| 8.4 | Governing Law; Venue; Waiver of Jury Trial | 64 |
| 8.5 | Assignment and Third-Party Beneficiaries | 64 |
| 8.6 | Counterparts | 64 |
| 8.7 | Publicity and Reports | 65 |
| 8.8 | Notices | 65 |
| 8.9 | Specific Performance | 66 |
| 8.10 | Rules of Construction | 66 |
| 8.11 | Severability | 66 |
| 8.12 | Representation By Counsel | 67 |
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Schedules
| Schedule I | Acquired Interests |
|---|---|
| Schedule 1.1(a) | Net Working Capital Calculation |
| Schedule 1.1(b) | Banesco Line of Credit |
| Schedule 1.1(c) | Related Party Indebtedness |
| Schedule 6.1(a) | Allocation Methodologies |
| Seller Disclosure Schedule |
Exhibits
| Exhibit A | Form of Promissory Note |
|---|---|
| Exhibit B | Company Agreement of the Buyer |
| Exhibit C | Form of Joinder Agreement |
| Exhibit D | Form of Registration Rights Agreement |
| Exhibit E | Form of Lock-Up Agreement |
| Exhibit F | Accredited Investor Questionnaire |
| Exhibit G | R&W Insurance Policy |
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MEMBERSHIP INTEREST PURCHASE AGREEMENT
THISMEMBERSHIP INTEREST PURCHASE AGREEMENT (this “Agreement”), dated and effective as of November 10, 2025, is entered into by and among (a) XTI Drones Holdings, LLC, a Texas limited liability company (the “Buyer”); (b) The Origin Group DN, Inc., a Delaware corporation (the “Seller”); (c) Drone Nerds, LLC, a Florida limited liability company (the “Company”); (d) each of the Seller Owners listed on Annex A-1 attached hereto (collectively, the “Seller Owners” and, together with the Seller, the “Seller Group”), and (e) Jeremy Schneiderman, solely in his capacity as representative of the Seller Group (the “Seller’s Representative”). Each of the Buyer, the Seller Owners, the Seller, and the Seller’s Representative is referred to herein as a “Party” and collectively, the “Parties.”
RECITALS:
WHEREAS, prior to the date hereof, the Seller Owners were the legal, record and beneficial owners of all of the issued and outstanding Equity Interests in Drone Nerds Inc, a Florida corporation (“Drone Nerds Inc.” or the “Predecessor”);
WHEREAS, prior to the date hereof (a) the Seller Owners contributed all of their Equity Interests in Drone Nerds Inc. to the Seller in exchange for Equity Interests of the Seller (the “Contributions”), (b) the Seller elected to treat Drone Nerds Inc. as a qualified subchapter S Subsidiary, and (c) Drone Nerds Inc. converted into the Company, pursuant to an articles of conversion (the “Conversion”) filed with the Secretary of State of the State of Florida (together, the “F-Reorganization”);
WHEREAS, as of the date hereof, after giving effect to the F-Reorganization, the Seller Owners are the legal, record and beneficial owners of one hundred percent (100%) of the issued and outstanding Equity Interests in the Seller;
WHEREAS, on the terms and subject to the conditions set forth in this Agreement, the Seller desires to sell and transfer to the Buyer, and the Buyer desires to accept from the Seller, 46% of the Equity Interests of the Company with a value equivalent to the Cash Payment Amount multiplied by the Allocation Percentage, as set forth on Schedule I (the “Purchased Interests”);
WHEREAS, on the terms and subject to the conditions set forth in this Agreement, the Seller desires to contribute to the Buyer, and the Buyer desires to acquire from the Seller, 24% of the Equity Interests of the Company with a value equivalent to the Buyer Interest Amount (the “ContributedInterests”), in exchange for Equity Interests of the Buyer, as set forth on Schedule I in a transaction governed under Section 721(a) of the Code; and
WHEREAS, on the terms and subject to the conditions set forth in this Agreement, the Seller desires to sell and transfer to the Buyer, and the Buyer desires to purchase and acquire from the Seller, 30% of the Equity Interests of the Company in exchange for the Promissory Note, as set forth on Schedule I (the “Note Interests” and together with the Purchased Interests and the Contributed Interests, the “Acquired Interests”).
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NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Parties hereto, the Parties hereto, intending to be legally bound, hereby agree as follows:
AGREEMENT
Article 1
DEFINITIONS
1.1 Definitions. As used in this Agreement and the Exhibits and Schedules delivered pursuant to this Agreement, the following definitions shall apply.
“Acquired Companies” means the Company and Anzu Robotics, LLC, a Delaware limited liability company.
“AcquiredInterests” has the meaning set forth in the Recitals.
“Action” means any action, cause of action, complaint, petition, demand, investigation, arbitration, audit, examination, review, controversy, suit or other legal, judicial, administrative or arbitral proceeding, whether civil or criminal, in law or in equity before or by any arbitrator, self-regulatory organization or Government Entity.
“Affiliate” means, with respect to any Person, (a) a director, officer, partner, member, manager, beneficiary or equity holder (whether direct or indirect) of such Person; (b) a spouse, parent, sibling or child of such Person (or spouse, parent, sibling or child of any director, manager or executive officer of such Person); and (c) any other Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person.
“AffiliateAgreement” means any Contract with any Related Party.
“AffiliatedGroup” means a group of Persons that elects to, is required to, or otherwise files a Tax Return or pays a Tax as an affiliated, consolidated, combined, unitary or other similar group.
“Agreement” has the meaning set forth in the Preface.
“Allocation Percentage” means the percentage set forth opposite the Company’s name on the Flow of Funds Memorandum under the title “Allocation Percentage.”
“AncillaryAgreements” means, collectively, the Company Agreement of the Buyer, the Promissory Note, the Joinder Agreement, the Registration Rights Agreement, the Lock-Up Agreement, and any other agreement, certificate, or document contemplated by this Agreement.
“Banesco Lineof Credit” means that certain line of credit as set forth on Schedule 1.1(b).
“Banesco Lineof Credit Amount” means the outstanding balance of the Banesco Line of Credit, inclusive of all accrued, but unpaid interest, together with any and all other charges, as of the end of the Business Day immediately preceding Closing; provided, for the avoidance of doubt, such amount shall not include any fees or expenses, including legal expenses, payments due to Banesco USA in connection with its review of the transactions contemplated hereby.
“Bankruptcyand Insolvency Exceptions” has the meaning set forth in Section 3.3(a).
“BasketAmount” has the meaning set forth in Section 7.4(a).
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“BusinessDay” means any day that is not a Saturday, a Sunday or other day on which commercial banks are required or authorized by applicable Law to be closed in Texas.
“Buyer” has the meaning set forth in the Preface.
“BuyerIndemnified Parties” means the Buyer and its Affiliates and, following the Closing, the Company, and each of the foregoing Persons’ respective successors and assigns, and each of their respective officers, managers, directors, employees, representatives and Affiliates, other than any Seller Owner, Seller and any Person who is an officer or employee of the Company prior to the Closing but not following the Closing.
“Buyer InterestAmount” means $9,734,667.67.
“Buyer Interests” means the Class B Units (as defined in the Company Agreement of the Buyer) of the Buyer to be issued to the Seller pursuant to the terms of this Agreement with a value equal to the Buyer Interest Amount multiplied by the Allocation Percentage.
“BuyerPrepared Returns” has the meaning set forth in Section 6.6(d)(ii).
“Buyer’sFundamental Representations” means Sections 5.1 (Organization), 5.2 (Authorization;Enforceability), 5.3 (No Conflicts), 5.5 (Investment Intent), and 5.6 (Buyer Interests).
“CapAmount” has the meaning set forth in Section 7.4(b).
“CARESAct” means the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136) or a similar provision of U.S. state or local law.
“CARES Act andCOVID Relief Programs” means, collectively, the CARES Act, including any programs or facilities established by the Board of Governors of the Federal Reserve System to which the U.S. Treasury Department has provided financing as contemplated by Title IV of the Coronavirus Aid, Relief and Economic Security Act.
“Cash” means, with respect to the Acquired Companies, the amount (expressed in United States dollars) of all cash and readily marketable cash equivalents, including cash in the bank, minus (i) deposits or checks in transit (or waiting for clearance) to the extent there has been a reduction of receivables on account thereof, minus (ii) any held checks to the extent that the amounts to be paid have been included in accounts payable for purposes of Closing Net Working Capital, minus (iii) Restricted Cash.
“Cash PaymentAmount” means $20,000,000.
“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended.
“ClaimNotice” has the meaning set forth in Section 7.6.
“Closing” has the meaning set forth in Section 2.3.
“ClosingDate” means the date hereof.
“ClosingNet Working Capital” means, as of the Effective Time and determined in accordance with GAAP, applied on a basis consistent with the Acquired Companies’ historical accounting practices, the current assets of the Acquired Companies (including, without limitation, accounts receivable, inventories, vendor deposits, prepaid expenses, and other current assets) minus the current liabilities of the Acquired Companies (including, without limitation, accounts payable, accrued expenses, and other current liabilities), in each case as calculated in accordance with the sample Net Working Capital Calculation attached hereto as Schedule 1.1(a).
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For the avoidance of doubt, Closing Net Working Capital shall exclude (a) Cash, (b) any Company Transaction Expenses, (c) Indebtedness, the outstanding balance of the Banesco Line of Credit, related party notes payable, and the current portion of the operating lease obligations, and (d) any other debt-like items as reflected in the Net Working Capital Calculation.
“ClosingStatement” has the meaning set forth in Section 2.7(b)(i).
“Code” means the Internal Revenue Code of 1986, as amended.
“Company” has the meaning set forth in the Preface.
“CompanyAgreement of the Buyer**”** means that certain First Amended and Restated Company Agreement of the Buyer attached hereto as Exhibit B.
“Company BaseValuation” means $40,000,000.
“CompanyCash” means, as of the Effective Time, the amount of Cash of the Acquired Companies.
“CompanyIntellectual Property” means all Owned Intellectual Property and all Intellectual Property used or held for use in connection with, or otherwise necessary for, conducting the business of the Company as currently conducted.
“CompanyIT Assets” means Software, systems, servers, computers, hardware, firmware, middleware, networks, data communications lines, routers, hubs, switches and all other information technology equipment, and all associated documentation, in each case, used or held for use in connection with, or otherwise necessary for, conducting the business of the Company as currently conducted.
“CompanyTransaction Expenses” means, without duplication, any and all fees, commissions, costs and expenses incurred, or payable, by the Seller Group and/or the Company (to the extent the Company pays or is obligated to pay such fees and expenses incurred, or payable, by the Seller Group) in connection with the negotiation, preparation and execution of this Agreement to the extent not paid at or prior to the Closing, including (without duplication): (a) all brokerage or finders’ fees or agents’ commissions or any similar charges, (b) all legal, accounting, investment banking, financial advisory, consulting and other fees, costs and expenses of third parties, (c) the amounts of any bonus, retention bonus, change of control bonus or similar payments (plus the employer portion of the related employment Taxes and payroll Taxes thereon), in each case of this clause (c), that the Company is obligated to pay to any director, manager, officer, employee, consultant or independent contractor of the Company or to any other Person as a result of the consummation of the transactions contemplated hereby, (d) the R&W Insurance Expenses, and (e) the Related Party Indebtedness; provided, any amounts with respect to clause (a), (b) and (d), such amounts shall be multiplied by the Allocation Percentage.
“Company’s401(k) Plan” has the meaning set forth in Section 6.8.
“Competing Business” has the meaning set forth in Section 6.3(a)(i).
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“ConfidentialCommunications” has the meaning set forth in Section 8.12(b).
“ConfidentialData” means all data for which the Company is required by Law, Contract or privacy policy to safeguard and/or keep confidential or private, including all Customer Information and all other such data transmitted to the Company by Persons that interact with the Company.
“ConfidentialInformation” means information that is not generally known to the public (including the existence and content of this Agreement), that has a competitive value because of its secrecy, and that is used, developed or obtained by any member of the Seller Group in connection with its business, including, but not limited to, information, observations and data obtained by the Seller during the Seller’s employment with, or ownership of, the Company concerning (A) the business or affairs of the Company (or the Predecessor), and (B) products, services, fees, costs, pricing structures, analyses, drawings, photographs and reports, computer software (including operating systems, applications and program listings), data bases, accounting and business methods, inventions (whether patentable or unpatentable and whether or not reduced to practice), devices, new developments, methods and processes, customers and clients and customer and client lists, information on current and prospective independent sales agents, software vendors or partners, all technology trade secrets and know how, and all similar and related information in whatever form but shall not include any information that has been published in a form generally available to the public prior to the date of disclosure or use of such information, and through no breach of this Agreement.
“Contract” means any written or oral contract, agreement, purchase order, commitment, engagement letter, Permit, loan or credit agreement, note, bond, mortgage, indenture, lease, sublease, purchase order or other agreement, instrument, concession, franchise or license, including customer contracts, customer orders, royalty and license agreements and rights, and purchase agreements.
“Contributed Interests” has the meaning set forth in the Recitals.
“Contributions” has the meaning set forth in the Recitals.
“Conversion” has the meaning set forth in the Recitals.
“COVID-19” means SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), coronavirus disease or COVID-19.
“COVID-19 Measures” means any quarantine, “shelter in place”, “stay at home”, workforce reduction, social distancing, shut down, closure, sequester or any other similar Law, Order, directive, guidelines or recommendations by any Government Entity in connection with or in response to COVID-19, including, but not limited to, the CARES Act.
“CustomerInformation” means all non-public records, books, reports, data and other information concerning customers of the Company.
“DirectClaim” has the meaning set forth in Section 7.6.
“DisputeNotice” has the meaning set forth in Section 2.7(b)(ii).
“Effective Time” has the meaning set forth in Section 2.3.
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“EmployeeBenefit Plan” means any “employee benefit plan” (within the meaning of Section 3(3) of ERISA) and any other compensation plan, agreement or arrangement providing compensatory benefits, in each case, currently maintained, sponsored or contributed to by the Company on behalf of, relating to, or with respect to any current or former employees, officers, consultants, independent contractors (who are natural persons) or directors of the Company or for which the Company has or may have any other Liability, contingent or otherwise, including, without limitation, by or through an ERISA Affiliate, including (A) any profit-sharing, deferred compensation, bonus, retention, stock option, equity compensation, profits interest, equity-based, equity appreciation, phantom stock, stock purchase, pension, consulting, retirement, change in control, golden parachute, incentive, supplemental retirement, stock appreciation, employment, severance, welfare or incentive plan, agreement or arrangement and (B) any plan, agreement or arrangement providing for “fringe benefits” or perquisites including benefits relating to the Company’s automobiles, clubs, vacation, paid time off, child care, parenting, sabbatical, sick leave, medical, dental, vision, disability, health, welfare, cafeteria plan, hospitalization, and, life insurance; provided, however, that none of the following shall be treated as an Employee Benefit Plan: (i) base salary and hourly wages in the ordinary course to employee.
“Encumbrance” means, with respect to any property or asset, any mortgage, lien, pledge, charge, right of way, security interest, license, encumbrance or other adverse claim of any kind in respect of such property or asset, including any voting or other transfer restrictions, options, right of first refusal, encroachment, easement or other claim.
“EnvironmentalLaw” means any Law relating to, regulating, or imposing an obligation or standards of conduct concerning (i) releases or threatened releases of Hazardous Substances or materials containing Hazardous Substances; (ii) the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Substances or materials containing Hazardous Substances; or (iii) pollution or protection of the environment, worker health and safety and/or natural resources.
“EquityInterests” means (a) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether voting or nonvoting) of capital stock, including each class of common stock and preferred stock of such Person and all securities convertible into or exchangeable for shares of capital stock of such Person, and all options, warrants, and other rights to purchase or otherwise acquire from such Person shares of such capital stock, including any stock appreciation or similar rights, contractual or otherwise and (b) with respect to any Person that is not a corporation, any and all general partnership interests, limited partnership interests, membership units (including each class), membership or limited liability company interests, beneficial interests or other equity interests of or in such Person (including any common, preferred or other interest in the capital or profits of such Person, and whether or not having voting or similar rights) and all securities convertible into or exchangeable for equity interests of such Person, and all options, warrants, and other rights to purchase or otherwise acquire from such Person equity interests, including any equity interest appreciation or similar rights, contractual or otherwise.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the related regulations promulgated thereunder.
“ERISAAffiliate” means any entity that is treated as a single employer with the Company under Section 4001 of ERISA or Section 414(b), (c), (m) or (o) of the Code.
“Estimated BanescoLine of Credit Amount” has the meaning set forth in Section 2.7(a).
“Estimated CompanyCash” has the meaning set forth in Section 2.7(a).
“Estimated CompanyTransaction Expenses” has the meaning set forth in Section 2.7(a).
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“F-Reorganization” has the meaning set forth in the Recitals.
“Final AllocationSchedule” has the meaning set forth in Section 6.1(c).
“Final****Banesco Line of Credit Amount” has the meaning set forth in Section 2.7(c).
“FinalClosing Statement” has the meaning set forth in Section 2.7(c).
“FinalCompany Cash” has the meaning set forth in Section 2.7(c).
“FinalCompany Transaction Expenses” has the meaning set forth in Section 2.7(c).
“FinalNet Working Capital” has the meaning set forth in Section 2.7(c).
“FinalPromissory Note Amount” means an amount equal to:
(a) the sum of:
| (i) | the Company Base Valuation; minus |
|---|---|
| (ii) | the Cash Payment Amount; minus |
| --- | --- |
| (iii) | the amount, if any, by which the Minimum Company Cash exceeds the Final Company Cash; plus |
| --- | --- |
| (iv) | the amount, if any, by which the Final Company Cash exceeds the Minimum Company Cash; minus |
| --- | --- |
| (v) | the Buyer Interest Amount; minus |
| --- | --- |
| (vi) | the amount, if any, by which the Final Banesco Line of Credit Amount exceeds the Maximum Banesco Line<br>of Credit Amount; plus |
| --- | --- |
| (vii) | the amount, if any, by which the Final Banesco Line of Credit Amount is less than the Maximum Banesco<br>Line of Credit Amount; minus |
| --- | --- |
| (viii) | the amount, if any, by which the Target Net Working Capital exceeds the Final Net Working Capital; plus |
| --- | --- |
| (ix) | the amount, if any, by which the Final Net Working Capital exceeds the Target Net Working Capital; |
| --- | --- |
(b) multiplied by the Allocation Percentage, minus
| (i) | the amount, if any, by which the Final Company Transaction Expenses exceeds the Estimated Company Transaction<br>Expenses; plus |
|---|---|
| (ii) | the amount, if any, by which the Estimated Company Transaction Expenses exceeds the Final Company Transaction<br>Expenses. |
| --- | --- |
“FinancialStatements” has the meaning set forth in Section 3.5(a).
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“Flow-Thru Entity” means (a) any entity, plan or arrangement that is treated for Income Tax purposes as a partnership, (b) a “specified foreign corporation” within the meaning of Section 965 of the Code, or (c) a “passive foreign investment company” within the meaning of Section 1297 of the Code.
“Fraud” means an act, committed by a party to this Agreement, with intent to deceive another party to this Agreement, in connection with this Agreement and requires (a) a false representation of material fact made in Article 3, Article 4 or Article 5 by such party; (b) with actual knowledge (not imputed or constructive knowledge) that such representation is false; (c) with an intention to induce the party to whom such representation is made to act or refrain from acting in reliance upon it; (d) causing that party, in justifiable reliance upon such false representation and with ignorance to the falsity of such representation, to take or refrain from taking action; and (e) causing such party to suffer damage by reason of such reliance. For the avoidance of doubt, “Fraud” will not include any type of constructive or equitable fraud or fraud based on recklessness or negligence.
“FundamentalRepresentations” means, collectively, the Seller’s Fundamental Representations and the Buyer’s Fundamental Representations.
“GAAP” means generally accepted accounting principles in the United States, as in effect on the date hereof, and applied on a consistent basis.
“GovernmentEntity” means any government or political subdivision, whether federal, state, provincial, territorial, municipal or local, or any agency or instrumentality of any such government or political subdivision, or any federal, state, provincial, territorial, municipal or local court or arbitrator of competent jurisdiction, or regulatory authority, in each case, whether domestic or foreign.
“HazardousSubstances” means (i) any waste or substance that forms the basis for liability or is regulated under any Environmental Law; and (ii) any substance, material or waste that is defined or classified pursuant to any Environmental Law as a “hazardous waste,” “hazardous material,” “hazardous substance,” “extremely hazardous waste,” “pollutant,” “restricted hazardous waste,” “contaminant,” “toxic waste,” or “toxic substance” or words of similar import, including, without limitation, petroleum, or any fraction or derivative thereof, asbestos or asbestos-containing material, urea formaldehyde, per- and polyfluoroalkyl substances, and polychlorinated biphenyls (PCBs).
“Income Tax” and “Income Taxes” means any Tax that is based upon, measured by, or calculated with respect to net income.
“Income Tax Return” shall mean any Tax Return that relates to Income Taxes.
“Indebtedness” means, at any particular time, without duplication of any amount included in this definition or otherwise in any other component of the definition of “Purchase Price,” any and all outstanding liabilities for the principal amount or aggregate amount, as applicable, of the Company (a) with respect to any borrowed money, whether current, short-term or long-term, secured or unsecured, (b) under any note, bond, performance bond, debenture, letter of credit, bankers’ acceptances or other debt security issued for the Company’s account, (c) with respect to the indebtedness of any Person that is guaranteed by the Company, (d) with respect to any obligations under capitalized leases other than any operating lease liabilities recorded on balance sheet pursuant to ASC842, (e) with respect to borrowed money secured by an Encumbrance on the Company’s assets filed with a Government Entity, (f) with respect to the deferred and unpaid purchase price of property (other than trade and other payables, accrued expenses and other current liabilities) with respect to which the Company is liable, as obligor or otherwise, including all deferred purchase price liabilities related to past acquisitions, whether contingent or otherwise (including any “earn-out” or similar payments or obligations), (g) with respect to interest rate swaps, collars, caps and similar hedging obligations and any interest, commodity or currency rate or exchange protection contracts or transactions, or other contracts or transactions that are intended to benefit from or reduce or eliminate the risk of fluctuations in interest rates, currencies or the price of commodities or any derivatives thereof (valued at the termination value thereof), (h) the amount of underfunding of employer contributions with respect to any retirement plan, and the amount of underfunding with respect to any non-qualified deferred compensation plan, program, agreement or arrangement, (i) with respect to any accrued and unused vacation, paid time off, or sick leave, any accrued and unpaid bonuses, commissions or severance, and any other bonuses and commissions related to the pre-Closing period, and (j) with respect to any obligation for interest, principal, premiums, penalties, fees, make-whole payments, expenses, indemnities, breakage costs and bank overdrafts with respect to items described in clauses (a) through (i) above, whether resulting from payment or discharge or otherwise. For the avoidance of doubt, (i) trade payables, accrued expenses, and other current liabilities, (ii) the deferred purchase price for property that is included in the Company’s inventory, (iii) credit card debt incurred in the ordinary course of business, (iv) undrawn amounts under surety bonds, letters of credit, banker’s acceptances, performance letters, comfort letters, and other arrangements similar to the foregoing, (v) any liability that is taken into account as a Company Transaction Expenses or as a current liability in the Final Net Working Capital to the extent so taken into account, and (vi) the PPP Loans, shall not constitute “Indebtedness” for purposes of this Agreement.
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“Indebtednessof the Company” means Indebtedness of the Company as of immediately prior to the Closing.
“IndemnifiedParty” means the Party entitled to indemnification under Article 7.
“IndemnifiedTaxes” means any of the following Taxes (in each case, whether imposed, assessed, due or otherwise payable directly, as a successor or transferee, jointly and/or severally, pursuant to a Contract or other agreement entered (or assumed) by the Company on or prior to the Closing Date, shown as payable on a Tax Return (including an amended Tax Return), resulting from an adjustment or assessment by a Government Entity by means of withholding or for any other reason and whether disputed or not), without duplication:
(a) All Taxes of the Seller Group (other than Transfer Taxes);
(b) All Taxes of the Company (other than Transfer Taxes, which are governed by clause (d) of this definition) for any Pre-Closing Tax Period (in the case of any Straddle Period, calculated in accordance with Section 6.6(a));
(c) All Taxes of any other Person imposed on the Company (i) pursuant to Treasury Regulation Section 1.1502-6 or any similar provision of state, local or foreign Law by reason of the Company being a member of an Affiliated Group prior to Closing or (ii) pursuant to Contract (other than Ordinary Course Tax Provisions), where such Contract was entered into by the Company prior to the Closing, as a transferee or successor, where such status arose prior to the Closing, or by operation of Law (which Taxes described in this clause (ii) relate to an event or transaction occurring prior to the Closing); and
(d) Transfer Taxes allocable to the Seller as determined under Section 6.6(b).
Notwithstanding the foregoing, to the extent any Taxes (i) are included as a liability in the computation of the Final Net Working Capital, the Final Banesco Line of Credit Amount, Final Company Transaction Expenses or otherwise as a reduction to the Purchase Price, (ii) are attributable to Buyer’s breach of a Tax covenant under Section 6.6, or (iii) arise due to actions taken by Buyer (or any of its Affiliates) on the Closing Date after the Closing that are outside of the ordinary course of business and not expressly contemplated by this Agreement, such Taxes shall not constitute “Indemnified Taxes.”
“IndemnifyingParty” means the Party obligated to provide indemnification under Article 7.
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“IndependentAuditor” means Grant Thornton LLP, or if Grant Thornton LLP is unable to serve, a nationally recognized independent accounting firm mutually agreed upon by the Parties, which firm is not the regular auditing firm of the Buyer, the Seller Owners, the Seller, or any of their respective Affiliates.
“Initial Allocation Schedule” has the meaning set forth in Section 6.1(a).
“Initial Promissory Note Amount” means an amount equal to:
(a) the sum of:
| (i) | the Company Base Valuation; minus |
|---|---|
| (ii) | the Cash Payment Amount; minus |
| --- | --- |
| (iii) | the amount, if any, by which the Minimum Company Cash exceeds the Estimated Company Cash; plus |
| --- | --- |
| (iv) | the amount, if any, by which the Estimated Company Cash exceeds the Minimum Company Cash; minus |
| --- | --- |
| (v) | the Buyer Interest Amount; minus |
| --- | --- |
| (vi) | the amount, if any, by which the Estimated Banesco Line of Credit Amount exceeds the Maximum Banesco Line<br>of Credit Amount; minus |
| --- | --- |
| (vii) | the amount, if any, by which the Estimated Banesco Line of Credit Amount is less than the Maximum Banesco<br>Line of Credit Amount; minus |
| --- | --- |
| (viii) | the amount, if any, by which the Target Net Working Capital exceeds the Closing Net Working Capital; plus |
| --- | --- |
| (ix) | the amount, if any, by which the Closing Net Working Capital exceeds the Target Net Working Capital; |
| --- | --- |
(b) multiplied by the Allocation Percentage.
“IntellectualProperty” means all of the following worldwide: (a) trademarks, service marks, certification marks, logos, slogans, tag lines, Internet domain names, social media accounts and webpages, trade dress, trade or business names, fictitious business names (d/b/a’s), and other identifiers of source or business or designators of origin (all whether registered or unregistered), all applications and registrations for any of the foregoing, all renewals and extensions thereof, and all common law rights in and goodwill associated with any of the foregoing (collectively, “Trademarks”); (b) patents (utility and design), industrial designs and utility models, invention disclosures and applications for any of the foregoing, and all including divisions, continuations, continuations-in-part, provisionals, renewal applications and renewals, extensions, reexaminations and reissues; and all patents, applications, documents and filings claiming priority to or serving as a basis for priority thereof; (c) proprietary information, Confidential Information and trade secrets, including know-how, inventions (whether or not patentable), invention disclosures, ideas, improvements, developments, designs, drawings, methods, specifications, processes, techniques, formulae, research and development, compilations, compositions, manufacturing processes, production processes, devices, customer lists, vendor lists, supplier lists, sales records/databases, pricing information, cost information, business plans, business proposals, technical information, technical data, specifications, reports, analyses, data analytics, marketing information, marketing plans, marketing proposals, algorithms, source code, object code, Software and applications (collectively, the “Trade Secrets”); (d) works of authorship, copyrights, mask work rights, database rights, design rights and Software, all whether registered or unregistered, registrations and applications for any of the foregoing, and renewals, extensions, restorations and reversions thereof; and all moral rights associated with any of the foregoing; and all economic rights of authors and inventors, however denominated, associated with any of the foregoing; (e) any rights recognized under applicable Law that are equivalent or similar to any of the foregoing; and (f) all other intellectual property rights of any nature, including the right to recover for damages and profits for past and future infringement or other violation of any part of the foregoing.
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“InterimBalance Sheet Date” has the meaning set forth in Section 3.5(a)(ii).
“IPAgreements” means all Contracts relating to the development, ownership, use, registration or enforcement of, or exercise of any rights under, any Intellectual Property, excluding: (i) “shrink wrap,” “click through,” “browse wrap” or other license agreements for commercially available off-the-shelf Software having an annual license fee of less than Ten Thousand Dollars ($10,000) that is not incorporated in, linked to, distributed with or used to host or provide any Company product or service or Owned Software, and (ii) non-exclusive licenses granted by the Company to its customers in the ordinary course of business consistent with past practice in the form provided by the Company to the Buyer.
“IRS” means the Internal Revenue Service or any successor entity.
“Knowledge” of any Person means the actual knowledge of such Person after making reasonable inquiry and exercising such due diligence as a prudent businessperson would have made or exercised in the management of his or her business affairs. When used with respect to (i) any Seller, the term “Knowledge of the Seller Group,” means the knowledge of the Seller and each of the Seller Owners, and (ii) with respect to the Company, the term “Knowledge of the Company” means the knowledge of each Seller Owner and Rafael Sonder.
“Law” means any constitutional provision, statute or other law, rule, regulation, treaty, convention, directive, legislation, ordinance, decree, requirement, proclamation, judgment or interpretation, holding or rule of construction of any Government Entity or any similar provision having the force of law, including, without limitation, any Order and any Permit, and the common law.
“LeasedReal Property” means all leasehold or sub-leasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures or other interest in the real property held by the Company.
“LeasedWorker” means any contingent worker or worker provided by a staffing company, temporary employee agency, professional employer organization or similar entity.
“Leases” means all leases, subleases, licenses and other Contracts, including all amendments, extensions, renewals, guaranties and other agreements with respect thereto, pursuant to which the Company holds any Leased Real Property, including the right to all security deposits and other amounts and instruments deposited by or on behalf of the Company thereunder.
“Liability” or “Liabilities” means any or all obligations (whether to make payments, to give notices or to perform or not perform any action and including as related to Taxes), commitments, contingencies and other liabilities of a Person (whether known or unknown, asserted or unasserted, absolute, accrued, unaccrued, contingent, fixed or otherwise, determined or determinable, liquidated or unliquidated and whether due or to become due).
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“Lock-Up Agreement” has the meaning set forth in Section 2.4(a)(iv).
“Losses” means any and all losses, Taxes, claims, shortages, damages, liabilities, expenses (including reasonable attorneys’ and accountants’ and other professionals’ fees, litigation expenses and other costs of investigation or defense) assessments, penalties, interest and expenses provided, that, except as awarded by a competent tribunal to a third party in connection with Third Party Claims, “Loss” will not include any punitive, special or exemplary damages.
“Malware” means any virus, Trojan horse, worm, back door, time bomb, drop dead device or other Software routine designed to disable a computer program automatically with the passage of time or under the positive control of a Person other than the user of the program, or other Software routines or hardware components designed to permit unauthorized access, to disable, erase or otherwise harm Software, hardware or data.
“MaterialAdverse Effect” means any state of facts, change, event, effect or occurrence (whether or not constituting a breach of a representation, warranty or covenant set forth in this Agreement) that, individually or in the aggregate, is or would reasonably be expected to be materially adverse to the businesses, financial condition, results of operations, properties, assets or liabilities of the Company; provided, however, none of the following (nor the effects thereof) shall be deemed, individually or in the aggregate, to constitute, and none of the following (nor the effects thereof) shall be taken into account in determining whether there has been or will be, a Material Adverse Effect: (i) changes or conditions generally affecting the United States economy or financial markets or foreign economies or financial markets; (ii) changes in or developments generally affecting the industry in which the Company operates; (iii) any failure, in and of itself, by the Company to meet internal or other estimates, predictions, projections or forecasts of revenue, net income or any other measure of financial performance (it being understood that, with respect to clause (iii), the facts or circumstances giving rise or contributing to such failure to meet estimates, predictions, projections or forecasts may be deemed to constitute, or be taken into account in determining whether there has been, a Material Adverse Effect); (iv) any changes in Law or GAAP becoming effective after the date hereof; (v) changes or conditions resulting from acts of war, terrorism. Pandemics, or nature or political or regulatory conditions; (vi) changes resulting solely from the announcement of the transactions contemplated by this Agreement (including, but not limited to, any resulting adverse changes in the Company’s relationship with its employees, customers, partners or suppliers), in each case to the extent resulting from the identity of the Buyer or any of its Affiliates as the acquirer of the Company; (vii) any action taken by the Company on or after the Closing Date that is contemplated or required by this Agreement or otherwise taken at the written request or with the written consent of the Buyer; (viii) any natural disasters, pandemics, or acts of God; provided, further, however, that clauses (i), (ii), (iv), (v), and (viii) shall not apply to the extent such effect, change, circumstance, development or event has had a disproportionate impact on the Company (taken as a whole), compared to other participants in their industry (in which case only the incrementally disproportionate effect may be taken into account in determining whether a Material Adverse Effect has occurred).
“MaterialContract” has the meaning set forth in Section 3.10(a).
“MaterialCustomers” has the meaning set forth in Section 3.23(a).
“MaterialSuppliers” has the meaning set forth in Section 3.24(a).
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“Maximum BanescoLine of Credit Amount” means $5,265,000.
“Minimum CompanyCash” means an amount equal to $1,829,000.
“Net Working CapitalCalculation” means the calculation set forth on Schedule 1.1(a).
“Non-RecourseParty” means, with respect to a party, any of such party’s former, current, and future equity holders, controlling Persons, directors, officers, employees, agents, representatives, Affiliates, members, managers, general or limited partners, or assignees (or any former, current, or future equity holder, controlling Person, director, officer, employee, agent, representative, Affiliate, member, manager, general or limited partner, or assignee of any of the foregoing).
“Note Interests” has the meaning set forth in the Recitals.
“Operating Line” has the meaning set forth in Section 6.3(a)(i).
“Order” means any decree, compliance agreement, injunction, judgment, order, ruling, assessment or writ, edict, decision, opinion, stipulation or award issued, entered or rendered by, and any other legally binding determinations of, any Government Entity or self-regulatory organization.
“Ordinary CourseTax Provisions” has the meaning set forth in Section 3.8(m).
“OrganizationalDocuments” means (a) the articles or certificate of incorporation and the bylaws of a corporation, (b) operating agreement, limited liability company agreement or similar document governing a limited liability company, (c) any charter or similar document adopted or filed in connection with the creation, formation or organization of a Person, (d) a trust agreement or similar document of a trust and all documents relating to the rights of the trustees and the beneficiaries thereunder and (e) any amendment to any of the foregoing.
“OwnedIntellectual Property” means all Intellectual Property owned or purported to be owned by the Company.
“OwnedSoftware” means all Software that is Owned Intellectual Property.
“Parties” or “Party” has the meaning set forth in the Preface.
“Payables” has the meaning set forth in Section 3.21(a).
“Permit” means any consent, qualification, license, authorization, certificate, filing or registration, approval, exception, classification, variance, permit, franchise or certificate of authority, or any waiver of the foregoing and similar documents, required to be issued by or any rights obtained or required to be obtained from, any Government Entity.
“PermittedEncumbrance” means (i) Encumbrances for Taxes not yet due and payable, (ii) Encumbrances that are being contested in good faith and for which adequate reserves have been recorded on the books of the Company, and (iii) statutory Encumbrances of landlords and Encumbrances of carriers, warehousemen, mechanics, materialmen and repairmen incurred in the ordinary course of business and not yet delinquent, (iv) statutory Encumbrances in favor of lessors arising in connection with any Leased Real Property, and (v) Encumbrances relating to the Banesco Line of Credit.
“Person” means any individual, sole proprietorship, partnership, corporation, association, trust, limited liability company or partnership, joint venture, unincorporated organization or other entity, or any Government Entity or quasi-Government Entity.
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“PersonalInformation” means any data that identifies, relates to, describes, is reasonably capable of being associated with, or would reasonably be linked, directly or indirectly, with a particular individual or household, including: name; Social Security number; government-issued identification numbers; health or medical information, including health insurance information; financial account information; passport numbers; user names/email addresses in combination with a password or security code that would allow access to an online account; unique biometric identifiers (e.g., fingerprints, retinal scans, face scans, or DNA profile); employee ID numbers; date of birth; digital signature; and Internet Protocol (IP) addresses; or any other data that constitutes personal information or personal data under applicable Law.
“PPP Loan” and “PPP Loans” has the meaning set forth in Section 3.27(c).
“Pre-ClosingTax Period” means any taxable period ending on or before the Closing Date and the portion of any Straddle Period ending on the Closing Date.
“Predecessor” has the meaning set forth in the Recitals.
“Privacyand Security Requirements” means, to the extent applicable to the Company, (a) any Laws regulating the Processing of Personal Information including, without limitation, Section 5 of the Federal Trade Commission Act, all state Laws related to unfair or deceptive trade practices, the Fair Credit Reporting Act (“FCRA”), the Controlling the Assault of Non-Solicited Pornography And Marketing Act of 2003 (“CAN-SPAM”), all Laws related to online privacy policies, the Telephone Consumer Protection Act (“TCPA”), the Illinois Biometric Information Privacy Act (“BIPA”), all Laws related to faxes, telemarketing and text messaging, and all Laws related to breach notification; (b) all Laws related to the Processing of Confidential Data; (c) the Payment Card Industry Data Security Standard issued by the PCI Security Standards Council, as it may be amended from time to time (“PCI DSS”); (d) all Contracts between the Company and any Person that is applicable to the PCI DSS and/or the Processing of Protected Data; and (e) all policies and procedures applicable to the Company relating to the PCI DSS and/or the Processing of Protected Data, including without limitation all website and mobile application privacy policies and internal information security procedures.
“PrivateResolution Period” has the meaning set forth in Section 2.7(c).
“Pro Rata Share” means, with respect to each Seller Owner, the percentage set forth the Flow of Funds Memorandum, which amounts will total to exactly one hundred percent (100%).
“Process” means the creation, collection, use (including, without limitation, for the purposes of sending telephone calls, text messages and emails), storage, maintenance, processing, recording, distribution, transfer, transmission, receipt, import, export, protection, safeguarding, access, disposal or disclosure or other activity regarding data (whether electronically or in any other form or medium).
“Promissory Note” has the meaning set forth in Section 2.2(b).
“ProtectedData” means Personal Information and Confidential Data.
“PubliclyAvailable Software” means (i) any Software that contains, or is derived in any manner (in whole or in part) from, any Software that is distributed as free software or open source software (e.g., Software distributed under the GNU General Public License, the GNU Lesser General Public License, the Afero General Public License or the Apache Software License), or pursuant to open source, copyleft or similar licensing and distribution models; and (ii) any Software that requires as a condition of use, modification and/or distribution of such Software that such Software or other Software incorporated into, derived from, or distributed with such Software (A) be disclosed or distributed in source code form, (B) be licensed for the purpose of making derivative works or (C) be redistributable at no or minimal charge.
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“Purchase Price” has the meaning set forth in Section 2.2.
“Purchased Interests” has the meaning set forth in the Recitals.
“R&W InsuranceExpenses” means all costs and expenses related to the procurement and binding of the R&W Insurance Policy, including the total premium, underwriting costs, brokerage commission, Taxes related to such policy, and any other fees and expenses related to such policy.
“R&W InsurancePolicy” means that certain Buyer-Side Representations and Warranties Insurance Policy to be issued following the Closing Date by R&W Insurance Provider, and bound as of the date of this Agreement, in each case, pursuant to the binder agreement by and between Buyer and R&W Insurance Provider in the form set forth on Exhibit G.
“R&W InsuranceProvider” means Berkley Transactional.
“Receivables” has the meaning set forth in Section 3.21(b).
“Records” means all records of the Company, including expiration records, client or broker information and files, client or broker lists, prospective client or broker lists, files, books and operating data, policy expiration information, invoices, databases, manuals and other materials, whether in print, electronic or other media, confidential information, books of account, correspondence, financial, sales, market and credit information and reports, drawings, patterns, slogans, market research and other research materials.
“RegisteredIntellectual Property” means all of the Owned Intellectual Property that is the subject of an application (pending or otherwise), certificate, filing, registration or other document issued by, filed with, or recorded by any Government Entity, quasi-Government Entity or registrar.
“RegistrationRights Agreement” has the meaning set forth in Section 2.4(a)(iii).
“RelatedParty” means a Seller Owner, a Seller or an Affiliate of any Seller Owner, Seller, or the Company (in each case, other than the Company).
“Related PartyIndebtedness” means the calculation set forth on Schedule 1.1(c).
“Release” means any release, spill, leaking, pumping, pouring, emission, migration, emptying, depositing, discharging, injection, escape, leaching, disposal or dumping into the environment.
“ReleasedPersons” has the meaning set forth in Section 6.5(a).
“ReleasingParties” has the meaning set forth in Section 6.5(a).
“Response Period” has the meaning set forth in Section 7.6.
“RestrictedCash” means Cash subject to a lockbox, dominion, control or similar agreement, or otherwise subject to any legal or contractual restriction on the ability to freely transfer or use such Cash for any lawful purpose. For the avoidance of doubt, (i) Cash in reserve accounts, including chargeback reserve accounts, trust accounts, custodial and similar accounts, or Cash in the form of merchant and similar deposits, shall be considered “Restricted Cash” and (ii) notwithstanding clause (i) of this definition, amounts subject to a legal or contractual restriction to pay the Company Transaction Expenses or the Banesco Line of Credit Amount will not constitute “Restricted Cash” and (iii) negative covenants relating to the making of advances, distributions and loans under the Banesco Loan Agreement will not cause the Cash of the Company to constitute “Restricted Cash.”
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“RestrictedPeriod” means the time period commencing on the Closing Date and ending on the fifth anniversary of the Closing Date.
“RestrictedTerritory” means Worldwide.
“ReviewPeriod” has the meaning set forth in Section 2.7(b)(ii).
“SBA” means the United States Small Business Administration.
“SecuritiesAct” means the Securities Act of 1933, as amended, or any successor federal law, and the rules and regulations promulgated thereunder, all as the same may from time to time be in effect.
“SecurityBreach” means any actual (i) unauthorized access, acquisition, use, disclosure, modification, deletion or destruction of information (including Protected Data); (ii) unauthorized interference with system operations or security safeguards of the Company IT Assets that results in a cessation of business operations; or (iii) phishing incident or ransomware attack.
“Seller” has the meanings set forth in the Preface.
“Seller Affiliates” has the meaning set forth in Section 6.9.
“Seller ControlledTax Contest” has the meaning set forth in Section 6.6(c)(ii).
“Seller’sFundamental Representations” means the representations and warranties contained in Sections 3.1 (Organization), 3.2 (Capitalization), 3.3 (Authorization; Enforceability), 3.28 (No Brokers or Finders), 4.1 (Organization), 4.2 (Title), 4.3 (Authorization; Enforceability), 4.6 (No Brokers or Finders), and 4.8 (Investment Representations).
“Seller Group” means the Seller and the Seller Owners.
“Seller Owners” means the shareholder(s) of Seller.
“Seller PreparedReturn” has the meaning set forth in Section 6.6(d)(i).
“Seller’sReleased Claims” has the meaning set forth in Section 6.5(a).
“Seller’sRepresentative” has the meaning set forth in the Preface.
“Software” means all forms of software, applications, firmware, middleware, development tools, comments, user interfaces, menus, buttons, icons, databases and collections of data (whether in source code or object code form), and all files, data, scripts, application programming interfaces, manuals, design notes, programmers’ notes, algorithms and other items and documentation related to any of the foregoing or associated therewith; and any derivative works, foreign language versions, fixes, upgrades, updates, enhancements, new versions, previous versions, new releases and previous releases thereof; and all media and other tangible property necessary for the delivery or transfer thereof.
“StatutoryRepresentations” means the representations and warranties contained in Section 3.8 (Tax).
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“StraddlePeriod” has the meaning set forth in Section 6.6(a).
“Subsidiary” means any corporation, partnership, limited liability company, association or other business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (b) if a partnership, limited liability company, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof.
“TargetNet Working Capital” means $22,986,000.
“Tax” means any gross or net income, gross or net receipts, gross or net proceeds, capital gains, sales and use, user, lease, leasing, excise, fuel, interest equalization, registration, occupation, turnover, franchise, real and personal property (tangible or intangible), transfer, ad valorem, value added, gross or net receipt, capital stock, production, business and occupation, profits, license, estimated, goods and services, stamp, recording, premium, unclaimed or abandoned property or other escheat, social security, environmental, natural resources, gaming, estimated, alternative or add-on, registration, windfall or excess profits, disability, unemployment, employment, payroll, severance or withholding tax, or other tax or customs duties, or other charge or amount in the nature of a tax imposed by (or otherwise payable to) any Government Entity, including any interest, penalties, additions to tax and additional amounts related thereto, in each case, whether disputed or not.
“TaxContest” has the meaning set forth in Section 6.6(c)(i).
“TaxReturn” means a report, return, information return, declaration, claim for refund or other document or statement (including amendments) required to be filed with (or actually filed with) a Government Entity or third party with respect to Taxes, including any schedule or attachment thereto and any amendment thereof.
“Texas Courts” has the meaning set forth in Section 8.4(b).
“ThirdParty Claim” has the meaning set forth in Section 7.5(a).
“ThirdParty Claim Notice” has the meaning set forth in Section 7.5(a).
“TradeSecrets” has the meaning set forth in the definition of Intellectual Property.
“Trademarks” has the meaning set forth in the definition of Intellectual Property.
“TransferTaxes” has the meaning set forth in Section 6.6(b).
“Treasury Regulations” means the final and temporary United States federal income tax regulations promulgated under the Code.
“USAPatriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as such may be amended from time to time.
“XTI” means XTI Aerospace, Inc., a Nevada corporation.
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Article 2
CONTRIBUTION, SALE AND TRANSFER OF ACQUIRED INTERESTS
2.1 Contribution,Purchase and Sale. Subject to the terms and conditions set forth in this Agreement and in reliance upon the representations and warranties set forth herein, at the Closing, the Seller shall contribute, sell, assign and transfer to the Buyer, and the Buyer shall accept, purchase and acquire from the Seller, all right, title and interest in and to the Acquired Interests, free and clear of all Encumbrances (other than restrictions on transfer under federal and state securities Laws).
**2.2 Consideration.**The aggregate consideration to be paid by the Buyer for the Acquired Interests (the “Purchase Price”) shall be equal to the following consideration set forth in Section 2.2(a), Section 2.2(b), and Section 2.2(c), subject to adjustment as otherwise provided herein.
**(a)**The aggregate cash consideration to be paid by the Buyer to the Seller in exchange for the Purchased Interests shall be an amount equal to the Cash Payment Amount multiplied by the Allocation Percentage.
**(b)**The aggregate consideration to be paid by the Buyer to the Seller in exchange for the Note Interests shall be the delivery of the promissory note payable to the Seller in the original principal amount equal to the Initial Promissory Note Amount, substantially in the form provided on Exhibit A (the “Promissory Note”) (subject to adjustment as further provided for herein).
**(c)**The aggregate consideration to be paid by the Buyer in exchange for the Contributed Interests shall be the issuance of the Buyer Interests free and clear of any and all Encumbrances (other than pursuant to the Company Agreement of the Buyer, the Joinder Agreement, and under any applicable federal and/or state securities Laws) by the Buyer to the Seller. The Buyer Interests shall be issued subject to the terms of the Company Agreement of the Buyer and the Joinder Agreement.
2.3 Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place effective as of 11:59 p.m. Eastern Time on the Closing Date (the “Effective Time”) remotely via electronic exchange of documents and signatures, or at such other time and place as may be agreed to by the Parties hereto in writing.
2.4 ClosingDeliverables; Payments.
(a) Deliverablesof the Seller Group. At or prior to the Closing, the Seller Group shall deliver, or cause to be delivered, to the Buyer the following:
(i)(A) to the extent the Acquired Interests are certificated, certificates evidencing the Acquired Interests, duly endorsed in blank or accompanied by powers duly executed in blank or other duly executed instruments of transfer as required in order to validly transfer title in and to the Acquired Interests to the Buyer, free and clear of all Encumbrances (other than restrictions on transfer under federal and state securities Laws), and (B) to the extent the Acquired Interests are not certificated, other customary evidence (reasonably acceptable to the Buyer) as may be necessary to transfer the ownership of the Acquired Interests to the Buyer, free and clear of all Encumbrances (other than restrictions on transfer under federal and state securities Laws);
**(ii)**duly executed counterparts of the Company Agreement of the Buyer and/or a Joinder Agreement, by and between the Buyer and the Seller, substantially in the form attached hereto as Exhibit C (the “Joinder Agreement”);
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**(iii)**a duly executed counterpart of the Registration Rights Agreement, by and between XTI and the Seller, substantially in the form attached hereto as Exhibit D (the “Registration Rights Agreement”);
**(iv)**a duly executed counterpart of the Lock-Up Agreement, by and between XTI and the Seller, substantially in the form attached hereto as ExhibitE (the “Lock-Up Agreement”);
**(v)**a certificate of an authorized officer of the Company, dated as of the Closing Date, certifying as to the accuracy of, and attaching with respect to the Company, (A) the Company’s Organizational Documents, (B) the incumbency of its officers executing this Agreement and each Ancillary Agreement to which it is a party and (C) the resolutions of the Company’s governing body authorizing the execution and delivery of this Agreement, the Ancillary Agreements and the performance of the transactions contemplated hereby and thereby;
**(vi)**reserved;
**(vii)**a certificate of an authorized officer of the Seller, dated as of the Closing Date, certifying as to the accuracy of (A) Seller’s Organizational Documents, (B) the incumbency of its officers executing this Agreement and each Ancillary Agreement to which it is a party and (C) the resolutions of the Seller’s governing body authorizing the execution and delivery of this Agreement, the Ancillary Agreements, and the performance by such Seller of the transactions contemplated hereby and thereby;
**(viii)**a certificate of good standing with respect to the Seller issued by the responsible Government Entity of the jurisdiction of its formation, dated as of a date not more than ten (10) Business Days prior to the Closing Date, certifying as to the good standing of such Seller;
**(ix)**evidence, in form and substance reasonably satisfactory to the Buyer, that the consents, notices and approvals set forth in Schedule 2.4(a)(ix) of the Seller Disclosure Schedule have been obtained;
**(x)**resignations, or other evidence of removal, of the managers and officers of the Company, as reasonably requested by the Buyer;
**(xi)**a properly completed and executed IRS Form W-9 from Seller certifying that Seller is a “U.S. person” and is not subject to United States backup withholding;
**(xii)**evidence, in form and substance reasonably satisfactory to the Buyer, that the Affiliate Agreements set forth on Schedule 2.4(a)(xii) of the Seller Disclosure Schedule will terminate effective as of the Closing;
**(xiii)**an invoice from each Person entitled to payment of the Company Transaction Expenses;
**(xiv)**a memorandum setting forth the flow of funds in connection with the Closing, consistent with the terms of this Agreement (the “Flowof Funds Memorandum”), duly certified and executed by the Seller Group; and
**(xv)**all other documents, instruments, and agreements as the Buyer reasonably request for the purpose of consummating the transactions contemplated by this Agreement.
(b) Deliverablesof the Buyer. At or prior to the Closing, the Buyer shall deliver, or cause to be delivered, to the Seller Group the following:
**(i)**the duly executed Promissory Note;
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**(ii)**a duly executed counterpart of the Company Agreement of the Buyer and/or Joinder Agreement;
**(iii)**a duly executed counterpart by XTI of the Registration Rights Agreement;
**(iv)**a duly executed counterpart by XTI of the Lock-Up Agreement;
**(v)**a certificate of an authorized officer of the Buyer, dated as of the Closing Date, certifying as to the accuracy of, and attaching with respect to the Buyer, (A) the incumbency of its officers executing this Agreement and each Ancillary Agreement to which it is a party and (B) the resolutions of the Buyer’s governing body authorizing the execution and delivery of this Agreement, the Ancillary Agreements, and the performance by the Buyer of the transactions contemplated hereby and thereby;
**(vi)**the Flow of Funds Memorandum, duly executed by the Buyer;
**(vii)**confirmation from the R&W Insurance Provider (which may be via email) that the R&W Insurance Policy will be fully bound as of Closing; and
**(viii)**all other documents, instruments, and agreements as the Seller Group may reasonably request for the purpose of consummating the transactions contemplated by this Agreement.
(c) Paymentsat Closing. At the Closing, the Buyer shall:
**(i)**pay to the Seller an amount in cash equal to the sum of (1) the Cash Payment Amount multiplied by the Allocation Percentage minus (2) the Estimated Company Transaction Expenses, by wire transfer of immediately available funds to an account or accounts set forth on the Flow of Funds Memorandum; and
**(ii)**pay to the payees of the Company Transaction Expenses the amounts payable thereto in accordance with the invoices and wire transfer instructions delivered by the Seller to the Buyer prior to the Closing; provided, that any such amounts that are payable to an employee of the Company shall be paid by depositing such amount in the applicable payroll account of the Company and such amounts shall be promptly remitted by the Company (net of applicable withholding Taxes) to the applicable payee.
2.5 ConsiderationAllocation. The Seller shall receive, in respect of their respective transfer of the Acquired Interests pursuant to Section 2.2, (i) the Cash Payment Amount multiplied by the Allocation Percentage, (ii) the Promissory Note, and (iii) that number of Buyer Interests set forth next to the Seller’s name on Schedule I. The Seller and each member of the Seller Group agrees to the allocation and the amounts set forth on Schedule I and waives any claims that it may have against the Buyer, the Seller’s Representative, the Company or any of their respective Affiliates in connection with the preparation of such schedule or the payment of any amounts hereunder (including the payment of the Cash Payment Amount, the Initial Promissory Note Amount, or any adjustment thereto) in accordance therewith.
2.6 Withholding. The Buyer and the Company will be entitled to deduct and withhold from any amount payable pursuant to this Agreement (including payments of the Purchase Price) such amounts as are required to be deducted and withheld with respect to the making of such payment under the Code or any other provision of applicable Law. To the extent that Buyer or the Company, as applicable, becomes aware of any obligation of such payor to deduct and withhold from the consideration otherwise payable pursuant to this Agreement (other than compensatory payments or as a result of Seller’s failure to provide IRS Form W-9 as contemplated under Section 2.4(a)(xii)), Buyer shall notify Seller in writing before the payment of such obligation and the Parties will use commercially reasonable efforts to eliminate or reduce any deduction or withholding. To the extent that amounts are so withheld by the Buyer or the Company and paid over to an applicable Government Entity, such amounts will be treated for all purposes of this Agreement as having been paid to the Person in respect of whom such deduction and withholding were made.
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2.7 NetWorking Capital Adjustment.
(a) Pre-ClosingAdjustment. The Seller’s Representative has prepared in good faith and delivered to the Buyer a statement (the “EstimatedClosing Statement”) setting forth an estimated, unaudited balance sheet of the Company as of the Effective Time and the following with respect to the Company: (i) good faith estimated calculations of (A) Company Cash (the “Estimated Company Cash”), (B) Company Transaction Expenses (the “Estimated Company Transaction Expenses”), (C) the Banesco Line of Credit Amount (the “Estimated Banesco Line of Credit Amount”), and (D) the Closing Net Working Capital, and (ii) the Initial Promissory Note Amount calculated using the amounts set forth in the Estimated Closing Statement.
(b) Post-ClosingAdjustment.
**(i)**No later than ninety (90) days following the Closing Date, the Buyer shall prepare in good faith and deliver to the Seller’s Representative a statement (the “Closing Statement”) setting forth an unaudited balance sheet of the Company as of the Effective Time and the Buyer’s calculation of (A) the Banesco Line of Credit Amount, (B) Company Cash, (C) the Company Transaction Expenses, (D) the Closing Net Working Capital, (E) the amount, if any, by which the Target Net Working Capital exceeds the Closing Net Working Capital, and (F) the proposed Final Promissory Note Amount calculated using the amounts set forth in the Closing Statement. The Seller Group shall use commercially reasonable efforts to cooperate with the Buyer and their accountants and other advisors in connection with the preparation of the Closing Statement. If the Buyer fails to deliver the Closing Statement to the Seller’s Representative within the ninety (90) day period specified in this Section 2.7(b)(i), then the Estimated Closing Statement and the Flow of Funds Memorandum shall be deemed the Closing Statement and the Seller’s Representative may exercise his rights pursuant to this Section 2.7. The parties agree that the purpose of preparing the Closing Statement and determining the Closing Net Working Capital, the Banesco Line of Credit Amount, Company Transaction Expenses, and Company Cash is to measure the amount of the Closing Net Working Capital, the Banesco Line of Credit Amount, Company Transaction Expenses, and Company Cash calculated in accordance with the Net Working Capital Calculation, and such processes are not intended to permit the introduction of different or new judgments, accounting methods, policies, principles, practices, procedures, classifications or estimation methodologies other than the Net Working Capital Calculation for the purpose of preparing the Closing Statement or determining the Closing Net Working Capital, the Banesco Line of Credit Amount, Company Transaction Expenses, and Company Cash. The Closing Statement shall not make purchase accounting adjustments arising out of the transactions contemplated by this Agreement and shall entirely disregard (I) any and all effects on the assets or liabilities of the Company as a result of the transactions contemplated by this Agreement or of any financing or refinancing arrangements entered into at any time by the Buyer or its Affiliates or any other transaction entered into by the Buyer or its Affiliates in connection with the consummation of the transactions contemplated by this Agreement, and (II) any of the plans, transactions, or changes which the Buyer intends to initiate or make or cause to be initiated or made after the Closing with respect to the Company or its business or assets, or any facts or circumstances that are unique or particular to the Buyer or its Affiliates or any of their assets or liabilities. For the avoidance of doubt, unless the Seller’s Representative otherwise agrees in writing, the Buyer may not amend, adjust, supplement, or modify the Closing Statement or any amounts set forth therein following their delivery to the Seller’s Representative.
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**(ii)**The Seller’s Representative shall have a period of thirty (30) days from the receipt of the Closing Statement (the “ReviewPeriod”) to review the Closing Statement. To the extent reasonably required to complete such review of the Closing Statement, for the duration of the Review Period and the pendency of any dispute, the Buyer will, upon written request, provide the Seller’s Representative and his Representatives with reasonable access during normal business hours to all working papers in the Buyer’s or its Representatives’ possession or control to the extent related to the preparation of the Closing Statement. If, as a result of such review:
**(A)**the Seller’s Representative agrees with the Closing Statement, the Seller’s Representative shall deliver to the Buyer a written notice of agreement and the Closing Statement will be final, binding and non-appealable by the Seller Group;
**(B)**the Seller’s Representative disagrees with the Closing Statement, the Seller’s Representative shall deliver to the Buyer a written notice of disagreement (a “Dispute Notice”) prior to the expiration of the Review Period, setting forth the nature (with reasonable supporting detail) and amount of such disagreement and the Seller’s Representative’s determination thereof; provided, for the avoidance of doubt, the Parties agree that the Buyer’s failure to provide reasonable access required by Section 2.7(b)(ii) shall be deemed a sufficient basis for an objection by the Seller’s Representative.
**(iii)**If the Seller’s Representative does not deliver a Dispute Notice within the Review Period, then the Seller’s Representative will be deemed to have irrevocably accepted the Closing Statement delivered by the Buyer pursuant to this Section 2.7, in which case, the amounts set forth in the Closing Statement shall be final, binding, and non-appealable by the Seller Group.
(c) Resolutionof Disputes. If the Seller’s Representative delivers a Dispute Notice in accordance with this Section 2.7, then the Buyer and the Seller’s Representative shall attempt in good faith to resolve such dispute within thirty (30) days from the date of the Dispute Notice (or such longer period as the Parties may mutually agree in writing) (the “Private Resolution Period”). If the Buyer and the Seller’s Representative are unable to reach an agreement within the Private Resolution Period, then either the Buyer or the Seller’s Representative may refer the specific items in dispute to an Independent Auditor. As promptly as practicable thereafter, but no later than fifteen (15) days after the engagement of the Independent Auditor the Buyer, on the one hand, and the Seller’s Representative, on the other hand, shall each prepare and submit a presentation to the Independent Auditor. The Independent Auditor shall work to resolve such dispute promptly and, to the extent practicable, within thirty (30) days from the date the dispute is submitted to the Independent Auditor. The Independent Auditor shall act based solely on the presentations of the Buyer and Seller’s Representative and not by independent review. Any item not specifically referred to the Independent Auditor for evaluation shall be deemed final and binding on the parties. The scope of the disputes to be arbitrated by the Independent Auditor shall be limited to whether the preparation of the Closing Statement and the calculations therein were in accordance with this Section 2.7 (including whether the applicable items thereon were calculated in accordance with this Section 2.7), and the Independent Auditor shall not make any other determination. Any and all determinations by the Independent Auditor shall be made in strict accordance with the terms of this Agreement, without regard to principles of equity, and the Independent Auditor shall act as an expert and not an arbitrator. In resolving any disputed item, the Independent Auditor may not assign a value to any item greater than the greatest value for such item claimed by any Party or less than the lowest value for such item claimed by any Party. The Independent Auditor shall deliver to the Buyer and the Seller’s Representative a written opinion setting forth the final determination of the disputed amounts set forth on the Closing Statement, calculated in accordance with the provisions of this Agreement (such written opinion to include a worksheet setting forth all calculations used in arriving at such determination by the Independent Auditor and to be based solely on information provided to the Independent Auditor by the Seller’s Representative or the Buyer). The determination of the Independent Auditor shall be final and binding (absent manifest error), effective as of the date the Independent Auditor’s written opinion is received by the Buyer and the Seller’s Representative. The fees, costs and expenses of the services of the Independent Auditor shall be allocated between the Buyer, on the one hand, and the Seller’s Representative, on the other hand, in the same proportion that the aggregate amount of such unsuccessfully disputed items by each such Party (as finally determined by the Independent Auditor) bears to the total amount of such resolved disputed items so submitted to the Independent Auditor. The term “Final Closing Statement,” as used in this Agreement, shall mean the Closing Statement if deemed final in accordance with Sections 2.7(b)(ii) or 2.7(c) and each item set forth in the Final Closing Statement shall be the “Final Company Cash,” “Final Company Transaction Expenses” “FinalBanesco Line of Credit Amount,” and “Final Net Working Capital.”
(d) FinalSettlement. Upon the determination of the Final Closing Statement, the Initial Promissory Note Amount shall be adjusted automatically to equal the Final Promissory Note Amount, which may be a positive or negative adjustment.
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Article 3
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
As a material inducement to the Buyer, each of the Seller and the Seller Owner represents and warrants the following:
3.1 Organization. The Company is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its formation. The Company has all necessary organizational power and authority to own, lease and operate its properties and assets and to carry on its businesses as presently conducted. The Company is duly qualified or licensed to do business as a foreign company in each of the respective jurisdictions listed on Section 3.1 of the Seller Disclosure Schedule and is in good standing under the Laws of each such jurisdiction. The Seller Group has delivered true, correct and complete copies of the Company’s Organizational Documents to the Buyer and the Company is not in material default under or in violation of any provision thereof.
3.2 Capitalization.
**(a)**The Seller owns all of the issued and outstanding Equity Interests of the Company. The Equity Interests listed on Section 3.2(a) of the Seller Disclosure Schedule represent all of the issued and outstanding Equity Interests of the Company and there are no other Equity Interests of the Company authorized, issued or outstanding. Except as set forth on Section 3.2(a) of the Seller Disclosure Schedule, there are no Equity Interests of the Company issued, reserved for issuance or outstanding. Other than this Agreement, there are no outstanding Contracts or other rights to subscribe for or purchase, or Contracts or other obligations to issue or grant any rights to acquire, any Equity Interests of the Company, or any outstanding Equity Interests of the Company that are exercisable for, convertible into, exchangeable for, or which carry the right to acquire, Equity Interests of the Company, or subscriptions, warrants, options, calls, puts, convertible securities, registration or other rights, arrangements or commitments obligating the Company to issue, sell, register, purchase or redeem any of its Equity Interests or any ownership interest or rights therein.
**(b)**All Equity Interests of the Company have been duly authorized and validly issued. There are no preemptive rights in respect of any of the Equity Interests.
**(c)**There are no voting trusts or other agreements or understandings with respect to the voting of any Equity Interests of the Company. Except as disclosed on Section 3.2(c) of the Seller Disclosure Schedule, there are no appreciation rights, phantom rights or similar rights or arrangements outstanding with respect to the Company, and no derivative instruments issued by the Company exists, the underlying security of which is an Equity Interest of the Company.
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3.3 Authorization;Enforceability.
**(a)**This Agreement and the Ancillary Agreements have been duly executed and delivered by the Company and constitute the valid and binding agreements of the Company, enforceable against the Company in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar Laws and equitable principles relating to or limiting creditors’ rights generally (the “Bankruptcy and Insolvency Exceptions”).
**(b)**The Company has all requisite organizational power and authority to execute and deliver each Ancillary Agreement to which the Company is a party. The execution, delivery and performance by the Company of each Ancillary Agreement to which it is a party, any and all instruments necessary or appropriate in order to effectuate the terms and conditions of the Ancillary Agreements to which the Company is a party, and the consummation of the transactions contemplated thereby have been duly authorized by all necessary organizational action on the part of the Company.
3.4 NoConflicts. Except as set forth on Section 3.4 of the Seller Disclosure Schedule, the execution, delivery and performance of the documents associated with the F-Reorganization, this Agreement, and the Ancillary Agreements, and the consummation of the transactions contemplated hereby and thereby did not, and will not (with or without notice, lapse of time or both) (i) violate or conflict with the Organizational Documents of the Company, (ii) violate or conflict with, constitute a breach, default or loss of any benefit under, permit the acceleration of any obligation under or create in any Person the right to revoke, withdraw, suspend, terminate, modify or cancel, or otherwise require any action, consent, approval, order, authorization, registration, declaration or filing with respect to any Material Contract, (iii) violate any Law, Order or Permit of any court of Government Entity or agency applicable to the Company or its business, or (iv) result in the creation or the imposition of any Encumbrance (other than Permitted Encumbrances) upon all or any portion of the assets of the Company.
3.5 FinancialStatements; No Undisclosed Liabilities; Indebtedness.
**(a)**Section 3.5(a) of the Seller Disclosure Schedule contains true, correct and complete copies of the following financial statements (collectively, the “Financial Statements”):
**(i)**The unaudited balance sheets of the Company as of December 31, 2024, 2023, and 2022 and the related statements of income for the periods then ended; and
**(ii)**The unaudited balance sheet of the Company as of September 30, 2025 and the related statement of income for the nine (9)-month period ended September 30, 2025 (such date, the “Interim Balance Sheet Date”).
**(b)**The Financial Statements fairly present, in all material respects, the financial condition of the Company and the results of operations of the Company as of such dates and for the periods then ended. The Financial Statements are consistent with the books and records of the Company.
**(c)**The Company has no Liabilities, except for Liabilities (i) that are reflected, disclosed or reserved against in the Financial Statements (ii) that are set forth in Section 3.5(c) of the Seller Disclosure Schedule hereto, or (iii) Liabilities incurred in the ordinary course of business following the Interim Balance Sheet Date.
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**(d)**The Financial Statements reflect a true, correct and complete accounting of the Indebtedness of the Company, other than any Indebtedness of the Company incurred in the ordinary course of business following the Interim Balance Sheet Date. The Company has performed in all material respects all of its obligations required to be performed by it under each document evidencing its Indebtedness and there is no continuing event of default under any such document evidencing such Indebtedness.
**(e)**Section 3.5(e) of the Seller Disclosure Schedule sets forth a true, correct and complete list of (i) all bank accounts, brokerage accounts, crypto accounts and safe deposit boxes of the Company and all Persons who are signatories thereunder or who have access thereto and (ii) the names of all Persons holding general or special powers of attorney from the Company, true, complete and correct copies of which have been made available to the Buyer.
3.6 Absenceof Certain Changes.
**(a)**Except in connection with the F-Reorganization or as otherwise contemplated by this Agreement, since January 1, 2025, the Company has operated in the ordinary course of business and no event has occurred which has had a Material Adverse Effect on the Company. Without limiting the generality of the foregoing, except as set forth on Section 3.6(a) of the Seller Disclosure Schedule, except as contemplated by the F-Reorganization or this Agreement, since January 1, 2025 the Company has not:
**(i)**amended or authorized any change to its Organizational Documents;
**(ii)**made or agreed to make any change in its authorized or issued Equity Interests (including by way of a split, combination, reclassification or modification of the terms of any Equity Interests);
**(iii)**granted, issued, sold, delivered, pledged, encumbered or transferred or agreed to issue, sell, deliver, pledge, encumber or transfer, any of its Equity Interests or grant or issue any option, purchase right, convertible stock, registration right or other right to purchase or obtain (including upon conversion, exchange or exercise) in respect of such Equity Interests;
(iv)(A) acquired, by merger, consolidation, acquisition of stock or assets, or otherwise, any Person or business or division thereof, or (B) created any Subsidiaries;
(v)(A) adopted, or agreed to adopt, any plan of merger, consolidation, reorganization, recapitalization, liquidation, or other business combination or (B) filed, or agreed to file, a petition in bankruptcy under any provision of any state or federal bankruptcy law or consented to the filing of a petition of bankruptcy against it under any similar Law;
**(vi)**entered into, or agreed to enter into, any partnership, joint venture, alliance, profit sharing, strategic cooperative relationship or similar arrangement;
**(vii)**declared, set aside, or paid any dividend or distribution on or in respect of its Equity Interests;
**(viii)**except in the ordinary course of business (A) incurred, assumed, guaranteed, or otherwise become liable for, or agree to incur, assume, guarantee, or otherwise become liable for, any Indebtedness other than the Banesco Line of Credit Amount, (B) made, or agreed to make, any loans or advances of borrowed money, capital contributions to, or equity investments in, any Person, or (C) canceled or compromised, or agreed to cancel or compromise, owed or claimed Indebtedness;
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**(ix)**made, or agreed to make, or deferred, or agreed to defer, any capital expenditures greater than Fifty Thousand Dollars ($50,000);
(x)(A) sold, assigned, leased, transferred, abandoned or otherwise disposed of, or agreed to sell, assign, lease, transfer, abandon or otherwise dispose of, any material asset or (B) mortgaged, pledged or subjected, or agreed to mortgage, pledge or subject, any material asset to any Encumbrance (other than a Permitted Encumbrance);
**(xi)**made, or agreed to make, any material change in its customary methods of financial accounting or financial accounting practices, except as required by GAAP;
(xii)(A) changed or modified its current credit, cash management, collection or payment policies, procedures or practices, including such policies, procedures or practices, acceleration of collections or receivables (whether or not past due), (B) accelerated any billing of customers or collection of receivables or (C) delayed, postponed or canceled the payment of accounts payable or any other liability, in each case, in any material respect;
**(xiii)**violated or failed to comply with any Law, Order or other requirements imposed by any Government Entity;
**(xiv)**entered into, terminated, cancelled, renewed, or agreed to make any material change in any Material Contract or Permit, as applicable, except in the ordinary course of business;
(xv)(A) instituted or settled, or agreed to settle, any pending or threatened Action or (B) cancelled, compromised, waived or released, or agreed to cancel, compromise, waive or release, any material right or claim (including those under any Material Contract);
**(xvi)**purchased or acquired, or agreed to purchase or acquire, any real property;
**(xvii)**experienced any material damage, destruction, loss or casualty, whether or not covered by insurance;
**(xviii)**cancelled or terminated any insurance policy covering the Company or allowed any coverage under any insurance policy covering the Company to lapse;
(xix)(A) established, adopted, entered into, amended, modified or terminated (except as otherwise required under applicable Law, Order or other requirement imposed by any Government Entity), or made any increase in benefits payable under, any Employee Benefit Plan or any collective bargaining agreement (in each case, other than the entry into, amendment of, or termination of, employment agreements, consulting agreements, independent contractor agreements and Contracts pertaining to any Leased Worker); or (B) entered into, amended, modified, or terminated any employment agreement (including any collective bargaining agreement), consulting agreement, independent contractor agreement (with an independent contractor who is a natural person) or Contract pertaining to Leased Workers, in each case with respect to this clause (B), relating to a service provider whose annual base compensation is Seventy-Five Thousand Dollars ($75,000) or more per year;
**(xx)**materially modified (whether by increase, decrease or otherwise) the compensation of its employees, consultants, independent contractors (who are natural persons) or Leased Workers, including pursuant to the provisions of any change of control bonuses or other similar arrangements, in any case, other than in the ordinary course of business;
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**(xxi)**hired or promoted individuals who would be, or terminated the employment of any, (A) members of the management team of the Company or (B) other employee whose annual base salary is more than Seventy-Five Thousand Dollars ($75,000); or
**(xxii)**agreed, whether in writing or otherwise, to take any of the actions set forth in this Section 3.6.
3.7 Reserved.
3.8 Tax. Except as set forth on Section 3.8 of the Seller Disclosure Schedule:
**(a)**The Company has timely filed (taking into account applicable extensions) all Income Tax Returns and other material Tax Returns that it is required to file. All such Tax Returns are true, correct and complete in all material respects. The Company has timely paid all Taxes due and payable (whether or not shown or required to be shown as due on any Tax Returns). The unpaid Taxes of the Company did not, as of the Interim Balance Sheet Date, exceed the reserve for Tax liability (excluding any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the balance sheet described in Section 3.5(a)(ii).
**(b)**No audits, examinations, litigation, or other proceedings with respect to Taxes or Tax Returns of the Company are currently in progress, pending, or, to the Knowledge of the Company, threatened. The Company has not received a notice from any Government Entity that the Company is required to pay Taxes or file Tax Returns in a jurisdiction in which the Company does not file Tax Returns or pay Taxes that is not yet resolved. The Company has never commenced a voluntary disclosure proceeding with respect to Taxes of the Company in any state, local or non-U.S. jurisdiction that has not been fully resolved or settled.
**(c)**From the date of formation of the Predecessor until the date of the Contributions, the Predecessor was a duly elected S corporation pursuant to Section 1362(a) of the Code and, to the extent applicable, the Laws of each state in which it conducted business or is subject to Income Tax and no event has occurred (or fact has existed) that would preclude the Predecessor from initially qualifying as an S corporation under Section 1361(a) of the Code or that would have terminated the Predecessor’s S corporation status. No Government Entity has challenged the effectiveness of such elections. The Company has not incurred (or has any potential for) any Liability for any Income Taxes under Section 1374 of the Code or any comparable provision of state or local Law.
**(d)**Effective as of the date of the F-Reorganization, the Seller has been, and is currently, a validly existing S corporation for U.S. federal Income Tax purposes and, to the extent applicable, for each state in which the Seller or the Company conducts business and such treatment is allowed.
**(e)**Effective immediately after the Contributions and prior to the Conversion, the Seller elected to treat the Predecessor as a “qualified subchapter S subsidiary” pursuant to Section 1361(b)(3) of the Code and, to the extent applicable, under the Laws of each state in which the Company conducted business.
**(f)**At all times since the Conversion, the Company has been treated as a disregarded entity for U.S. federal Income Tax purposes pursuant to Treasury Regulations Section 301.7701-3(b)(1)(ii) and, to the extent applicable, for state Income Tax purposes. No election is pending to change the Income Tax treatment of the Company after the date of the Conversion.
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**(g)**The Company has timely and properly withheld or collected (i) all required amounts from payments to any employee, independent contractor, creditor, shareholder, member, foreign person or other third party and (ii) all sales, use, ad valorem and value added Taxes. The Company has timely remitted all such Taxes to the proper Government Entity in accordance with all applicable Laws. The Company has properly classified all individuals as employees or independent contractors under applicable Law.
**(h)**The Company has not waived or extended any statute of limitations with respect to any Taxes or agreed to any extension of time for the filing of any Tax Return or with respect to a Tax assessment, deficiency or collection, which waiver or extension is currently in effect.
**(i)**No power of attorney has been granted by the Company with respect to any Tax matter that will be in force after the Closing. The Company does not have a request for a private letter ruling, a request for administrative relief, a request for technical advice, a request for a change of any method of accounting or any other request that is pending with any Government Entity that relates to the Taxes or Tax Returns of the Company.
**(j)**The Company is not a party to, or bound by, any agreement or other arrangement relating to the sharing or allocation of Tax liabilities between or among Persons other than Ordinary Course Tax Provisions.
**(k)**There are no Encumbrances for Taxes on any assets of the Company other than Permitted Encumbrances.
**(l)**The Company has never been a member of any Affiliated Group.
**(m)**The Company is not liable for Taxes of any other Person as a result of successor liability, transferee liability, pursuant to Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or non-U.S. Laws), or contractual liability, or otherwise (other than pursuant to provisions in Contracts or any other agreement or arrangement entered into in the ordinary course of business, a primary purpose of which is not related to sharing, indemnification or allocation of Taxes, including leases, licenses or credit agreements (“OrdinaryCourse Tax Provisions”)). All amounts payable with respect to (or by reference to) Taxes pursuant to any Ordinary Course Tax Provisions have been timely paid in accordance with the terms of such Contracts, agreements or arrangements.
**(n)**The Company has never engaged in any transaction that could affect the Liability for Income Taxes for any taxable year not closed by the applicable statute of limitations that is a “listed transaction” within the meaning of Treasury Regulations Section 1.6011-4(b)(2).
**(o)**The Company is not subject to a Tax holiday or Tax incentive or grant in any jurisdiction that will terminate (or be subject to a clawback or recapture) at or following the Closing.
**(p)**The Company will not be required to include an item of income, nor exclude an item of deduction, for any period after the Closing Date as a result of (i) an installment sale transaction occurring before the Closing governed by Section 453 of the Code (or any similar provision of state, local or non-U.S. Laws); (ii) a transaction occurring on or before the Closing reported as an open transaction for U.S. federal Income Tax purposes (or any similar doctrine under state, local or non-U.S. Laws); (iii) any prepaid amounts or advance payments received on or prior to the Closing Date or deferred revenue realized or received prior to the Closing; (iv) a change in method of accounting made by the Company prior to the Closing with respect to a Pre-Closing Tax Period or as a result of an impermissible method used during a Pre-Closing Tax Period (including an adjustment pursuant to Section 481 of the Code (or any similar provision of under state, local, or non-U.S. Laws)); or (v) a “closing agreement” under Section 7121 of the Code entered into with any Government Entity prior to the Closing. The Company is on the accrual method of accounting for income Tax purposes.
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**(q)**The Company does not own an interest in any Flow-Thru Entity.
**(r)**None of the (i) goodwill, (ii) going concern value or (iii) other intangible assets of the Company that would not be amortizable prior to the enactment of Section 197 of the Code was held by the Company or by any Person related to the Company (within the meaning of Section 197(f)(9)(C) of the Code) on or before August 10, 1993 or could otherwise constitute anti-churning property under Section 197(f)(9)(A) of the Code.
**(s)**Other than the consummation of the F-Reorganization, since the Interim Balance Sheet Date, the Company has not (i) incurred any Taxes outside the ordinary course of business, (ii) changed a method of accounting for Income Tax purposes, (iii) entered into a “closing agreement” under Section 7121 of the Code with any Government Entity with respect to any Tax matter, (iv) surrendered any right to a Tax refund (other than as a resulting of the expiration of any applicable statute of limitations on refund claims), (v) changed an accounting period with respect to Taxes, (vi) filed an amended Tax Return, (vii) made any material election with respect to Taxes inconsistent with past practices or (viii) changed or revoked any election with respect to Taxes.
**(t)**No member (or former member) of the Company has any right to any distributions with respect to Taxes (or otherwise) from the Company in respect of a Pre-Closing Tax Period that will survive the Closing.
**(u)**Any “employee retention credit” claimed by the Company pursuant to Section 2301 of the CARES Act (or any corresponding or similar provision of state, local or foreign Law) was properly claimed.
**(v)**The Company has timely filed or provided all material information returns or reports, including IRS Forms 1099 and W-2 (and foreign, state and local equivalents) that are required to have been filed by it.
**(w)**The Company will not be required to include any item of income in its taxable income for any period after the Closing Date under Section 951(a) or Section 951A of the Code (or any similar provision of state, local or foreign Law) with respect to any Pre-Closing Tax Period.
**(x)**The Company has not distributed the stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Sections 355 or 361 of the Code.
**(y)**The Company has not, or has never had, a permanent establishment in any foreign country other than the country in which the Company is organized and does not and has not engaged in a trade or business in any foreign country other than the country in which the Company is organized.
3.9 EthicalPractices. Neither the Company nor any Person acting on behalf of the Company has offered or given anything of value to any Person while knowing or having reason to know that all or a portion of such money or thing of value may be offered, given or promised, directly or indirectly, to any customer, payor, member of the government or candidate for political office where such payment would constitute a bribe, kickback or illegal or improper payment to assist the Company in obtaining or retaining business for, or with, or directing business to, any Person or otherwise influence such Person to take action in such Person’s official capacity or use such Person’s influence with any government or instrumentality thereof. The Company has never accepted or received any unlawful contributions, payments, gifts or expenditures.
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3.10 MaterialContracts.
**(a)**Section 3.10(a) of the Seller Disclosure Schedule contains a true, correct and complete list of each material Contract (each such contract, including all amendments, modifications and supplements thereto, a “Material Contract” and collectively, the “Material Contracts”) to which the Company is a party that is (provided, however, that other than with respect to Section 3.10(a)(xiv), no Employee Benefit Plan shall be treated as a Material Contract):
**(i)**a Contract involving a commitment or payment or incurrence of liabilities by the Company in excess of an aggregate of One Hundred Thousand Dollars ($100,000) in the twelve (12) months ending September 30, 2025;
**(ii)**a Contract relating to mortgaging, pledging or otherwise placing any Encumbrance (other than a Permitted Encumbrance) on the Company’s assets, or any guaranty of an obligation of a third party;
**(iii)**a Lease;
**(iv)**a Contract under which the Company is lessee of, or holds or operates any personal property owned by any other party calling for payments in excess of Fifty Thousand Dollars ($50,000) annually;
**(v)**a Contract for capital equipment that provides for payments by the Company in excess of Fifty Thousand Dollars ($50,000) in any calendar year;
**(vi)**a Contract evidencing Indebtedness of the type described in clauses (a) through (g) of the definition of Indebtedness;
**(vii)**a Contract relating to the ownership of or investment in any business or enterprise (including investments in joint ventures, partnership arrangements and minority equity investments);
**(viii)**a Contract relating to the sale or issuance of any Equity Interest of the Company, other than this Agreement;
**(ix)**a Contract (A) containing any covenant limiting in any material respect the right of the Company or any of its officers or key employees to freely engage in any line of business (whether through an exclusivity agreement or otherwise), to compete with any Person in any line of business or to compete with any Person or the manner or locations in which any of them may engage, or (B) prohibiting or limiting in any material respect the right of the Company to make, sell or distribute any products or services;
**(x)**a Contract pursuant to which the Company has agreed to provide “most favored nation” pricing or any arrangement whereby the Company has agreed with any Person that such Person will receive the most favorable terms and conditions that are provided by the Company to any other Person;
**(xi)**a Contract or group of Contracts requiring the purchase of all or substantially all of the Company’s requirements of a particular product from a vendor;
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**(xii)**a Contract with any Government Entity;
**(xiii)**a Contract pursuant to which the Company has continuing indemnification, “earn-out” or other contingent payment obligations;
**(xiv)**any written (i) employment agreement written consulting agreement or written services agreement with an independent contractor who is a natural person, in each case of this clause (i), whose annual base compensation is more than Seventy-Five Thousand Dollars ($75,000), (ii) collective bargaining agreement; (iii) contract relating to the engagement services of any Leased Worker; (iv) contract with any staffing companies, temporary employment agencies or professional employer organizations; or (v) change of control, severance, retention, or similar agreements or arrangements with any employee, manager, officer, or other service provider or any agreement or arrangement that provides for the acceleration of, or increase in, any payment, compensation, or benefits in connection with the consummation of the transactions contemplated hereby;
**(xv)**a power of attorney, except for those executed in connection with the preparation and filing of Tax returns and related filings and matters;
**(xvi)**an acquisition agreement, whether by merger, equity interest or asset sale or otherwise;
**(xvii)**a Contract for the purchase or sale of real property;
**(xviii)**a Contract with any Material Customer and Material Supplier;
(xix) Contracts relating to a loan to any officer, manager, director, employee, consultant, independent contractor, or Leased Worker;
**(xx)**a Contract granting to any Person an option or a first refusal, first-offer or similar preferential right to purchase or acquire any assets of the Company;
**(xxi)**an Affiliate Agreement;
**(xxii)**a Contract which constitutes a guaranty of any obligation of any Person (other than the Company);
**(xxiii)**a Contract involving a sharing of profits, losses, costs or Liabilities by the Company with any other Person;
(xxiv)(A) a Contract relating to the settlement of any pending or threatened Action or (B) Contract entered into in the past four (4) years relating to the cancellation, compromise, waiver or release of any material right or claim; or
**(xxv)**any IP Agreements.
**(b)**Except as set forth in Section 3.10(b)(i) of the Seller Disclosure Schedule, each Material Contract is in full force and effect, constitutes the, legal, valid, and binding obligations of the respective parties thereto, and is enforceable against the Company and, to the Knowledge of the Seller Group, the other parties thereto, in accordance with its respective terms. Except as set forth in Section 3.10(b)(ii) of the Seller Disclosure Schedule, (i) the Company is not in breach or default in any material respect, or in receipt of any written notice of any breach or default in any material respect, of any Material Contract, (ii) there exists no breach or default, or any event or condition, including the execution and delivery of this Agreement and the Ancillary Agreements, or the consummation of any transaction contemplated hereby or thereby, which upon the giving of notice or the passage of time, or both, would give rise to a claim of a default or breach by the Company, (iii) the Company and, to the Knowledge of the Seller Group, each counterparty have performed all obligations under each Material Contract required to be performed and, to the Knowledge of the Seller Group, no facts exist which would render such performance unlikely, and (iv) to the Knowledge of the Seller Group, no other party to any Material Contract is in breach in any material respect of such Material Contract. There is no pending or, to the Knowledge of the Seller Group, threatened bankruptcy, insolvency or similar proceedings with respect to any party to such Material Contracts. Neither the Seller nor any member of the Seller Group is participating in any discussions or negotiations regarding modification of or amendment to any Material Contract or entry in any new Contract which, if entered into as of the date hereof, would be a Material Contract.
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3.11 Titleto Assets. Except as set forth on Section 3.11 of the Seller Disclosure Schedule, the Company has good, valid and marketable title to, or a valid and enforceable leasehold interest in, the Leased Real Properties and all of its personal property and assets (including all fixtures, leasehold improvements, equipment, office, operating and other supplies and furniture) that are used in the conduct of its business, free and clear of all Encumbrances (other than Permitted Encumbrances). The material personal properties of the Company (i) are in good operating condition, a state of good maintenance and repair (and in the case of buildings and structures are structurally sound), ordinary wear and tear excepted, (ii) are usable in the regular and ordinary course of business and (iii) are in material conformance with all applicable Laws, ordinances, codes, rules and regulations applicable thereto.
3.12 IntellectualProperty.
**(a)**Section 3.12(a) of the Seller Disclosure Schedule sets forth a true, correct and complete list of all Registered Intellectual Property and material unregistered Owned Intellectual Property (including Trademarks and Owned Software).
**(b)**All of the Owned Intellectual Property is subsisting, valid and enforceable, and no such Owned Intellectual Property has been adjudged invalid or unenforceable in whole or part by a court of competent jurisdiction. The Company is the sole and exclusive owner of the entire right, title and interest in and to its applicable Owned Intellectual Property, free from any Encumbrances (other than Permitted Encumbrances and non-exclusive licenses granted by the Company in the ordinary course of business to the Company’s customers in the form provided by the Company to the Buyer). All Registered Intellectual Property has been maintained effective by the filing of all necessary filings, maintenance and renewals, and timely payment of requisite fees. No loss or expiration of any Owned Intellectual Property is threatened, pending or reasonably foreseeable, except in the case of patents expiring at the end of their statutory terms, and not as a result of any act or omission by the Company (including failure by the Company to pay any required maintenance fees). The Company owns all right, title and interest in, or has a valid and enforceable written license or other right to use its applicable Company Intellectual Property.
**(c)**All Owned Software (i) conforms in all material respects with all specifications, representations, warranties, undertakings and any other descriptions established by the Company or conveyed thereby to the Company’s customers or other transferees, (ii) is operative for its intended purpose, free of any material defects or deficiencies, and does not contain any Malware; and (iii) has been maintained by the Company on its own behalf or on behalf of its customers and other transferees in accordance with its contractual obligations to customers. No funding, facilities or resources of any Government Entity or university have been used in connection with the conception or reduction to practice of any Owned Intellectual Property.
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**(d)**No current or former founder, employee (including officers and directors), consultant or independent contractor of the Company has any right, title or interest, directly or indirectly, in whole or in part, in any Owned Intellectual Property. The Company has received and maintained from all Persons (including, all current and former founders, employees, consultants and independent contractors who have developed any Intellectual Property for the Company or have had access to any Company Intellectual Property) valid and enforceable written and fully executed agreements under which each such Person is obligated to maintain the confidentiality of such Intellectual Property and valid and enforceable written agreements under which each such Person assigns and has assigned to the Company ownership of all such Intellectual Property, or has assigned any rights as a matter of law, and the Company has delivered a true, correct and complete copy of each such agreement, or provided the form agreement confirming any deviations, to the Buyer. To the Knowledge of the Seller Group, no Person is in violation of any such agreement.
**(e)**The Company, the Owned Intellectual Property and the current and former products, services and conduct of the businesses of the Company, including the manufacture, importation, use, offer for sale, sale, licensing, distribution or other commercial exploitation thereof has not infringed (whether direct or otherwise), misappropriated or otherwise violated, and does not infringe, misappropriate or otherwise violate the Intellectual Property, privacy or publicity rights or any other rights of any other Person. To the Knowledge of the Seller Group, the Owned Intellectual Property is not being infringed upon, misappropriated or otherwise violated by any other Person and there has been no such case of such infringement (whether direct or otherwise), misappropriation or other violation at any time. Neither the Seller nor the Company has asserted or brought any action alleging the infringement, misappropriation or violation of any Owned Intellectual Property against any third parties at any time.
**(f)**There is no Action pending, threatened in writing, or, to the Knowledge of the Seller Group, threatened orally, by any Person against the Seller Group, the Company, or any of their respective Affiliates, concerning the ownership, use, validity, registrability, registration, patentability, enforceability, infringement (whether direct or otherwise), misappropriation or other violation or use of any Company Intellectual Property, and no such claims have been asserted or threatened in writing against the Company at any time. No claim or demand has been made against, and no notice has been given to, the Company by any Person that (i) challenges the validity, enforceability, use or ownership of any such Intellectual Property, (ii) alleges any infringement (whether direct or otherwise), misappropriation or other violation by the Company or its customers of any Intellectual Property, privacy or publicity right of any Person, (iii) alleges that any Intellectual Property is being licensed or sublicensed or used in conflict with the terms of any other Contract, or (iv) alleges that the Company or its customers are infringing or require a license to any of such Person’s Intellectual Property.
**(g)**The Company has taken commercially reasonable measures to protect, maintain and preserve: (i) the operation and security of the Company IT Assets owned by the Company and (ii) the confidentiality of all Trade Secrets, know-how and any other confidential information of the Company and any confidential information owned by any Person to whom the Company has a confidentiality obligation, including by requiring execution of confidentiality agreements by Persons who receive access to any Trade Secrets, know-how, or any other material confidential information of the Company and such confidential information of any other Person. The Company IT Assets are operational, fulfill the purposes for which they were acquired or developed, have security, back-ups and disaster recovery arrangements in place and hardware and Software capacity, support, maintenance and trained personnel which are sufficient in all material respects for the current and anticipated future needs of the Company’s business. The Company has disaster recovery, data back-up and security plans, procedures and facilities, and has taken reasonable steps consistent with or exceeding industry standards to safeguard the availability, security and integrity of the Company IT Assets and all data and information stored thereon, including from unauthorized access and infection by Malware. The Company has maintained in the ordinary course of business all required licenses and service contracts, including the purchase of a sufficient number of license seats for all Software, with respect to its respective Company IT Assets. The Company IT Assets owned by the Company have not suffered material failure.
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**(h)**The Company is in possession of all materials relating to the Software used in its businesses, including installation and user documentation, engineering specifications, flow charts and know-how, reasonably necessary for the use, maintenance, enhancement, development and other exploitation of such Software as used in, or currently under development for, the businesses of the Company.
**(i)**No Publicly Available Software (in whole or in part) has been incorporated in, linked to, distributed with or otherwise used in connection with any Owned Software or any product or service of the Company in any manner that may (i) require, or condition, the use, distribution or licensing of any such Owned Software or other Owned Intellectual Property or other product or service on the disclosure, licensing or distribution of any source code for any portion of such Owned Software, Owned Intellectual Property, or other product or service; or (ii) otherwise impose any limitation, restriction, requirement or condition on the right or ability of the Company to use, distribute, enforce or license any such Owned Intellectual Property in any manner.
**(j)**With respect to the Company, no Person possesses a copy, in any form (print, electronic, or otherwise), of any source code or any portion thereof for any Owned Software, and all such source code is in the sole possession of the Company and has been maintained strictly confidential. The Company does not have an obligation to afford any Person access to any such source code or any portion thereof. The Owned Software and other Owned Intellectual Property is not subject to any source code escrow or other agreement providing for the disclosure or release of any source code or any portion thereof or Trade Secrets owned by upon the occurrence of specific events or the existence of specific conditions.
**(k)**The execution, delivery and performance of this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby will not result in or give rise to any right of termination or other right to impair or limit, or otherwise result in a breach of, or loss or impairment of the Company’s right to own, use or retain a license to any Company Intellectual Property. Immediately subsequent to the Closing, the Company will own or be able to use its Company Intellectual Property on the same terms and conditions to those under which the Company owned or used such Intellectual Property immediately prior to the Closing without the payment of any additional fees.
3.13 LegalProceedings.
**(a)**Except as set forth in Section 3.13(a) of the Seller Disclosure Schedule, there is no (i) Action pending, or, to the Knowledge of the Seller Group, threatened, against or involving the Company, its business, properties, or assets, whether at law or in equity, before or by any Government Entity or (ii) Order to which the Company or any of its businesses, properties, or assets is subject or (iii) unsatisfied judgment, penalty or award against or involving the Company or any of its businesses, properties, or assets. To the Knowledge of the Seller Group, no event has occurred, or circumstance exists that would reasonably be expected to give rise to or serve as a basis for the commencement of any Action or Order. The Seller Group has provided a true, correct and complete copy of all material documents and correspondence relating to such matters referred to in this Section 3.13(a).
**(b)**The Company has never received any written notice of any matter, or, to the Knowledge of the Seller Group, threatened matter against any director, officer, manager, employee, agent, representative, consultant, independent contractor or Leased Worker of the Company in connection with which any such Person has or may reasonably be expected to have any right to be indemnified by the Company.
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**(c)**Section 3.13(c) of the Seller Disclosure Schedule lists each Action that (i) resulted in any criminal sanctions or (ii) resulted in payments in excess of Twenty-Five Thousand Dollars ($25,000) by or against the Company or any of its respective directors, officers, managers, employees, agents, representatives, consultants, independent contractors or Leased Workers (whether as a result of a judgment, civil fine, settlement or otherwise).
3.14 RealProperty.
**(a)**The Company has never owned, nor owns or has any obligation to purchase, any real property.
**(b)**The Leased Real Properties identified in Section 3.14(b) of the Seller Disclosure Schedule are the only real properties in which the Company has a leasehold interest pursuant to a Lease. Section 3.14(b) of the Seller Disclosure Schedule sets forth a true, correct and complete list of the Leased Real Properties together with a list of the Leases pursuant to which the Leased Real Property is demised to the Company, including all amendments, supplements, extensions and other modifications thereto. The Seller Group has provided a true, correct and complete copy of each Lease, together with all amendments, supplements, extensions and other modifications thereto, to the Buyer.
**(c)**Except as set forth in Section 3.14(c) of the Seller Disclosure Schedule, with respect to the Leased Real Properties:
**(i)**the Company has a valid, binding, enforceable and subsisting leasehold estate in each of its Leased Real Properties, free and clear of all Encumbrances (except Permitted Encumbrances);
**(ii)**in the past twelve (12) months, the possession and quiet enjoyment of the Leased Real Properties has not been disturbed;
**(iii)**there are no disputes with respect to any Leased Real Property;
**(iv)**all rents, deposits and additional rents due pursuant to the Leases have been paid in full and no security deposit or portion thereof has been applied in respect of a breach or default under such lease that has not been redeposited in full;
**(v)**there is no condemnation proceeding or eminent domain proceeding of any kind pending or threatened against any of the Leased Real Properties;
**(vi)**the Company has obtained all material licenses and Permits that are required to be obtained to permit the current use and occupancy by the Company of the premises subject to any Lease;
**(vii)**there are no subleases, sublicenses or other occupancy agreements, written or oral, to which the Company is a party, granting to any other party the right of use or occupancy of any portion of any Leased Real Property;
**(viii)**other than the Company or its lessees disclosed pursuant to Section 3.4, no party is in possession of any portion of the Leased Real Properties;
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**(ix)**the Company has not caused any work to be performed on or about the Leased Real Properties within the one hundred twenty (120)-day period prior to the date hereof that would legally entitle any Person to file or record any mechanic’s or materialmen’s lien which claim remains unpaid;
**(x)**the improvements on the Leased Real Properties are, to the Knowledge of the Seller Group, in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, and are adequate and suitable for the purposes for which they are presently being used; and
**(xi)**the Company has not received any written notice of a material violation of any Law, or of any covenant, condition, easement or restriction affecting any Leased Real Property or relating to its use or occupancy.
3.15 Insurance.
**(a)**Section 3.15(a) of the Seller Disclosure Schedule sets forth a true, correct and complete list of each insurance policy maintained by the Company.
**(b)**The Company maintains insurance with reputable insurers for the business against all risks normally insured against, and in amount normally carried, by Persons of similar size engaged in similar lines of business.
**(c)**Each insurance policy identified on Section 3.15(a) of the Seller Disclosure Schedule is (i) in full force and effect, legal, valid and binding, and (ii) to the Knowledge of the Seller Group, enforceable in accordance with its terms except as enforcement may be limited by the Bankruptcy and Insolvency Exceptions.
**(d)**Section 3.15(a) of the Seller Disclosure Schedule also sets forth all relevant information as to the nature and approximate amount of all claims for insured losses sustained by the Company. No policy limits for any insurance policies in effect at any time has been reached or exceeded by the Company. There is no claim by the Company pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds or in respect of which such underwriters have reserved their rights. All premiums payable under all such policies and bonds have been timely paid, and the Company has otherwise complied in all material respects with the terms and conditions of all such policies and bonds. To the Knowledge of the Seller Group, there is no threatened termination of, premium increase with respect to, or material alteration of coverage under, any of such policies or bonds. No notice of cancellation or termination has been received by the Company with respect to any such policy. There are no historical gaps in coverage, no coverage limits of any insurance policy have been exhausted, no policies existing as of the date hereof will expire prior to the Closing (or if such policies are canceled or lapse prior to Closing, renewals or replacements thereof will be entered into in the ordinary course of business), and no further premiums or payments will be due by the Company after the Closing with respect to periods prior to the Closing.
**(e)**This Section 3.15 shall not apply to insurance with respect to any Employee Benefit Plan.
3.16 Permits. Section 3.16 of the Seller Disclosure Schedule contains a true, correct and complete list of all Permits under which the Company is operating or by which any of them or any of their respective assets or properties is bound, and the Company has furnished to the Buyer true, correct and complete copies thereof. The Company has all Permits necessary for its operations and the conduct of its business as currently conducted. The Permits are valid and in full force and effect. The Company is not or has not been in violation of any Permit and there is no Action pending or, to the Knowledge of the Seller Group, threatened to revoke or limit any Permit. To the Knowledge of the Seller Group, the Company has taken all necessary action to maintain each material Permit, including, without limitation, timely filing renewal applications. None of the Permits required to be set forth in Section 3.16 of the Seller Disclosure Schedule have been adversely affected as a result of the F-Reorganization or the transactions contemplated by this Agreement or any Ancillary Agreement. No loss or expiration of any such Permit is pending or, to the Knowledge of the Seller Group, threatened.
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3.17 Compliancewith Law. Except as set forth on Section 3.17 of the Seller Disclosure Schedule, without limiting the scope of any other representation in this Agreement, the Company is, and at all times has been, in compliance in all material respects with Laws and Orders applicable to it, its business, properties, or assets. The Company has not received any written, or to the Knowledge of the Seller Group oral, notice from a Government Entity of any actual, alleged, or potential violation of, or failure to comply with, any Law or Order to which it, its business, properties, or assets is subject. The Company (i) has not been charged with or, to the Knowledge of the Seller Group, under investigation with respect to any actual or alleged violation of any applicable Law, and (ii) has not been a party to or bound by any Order.
3.18 EmployeeBenefits.
**(a)**Section 3.18(a) of the Seller Disclosure Schedule contains a complete and correct list of all Employee Benefit Plans. With respect to each Employee Benefit Plan, the Seller Group has provided or made available to Buyer true, correct and complete copies, to the extent applicable, of the following: (i) the current plan and trust documents and funding documents, including all amendments, modifications, or supplements to such documents (or in the case of an unwritten Employee Benefit Plan, a written description of the material terms thereof); (ii) the most recent summary plan description and all summaries of material modification thereto; (iii) the most recently filed Form 5500 annual report (and schedules thereto) and compliance testing results; (iv) the most recent financial statements and actuarial reports (audited and/or unaudited) and the annual reports filed with any applicable regulatory authority with respect to each Employee Benefit Plan during the current year and each of the three preceding years; and (v) the most recent IRS determination or opinion letter, if the Company actually received such determination or opinion letter. Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter, or is entitled to rely on an opinion letter or advisory letter, from the IRS. No Employee Benefit Plan is under audit or, to the Knowledge of the Seller Group, under investigation, by the IRS, the Department of Labor or any other Government Entity.
**(b)**With respect to each Employee Benefit Plan, all contributions, premiums and other payments required to be made by the Company by Law or by the terms of such Employee Benefit Plan with respect to any period ending before or on the Closing Date have been made to any funds or trusts established thereunder or in connection therewith, or reserves adequate for such contributions or other payments have been or will be taken. No Employee Benefit Plan providing medical, dental, vision, disability or life insurance benefits is a self-funded or self-insured arrangement (other than flexible spending accounts and health reimbursement arrangements).
**(c)**Each Employee Benefit Plan has been established, operated, funded and administered in accordance in all material respects with its respective terms and in compliance in all material respects with the applicable provisions of ERISA (as amended through the date of this Agreement), the Code and all other Laws applicable to such Employee Benefit Plan. The Company performed all of its material obligations under its Employee Benefit Plans that were required to be performed prior to the date of this Agreement. Other than routine claims for benefits, there are no Actions pending or, to the Knowledge of the Seller Group, threatened, against the Employee Benefit Plans or their assets, or against the Company arising out of the Employee Benefit Plans.
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**(d)**Neither the Seller, any member of the Seller Group, or ERISA Affiliate has, within the past six (6) years, maintained, sponsored or contributed to, currently maintains, sponsors or contributes to, or had an obligation to maintain or contribute related to a plan that is (i) subject to Section 412 of the Code or Title IV of ERISA, (ii) a “multiemployer plan” within the meaning of Sections 3(37) and 4001(a)(3) of ERISA, (iii) a “multiple employer plan” within the meaning of Section 413(c) of the Code, (iv) subject to Sections 412 or 4971 of the Code, Section 302 of ERISA or Title IV of ERISA, or (v) a “multiple employer welfare arrangement” within the meaning of Section 3(40) of ERISA. No “prohibited transaction” within the meaning of Section 406 of ERISA or Section 4975 of the Code has occurred with respect to any Employee Benefit Plan (x) within the last three years or (y) for which any liability remains unsatisfied.
**(e)**All Employee Benefit Plans that are group health plans (within the meaning of Section 5000(b)(1) of the Code) have been operated in compliance in all material respects with the group health plan continuation coverage requirements of Section 4980B of the Code to the extent such requirements are applicable. Except for the continuation coverage requirements of Section 4980B of the Code, the corresponding provisions of ERISA (and similar provisions of state Law) or for coverage through the last day of the month in which termination of employment occurs (to the extent required by the terms of the Employee Benefit Plan), neither the Company nor its ERISA Affiliates have any Liability for medical, prescription drug, dental, vision or life insurance benefits to employees following retirement or other termination of employment under its respective Employee Benefit Plans that are group health or welfare plans.
**(f)**Each Employee Benefit Plan permits the Company to amend or terminate the Employee Benefit Plan at any time and without any Liability to the Company, or permits the Company to terminate its participation in such Employee Benefit Plan at any time and without any Liability to the Company, except for claims incurred prior to such amendment or termination, as may be required under applicable Laws, vested benefits which cannot be modified, and for administrative expenses associated with such termination or amendment.
**(g)**Except as set forth in Section 3.18(g) of the Seller Disclosure Schedule, the consummation of the transactions contemplated by this Agreement, whether alone or together with any other event, will not in any material respect (i) result in any payment becoming due to any current or former employee, officer, director or consultant of the Company, (ii) increase, trigger or accelerate the payment or vesting of the amount of compensation, severance or benefits due to any employee of the Company, (iii) limit the ability of the Company to terminate or amend any of the Employee Benefit Plans, or (iv) result in any breach or violation of, or a default under, any of the Employee Benefit Plans. No amount paid or payable in connection with the transaction contemplated by this Agreement will, either alone or in combination with another payment, constitute an “excess parachute payment” within the meaning of Section 280G(b)(1) of the Code (determined without regarding to the exceptions provided for in Section 280G(b)(5) of the Code). The Company is not a party to any plan, program, agreement or arrangement that provides for a gross-up or reimbursement of Taxes imposed under Section 4999 or Section 409A of the Code to any employee, director, officer, consultant, independent contractor or other service provider of the Company.
**(h)**Each Employee Benefit Plan that is subject to Section 409A of the Code is in material compliance with the currently applicable requirements of Code Section 409A and the regulations, rulings, and notices promulgated thereunder. The Seller has not agreed to reimburse any employees for any material Taxes imposed on any employees under Section 409A of the Code. No Employee Benefit Plan has resulted in any participant incurring income acceleration or penalties under Section 409A of the Code.
**(i)**No Employee Benefit Plan is subject to jurisdiction outside of the United States.
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3.19 EnvironmentalMatters. Except as set forth in Section 3.19 of the Seller Disclosure Schedule, the Company is in, and has been, in compliance in all material respects with all Environmental Laws. Except as set forth in Section 3.19 of the Seller Disclosure Schedule, to Knowledge of the Seller Group, there has been no disposal or Release of Hazardous Substances on the Leased Real Property or from an property to which Hazardous Substances generated by the Company have been transported. The Company has not been subject to or threatened with any action, demand, request for information, citation, summons, penalty or settlement with respect to any Environmental Law or has received written notice of any unsatisfied liability under any Environmental Law. The Company has not received notice of any Liabilities of any kind whatsoever arising in connection with or in any way relating to the Leased Real Property or the businesses of the Company, arising under or relating to any Environmental Law or Hazardous Substances, including without limitation any requirement to perform or fund any investigatory, remedial or corrective obligations, and there are no facts, events, conditions, situations or set of circumstances, including notice of actual or threatened Liability under CERCLA or any similar Law from any Government Entity or Person, that would reasonably be expected to result in or be the basis for any such Liability. The Company has not entered into any agreement that may require the Company to guarantee, reimburse, pledge, defend, hold harmless or indemnify any Liabilities of any other Person arising under Environmental Laws or assumed any responsibility for, either directly or indirectly, the remediation of any condition arising from or relating to the release or threatened release of Hazardous Substances. The Company has provided copies of all environmental reports, audits, assessments, sampling data, and correspondence with a Government Entity in the Company’s possession related to (i) the environmental condition of the Leased Real Property, (ii) the Company’s compliance with any Environmental Law to the Buyer, or (iii) any liability or potential liability under any Environmental Law.
3.20 Transactionswith Related Parties and Affiliates.
**(a)**Except as set forth in Section 3.20(a) of the Seller Disclosure Schedule, no Related Party (i) owns or, has owned, directly or indirectly, whether on an individual, joint or other basis, any interest in (A) any material property or asset, real, personal or mixed, tangible or intangible, used in or pertaining to the Company’s business, (B) any Person that has had business dealings or a financial interest in any transaction with the Company, or (C) any Person that is a supplier, customer or competitor of the Company except for securities having no more than one percent (1%) of the outstanding voting power of any such supplier, customer or competing business which are listed on any national securities exchange, (ii) is a party to any Contract with the Company, (iii) serves as an officer, director or employee of any Person that is a supplier, customer or competitor of the Company, or (iv) has engaged in any transaction with the Company in the twelve (12) months preceding the date of this Agreement (other than, in the case of clauses: (ii) and (iv), (1) an Employee Benefit Plan, (2) employment agreements, offer letters and restrictive covenant agreements with employees in the ordinary course of the Company’s standard forms and (3) transactions with employees, officers and directors involving employment, the performance of services, compensation and employee benefits in the ordinary course).
**(b)**Except as set forth in Section 3.20(b)(i) of the Seller Disclosure Schedule, no employee or current Equity Interest holder of the Company is (i) a party to any transaction or Contract with the Company, other than (1) an Employee Benefit Plan, (2) employment agreements, offer letters and restrictive covenant agreements with employees in the ordinary course on the Company’s standard forms and (3) transactions with employees involving employment, the performance of services, compensation and employee benefits in the ordinary course or (ii) the direct or indirect owner of an interest in any Person that is a present competitor, supplier or customer of the Company (other than non-affiliated holdings in publicly held companies). Except as set forth in Section 3.20(b)(ii) of the Seller Disclosure Schedule, the Company is not a guarantor or otherwise directly or indirectly liable for any actual or potential Liability of any Related Party.
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**(c)**Section 3.20(c) of the Seller Disclosure Schedule contains a true, correct and complete list of all Affiliate Agreements.
**(d)**Except as set forth in Section 3.20(d) of the Seller Disclosure Schedule, no Related Party has made any personal guaranty related to the Company.
3.21 AccountsPayable; Accounts Receivable.
**(a)**The Seller Group has made available to the Buyer a schedule of the accounts payable related to the businesses of the Company as of five (5) days prior to the date hereof (the “Payables”) showing the amount of each Payable due thereunder, which schedule is true, correct and complete as of that date. The Payables arose from bona fide transactions in the ordinary course of business and are not more than thirty (30) days past due.
**(b)**The Seller Group has delivered to the Buyer a schedule of the accounts receivable related to the businesses of the Company as of five (5) days prior to the date hereof (the “Receivables”) showing the amount of each Receivable and an aging of amounts due thereunder, which schedule is true, correct and complete as of that date. Except as set forth in Section 3.21(b) of the Seller Disclosure Schedule, to the Knowledge of the Seller Group, the debtors to which the Receivables relate are not in or subject to a bankruptcy or insolvency proceeding, and none of the Receivables has been made subject to an assignment for the benefit of creditors. Except as set forth in Section 3.21(b) of Seller Disclosure Schedule, all Receivables that are reflected on the Financial Statements (net of any reserves shown thereon) (i) are valid, existing and arose from bona fide transactions in the ordinary course of business and (ii) are not subject to any refunds or adjustments or any defenses, rights of set-off, assignment, restrictions, security interests or other Encumbrances. Except as set forth in Section 3.21(b) of the Seller Disclosure Schedule, there are no disputes regarding the collectability of any such Receivables and such Receivables are adequately reserved for cancellations and bad debt.
3.22 Employees.
**(a)**Section 3.22(a)(i) of the Seller Disclosure Schedule sets forth a true, correct and complete list of all employees of the Company as of five (5) days prior to the date hereof and, for each such employee, the employing entity, the office or other work location, annual base salary (or wage rate) or guaranteed salary, employment status (e.g., active or inactive), date of hire, and status as exempt or non-exempt under the Fair Labor Standards Act and any applicable similar Laws, which list is true, correct and complete as of that date. Except as indicated on Section 3.22(a)(ii) of the Seller Disclosure Schedule, the employment of all employees is “at will” and may be terminated by the employing entity at any time, for any reason or no reason, in accordance with applicable Laws. All employees of the Company are, and have been, properly classified under the Fair Labor Standards Act and similar state and local Law.
**(b)**Section 3.22(b)(i) of the Seller Disclosure Schedule lists all employees, consultants and independent contractors of the Company covered by any written non-competition, non-solicitation or non-disparagement agreement with the Company, and the Seller has provided or made available to the Buyer current and complete copies of each such agreement, as well as copies of any confidentiality or other agreement covering proprietary information. To the Knowledge of the Seller Group, except as section for in Section 3.22(b)(i) of the Seller Disclosure Schedule, no such employee, consultant or independent contractor or any Leased Worker is (a) party to or bound by any non-competition, non-solicitation, confidentiality, non-disclosure, no-hire, or similar agreement that would reasonably be expected to restrict such person in the performance of his or her duties for the Company or the ability of the Company to conduct its business; or (b) in breach of any non-competition agreement as a result of providing services to the Company.
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**(c)**Section 3.22(c) of the Seller Disclosure Schedule sets forth a true, correct and complete list of all consultants and independent contractors who provide, have provided or are under contract to provide services to the Company during any period in calendar years 2025 and 2024 and sets forth for each such consultant and independent contractor the fee schedule and the total amount of all fees paid or accrued for such services provided during calendar years 2025 and 2024 and summarizes the services were or are being provided. All consultants and independent contractors utilized by the Company are properly characterized as, and for the past four (4) years have been properly characterized as, independent contractors. Other than the payment of fees for services, the Company does not have any liability with respect to any Leased Workers.
(d)(i) The Company is and has been for the past four (4) years in compliance with Laws relating to the employment of labor, including provisions thereof relating to labor, employment, employment practices, terms and conditions of employment, wages, hours, equal employment opportunity, pay equity, nondiscrimination, harassment, retaliation, immigration, benefits, collective bargaining, labor relations, safety and health, workers’ compensation, affirmative action, meal and rest periods, Leased Workers, independent contractors, plant closings and mass layoffs, protection of employee data and personal information and the withholding and payment of social security and other payroll Taxes; (ii) the Company has not experienced any strike, picketing, lockout, work stoppage, work slowdown, unfair labor practice or complaint, arbitration, material grievance or other labor dispute, and no such action is pending or, to the Knowledge of the Seller Group, threatened in writing; (iii) there are no workers’ compensation claims pending against the Company not expected to be covered by the Company’s workers’ compensation insurance plan; (iv) to the Knowledge of the Seller Group, all employees of the Company are legally authorized to work in the United States; (v) the Company is not a party to or bound by any collective bargaining agreement and none of the Company’s employees, or, to the Knowledge of the Seller Group, any groups of the Company’s consultants, independent contractors or Leased Workers, are represented by any labor organization; (vi) to the Knowledge of the Seller Group there have been no organizing activities by any labor organizations at the facilities of the Company or concerning or involving the employees, consultants, independent contractors or Leased Workers of the Company; (vii) no representation Action or demand for recognition or bargaining by any labor organization has been made, filed, commenced or, to the Knowledge of the Seller Group, threatened in writing, concerning or involving the Company or any of its employees, consultants, independent contractors or Leased Workers, and no labor organization has been certified as the bargaining representative for any of the Company’s employees, consultants, independent contractors or Leased Workers; (viii) the Company is not a government contractor or subcontractor on Contracts with any Government Entity obligated to have an affirmative action plan; and (ix) in the past four (4) years no current or former employee has made any sexual harassment claim against an officer or managerial employee concerning or relating to the person’s employment with the Company.
**(e)**The Company has paid in full to (i) all applicable employees and former employees any wages, salaries, commissions, bonuses, benefits, compensation, overtime, cash-outs of accrued and unused vacation, paid time-off or other leave and severance and any other amounts that are due and payable prior to the Closing Date, and (ii) all independent contractors, consultants and Leased Workers, all fees for services due and payable prior to the Closing Date.
**(f)**In the past three (3) years, the Company has not taken any action that would reasonably be expected to constitute a “plant closing” or “mass layoff” within the meaning of the Worker Adjustment Retraining and Notification Act of 1988 or any applicable similar state or local Law or otherwise triggered any notice requirement or Liability under any applicable group termination Law.
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**(g)**No employee of the Company is located outside of the United States.
3.23 MaterialCustomers.
**(a)**Section 3.23(a) of the Seller Disclosure Schedule sets forth the top ten (10) customers of the Company (the “Material Customers”) based on consolidated gross revenue per customer for the twelve (12) months ended December 31, 2024. Since January 1, 2025, the Company, has not received any written or to the Knowledge of the Seller Group oral notice from any Material Customer to the effect that such Material Customer (i) has stopped, or will stop, use of the products, goods or services of the Company, (ii) have materially decreased, or will materially decrease, use of the products, goods or services of the Company, or (iii) has sought, or is seeking, to materially change the terms (whether related to payment, timing of payment, price or otherwise) with respect to purchasing materials, products or services of the Company (whether as a result of the consummation of the transactions contemplated hereby or otherwise). To the Knowledge of the Seller Group, no Material Customer has otherwise threatened to take any action described in the preceding sentence as a result of the consummation of the transactions contemplated by this Agreement. No Material Customer has any right to any credit or refund for products or goods sold or services rendered or to be rendered by the Company other than pursuant to the Company’s normal course credit or refund policies.
**(b)**Except as set forth on Section 3.23(b) of the Seller Disclosure Schedule, no Material Customer has indicated in writing or, to the Knowledge of the Seller Group, otherwise provided notice to the effect that, and the Seller Group has no Knowledge that, any such Material Customer intends to cease being a customer of the Company or intends to decrease the rate of, or change the terms with respect to, buying products and services from the Company (whether as a result of the consummation of the transactions contemplated hereby or otherwise).
3.24 MaterialSuppliers.
**(a)**Section 3.24(a) of the Seller Disclosure Schedule sets forth the top ten (10) suppliers of the Company (the “Material Suppliers”) based on consolidated gross revenue based on premiums written and commissions owed for the twelve (12) months ended December 31, 2024. Since January 1, 2025, no member of the Seller Group has received any written or to the Knowledge of the Seller Group oral notice from any Material Supplier to the effect that such Material Supplier (i) has stopped, or will stop, use of the products, goods or services of the Company, (ii) has materially decreased, or will materially decrease, use of the products, goods or services of the Company, or (iii) has sought, or is seeking, to materially change the terms (whether related to payment, timing of payment, price or otherwise) with respect to purchasing materials, products or services of the Company (whether as a result of the consummation of the transactions contemplated hereby or otherwise). To the Knowledge of the Seller Group, no Material Supplier has otherwise threatened to take any action described in the preceding sentence as a result of the consummation of the transactions contemplated by this Agreement. No Material Supplier has any right to any credit or refund for products or goods sold or services rendered or to be rendered by the Company other than pursuant to the Company’s normal course credit or refund policies.
**(b)**Except as set forth on Section 3.24(b) of the Seller Disclosure Schedule, no Material Supplier has indicated in writing or, to the Knowledge of the Seller Group, otherwise provided notice to the effect that, and the Seller Group has no Knowledge that, any such Material Supplier intends to cease doing business with the Company or intends to decrease the rate of, or change the terms with respect to, supplying materials, products or services to the Company (whether as a result of the consummation of the transactions contemplated hereby or otherwise).
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3.25 DataPrivacy.
**(a)**The Company is, and has been, in compliance in all material respects with all applicable Privacy and Security Requirements. The Company has not experienced any Security Breaches, and the Company is not aware of any notices or complaints from any Person regarding a Security Breach. The Company has not received any notices or complaints from any Person (including any Government Entity) regarding the Processing of Protected Data or compliance with applicable Privacy and Security Requirements. The Company maintains systems and procedures to receive and effectively respond to complaints and, to the extent required by applicable Law, individual rights requests in connection with the Company’s Processing of Personal Information, and, to the extent required by applicable Law, the Company has complied with all such individual rights requests. The Company does not engage in the sale, as defined by applicable Law, of Personal Information.
**(b)**The Company has valid and legal rights to Process all Protected Data that is Processed by or on behalf of the Company in connection with the use and/or operation of its products, services and business, and the execution, delivery or performance of this Agreement will not affect these rights or violate any applicable Privacy and Security Requirements. The Company has implemented reasonable physical, technical and administrative safeguards consistent with industry standards that are designed to protect Protected Data from unauthorized access by any Person, and to ensure compliance in all material respects with all applicable Privacy and Security Requirements.
3.26 Booksand Records.
**(a)**The books and records of the Company are true, correct and complete in all material respects and have been maintained in accordance with sound business practices. All such books and records have been made available to the Buyer.
**(b)**Neither the Company nor any officer, manager or director of the Company, or anyone acting on behalf of the Company, has made or received any material payments not correctly categorized and fully disclosed in the Company’s books and records.
3.27 COVID-19and COVID-19 Measures.
**(a)**Section 3.27(a) of the Seller Disclosure Schedule sets forth a true, correct, and complete list of each loan, exclusion, forgiveness or other item to which the Company has applied to or received pursuant to any COVID-19 Measures or CARES Act and COVID Relief Programs, including, but not limited to, any “Paycheck Protection Program” loan, “Economic Stabilization Fund” loan or other SBA loans (each, a “PPP Loan” and collectively, the “PPP Loans”), and except as set forth on Section 3.27(a) of the Seller Disclosure Schedule, each member of the Seller Group have not received any Indebtedness or grant under the CARES Act and COVID Relief Programs. (A) Each member of the Seller Group has complied in all material respects with the CARES Act and COVID Relief Programs and any documentation related thereto, (B) all applications and certifications made by each member of the Seller Group pursuant to the CARES Act and COVID Relief Programs are true, correct and complete, and (C) each member of the Seller Group have provided true, correct and complete copies of all documentation related to the eligibility of the Seller Group for relief pursuant to the CARES Act and COVID Relief Programs.
**(b)**The PPP Loans have been forgiven.
**(c)**The forgiveness application submitted by the Seller Group, and all representations and certifications made by each member of the Seller Group to lenders or any Government Entity in connection with the PPP Loan were true, correct and complete in all respects when made and did not contain any inaccuracies or omissions. Each member of the Seller Group complied with all applicable Laws and were permitted by applicable Law to apply for, receive, and use of the proceeds of the PPP Loan.
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3.28 NoBrokers or Finders. Except as set forth in Section 3.28 of the Seller Disclosure Schedule, no investment banker, broker, finder or other intermediary has been retained by or is authorized to act on behalf of the Company who is entitled to any fee or commission in connection with the transactions contemplated by this Agreement.
3.29 NoOther Representations and Warranties. Except for the representations and warranties set forth in Article 3 or Article 4 (in each case, as qualified by the Seller Disclosure Schedules), none of the Company, any member of the Seller Group or any other Person: (a) makes any representation or warranty, express or implied, including as to condition, merchantability, suitability, or fitness for a particular purpose of any of the assets of the Company or (b) makes any representation or warranty, express or implied, as to the accuracy or completeness of any information regarding the Company or the business of the Company (including any representation or warranty of any kind or nature whatsoever concerning or as to the accuracy or completeness of any projections, budgets, forecasts, or other forward-looking financial information concerning the future revenue, income, profit, or other financial results of the Company). Any and all statements or information communicated by the Company, any member of the Seller Group or any other Person outside of this Agreement, including by way of the documents provided in response to the Buyer’s due diligence requests and any management presentations provided, whether verbally or in writing, are deemed to have been superseded by this Agreement, it being agreed that no such prior or contemporaneous statements or communications outside of this Agreement will survive the execution and delivery of this Agreement.
Article 4
REPRESENTATIONS AND WARRANTIES REGARDING THE SELLER GROUP
As a material inducement to the Buyer, each of the Seller and the Seller Owner, with respect to itself, himself or herself and not any other Person, represents and warrants as follows:
4.1 Organization. The Seller is duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation.
4.2 Title.
**(a)**The Seller is the lawful owner of record, and beneficially owns all of the issued and outstanding Equity Interests of the Company, free and clear of all Encumbrances (other than restrictions on transfer arising under applicable securities Laws). The outstanding Equity Interests of the Company have been duly authorized and validly issued and are fully paid and non-assessable. There are no other Equity Interests of the Company authorized, issued or outstanding. Except for this Agreement, there are no outstanding Contracts or understandings between any member of the Seller Group and any other Person with respect to the acquisition, disposition, transfer, registration or voting of or any other matters in any way pertaining or relating to, or any other restrictions on, any of the Acquired Interests.
**(b)**At the Closing, after giving effect to the acquisition of the Acquired Interests by the Buyer pursuant to the terms hereof, the Buyer will be the lawful record and beneficial owners of all of the issued and outstanding Equity Interests of the Company, free and clear of all Encumbrances (other than restrictions on transfer arising under applicable federal and state securities Laws).
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4.3 Authorization;Enforceability.
**(a)**Each member of the Seller Group has all requisite power, authority and capacity, as applicable, to execute this Agreement and each Ancillary Agreement to which such member of the Seller Group is a party. The execution, delivery and performance by each member of the Seller Group of this Agreement and the Ancillary Agreements to which such member of the Seller Group is a party and the consummation of the transactions contemplated hereby and thereby has been duly and validly authorized by all necessary action on the part of such member of the Seller Group.
**(b)**This Agreement and the Ancillary Agreements have been duly executed and delivered by each member of the Seller Group and constitute the valid and binding agreements of such member of the Seller Group, enforceable against such member of the Seller Group in accordance with their respective terms, except as enforcement may be limited by the Bankruptcy and Insolvency Exceptions.
4.4 NoConflicts. The execution, delivery and performance of the documents associated with the F-Reorganization , this Agreement, and the Ancillary Agreements, and the consummation of the transactions contemplated hereby and thereby did not, and will not (with or without notice, lapse of time, or both) (i) violate or conflict with the Organizational Documents of the Company, (ii) violate or conflict with, constitute a breach, default or loss of any benefit under, permit the acceleration of any obligation under or create in any Person the right to revoke, withdraw, suspend, terminate, modify or cancel, or otherwise require any action, consent, approval, order, authorization, registration, declaration or filing with respect to any material Contract to which the Seller is a party, (iii) violate any Law, Order, or Permit of any Government Entity applicable to the Seller or its businesses, or (iv) result in the creation or the imposition of any Encumbrance (other than Permitted Encumbrances) upon all or any portion of the assets of the Seller.
4.5 Disclaimer. Except for the specific representations and warranties expressly made by Buyer in Article 5, each member of the Seller Group acknowledges and agrees that (a) the Buyer has not made any representation or warranty, express or implied, at Law or in equity, in respect of the Buyer or each of its assets, liabilities, operations, prospects or conditions (financial or otherwise) or any other matter, including with respect to merchantability or fitness for any particular purpose of any assets, the nature or extent of any liabilities, the prospects of the businesses of the Buyer, or the effectiveness or the success of any operations, and (b) no representative of the Buyer has any authority, express or implied, to make any representations, warranties or agreements not specifically set forth in this Agreement and subject to the limited remedies herein provided. Each member of the Seller Group is engaging in the transactions contemplated hereby subject only to the specific representations and warranties contained in Article 5, and acknowledges that such member of the Seller Group disclaims any representation or warranty made by any Person beyond those specifically set forth in Article 5. Notwithstanding anything to the contrary set forth in this Section 4.5, in respect of any claim for Fraud, each member of the Seller Group shall have all remedies available under this Agreement or otherwise without giving effect to anything in this Section 4.5.
4.6 NoBrokers or Finders. Except as set forth in Section 3.28 of the Seller Disclosure Schedule, no investment banker, broker, finder or other intermediary has been retained by or is authorized to act on behalf of any member of the Seller Group who is entitled to any fee or commission in connection with the transactions contemplated by this Agreement.
4.7 LegalProceedings. There is no (a) Action pending, or, to the Knowledge of the Seller Group, threatened, against or involving any member of the Seller Group or any of its properties or assets, whether at law or in equity, before or by any Government Entity or (b) (i) Order to which any member of the Seller Group or any of its businesses, properties or assets is subject or (ii) unsatisfied judgment, penalty or award against or involving any member of the Seller Group or any of its properties or assets that, in each case, would reasonably be expected to prevent, delay, make illegal or otherwise interfere with or adversely affect the transactions contemplated hereby. To the Knowledge of the Seller Group, no event has occurred, or circumstance exists that would reasonably be expected to give rise to or serve as a basis for the commencement of any such Action or Order.
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4.8 InvestmentRepresentations.
**(a)**The Seller Group acknowledges that the information provided by the Seller and the Seller Owners in the representation and warranties contained herein and in the Accredited Investor Questionnaire will be relied upon by the Buyer in concluding that the Buyer Interests to be issued have been issued pursuant to Section 4(a)(2) of the Securities Act or another exemption from the registration requirements of the Securities Act.
**(b)**The Buyer Interests to be received by the Seller pursuant to this Agreement will be acquired by the Seller for its own account and not with a view to, or for sale in connection with, any distribution thereof, except pursuant to sales registered under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities Laws.
**(c)**The Seller’s financial situation is such that the Seller can afford to bear the economic risk of its investment in the Buyer for an indefinite period of time, and the Seller is capable of evaluating the merits and risks of the investment in the Buyer. Seller is able to afford a complete loss of investment.
**(d)**The Seller’s knowledge and experience in financial and business matters are such that such Seller is capable of evaluating the merits and risks of the investment in the Buyer.
**(e)**The Seller understands that the receipt of the Buyer Interests pursuant to this Agreement is a speculative investment which involves a high degree of risk of loss of the entire investment therein, that there will be substantial restrictions on the transferability of the Buyer Interests and that for an indefinite period following the Closing Date there will be no public market for the Buyer Interests and that a public market may never exist therefor, and that, accordingly, it may not be possible for the Seller to sell the Buyer Interests in case of emergency or otherwise.
**(f)**Upon the Closing, the only asset of the Buyer will be its ownership of all of the Equity Interests of the Company and it will not acquire additional assets while the Seller Group owns any of the Buyer Interests. As a result of the Seller owning all of the Equity Interests of the Company prior to the Closing, the Seller and the Seller Owners are informed and have sufficient knowledge of the Company, and the Seller Owners or their representatives have been given the opportunity to examine all documents and to ask questions of, and to receive answers from the Seller regarding the Company prior to the Closing and from the Buyer and its representatives, relating to the Company after the Closing as applicable, concerning the terms and conditions of the direct investment in the Buyer and indirect investment in the Company and related matters and to obtain all additional information that Seller, the Seller Owners or their representatives deem necessary. Since the Buyer Interests will be exchangeable under the terms of the Company Agreement of the Buyer into shares of common stock of XTI, par value $0.001 per share, the Seller and each of the Seller Owners has reviewed and is sufficiently aware of XTI’s business affairs and financial condition to reach an informed and knowledgeable decision to receive the Buyer Interests with the exchange rights set forth in the Company Agreement of the Buyer. Each of the Seller and each of the Seller Owners acknowledges that information regarding XTI is publicly available via the Securities and Exchange Commission’s website (www.sec.gov) and has reviewed such information in connection with making its investment decision to acquire the Buyer Interests, including the right to exchange them for XTI common stock pursuant to the terms set forth in the Company Agreement of the Buyer.
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**(g)**Each of the Seller Owners is an “accredited investor” as such term is defined in Regulation D under the Securities Act and has completed an Accredited Investor Questionnaire attached hereto as Exhibit F.
**(h)**The Seller understands that no federal or state agency has made any finding or determination regarding the fairness of the offering of the Buyer Interests for investment, or any recommendation or endorsement thereof.
**(i)**The Seller acknowledges that, subject to any applicable provisions of the Company Agreement of the Buyer, the Registration Rights Agreement, and the Lock-Up Agreement, the Buyer Interests may not be offered or sold unless subsequently registered under the Securities Act or unless an exemption from such registration is available.
**(j)**The Seller acknowledges that no Buyer Interests are being offered or sold to it by means of any form of general solicitation or general advertising.
**(k)**THE SELLER UNDERSTANDS AND ACKNOWLEDGES THAT THE BUYER INTERESTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY STATE SECURITIES LAW, THAT THE BUYER INTERESTS ARE BEING SOLD AND DELIVERED PURSUANT TO EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND THE BUYER INTERESTS (INCLUDING ANY XTI SHARES OF COMMON STOCK ISSUED UPON EXCHANGE OF ANY BUYER INTERESTS PURSUANT TO THE TERMS OF THE COMPANY AGREEMENT OF THE BUYER) MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. SELLER UNDERSTANDS THAT THE CERTIFICATES AND ANY OTHER DOCUMENTS REPRESENTING THE BUYER INTERESTS (INCLUDING ANY XTI SHARES OF COMMON STOCK ISSUED UPON EXCHANGE OF ANY BUYER INTERESTS PURSUANT TO THE TERMS OF THE COMPANY AGREEMENT OF THE BUYER) WILL INCLUDE A LEGEND SETTING FORTH THE RESTRICTIONS DESCRIBED IN THE PRECEDING SENTENCE AND OTHER RESTRICTIONS CONTAINED IN THIS AGREEMENT, IF APPLICABLE.
Article 5
REPRESENTATIONS AND WARRANTIES OF THE BUYER
As a material inducement to the Seller Group, the Buyer represents and warrants as follows:
5.1 Organization. The Buyer is duly organized, validly existing and in good standing under the Laws of Texas. The Buyer is, and at all times since its inception, has been, validly treated as a disregarded entity for U.S. federal and applicable state and local Income Tax purposes and no election has been made (or is pending) to change such treatment.
5.2 Authorization;Enforceability.
**(a)**The Buyer has all requisite power, authority, and capacity, as applicable, to execute this Agreement and each Ancillary Agreement to which the Buyer is a party. The execution, delivery and performance by the Buyer of this Agreement and the Ancillary Agreements to which the Buyer is a party and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary action on the part of the Buyer.
**(b)**This Agreement and the Ancillary Agreements have been duly executed and delivered by the Buyer and constitute the valid and binding agreements of the Buyer, enforceable against the Buyer in accordance with their respective terms, except as enforcement may be limited by the Bankruptcy and Insolvency Exceptions.
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5.3 NoConflicts. The execution, delivery and performance of the this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby did not, and will not (with or without notice, lapse of time or both) (i) violate or conflict with the Organizational Documents of any Buyer, (ii) violate or conflict with, constitute a breach, default, or loss of any benefit under, permit the acceleration of any obligation under or create in any Person the right to revoke, withdraw, suspend, terminate, modify or cancel, or otherwise require any action, consent, approval, order, authorization, registration, declaration or filing with respect to any material Contract to which any Buyer is a party, or (iii) violate any Law, Order, or Permit of any Government Entity applicable to any Buyer or its businesses, except for such violations that would not materially adversely affect or delay the ability of any Buyer to consummate the transactions contemplated by this Agreement.
5.4 NoBrokers or Finders. No investment banker, broker, finder or other intermediary has been retained by or is authorized to act on behalf of the Buyer who is entitled to any fee or commission in connection with the transactions contemplated by this Agreement, except for Think Equity.
5.5 InvestmentIntent. The Buyer is acquiring all of the Acquired Interests for its own account and not with a view to any resale or distribution within the meaning of Section 2(11) of the Securities Act, and the rules and regulations promulgated thereunder. The Buyer is an “accredited investor” within the meaning of Securities and Exchange Commission Rule 501 of Regulation D, as presently in effect, and has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of its investment in the Acquired Interests, and the Buyer is capable of bearing the economic risks of such investment, including a complete loss of its investment in the Acquired Interests. The Buyer acknowledges that the Acquired Interests have not been registered under the Securities Act, or any state securities Laws and understands and agrees that it may not sell or dispose of any of the Acquired Interests except pursuant to a registered offering in compliance with, or in a transaction exempt from, the registration requirements of the Securities Act, and any other applicable federal, state, or foreign securities Laws.
5.6 BuyerInterests. The Buyer Interests, at time of issuance, will be duly and validly authorized and, when issued to Seller in the manner contemplated by this Agreement, will be validly issued, fully paid and nonassessable, and will be free and clear of all Encumbrances, other than the Company Agreement of the Buyer, the Registration Rights Agreement, the Lock-Up Agreement, and restrictions of general applicability imposed by federal or state securities laws.
Article 6
COVENANTS
6.1 Allocation.
**(a)**Within thirty (30) days following the final determination of the Final Net Working Capital in accordance with Section 2.7, the allocation of the Purchase Price, assumed liabilities of the Company (for Income Tax purposes), and all other amounts required to be taken into account among the assets of the Company as of the Closing shall be prepared by the Buyer (the “Initial Allocation Schedule”) and delivered to the Seller’s Representative for review, comment and approval. The Initial Allocation Schedule shall be prepared in accordance with the applicable provisions of the Code and the Treasury Regulations and consistent with the methodologies set forth in Schedule 6.1(a).
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**(b)**The Seller’s Representative shall notify the Buyer of any comments or disputes that the Seller’s Representative has to the Initial Allocation Schedule within thirty (30) days of receipt of the schedule. The Seller’s Representative and the Buyer shall attempt in good faith to resolve their dispute regarding the Initial Allocation Schedule. If Seller’s Representative and the Buyer are unable to resolve any dispute relating to the Initial Allocation Schedule within twenty (20) days of the Buyer’s receipt of the Seller’s Representative comments, then any dispute will be submitted for final resolution to the Independent Auditor in accordance with the procedures set forth in Section 2.7(c), mutatis mutandis. The Independent Auditor will be charged with determining whether the Initial Allocation Schedule (or the portion thereof that is in dispute) has been prepared in accordance with this Section 6.1; provided, that the Independent Auditor shall be instructed to use the methodologies set forth in Schedule 6.1(a).
**(c)**The purchase price allocation, as finally determined pursuant to this Section 6.1 will be the “Final Allocation Schedule.” The Buyer and the Seller Group shall file, and shall cause their respective Affiliates to file, all Tax Returns in a manner consistent with the Final Allocation Schedule, and no Party to this Agreement shall, or shall direct any other Person to, take any position inconsistent with the Final Allocation Schedule on any Tax Return or otherwise, unless required by a “determination” within the meaning of Section 1313(a) of the Code. The Buyer and the Seller’s Representative shall make appropriate adjustments to the Final Allocation Schedule to reflect changes in the Purchase Price based on the procedures of this Section 6.1.
6.2 FurtherAssurances; Cooperation. Each Party, upon the request from time to time of any other Party hereto after the Closing, and without further consideration, will take such action as may be reasonably necessary to consummate the transactions contemplated hereby. Each Party shall use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, and to assist and cooperate with the other Parties in doing, all things necessary, proper or advisable to effect and consummate the transactions contemplated hereby, including but not limited to all actions reasonably required to permit a change of control under the terms of the Banesco Loan Agreement and for all obligations of each member of the Seller Group in respect thereof to be released and discharged in full.
6.3 Non-Competition;Non-Solicitation.
**(a)**In furtherance of the transactions contemplated hereby and to more effectively protect the value and goodwill of the businesses of the Company, each member of the Seller Group covenants and agrees that, for the Restricted Period, such member of the Seller Group will not, directly or indirectly through another Person, through or in association with any other Person (whether as an officer, director, employee, partner, consultant, holder of equity or debt, lender, or in any other manner or capacity) (in each case, except as arising under this Agreement or any Ancillary Agreement):
**(i)**own, acquire, manage, control any interest, financial or otherwise in, participate in, consult with, sell, provide, or in any manner engage with or represent any business within any Restricted Territory that is competitive with the products and services sold or provided by the Company as of or prior to the Closing Date (the “Competing Business”); provided, however, that no member of the Seller Group will be precluded from (A) the ownership of securities of Persons that are listed on a national securities exchange or traded in the national over-the-counter market in an amount that will not exceed three percent (3%) of the outstanding shares of any such corporation, (B) the passive ownership of securities through a private equity, venture capital or similar fund, in each case, that engages in a Competing Business so long as such member of the Seller Group has no active participation in the business of such Competing Business; (C) serving as an officer, member or director of a non-profit organization, trade association, task force, or industry group; or (D) being employed by or otherwise providing services to a Person that has a subsidiary, division or affiliate entity or line of business (an “Operating Line”) that engages in the Competing Business, so long as such member of the Seller Group does not engage in services in support of such Operating Line or the Competing Business.
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(ii)(A) call on, solicit or service, engage or contract with or take any action, in each case, which would reasonably be expected to in any way interfere with, impair, subvert, disrupt, or alter the relationship, contractual or otherwise, between the Company and any current or prospective customer, supplier, association, distributor, payor, vendor, developer, service provider, licensor or licensee, independent sales agents or other similar business relation of the Company as of the Closing Date, (B) solicit, induce, recruit or encourage any employees of or individual consultants employed or engaged by the Company as of the Closing Date to terminate their relationship with the Company, take away or hire such employees or individual consultants, or in any way interfere with the relationship between such employee or individual consultant on the one hand, any member of the Company, on the other hand, provided, general advertisements shall not constitute a violation of this Section, (C) divert or take away the business or patronage (with respect to products or services of the kind or type developed, produced, marketed, furnished or sold by the Company prior to the Closing Date); or (D) attempt to do any of the foregoing, either for such member of the Seller Group’s own purposes or for any other third party.
**(b)**Each member of the Seller Group has carefully considered the nature and extent of the restrictions placed upon him, her or it by this Section 6.3, and hereby acknowledges and agrees (i) that the same are reasonable in time, scope and territory, supported by adequate consideration and necessary for the protection of the Buyer, the Company and their Affiliates, and are an essential inducement to the Buyer consummating the transactions contemplated by this Agreement and (ii) that it will not seek to challenge the validity or enforceability of the restrictions placed upon him, her or it by this Section 6.3. Each member of the Seller Group further acknowledges and agrees that any violation of these restrictions would cause immediate and irreparable injury to the Buyer, the Company, and their Affiliates for which there would be no adequate monetary damages. Each member of the Seller Group recognizes and agrees that, other than as set forth in any Ancillary Agreement, the restrictions herein supersede and control over any prior restrictive covenants he, she or it may have previously entered into with the Company, and also consents and agrees that the restrictions herein shall be enforceable by any successors or assigns of the Buyer and the Company, as applicable. In the event of a breach or a threatened breach by any member of the Seller Group of such restrictions, each member of the Seller Group acknowledges and agrees that the Buyer and the Company shall be entitled to specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions of this Section 6.3 (including the extension of the Restricted Period by a period equal to the length of the court proceedings necessary to stop such violation) without the requirement of posting bond or other security, in addition to any other remedy to which the Buyer may be entitled at law or in equity. If any court of competent jurisdiction determines that any provision of this Section 6.3 is invalid, prohibited, or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without validating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. In the event of an alleged breach or violation by any member of the Seller Group of any of the provisions of this Section 6.3, the Restricted Period will be tolled for such member of the Seller Group until such alleged breach or violation is resolved.
(c) Useof Name. Seller Group shall cease to conduct any business using the names “Drone Nerds Inc,” “Drone Nerds Tech SAS LLC,” “Ready Monitor LLC,” “Surf Nerds” or any confusingly similar names and any Trademarks (or any derivations thereof), and shall change its organizational documents, websites, email addresses, all advertising and similar documentation to remove any references to such name or any derivative thereof.
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6.4 Confidentiality. Each member of the Seller Group recognizes and agrees that he, she or it has Confidential Information. Each member of the Seller Group covenants and agrees that, it shall not, and shall cause its Affiliates and representatives not to, directly or indirectly, use or disclose to any Person any Confidential Information of which such member of the Seller Group is or becomes aware, whether or not such information is developed by it, for any reason or purpose whatsoever, nor shall it make use of any of the Confidential Information for its own purposes or for the benefit of any Person except for the Company, except (A) to the extent that such disclosure or use is directly related to and required by such member of the Seller Group’s performance, following the Closing, in good faith of duties assigned to such member of the Seller Group by the Buyer, the Company or their Affiliates in connection with his, her or its employment or (B) to the extent required to do so by a Government Entity; provided, that in the event any member of the Seller Group is required by any Government Entity to disclose any Confidential Information, such member of the Seller Group shall (i) provide the Buyer with prompt written notice of any such request or requirement and assist the Buyer, at the Buyer’s expense, in asserting any legal challenges to or appeals of such request or requirement that the Buyer in its sole discretion pursue, and (ii) limit his, her or its disclosure of Confidential Information to the portion Confidential Information that is expressly required to be disclosed. Each member of the Seller Group shall take all reasonable steps to safeguard Confidential Information and to protect it against disclosure, misuse, espionage, loss and theft. Notwithstanding the foregoing limitations, no member of the Seller Group will be required to keep confidential or return any Confidential Information that (a) is known or available through other lawful sources not bound by a confidentiality obligation, directly or indirectly, with the disclosing party or otherwise prohibited from disclosing such information, (b) is or becomes publicly known or generally known in the industry through no fault of the receiving party or its Representatives, (c) is developed by the receiving party independently of the disclosure by the disclosing party without reliance on the Confidential Information, (d) relates solely to the income Tax aspects and consequences of the transactions contemplated by this Agreement, or (e) is disclosed in connection with such Person’s performance, enforcement, or defense of any rights or obligations under this Agreement, the other Ancillary Agreements, or in connection with the transactions contemplated hereby or thereby.
6.5 Seller’sRelease.
**(a)**Effective upon the Closing, each member of the Seller Group, on behalf of itself, and its Subsidiaries, Affiliates, predecessors, successors, assigns and other Persons that have or could potentially derive rights through them (collectively, the “Releasing Parties”) hereby irrevocably waives, releases and forever discharges the Buyer, the Company, each of their Affiliates and their respective directors, officers, employees, partners, members, managers, owners, agents, representatives, heirs, beneficiaries, executors, trustees, administrators, successors and assigns (collectively, the “Released Persons”) of and from any and all Actions, judgments, Orders, rights, obligations, omissions, promises, covenants, Contracts, agreements, debts, dues, sums of money, accounts, reckonings, bongs, bills, specialties, trespasses, and Liabilities whatsoever, whether known or unknown, suspected or unsuspected, matured or unmatured, fixed or contingent, at law and in equity, which such member of the Seller Group now has, has ever had or may hereafter have (collectively, the “Seller’s Released Claims”), against the Buyer, the Company or any of their Affiliates on account of or arising out of any matter, cause or event related to the Buyer, the Company, or any of their Affiliates arising prior to, or contemporaneously with, the Closing Date; provided, however, notwithstanding the foregoing, the Seller’s Released Claims shall not release (a) any obligations of the Released Persons to the Releasing Parties arising under this Agreement or any Ancillary Agreement, (b) with respect to any Releasing Party that is an employee of the Company any claim for any compensation owed that remains unpaid (including rights to payment for salary, bonuses, commissions, and vacation pay, earned and unpaid as of the Closing Date) and any claim for accrued, vested benefits under any Tax qualified retirement plan, or employee welfare benefit plan of the Company in accordance with plan terms and applicable Law, and (c) any claim for any rights to indemnification or advance of expenses that such Releasing Party has under the terms of the Organizational Documents of the Company. Effective upon the Closing, each of the Releasing Parties hereby expressly waives and releases any rights and benefits which such Releasing Party has or may have under any Law or rule of any jurisdiction pertaining to the matters released herein and expressly waives and releases any and all rights and benefits conferred upon such Releasing Party.
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**(b)**Each member of the Seller Group represents to the Buyer that it has not voluntarily or involuntarily assigned or transferred or purported to assign or transfer to any Person any matter purported to be released hereby and that no Person other than such member of the Seller Group has any interest in any released matter by law or contract by virtue of any action or inaction by such member of the Seller Group.
**(c)**Each member of the Seller Group, for itself and its other applicable Releasing Parties, hereby irrevocably covenants to refrain from, directly or indirectly, asserting any claim or demand, or commencing, instituting, distributing or causing to be commenced, any Action of any kind against any Released Person, based upon any matter purported to be released hereby.
6.6 CertainTax Matters.
(a) StraddlePeriods. In the case of any Taxes that are payable for a Tax period that includes (but does not end on) the Closing Date (a “StraddlePeriod”), the portion of such Taxes allocable to the portion of such period ending on the Closing Date shall (i) in the case of Taxes that are either (A) based upon, or related to, income, payroll or receipts or (B) imposed in connection with any sale or other transfer or assignment of property (real or personal, tangible or intangible), equal the amount that would be payable if the taxable period ending as of the end of the day on the Closing Date using a “closing of the books methodology”; provided, however, that any transactions outside the ordinary course of business of Company following the Closing on the Closing Date will be allocable to the portion of the Straddle Period following the Closing Date; (ii) in the case of interest or penalties, equal the amount relating to Tax for the portion of such period ending on the Closing Date (determined in accordance with this Section 6.6(a)), whether such items are incurred, accrued, assessed or similarly charged on, before or after the Closing Date; and (iii) in the case of Taxes other than those described in clauses (i) and (ii) above, equal the amount of such Taxes for the entire period multiplied by a fraction (A) the numerator of which is the number of days in the taxable period prior to and including the Closing Date and (B) the denominator of which is the total number of days in the entire taxable period. For purposes of clause (i), any item determined on an annual or periodic basis (including amortization and depreciation deductions) shall be allocated to the portion of the Straddle Period ending on the Closing Date based on the mechanics set forth in clause (iii).
(b) TransferTaxes. Notwithstanding any other provision herein and to the extent applicable, all federal, state, local, and non-U.S. transfer, excise, documentary, sales, use, stamp, registration, recording, property, ad valorem, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with the transactions contemplated by this Agreement (“Transfer Taxes”) shall be borne fifty percent (50%) by the Buyer and fifty percent (50%) by the Seller. The Party required by Law to file a Tax Return with respect to such Transfer Taxes shall timely prepare, with the other Party’s cooperation, and file such Tax Return. The Parties shall cooperate with each other in the preparation of Tax Returns relating to such Transfer Taxes. The applicable Parties hereto shall timely sign and deliver (or cause to be timely signed and delivered) any certificates or forms as may be necessary or appropriate and otherwise cooperate to establish any available exemption from (or otherwise reduce) such Transfer Taxes.
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(c) TaxContests.
**(i)**If any Government Entity issues to any Buyer, the Company or any of their Affiliates (A) a written notice or other communication of its intent to audit, examine or conduct an Action relating, in whole or in part, to Taxes or any Tax Return of the Predecessor or the Company for any Pre-Closing Tax Period or a Straddle Period, or (B) a written notice of deficiency for Taxes for any Pre-Closing Tax Period or a Straddle Period (any of the items described in clauses (A) or (B) of this Section 6.6(c)(i), a “TaxContest”), then the Buyer shall provide a written notice to Seller’s Representative within twenty (20) days of the receipt of such notice by Buyer, the Company or any of their Affiliates, including, to the extent known, describing in reasonable detail the facts and circumstances relating to the subject matter of the Tax Contest. No failure or delay of the Buyer in the performance of the foregoing shall reduce or otherwise affect the obligations or liabilities of the Seller Group pursuant to this Agreement except to the extent, that the relevant member of the Seller Group is actually prejudiced or adversely affected by such failure or delay.
**(ii)**The Seller’s Representative will have the right to control all Tax Contests referred to in Section 6.6(c)(i) that relate solely to the Predecessor or the Company for taxable periods ending on or prior to the Closing Date. The Seller’s Representative shall promptly notify the Buyer of the intention to control such a Tax Contest. If the Seller’s Representative so elects, then the Seller will control such Tax Contest (each such claim, a “Seller Controlled Tax Contest”); provided, that (A) the Buyer, at the Buyer’s sole cost and expense, will have the right (but not the duty) to participate in any such Seller Controlled Tax Contest, including the right to receive notice and copies of all correspondence received from the Government Entity and otherwise to be reasonably apprised of the initiation and status of such Tax Contest; (B) the Buyer will have an opportunity to comment on any written materials prepared in connection with any such Tax Contest and attend any in-person or telephonic conferences relating to any such Tax Contest, (C) the Seller’s Representative shall keep the Buyer reasonably informed on a timely basis regarding the progress and substantive aspects of any such Seller Controlled Tax Contest, and (D) the Seller’s Representative shall not enter into any settlement or compromise of such Tax Contest without obtaining the Buyer’s prior written consent thereto, which shall not be unreasonably conditioned, withheld or delayed.
**(iii)**With respect to a Tax Contest other than a Seller Controlled Tax Contest, the Company will control such Tax Contest, provided that (1) the Seller’s Representative, at the Seller’s sole cost and expense, will have the right (but not the duty) to participate in any such Tax Contest, including the right to receive notice and copies of all correspondence received from the Government Entity and otherwise to be reasonably apprised of the initiation and status of such Tax Contest; (2) the Seller’s Representative will have an opportunity to comment on any written materials prepared in connection with any such Tax Contest and attend any in-person or telephonic conferences relating to any such Tax Contest, (3) the Buyer and the Company shall keep the Seller’s Representative reasonably informed on a timely basis regarding the progress and substantive aspects of any such Tax Contest, and (4) neither the Buyer nor the Company shall enter into any settlement or compromise of such Tax Contest without obtaining the Seller’s Representative prior written consent thereto, which shall not be unreasonably conditioned, withheld or delayed.
**(iv)**Notwithstanding anything to the contrary in Section 7.5, this Section 6.6(c) shall govern the conduct of any Tax Contest.
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(d) TaxReturns.
(i) SellerPrepared Returns. The Seller’s Representative, at the Seller’s expense, shall timely prepare any Income Tax Returns of the Company for a tax period ending on or before the Closing Date that are to be filed after the Closing Date (each such Tax Return, a “Seller Prepared Return”). Each such Seller Prepared Return will be prepared in a manner consistent with the past practices, procedures and accounting methods of the Company (and, if applicable, the Predecessor), except to the extent otherwise required by applicable Laws. The Seller’s Representative shall provide the Buyer with copies of such Seller Prepared Return no later than thirty (30) days prior to due date for filing thereof (taking into account extensions), along with supporting workpapers, for the Buyer’s review and comment. The Buyer may provide Seller with any written comments to such Seller Prepared Return no later than fifteen (15) days after the delivery of a copy of such return for review. The Seller’s Representative shall reasonably consider in good faith all comments received from the Buyer in accordance with the foregoing sentence; provided, that the Seller shall incorporate the Buyer’s comments to the extent that they relate to a position for which the draft Seller Prepared Return prepared by the Seller did not have a “reasonable basis” within the meaning of Treasury Regulations Section 1.6662-3(b)(3). For the avoidance of doubt, Seller Prepared Returns shall not include any Tax Return of Seller.
(ii) BuyerPrepared Returns. The Buyer shall prepare or cause to be prepared and file or cause to be filed on a timely basis all Tax Returns of the Company other than the Seller Prepared Returns (the “Buyer Prepared Returns”). The Buyer Prepared Returns shall be prepared in a manner consistent with the conventions provided for in Section 6.6(d)(iii), and solely to the extent related to a Pre-Closing Tax Period shall be prepared in a manner consistent with past practices, procedures and accounting methods of the Company (and, if applicable, the Predecessor), unless otherwise required by applicable Laws. The Buyer shall provide the Seller’s Representative with copies of any Buyer Prepared Return that relates to a Pre-Closing Tax Period or Straddle Period no later than thirty (30) days (or, in the case of non-Income Tax Returns, such shorter period as is reasonably practicable under the circumstances) prior to due date for filing thereof (taking into account extensions), along with supporting workpapers and the proposed allocation of the Straddle Period Tax liability based on Section 6.6(a), for the Seller’s Representative’s review and comment. The Seller’s Representative may provide the Buyer with any written comments to any such Buyer Prepared Return no later than fifteen (15) days (or, in the case of non-Income Tax Returns, such shorter period as is reasonably practicable under the circumstances) after the delivery of a copy of such return for review. The Buyer shall reasonably consider in good faith all comments received from the Seller in accordance with the foregoing sentence; provided, that the Buyer shall incorporate the Seller’s comments to the extent that they relate to a position for which the draft Buyer Prepared Return prepared by the Buyer did not have a “reasonable basis” within the meaning of Treasury Regulations Section 1.6662-3(b)(3). No failure or delay of the Buyer in the performance of the foregoing shall reduce or otherwise affect the obligations or liabilities of the Seller pursuant to this Agreement, except to the extent the Seller is actually and materially prejudiced by such failure or delay.
**(iii)**The Buyer and each member of the Seller Group agree with respect to certain Income Tax matters as follows:
**(A)**The Seller will be treated as transferring (1) an undivided interest in each of the assets of the Company to the Buyer for cash and the Promissory Note in a transaction intended to be governed by IRC §1001, and (2) an undivided interest in each of the assets of the Company to the Buyer for partnership interests in the Buyer in a transaction intended to be governed by IRC § 721(a).
**(B)**Unless otherwise required by applicable Law, to treat all indemnification payments under this Agreement as adjustments to the Purchase Price for all relevant Tax purposes.
**(C)**The fair market value of the Buyer Interests is equal to the Buyer Interest Amount.
Unless otherwise required by a final, non-appealable determination of a Government Entity, neither the Buyer nor any member of the Seller Group shall take any position (and the Buyer shall not allow the Company to take any position) on any Tax Return or other filing, or during the course of any audit or other Action with respect to any Taxes or Tax Returns (whether or not a Tax Contest), that is inconsistent with any election, position, treatment or other decision to which the Buyer and the Seller agreed in this Section 6.6(d)(iii).
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(e) Cooperation. The Buyer and the Seller’s Representative shall reasonably cooperate in (i) preparing and filing all Tax Returns (including amended Tax Returns and claims for refund) of the Company and resolving all disputes and Actions relating to Taxes or Tax Returns of the Company (whether or not a Tax Contest), in each case relating to any Pre-Closing Tax Period (ii) making available any information, records or other documents relating to any Taxes or Tax Returns of the Company relating to any Pre-Closing Tax Period; (iii) providing any information necessary or reasonably requested to allow the Buyer or the Company to comply with any information reporting or withholding requirements contained in the Code or other applicable Laws or to compute the amount of payroll or other employment Taxes due with respect to any payment made in connection with this Agreement; and (iv) providing certificates or forms, and timely execute any Tax Return, that are necessary or appropriate to establish an exemption for (or reduction in) any Transfer Tax.
(f) TaxDistributions. Notwithstanding anything to the contrary, the Seller covenants and agrees that it shall not retain any right to any distribution for Taxes in respect of any Pre-Closing Tax Period pursuant to the terms of the Company’s Organizational Documents of the Company.
(g) TaxRefunds. Any refund of Taxes that were imposed on the Company (including the Predecessor) or otherwise taken into account to reduce the Purchase Price or borne by any Seller Group for any Pre-Closing Tax Period and any interest paid or credited with respect thereto (collectively, a “Refund”), shall be for the benefit of Seller. If any Refund is received by Buyer, the Company, or any of their respective Affiliates, including by way of credit or allowance against Taxes otherwise payable, an amount equal to such Refund (without interest, other than interest received from the Government Entity, and net of any Taxes and reasonable out-of-pocket expenses that Buyer, the Company or any of their respective Affiliates has or will incur as a result of obtaining such Refund) shall be paid to Seller within ten (10) days after receipt from the applicable Government Entity (or, in the case of any credit or allowance claimed in lieu of a refund of Taxes, within ten (10) days after filing the Tax Return claiming such credit). Buyer shall, if Seller so requests and at Seller’s expense, cause the relevant entity to file for and obtain any Refund to which Seller is entitled under this Section 6.6(g). Nothing in this Section 6.6(g) shall require the Buyer to make any payment with respect to any Refund (and such Refund shall be for the benefit of the Buyer and the Company) that is with respect to (i) any refund of Tax that is the result of the carrying back of any net operating loss or other Tax attribute or Tax credit incurred in a taxable period (or portion of any Straddle Period) beginning after the Closing Date; (ii) any refund for Tax that is reflected as a current asset (or offset to a current liability) in the Final Net Working Capital; or (iii) any refund for Tax to the extent that such Refund gives rise to a payment obligation by the Company to any Person under applicable Law or pursuant to a provision of a contract or other agreement entered (or assumed) by the Company prior to the Closing.
(h) BuyerActions. Without the prior written consent of Seller’s Representative, which such consent shall not be unreasonably withheld, conditioned or delayed, Buyer and its Affiliates (including, after the Closing, the Company) shall not (i) make, change or rescind any Tax election with respect to any taxable period ending on or before the Closing Date, (ii) amend, modify or refile any Tax Return with respect to any Pre-Closing Tax Period, (iii) surrender any right to claim a Refund with respect to any Pre-Closing Tax Period, (v) make a voluntary disclosure to a Government Entity with respect to any Tax Return (or Taxes relating thereto) for any taxable period ending on or before the Closing Date, or (vi) file any Tax Return with respect to any taxable period ending on or before the Closing Date in any jurisdiction with which the Company (or the Predecessor) has not previously filed Tax Returns.
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6.7 D&OIndemnification. For a period of six (6) years after the Closing Date, the Buyer will not cause the Company to amend or modify the indemnification or liability exculpation provisions in the Company’s Organizational Documents, in each case in any way adverse to each Person who is now, or has been at any time prior to the Closing Date, a Person covered by such indemnification or liability exculpation provisions.
6.8 401(k)Plan Termination. The Company shall adopt written resolutions necessary and appropriate to terminate the Company’s 401(k) Plan (the “Company’s 401(k) Plan”), effective no later than one (1) day immediately preceding the Closing Date. The Company shall deliver to the Buyer, no later than one (1) day immediately preceding the Closing Date, evidence that the board of directors or similar governing body of the Company has validly adopted such resolutions to (a) terminate the Company’s 401(k) Plan (the form and substance of which shall be subject to prior review and approval of the Buyer), (b) cease all contributions to the Company’s 401(k) Plan (other than with respect to compensation earned on or before the termination date), and (c) fully vest the account balance of each participant in the Company’s 401(k) Plan, such termination, cessation of contributions and vesting to be effective no later than one (1) day immediately preceding the Closing Date.
6.9 R&WInsurance. Effective as of the Closing, the Buyer will cause to be bound the R&W Insurance Policy, in the form attached hereto as Exhibit G, and the Buyer will cause to be paid the R&W Insurance Expenses, provided any such R&W Insurance Expenses shall be deemed a Company Transaction Expense. The Buyer covenants and agrees to not cancel, redeem, or take any action that would adversely affect the terms and conditions of the R&W Insurance Policy. The R&W Insurance Policy will expressly provide that the R&W Insurance Provider, except in the case of Fraud, will waive and release any right of subrogation against any member of the Seller Group or any of their respective Affiliates, or any direct or indirect equity holders, parent, subsidiary, Affiliate, trust, beneficiary, director, officer, employee, agent or advisor of any member of the Seller Group or any of their respective Affiliates (or the functional equivalent of any of the foregoing) (collectively, the “Seller Affiliates”) in connection with this Agreement. The Buyer and its Affiliates will not amend, waive, or otherwise modify the R&W Insurance Policy in any manner that could reasonably be expected to be adverse to Seller Affiliates. The R&W Insurance Policy will not increase the liability hereunder of any of the Seller Affiliates.
6.10 Acknowledgements.
**(a)**The Buyer acknowledges and agrees that none of any member of the Seller Group, the Company, their respective Affiliates, or their respective Representatives has made any representations or warranties regarding any member of the Seller Group, the Company, or the Company’s business operations, the assets or operations of the Company’s business, the Acquired Interests, or otherwise in connection with the transactions contemplated by this Agreement, other than the representations and warranties expressly made by the Seller Group in Article 3 and Article 4. Without limiting the generality of the foregoing, other than the representations and warranties expressly made by the Seller Group in Article 3 and Article 4, the Buyer acknowledges and agrees that no projections, forecasts, predictions, other estimates, data, financial information, documents, reports, statements (oral or written), summaries, abstracts, descriptions, presentations (including any management presentation or facility tour), memoranda, or offering material with respect to the Company, the Company’s business, or the Acquired Interests, is or will be deemed to be a representation or warranty by any member of the Seller Group or the Company to the Buyer under this Agreement, or otherwise, and that the Buyer has not relied thereon in determining to execute this Agreement and proceed with the transactions contemplated hereby. The Buyer acknowledges that, except for the representations and warranties expressly made by the members of the Seller Group in Article 3 and Article 4, no Person has been authorized by any member of the Seller Group or the Company to make any representation or warranty regarding any member of the Seller Group, the Company, the Company’s business, the assets or operations of the Company, the Acquired Interests, or the transactions contemplated hereby and, if made, such representation or warranty may not be relied upon as having been authorized by any member of the Seller Group or the Company. Under no circumstances shall any of the representations and warranties of any member of the Seller Group in Article 3 and Article 4 be imputed to, or deemed to have been made by, any other Person.
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**(b)**The Buyer acknowledges and agrees that it (i) has made its own inquiry and investigation into, and, has formed an independent judgment concerning the Company, the Company’s business, and the Acquired Interests, and (ii) has conducted such investigations of the Company, the Company’s business, and the Acquired Interests as the Buyer deems necessary to enter into this Agreement and the Ancillary Agreements.
**(c)**Each member of the Seller Group acknowledges and agrees that it (i) has made its own inquiry and investigation into, and, has formed an independent judgment concerning the Buyer, the Buyer’s business, and the Buyer Interests, and (ii) has conducted such investigations of the Buyer, the Buyer’s business, and the Buyer Interests as the Seller deems necessary to enter into this Agreement and the Ancillary Agreements.
6.11 BanescoLine of Credit. From and following the Closing, the Buyer, and the Buyer will cause the Company to, use best efforts to amend the Banesco Loan Agreement in connection with Banesco USA’s formal approval of the transactions contemplated hereby, on terms reasonably satisfactory to the Buyer and the Seller Group, by no later than November 14, 2025. From and following the Closing, the Buyer, and the Buyer will cause the Company to, use best efforts to promptly secure a new credit facility to replace the Banesco Loan Agreement, which such facility shall not require any security or obligations from the Seller Group.
Article 7
INDEMNIFICATION
7.1 Obligationof the Seller Group. The Seller and each of the Seller Owners severally and not jointly in accordance with their Pro Rata Share, agree to indemnify, defend and hold harmless the Buyer Indemnified Parties from, against and in respect of any and all Losses arising from:
**(a)**any inaccuracy or breach of any representation or warranty of any member of the Seller Group in Article 3 and Article 4 of this Agreement or in any Ancillary Agreement;
**(b)**any nonperformance of any of the covenants or agreements required to be performed by any member of the Seller Group under this Agreement;
**(c)**any Indemnified Taxes (without duplication of any item in Section 7.1(a)-(b)); and
**(d)**any Company Transaction Expenses to the extent not actually paid at or prior to the Closing or otherwise reducing the Purchase Price.
The indemnification obligations set forth in this Section 7.1 for Losses shall not exceed, in the aggregate, an amount equal to the amount of the portion of proceeds received by the Seller pursuant to this Agreement or, with respect to each Seller Owner, its, his or her Pro Rata Share of such amount.
7.2 Obligationof the Buyer. The Buyer hereby agrees to indemnify, defend and hold harmless the Seller Group from, against and in respect of any and all Losses arising from:
**(a)**any inaccuracy or breach of any representation or warranty in Article 5 of this Agreement;
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**(b)**any nonperformance of any of the covenants or agreements made by the Buyer in or pursuant to this Agreement;
**(c)**any fees, expenses or other payments incurred or owed by the Buyer to any broker, finder, investment banker or agent or comparable other Persons retained or employed by the Buyer in connection with the transactions contemplated by this Agreement and the Ancillary Agreements, in each case, to the extent not actually paid at or prior to Closing; and
**(d)**the Banesco Loan Agreement and the other Loan Documents (as defined in the Banesco Loan Agreement), in each case as amended or amended and restated from time to time, including without limitation any Losses arising from the limited guarantees executed by each of the Seller Owners in support of the Banesco Loan Agreement, for as long as the Banesco Loan Agreement, as amended and restated from time to time, remains outstanding.
7.3 Survival.
**(a)**The representations and warranties contained in this Agreement shall expire on the date that is thirty-six (36) months from the Closing Date; provided, however, that (i) the Fundamental Representations shall survive the Closing and continue in full force and effect through the date that is six (6) years after the Closing Date, and (ii) the Statutory Representations and the Indemnified Taxes, shall survive through the date that is sixty (60) days after expiration of the applicable period of limitations under federal and state Laws relating thereto (after taking into account all extensions, waivers, tolling or mitigation thereof).
**(b)**All covenants of the Buyer and the Seller Group contained in this Agreement shall survive and continue in accordance with their terms until performance (or until the applicable statute of limitations has expired, if no term for performance is specified (after giving effect to any waiver, modification, tolling or extension thereof)).
**(c)**No claim may be made or Action instituted in respect of any breach of any representation or warranty under any provision of this Agreement (including this Article 7) unless the Indemnified Party provides written notice to the Indemnifying Party prior to the expiration of the applicable period provided for in this Section 7.3 (each such period, the “Survival Date”).
**(d)**Notwithstanding anything herein to the contrary, claims in respect of Fraud shall survive the Closing through the date that is sixty (60) days after expiration of the applicable period of limitations under federal and state Laws relating to such Fraud (after taking into account all extensions, waivers, tolling or mitigation thereof).
7.4 Limitationson Indemnification.
(a) BasketAmount. The Buyer Indemnified Parties shall not have the right to be indemnified under Section 7.1(a) unless the aggregate of all Losses for which the Buyer Indemnified Parties would, but for this provision, be entitled to recover exceeds an amount equal to (i) One Hundred Twenty Thousand Dollars ($120,000) multiplied by (ii) the Allocation Percentage (the “Basket Amount”), in which event the right for the Buyer Indemnified Parties to be indemnified shall apply to the extent such Losses exceed the Basket Amount.
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(b) CapAmount. The maximum aggregate amount of indemnification payments that the Indemnified Parties shall be entitled to receive under Section 7.1(a) shall not exceed an amount equal to (i) One Hundred Twenty Thousand Dollars ($120,000) multiplied by (ii) the Allocation Percentage (the “Cap Amount”).
(c) Exceptionsto Limitations on Indemnification.
**(i)**In no event shall the Basket Amount or the Cap Amount apply to (A) claims for indemnification by the Buyer Indemnified Parties for breaches of (1) the Seller’s Fundamental Representations or (2) the Statutory Representations, (B) Sections 7.1(b) through (d), or (C) claims in respect of Fraud. Notwithstanding the foregoing, no Person shall be liable for any other Person’s Fraud.
7.5 ThirdParty Claims.
**(a)**Promptly after the receipt by any Indemnified Party of notice of the commencement of any Action against such Indemnified Party by a third party (other than any Action relating to Taxes, which shall be governed by Section 6.6(c)) (any such Action, a “Third PartyClaim”), such Indemnified Party shall, if a claim with respect thereto is or may be made against any Indemnifying Party pursuant to this Article 7, give the Indemnifying Party written notice thereof (the “Third Party Claim Notice”), describing in reasonable detail the facts and circumstances with respect to the subject matter of such Third Party Claim. The failure to give a timely Third Party Claim Notice shall not relieve any Indemnifying Party from any obligation hereunder except where, and then solely to the extent that, such failure actually materially prejudices the rights of such Indemnifying Party. The Third Party Claim Notice shall describe the claim in reasonable detail and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party.
**(b)**If the Indemnifying Party acknowledges, in a writing delivered to the Indemnified Party, that the Indemnifying Party is obligated to indemnify, defend and hold harmless the Indemnified Party under the terms of its indemnification obligations hereunder in connection with such Action, then the Indemnifying Party shall have the right to assume the defense of such Action at its own expense and by its own counsel, which counsel shall be reasonably satisfactory to the Indemnified Party; provided, however, that the Indemnifying Party shall not have the right to assume the defense of such Third Party Claim if (i) the claim seeks an injunction or other non-monetary equitable relief as its primary source of relief; (ii) the Indemnified Party shall have been advised by counsel that there are one or more legal or equitable defenses available to it which are different from or in addition to those available to the Indemnifying Parties and, in the reasonable opinion of the Indemnified Party, counsel for the Indemnifying Party could not adequately represent the interests of the Indemnified Party because such interests could be in conflict with those of the Indemnifying Party; or (iii) if such Third Party Claim is expected to be covered in full by the R&W Insurance Policy (such that the Indemnifying Party’s aggregate liability therefor would not exceed the retention).
**(c)**If the Indemnifying Party elects to assume the defense of any such Third Party Claim under circumstances in which the proviso in Section 7.5(b) is not applicable, then the Indemnifying Party shall consult with the Indemnified Party and the Indemnified Party may participate in any such proceeding with counsel of its choice and at its sole cost and expense.
**(d)**The Indemnifying Party shall not, without the prior written consent of the Indemnified Party (which shall not be unreasonably withheld, conditioned or delayed), enter into any settlement of any claim or Action unless the proposed settlement (A) involves only the payment of money damages that will be promptly paid in full by the Indemnifying Party, (B) does not impose any injunctive or other equitable relief on the Indemnified Party, (C) includes an unconditional release from all Liability in favor of the Indemnified Party and (D) does not contain any admission or finding of wrongdoing or Liability on behalf of the Indemnified Party.
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**(e)**If the Indemnifying Party does not elect to assume the defense of such Action in accordance with the terms of this Section 7.5, fails to defend an Action, is otherwise restricted from so defending, or if, after commencing or undertaking any such defense, the Indemnifying Party fails to prosecute or withdraws from such defense, the Indemnified Party shall have the right to defend such Action with counsel of its choice, subject to the right of the Indemnifying Party to participate (with counsel of its choice, but the fees and expenses of such additional counsel will solely be at the expense of the Indemnifying Party), and the Indemnified Party will not compromise or settle any such action, suit, proceeding, claim, or demand without the prior written consent of the Indemnifying Party, which consent will not be unreasonably withheld, conditioned, or delayed. The parties hereto agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any such indemnity related to a third-party claim.
**(f)**The obligations of any member of the Seller Group to indemnify the Buyer Indemnified Parties pursuant to the terms of this Agreement are the primary obligations of the Seller Group. Each member of the Seller Group hereby waives any right to seek or obtain indemnification or contribution from the Buyer or any of its Affiliates or the Company for Losses with respect to any indemnification obligation of the Seller Group hereunder.
**(g)**To the extent there is a conflict between this Section 7.5 and Section 6.6(c) as to any Tax Contest, the provisions of Section 6.6(c) shall control.
7.6 DirectClaims. Any claim by an Indemnified Party for indemnification other than indemnification against a third party pursuant to Section 7.5 above (a “Direct Claim”) will be asserted by giving the Indemnifying Party prompt written notice thereof (a “Claim Notice”) describing in reasonable detail the facts and circumstances with respect to the subject matter of such claim. The failure to give a timely Claim Notice shall not relieve any Indemnifying Party from any obligation hereunder except where, and then solely to the extent that, such failure actually materially prejudices the rights of such Indemnifying Party. The Indemnifying Party will have a period of thirty (30) calendar days (the “Response Period”) within which to respond in writing to such Direct Claim. If the Indemnifying Party does not respond within the Response Period, the Indemnifying Party will be deemed to have accepted such Direct Claim. For a period of thirty (30) days after the Indemnifying Party responds to such Direct Claim, the Indemnifying Party and the Indemnified Party shall negotiate in good faith to resolve the matter. In the event that the controversy is not resolved within such thirty (30) day period, the Indemnifying Party and the Indemnified Party may thereupon proceed to pursue any and all available remedies at Law.
7.7 OtherLimitations.
**(a)**Notwithstanding anything to the contrary contained in this Agreement, the Parties shall be entitled to recover any amounts with respect to any indemnification claim made pursuant to this Article 7 for such Losses notwithstanding (i) the fact that such Party or any of their respective Affiliates had knowledge of the particular misrepresentation or breach of warranty, (ii) any investigation or examination conducted with respect to, or any knowledge acquired (or capable of being acquired) about the accuracy or inaccuracy of or compliance with, any representation, warranty, covenant, agreement, undertaking or obligation made by or on behalf of the Parties hereto, (iii) the waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant, agreement, undertaking or obligation or (iv) the making of this Agreement.
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**(b)**Notwithstanding anything to the contrary set forth herein, for the purposes of determining (i) whether there has occurred (A) a breach of any representation or warranty contained in this Agreement or (B) a breach of any agreement or covenant contained in this Agreement and (ii) the amount of any Loss suffered by an Indemnified Party related thereto, the applicable representation, warranty, agreement or covenant shall be read without giving effect to any qualification that is based on materiality, including the words “material,” “Material Adverse Effect,” “in any material respect” or other similar qualifications; provided that, the foregoing will not apply (A) for purposes of determining the standard that must be met to create an obligation to include items in a list set forth in the Seller Disclosure Schedules or (B) for purposes of a claim for Fraud.
**(c)**No Party shall be liable more than once for any Losses arising out of any particular circumstances, even if such circumstances give rise to liability under multiple sections or subsections of this Agreement. By way of example, if particular circumstances give rise to liability under Article 3 and those circumstances would also give rise to liability for Losses under this Article 7, a member of the Seller Group’s liability for those Losses under this Article 7 will be reduced or eliminated to the extent of any indemnification, payment or reimbursement under Article 3 to avoid a double recovery by the Buyer with respect to those circumstances. Further, in the event any amount has been reserved in the Closing Statement with certain facts and circumstances, and a Loss subsequently occurs with respect to such facts and circumstances, then, subject to the other provisions of this Article 7, solely the amount of the Loss, if any, that exceeds the amount reserved or accrued on the Closing Statement with respect such facts and circumstances shall be recoverable.
**(d)**Each Party with insurance coverage that may cover Losses shall use commercially reasonable efforts to pursue a claim under the relevant insurance policy; provided, that (i) no Party shall have any duty to litigate and (ii) the foregoing shall not preclude any member of the Seller Group’s obligation to pay such Losses. If, following satisfaction of a Party’s payment obligations under this Article 7, the Party that received payment under this Article 7 actually receives any insurance proceeds or otherwise, such Party will promptly pay over an amount necessary to avoid double recovery arising out of the particular facts and circumstances for which the insurance proceeds or other sources of recovery were received to the Party that made payment. All insurance proceeds required to be paid over will be reduced, to the extent not taken into account when Losses were calculated, by any out-of-pocket costs or expenses, including any increases in premiums that are solely and directly related to such Losses, incurred in connection with obtaining such insurance proceeds.
**(e)**The Parties intend for this Article 7 to supersede any Law that may otherwise be applicable specifically to contracts of indemnity or matters of indemnification, and this Article 7 is intended to represent a contrary intent, in all manners possible, to the extent that manifestation of a contrary intent is necessary to modify the terms of any Law that might otherwise be applicable concerning the subjects set forth in this Article 7.
**(f)**Notwithstanding anything in this Agreement to the contrary, each of the Parties agrees to use its commercially reasonable efforts to mitigate any Losses upon becoming aware of any event or circumstance that would reasonably expected to, or does, give rise thereto; provided, that the forgoing will not obligate any such indemnified party to commence litigation. Notwithstanding anything in this Agreement to the contrary, no Indemnifying Party shall have any obligation to indemnify any Indemnified Party under this Article 7 for any Losses that are actually recovered by the Indemnified Party from any third party (including any amounts recovered under insurance policies) net of the costs and expenses of such recovery, including any increases in premiums, and the Indemnified Party shall reimburse the Indemnifying Party in the event of a recovery by such Indemnified Party subsequent to an indemnification payment being made.
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**(g)**Notwithstanding anything herein to the contrary, no breach of any representation, warranty, covenant, or agreement contained herein will give rise to any right on the part of any party hereto, after the consummation of the transactions contemplated hereby, to rescind this Agreement or any of the transactions contemplated hereby.
**(h)**Unless otherwise required by applicable Law, all indemnification payments, except from the R&W Insurance Policy, will be treated as adjustments to the Purchase Price for income Tax purposes.
**(i)**Notwithstanding any provision of this Agreement or otherwise, the Parties to this Agreement agree on their own behalf and on behalf of their respective Subsidiaries and Affiliates that no Non-Recourse Party of a party to this Agreement will have any liability relating to this Agreement or any of the transactions set forth herein except to the extent agreed to in writing by such Non-Recourse Party.
7.8 Assertionof Claims; Payment of Claims.
**(a)**Subject to the limitations set forth in this Article 7, from and after the Closing:
**(i)**any obligation of a member of the Seller Group to indemnify the Buyer Indemnified Parties for any Losses incurred as a result of a claim for indemnification pursuant to Section 7.1(a) (other than for a breach of a Seller’s Fundamental Representation or a Statutory Representation) shall be satisfied, (A) first, after satisfaction of the Basket Amount, by reducing the current outstanding principal amount of the Promissory Note until the retention under the R&W Insurance Policy has been satisfied, and (B) thereafter, from the R&W Insurance Policy.
**(ii)**any obligation of a member of the Seller Group to indemnify the Buyer Indemnified Parties for any Losses incurred as a result of a claim for indemnification pursuant to Section 7.1(a) for a breach of a Seller’s Fundamental Representation or a Statutory Representation or Section 7.1(c) shall be satisfied, (A) first, by reducing the current outstanding principal amount of the Promissory Note until the retention under the R&W Insurance Policy has been satisfied, (B) second, the Buyer Indemnified Parties will then seek to recover such Losses from the R&W Insurance Policy and (C) thereafter, directly from the member(s) of the Seller Group whose actions or inactions gave rise to such claim for indemnification.
**(iii)**any obligation of the Seller Group to indemnify the Buyer Indemnified Parties for any Losses incurred as a result of a claim for indemnification pursuant to Sections 7.1(b) or (d) shall be satisfied, (A) first, by reducing the current outstanding principal amount of the Promissory Note, and (B) thereafter, directly from the member(s) of the Seller Group whose actions or inactions gave rise to such claim for indemnification.
7.9 ExclusiveRemedy. From and after the Closing, the rights of the Indemnified Parties to indemnification relating to this Agreement or the transactions contemplated hereby will be strictly limited to those contained in this Article 7 and Section 6.6, and except for Fraud, indemnification rights will be the exclusive remedies of the Indemnified Parties subsequent to the Closing Date with respect to any matter in any way relating to this Agreement or arising in connection herewith. Notwithstanding the foregoing, this Section 7.9 will not (i) interfere with or impede the operation of the provisions of Section 2.7 providing for the resolution of certain disputes relating to the Purchase Price between the parties or by the Independent Auditor or (ii) limit the rights of the parties to specific performance in accordance with Section 8.9 or other rights to equitable relief as expressly specified in this Agreement.
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Article 8
GENERAL
8.1 Seller’sRepresentative.
**(a)**By entering into and executing this Agreement, each member of the Seller Group irrevocably makes, constitutes and appoints the Seller’s Representative as his, her, or its agent, effective as of the execution hereof, and authorizes and empowers the Seller’s Representative to fulfill the role of the Seller’s Representative hereunder, and each member of the Seller Group appoints the Seller’s Representative as such member of such Seller Group’s true and lawful attorney-in-fact and agent, for such member of such Seller Group and in such member of such Seller Group’s name, place and stead for all purposes necessary in order for the Seller’s Representative to take all actions contemplated by this Agreement, including: (i) making or receiving and disbursing payments, (ii) executing and delivering all instruments, certificates and other documents of every kind incident to the foregoing for all intents and purposes, (iii) (A) executing and delivering or (B) receiving notices, documents or certificates; (iv) submitting any dispute relating to the Independent Auditor, (v) with respect to any indemnification claims, (A) noticing of claims, (B) disputing or refraining from disputing any claim made by any Buyer Indemnified Party, (C) negotiating, agreeing or entering into settlements and compromising any dispute, (D) exercising or refraining from exercising any available remedies, and (E) negotiating, agreeing, entering into, or executing any settlement agreement, release, compromise or other document with respect to any dispute, except, in each case, with respect to a dispute between any member of the Seller Group, on the one hand, and the Seller’s Representative on the other hand, and (vi) any and all actions necessary or desirable, in the reasonable judgment of the Seller’s Representative, for the accomplishment of the foregoing. The power-of-attorney granted in this Section 8.1 is coupled with an interest and is irrevocable.
**(b)**The Seller’s Representative shall be entitled to rely exclusively upon any communication given or other action taken by the Buyer, any member of the Seller Group, the Company, and any third party deemed by the Seller’s Representative to be reliable pursuant to this Agreement or any Ancillary Agreement, and shall not be liable for any action taken or not taken in good faith reliance on a communication or other instruction from such Person. Any act taken or omitted to be taken by the Seller’s Representative pursuant to the advice of counsel shall be conclusive evidence of such good faith. The Seller’s Representative shall be fully justified in not taking any action under this Agreement or any Ancillary Agreement if he has received such advice as he deems appropriate with respect to such inaction or if he shall not have been expressly indemnified to his satisfaction against any and all liability and expense may be incurred by reason of taking any such action.
**(c)**The Buyer and each member of the Seller Group shall be entitled to rely exclusively upon any communication given or other action taken by the Seller’s Representative pursuant to this Agreement, and shall not be liable for any action taken or not taken in good faith reliance on a communication or other instruction from the Seller’s Representative.
**(d)**In the event of the death or incapacity or the Seller’s Representative, a majority of the members of the Seller Group shall select another Seller’s Representative and notify the Buyer in writing as to the identity of such new Seller’s Representative, and such new Seller’s Representative will become the Seller’s Representative for all purposes under this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby.
8.2 Amendmentsand Waivers. This Agreement may be amended only by an agreement in writing signed by the Buyer and the Seller’s Representative. No waiver of any provision nor consent to any exception to the terms of this Agreement shall be effective unless and until in writing and signed by the Party waiving or granting an exception, and then only to the specific purpose, extent and instance so provided.
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8.3 Schedules;Exhibits; Integration. Each Schedule and Exhibit delivered pursuant to the terms of this Agreement shall be in writing and shall constitute a part of this Agreement. This Agreement, together with the Schedules and Exhibits hereto, and the Ancillary Agreements, constitute the entire agreement among the Parties pertaining to the subject matter hereof and thereof and supersede all prior agreements and understandings of the Parties in connection herewith and therewith.
8.4 GoverningLaw; Venue; Waiver of Jury Trial.
**(a)**This Agreement, the legal relations between the Parties and any Action, whether contractual or non-contractual, instituted by any Party with respect to matters arising under or growing out of or in connection with or in respect of this Agreement shall be governed by and construed in accordance with the Laws of the State of Texas, except to the extent that certain matters are preempted by federal Law.
**(b)**Each Party agrees that it will bring any Action or proceeding in respect of any claim arising out of or related to this Agreement or the transactions contemplated hereby (to the extent not subject to arbitration) exclusively in any federal or state court sitting in Dallas County, Texas (the “Texas Courts”), and, solely in connection with claims arising under this Agreement, (i) irrevocably submits to the exclusive jurisdiction of the Texas Courts, (ii) waives any objection to laying venue in any such Action or proceeding in the Texas Courts, (iii) waives any objection that the Texas Courts are an inconvenient forum or do not have jurisdiction over any Party and (iv) agrees that service of process upon such Party in any such Action or proceeding will be effective if notice is given in accordance with Section 8.8.
**(c)**Each Party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues, and therefore each such Party hereby irrevocably and unconditionally waives, to the furthest extent permitted by Law at the time of institution of the applicable litigation, any right such Party may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement or the transactions contemplated by this Agreement. Each Party certifies and acknowledges that: (i) no representative, agent or attorney of any other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce the foregoing waiver; (ii) each Party understands and has considered the implications of this waiver; (iii) each Party makes this waiver voluntarily; and (iv) each Party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 8.4.
8.5 Assignmentand Third-Party Beneficiaries. Neither this Agreement nor any of the rights, interests or obligations shall be assigned by any of the Parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties; provided, however, that either Buyer may assign this Agreement without consent to (a) its lenders providing financing in connection with the transactions contemplated hereby for collateral security purposes, but in each case, no such transfer or assignment will relieve the Buyer of any of its obligations hereunder or (b) any of its Affiliates. This Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assigns. This Agreement (including the documents and instruments referred to herein) is not intended to confer upon any Person other than the Parties hereto any rights or remedies hereunder.
8.6 Counterparts. This Agreement and any amendment hereto or any other agreement (or document) delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement (or other document) and shall become effective (unless otherwise provided therein) when one or more counterparts have been signed by each Party and delivered to the other Party. A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more Parties hereto, and an executed copy of this Agreement may be delivered by one or more Parties hereto by facsimile or other means of electronic transmission (including .pdf files) pursuant to which the signature of or on behalf of such Party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes.
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8.7 Publicityand Reports. The Buyer and the Seller’s Representative shall coordinate all publicity relating to the transactions contemplated by this Agreement and no Party shall issue any press release, publicity statement or other public notice relating to this Agreement, or the transactions contemplated by this Agreement, without obtaining the prior written consent of the Buyer and the Seller’s Representative, except to the extent that a particular disclosure is required by applicable Law or in connection with an investigation by a Government Entity; provided, if any disclosure is required under applicable Law, to the extent legally permitted, the disclosing party shall have the right to review and comment on any such release. Notwithstanding anything to the contrary, the Buyer and its Affiliates may disclose this Agreement and its terms to their limited partners, advisors, lenders, financing sources, members, prospective investors or other investors so long as such limited partners, advisors, lenders, financing sources, members, prospective investors or other investors agree to treat the disclosed information as confidential.
8.8 Notices. Any notice or other communication hereunder must be given in writing and (a) delivered via overnight courier for next day delivery, (b) transmitted by email or other electronic mechanism; provided, that any notice so given shall request written confirmation of receipt thereof with an express acknowledgement of the contents therein; provided, further, that any notice so given shall also be mailed as provided in clause (c), or (c) mailed by certified or registered mail, postage prepaid, return receipt requested as follows:
If to the Buyer:
XTI Drones Holdings, LLC
8123 Interport Blvd., Suite C
Englewood, Colorado 80112
Attention: Brooke Turk, Chief Financial Officer
With a copy to (which shall not constitute notice):
Haynes and Boone, LLP
600 Anton Blvd., Suite 700
Costa Mesa, CA 92626
Attention: Martin Florman, Esq.
If to any member of the Seller Group (or the Company prior to the Closing), to the Seller’s Representative:
With a copy to (which shall not constitute notice):
Holland & Knight LLP
1650 Tysons Boulevard, Suite 1700
Tysons, Virginia 22102
Attention: Katherine A. Markel, Esq.
Email: Katherine.Markel@hklaw.com
or to such other address or to such other person as either Party shall have last designated by written notice to the other Party in accordance with this Section 8.8. Each such notice or other communication shall be effective (i) one (1) Business Day after deposit with an overnight courier for next day delivery, (ii) if given by facsimile, email or other telecommunication, when appropriate written confirmation is received, or (iii) if given by mail, three (3) Business Days after such communication is deposited in the mail with first class postage prepaid, addressed as aforesaid.
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8.9 SpecificPerformance. The Parties hereto agree that in the event of a breach of this Agreement, the aggrieved Party or Parties may be damaged irreparably and without an adequate remedy at Law. The Parties therefore agree that in the event of a breach of this Agreement, the aggrieved Party or Parties shall be entitled to seek in any court of competent jurisdiction to enforce specific performance or to enjoin the continuing breach of such provision without the requirement of posting a bond, as well as to obtain monetary damages for breach of this Agreement as provided for in Article 7. By seeking or obtaining any such relief, the aggrieved Party shall not be precluded from seeking or obtaining indemnification in accordance with the provisions of Article 7.
8.10 Rulesof Construction. The Parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any Law providing that ambiguities in an agreement or other document will be construed against the Party drafting such agreement or document. This Agreement and each agreement or instrument entered into by the Parties (or any of them) pursuant to the provisions hereof shall be considered for all purposes as having been prepared through the joint efforts of the Parties hereto. No presumption shall apply in favor of any Party in the interpretation of this Agreement or any such other agreement or instrument or in the resolution of any ambiguity of any provision hereof or thereof based on the preparation, substitution, submission or other event of negotiation, drafting or execution hereof or thereof. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, (a) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms; (b) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; (c) when reference is made in this Agreement to exhibits or schedules, such reference shall be to an exhibit or schedule to this Agreement unless otherwise indicated; (d) the words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation;” (e) the descriptive headings of the Articles, Sections and subsections of this Agreement are for convenience only and shall not affect in any way the meaning or interpretation of this Agreement; (f) any reference to a statute is deemed also to refer to any amendments or successor legislation, and all rules and regulations promulgated thereunder, as in effect at the relevant time; (g) any reference to a contract or other document as of a given date means the contract or other document as amended, supplemented and modified from time to time through such date; (h) a defined term has its defined meaning throughout this Agreement, regardless of whether it appears before or after the place in this Agreement where it is defined, including in any Article, Section, Exhibit or Schedule of or to this Agreement; (i) the phrase “ordinary course of business” means the ordinary course of business consistent with past practice; and (j) the term “Company” shall include the Predecessor unless the context of such use requires otherwise.
8.11 Severability. To the furthest extent permitted by Law or judicial determination, each provision of this Agreement will be interpreted in such manner as to be effective and valid under Law, but if any provision of this Agreement is held to be prohibited by or invalid under Law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
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8.12 RepresentationBy Counsel.
**(a)**This Agreement constitutes notice to the Buyer that the Seller Group and the Company have engaged Holland & Knight LLP as their legal counsel in connection with the transactions contemplated by this Agreement and the Buyer hereby consents to, and waives any conflict arising from, the continued representation of the Seller Group by Holland & Knight LLP in relation to the transactions contemplated by this Agreement. In addition, the Buyer hereby acknowledges that its consent under this paragraph is voluntary and informed, and that the Buyer has obtained independent legal advice with respect to this consent.
**(b)**Notwithstanding any legal requirement to the contrary, (i) all attorney-client privileged communications between Holland & Knight LLP and the Seller Group, the Company, or their respective Affiliates or their respective equity holders, officers, directors, managers, or trustees that occurred in the context of Holland & Knight LLP’s representation of the Company prior to the Closing with respect to matters that are not related to the negotiation, documentation, and consummation of the transactions contemplated herein will remain privileged as between Holland & Knight LLP and the Company after the Closing and (ii) any attorney-client privilege relating to the negotiation, documentation, and consummation of the transactions contemplated by this Agreement that otherwise would be available to the Seller Group, the Company, or their respective Affiliates or their respective equity holders, officers, directors, managers, or trustees (collectively, the “Confidential Communications”) will remain privileged and each of the Company (following the Closing) and the Buyer agrees that such privilege will remain with the Seller Group and not the Company following the Closing such that, without limiting the Seller Group’s right to such privilege, the Seller Group alone will have and maintain the right to waive the privilege. The parties agree that if the Company and its Affiliates or their respective equity holders, officers, directors, managers, or trustees leave any emails and other documents (both electronic or otherwise) that contain Confidential Communications on the Company’s servers or with the Company, such occurrence will not, in and of itself, constitute a waiver of the attorney-client privilege applicable to such documents. Notwithstanding the foregoing, if after the Closing a dispute arises between the Buyer or the Company, on the one hand, and a third party other than (and unaffiliated with) any member of the Seller Group, on the other hand, then the Buyer or the Company (to the extent applicable) may assert the attorney-client privilege to prevent disclosure to such third party of the Confidential Communications, with notice to the Seller’s Representative.
[Signature Pages Follow]
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IN WITNESS WHEREOF, each of the Parties hereto duly executed this Membership Interest Purchase Agreement as of the day and year first above written.
| BUYER: | |
|---|---|
| XTI DRONES HOLDINGS, LLC | |
| By: | /s/ Brooke Turk |
| Brooke Turk, | |
| Chief Financial Officer | |
| SELLER: | |
| THE ORIGIN GROUP DN, INC. | |
| By: | /s/ Jeremy Schneiderman |
| Jeremy Schneiderman, | |
| Chief Executive Officer | |
| COMPANY: | |
| DRONE NERDS, LLC | |
| By: | /s/ Jeremy Schneiderman |
| Jeremy Schneiderman, | |
| Chief Executive Officer | |
| SELLER’S REPRESENTATIVE: | |
| --- | |
| /s/ Jeremy<br> Schneiderman | |
| JEREMY SCHNEIDERMAN | |
| SELLER OWNERS: | |
| /s/ Jeremy<br> Schneiderman | |
| JEREMY SCHNEIDERMAN | |
| /s/ Alex Nafissy | |
| ALEX NAFISSY | |
| /s/ Robert<br> Weitzner | |
| ROBERT WEITZNER |
ANNEX A-1
| 1. | Jeremy Schneiderman, an individual |
|---|---|
| 2. | Alex Nafissy, an individual |
| --- | --- |
| 3. | Robert Weitzner, an individual |
| --- | --- |
SCHEDULE I
| Seller | Number of<br> Equity<br> Interests of<br> Company | Acquired<br> Interests | Purchase Price<br> Allocation | Cash Payment Amount for Purchased Interests (After Adjustment as set forth in this Agreement) | Promissory<br> Note Amount<br> for Note<br> Interests<br> (After Adjustments<br><br> as set forth<br><br> in this Agreement) | Buyer Interests for Contributed Interests ^1^ | ||||
|---|---|---|---|---|---|---|---|---|---|---|
| The Origin Group DN, Inc. | 100 | 100 | See Flow of Funds Memorandum | $ | 16,727,356.00 | $ | 10,976,284.58 | 6,002,610<br> Class B Units | ||
| ^1^ | The contribution of the Contributed<br>Interests in exchange for the issuance of the Buyer Interests is intended to be treated as a Section 721 contribution under the Code. | |||||||||
| --- | --- |
SCHEDULE 1.1(a)
NET WORKING CAPITAL CALCULATION
[Attached]
SCHEDULE 1.1(b)
BANESCO LINE OF CREDIT
Revolving line of credit established pursuant to and evidenced by that certain Loan Agreement, dated July 10, 2025, by and among Drone Nerds Inc, Anzu Robotics, LLC and Banesco USA (the “Banesco Loan Agreement”) and the other Loan Documents (as such term is defined in the Banesco Loan Agreement).
SCHEDULE 1.1(c)
RELATED PARTY INDEBTEDNESS
SCHEDULE 6.1(a)
ALLOCATION METHODOLOGIES
| Asset Class | Asset Category | Value |
|---|---|---|
| I | Cash and Cash Equivalents | Actual amount of Final Company Cash |
| II | Actively traded personal property and certificates of deposit | NAV |
| III | Accounts receivable and other Class III assets | NAV |
| IV | Inventory and prepaid assets | NAV |
| V | Furniture, fixtures and equipment, leasehold improvements, and other Class V Assets | Book Value |
| VI and VII | All section 197 intangibles, including goodwill and going concern value | The remainder, after the allocation to assets in Classes I through V above; provided that no more than $50,000 shall be allocated to any restrictive covenants, including those Section 6.3 of the Agreement |
“NAV” shall mean (a) to the extent such assets are included as part of Final Net Working Capital, an amount equal to the value reflected in the calculation of the Final Net Working Capital, as finally determined in accordance with Section 2.7 of the Agreement, and (b) to the extent such assets are not included as part of Final Net Working Capital, Book Value.
“Book Value” shall mean the net book value of such assets as reported on the balance sheet as of the Interim Balance Sheet Date included in the Financial Statements, increased by the cost of any such assets acquired and decreased by the amount of any such assets disposed, in each case since the Interim Balance Sheet Date until immediately prior to the Closing.
Exhibit 2.2
MEMBERSHIP INTEREST PURCHASE AGREEMENT,
DATED AS OF NOVEMBER 10, 2025
by and among
XTI DRONES HOLDINGS, LLC,
as the “Buyer,”
THE PERSONS SET FORTH ON ANNEX A-1,
as the “Seller Owners,”
THE ORIGIN GROUP AZ, INC.,
as the “Seller,”
ANZU ROBOTICS, LLC,
as the “Company,”
and
JEREMY SCHNEIDERMAN,
as the “Seller’s Representative”
TABLE OF CONTENTS
| Page | ||
|---|---|---|
| ARTICLE 1 DEFINITIONS | 2 | |
| 1.1 | Definitions | 2 |
| ARTICLE 2 CONTRIBUTION, SALE AND TRANSFER OF ACQUIRED INTERESTS | 18 | |
| 2.1 | Contribution, Purchase and Sale | 18 |
| 2.2 | Consideration | 18 |
| 2.3 | Closing | 18 |
| 2.4 | Closing Deliverables; Payments | 18 |
| 2.5 | Consideration Allocation | 20 |
| 2.6 | Withholding | 21 |
| 2.7 | Net Working Capital Adjustment | 21 |
| ARTICLE 3 REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY | 23 | |
| 3.1 | Organization | 23 |
| 3.2 | Capitalization | 23 |
| 3.3 | Authorization; Enforceability | 24 |
| 3.4 | No Conflicts | 24 |
| 3.5 | Financial Statements; No Undisclosed Liabilities; Indebtedness | 24 |
| 3.6 | Absence of Certain Changes | 25 |
| 3.7 | Reserved | 27 |
| 3.8 | Tax | 27 |
| 3.9 | Ethical Practices | 29 |
| 3.10 | Material Contracts | 30 |
| 3.11 | Title to Assets | 32 |
| 3.12 | Intellectual Property | 32 |
| 3.13 | Legal Proceedings | 34 |
| 3.14 | Real Property | 35 |
| 3.15 | Insurance | 36 |
| 3.16 | Permits | 37 |
| 3.17 | Compliance with Law | 37 |
| 3.18 | Employee Benefits | 37 |
| 3.19 | Environmental Matters | 39 |
| 3.20 | Transactions with Related Parties and Affiliates. | 39 |
| 3.21 | Accounts Payable; Accounts Receivable | 40 |
| 3.22 | Employees | 40 |
| 3.23 | Material Customers | 42 |
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| 3.24 | Material Suppliers | 42 |
|---|---|---|
| 3.25 | Data Privacy | 43 |
| 3.26 | Books and Records | 43 |
| 3.27 | COVID-19 and COVID-19 Measures | 43 |
| 3.28 | No Brokers or Finders | 43 |
| 3.29 | No Other Representations and Warranties | 44 |
| ARTICLE 4 REPRESENTATIONS AND WARRANTIES REGARDING THE SELLER GROUP | 44 | |
| 4.1 | Organization | 44 |
| 4.2 | Title | 44 |
| 4.3 | Authorization; Enforceability | 44 |
| 4.4 | No Conflicts | 45 |
| 4.5 | Disclaimer | 45 |
| 4.6 | No Brokers or Finders | 45 |
| 4.7 | Legal Proceedings | 45 |
| 4.8 | Investment Representations | 45 |
| ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE BUYER | 47 | |
| 5.1 | Organization | 47 |
| 5.2 | Authorization; Enforceability | 47 |
| 5.3 | No Conflicts | 48 |
| 5.4 | No Brokers or Finders | 48 |
| 5.5 | Investment Intent | 48 |
| 5.6 | Buyer Interests | 48 |
| ARTICLE 6 COVENANTS | 48 | |
| 6.1 | Allocation | 48 |
| 6.2 | Further Assurances; Cooperation | 49 |
| 6.3 | Non-Competition; Non-Solicitation | 49 |
| 6.4 | Confidentiality | 51 |
| 6.5 | Seller’s Release | 51 |
| 6.6 | Certain Tax Matters | 52 |
| 6.7 | D&O Indemnification | 55 |
| 6.8 | Reserved | 56 |
| 6.9 | R&W Insurance | 56 |
| 6.10 | Acknowledgements | 56 |
| 6.11 | Banesco Line of Credit | 57 |
| ARTICLE 7 INDEMNIFICATION | 57 | |
| 7.1 | Obligation of the Seller Group | 57 |
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| 7.2 | Obligation of the Buyer | 57 |
|---|---|---|
| 7.3 | Survival | 58 |
| 7.4 | Limitations on Indemnification | 58 |
| 7.5 | Third Party Claims | 59 |
| 7.6 | Direct Claims | 60 |
| 7.7 | Other Limitations | 60 |
| 7.8 | Assertion of Claims; Payment of Claims | 61 |
| 7.9 | Exclusive Remedy | 62 |
| ARTICLE 8 GENERAL | 62 | |
| 8.1 | Seller’s Representative | 62 |
| 8.2 | Amendments and Waivers | 63 |
| 8.3 | Schedules; Exhibits; Integration | 63 |
| 8.4 | Governing Law; Venue; Waiver of Jury Trial | 63 |
| 8.5 | Assignment and Third-Party Beneficiaries | 64 |
| 8.6 | Counterparts | 64 |
| 8.7 | Publicity and Reports | 64 |
| 8.8 | Notices | 65 |
| 8.9 | Specific Performance | 65 |
| 8.10 | Rules of Construction | 66 |
| 8.11 | Severability | 66 |
| 8.12 | Representation By Counsel | 66 |
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Schedules
| Schedule I | Acquired Interests |
|---|---|
| Schedule 1.1(a) | Net Working Capital Calculation |
| Schedule 1.1(b) | Banesco Line of Credit |
| Schedule 1.1(c) | Related Party Indebtedness |
| Schedule 6.1(a) | Allocation Methodologies |
| Seller Disclosure Schedule |
Exhibits
| Exhibit A | Form of Promissory Note |
|---|---|
| Exhibit B | Company Agreement of the Buyer |
| Exhibit C | Form of Joinder Agreement |
| Exhibit D | Form of Registration Rights Agreement |
| Exhibit E | Form of Lock-Up Agreement |
| Exhibit F | Accredited Investor Questionnaire |
| Exhibit G | R&W Insurance Policy |
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MEMBERSHIP INTEREST PURCHASE AGREEMENT
THISMEMBERSHIP INTEREST PURCHASE AGREEMENT (this “Agreement”), dated and effective as of November 10, 2025, is entered into by and among (a) XTI Drones Holdings, LLC, a Texas limited liability company (the “Buyer”); (b) The Origin Group AZ, Inc., a Delaware corporation (the “Seller”); (c) Anzu Robotics, LLC, a Delaware limited liability company (the “Company”); (d) each of the Seller Owners listed on Annex A-1 attached hereto (collectively, the “Seller Owners” and, together with the Seller, the “Seller Group”), and (e) Jeremy Schneiderman, solely in his capacity as representative of the Seller Group (the “Seller’s Representative”). Each of the Buyer, the Seller Owners, the Seller, and the Seller’s Representative is referred to herein as a “Party” and collectively, the “Parties.”
RECITALS:
WHEREAS, prior to the date hereof, the Seller Owners were the legal, record and beneficial owners of all of the issued and outstanding Equity Interests in the Company;
WHEREAS, prior to the date hereof (a) the Seller Owners contributed all of their Equity Interests in the Company to the Seller in exchange for Equity Interests of the Seller (the “Contributions”), (b) the Seller elected to treat the Company as a qualified subchapter S Subsidiary, and (c) the Company changed its tax classification for U.S. federal income tax purposes from a qualified subchapter S Subsidiary to a disregarded entity, pursuant to a Form 8832 (the “Check-the-box Election”) filed with the Internal Revenue Service (together, the “F-Reorganization”);
WHEREAS, as of the date hereof, after giving effect to the F-Reorganization, the Seller Owners are the legal, record and beneficial owners of one hundred percent (100%) of the issued and outstanding Equity Interests in the Seller;
WHEREAS, on the terms and subject to the conditions set forth in this Agreement, the Seller desires to sell and transfer to the Buyer, and the Buyer desires to accept from the Seller, 45% of the Equity Interests of the Company with a value equivalent to the Cash Payment Amount multiplied by the Allocation Percentage, as set forth on Schedule I (the “Purchased Interests”);
WHEREAS, on the terms and subject to the conditions set forth in this Agreement, the Seller desires to contribute to the Buyer, and the Buyer desires to acquire from the Seller, 25% of the Equity Interests of the Company with a value equivalent to the Buyer Interest Amount (the “ContributedInterests”), in exchange for Equity Interests of the Buyer, as set forth on Schedule I in a transaction governed under Section 721(a) of the Code; and
WHEREAS, on the terms and subject to the conditions set forth in this Agreement, the Seller desires to sell and transfer to the Buyer, and the Buyer desires to purchase and acquire from the Seller, 30% of the Equity Interests of the Company in exchange for the Promissory Note, as set forth on Schedule I (the “Note Interests” and together with the Purchased Interests and the Contributed Interests, the “Acquired Interests”).
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NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the Parties hereto, the Parties hereto, intending to be legally bound, hereby agree as follows:
AGREEMENT
Article 1
DEFINITIONS
1.1 Definitions. As used in this Agreement and the Exhibits and Schedules delivered pursuant to this Agreement, the following definitions shall apply.
“Acquired Companies” means the Company and Drone Nerds, LLC, a Florida limited liability company.
“Acquired Interests” has the meaning set forth in the Recitals.
“Action” means any action, cause of action, complaint, petition, demand, investigation, arbitration, audit, examination, review, controversy, suit or other legal, judicial, administrative or arbitral proceeding, whether civil or criminal, in law or in equity before or by any arbitrator, self-regulatory organization or Government Entity.
“Affiliate” means, with respect to any Person, (a) a director, officer, partner, member, manager, beneficiary or equity holder (whether direct or indirect) of such Person; (b) a spouse, parent, sibling or child of such Person (or spouse, parent, sibling or child of any director, manager or executive officer of such Person); and (c) any other Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person.
“AffiliateAgreement” means any Contract with any Related Party.
“AffiliatedGroup” means a group of Persons that elects to, is required to, or otherwise files a Tax Return or pays a Tax as an affiliated, consolidated, combined, unitary or other similar group.
“Agreement” has the meaning set forth in the Preface.
“Allocation Percentage” means the percentage set forth opposite the Company’s name on the Flow of Funds Memorandum under the title “Allocation Percentage.”
“AncillaryAgreements” means, collectively, the Company Agreement of the Buyer, the Promissory Note, the Joinder Agreement, the Registration Rights Agreement, the Lock-Up Agreement, and any other agreement, certificate, or document contemplated by this Agreement.
“Banesco Lineof Credit” means that certain line of credit as set forth on Schedule 1.1(b).
“Banesco Lineof Credit Amount” means the outstanding balance of the Banesco Line of Credit, inclusive of all accrued, but unpaid interest, together with any and all other charges, as of the end of the Business Day immediately preceding Closing; provided, for the avoidance of doubt, such amount shall not include any fees or expenses, including legal expenses, payments due to Banesco USA in connection with its review of the transactions contemplated hereby.
“Bankruptcyand Insolvency Exceptions” has the meaning set forth in Section 3.3(a).
“BasketAmount” has the meaning set forth in Section 7.4(a).
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“BusinessDay” means any day that is not a Saturday, a Sunday or other day on which commercial banks are required or authorized by applicable Law to be closed in Texas.
“Buyer” has the meaning set forth in the Preface.
“BuyerIndemnified Parties” means the Buyer and its Affiliates and, following the Closing, the Company, and each of the foregoing Persons’ respective successors and assigns, and each of their respective officers, managers, directors, employees, representatives and Affiliates, other than any Seller Owner, Seller and any Person who is an officer or employee of the Company prior to the Closing but not following the Closing.
“Buyer InterestAmount” means $9,734,667.67.
“Buyer Interests” means the Class B Units (as defined in the Company Agreement of the Buyer) of the Buyer to be issued to the Seller pursuant to the terms of this Agreement with a value equal to the Buyer Interest Amount multiplied by the Allocation Percentage.
“BuyerPrepared Returns” has the meaning set forth in Section 6.6(d)(ii).
“Buyer’sFundamental Representations” means Sections 5.1 (Organization), 5.2 (Authorization;Enforceability), 5.3 (No Conflicts), 5.5 (Investment Intent), and 5.6 (Buyer Interests).
“CapAmount” has the meaning set forth in Section 7.4(b).
“CARESAct” means the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136) or a similar provision of U.S. state or local law.
“CARES Act andCOVID Relief Programs” means, collectively, the CARES Act, including any programs or facilities established by the Board of Governors of the Federal Reserve System to which the U.S. Treasury Department has provided financing as contemplated by Title IV of the Coronavirus Aid, Relief and Economic Security Act.
“Cash” means, with respect to the Acquired Companies, the amount (expressed in United States dollars) of all cash and readily marketable cash equivalents, including cash in the bank, minus (i) deposits or checks in transit (or waiting for clearance) to the extent there has been a reduction of receivables on account thereof, minus (ii) any held checks to the extent that the amounts to be paid have been included in accounts payable for purposes of Closing Net Working Capital, minus (iii) Restricted Cash.
“Cash PaymentAmount” means $20,000,000.
“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended.
“ClaimNotice” has the meaning set forth in Section 7.6.
“Closing” has the meaning set forth in Section 2.3.
“ClosingDate” means the date hereof.
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“ClosingNet Working Capital” means, as of the Effective Time and determined in accordance with GAAP, applied on a basis consistent with the Acquired Companies’ historical accounting practices, the current assets of the Acquired Companies (including, without limitation, accounts receivable, inventories, vendor deposits, prepaid expenses, and other current assets) minus the current liabilities of the Acquired Companies (including, without limitation, accounts payable, accrued expenses, and other current liabilities), in each case as calculated in accordance with the sample Net Working Capital Calculation attached hereto as Schedule 1.1(a).
For the avoidance of doubt, Closing Net Working Capital shall exclude (a) Cash, (b) any Company Transaction Expenses, (c) Indebtedness, the outstanding balance of the Banesco Line of Credit, related party notes payable, and the current portion of the operating lease obligations, and (d) any other debt-like items as reflected in the Net Working Capital Calculation.
“ClosingStatement” has the meaning set forth in Section 2.7(b)(i).
“Code” means the Internal Revenue Code of 1986, as amended.
“Company” has the meaning set forth in the Preface.
“CompanyAgreement of the Buyer**”** means that certain First Amended and Restated Company Agreement of the Buyer attached hereto as Exhibit B.
“Company BaseValuation” means $40,000,000.
“CompanyCash” means, as of the Effective Time, the amount of Cash of the Acquired Companies.
“CompanyIntellectual Property” means all Owned Intellectual Property and all Intellectual Property used or held for use in connection with, or otherwise necessary for, conducting the business of the Company as currently conducted.
“CompanyIT Assets” means Software, systems, servers, computers, hardware, firmware, middleware, networks, data communications lines, routers, hubs, switches and all other information technology equipment, and all associated documentation, in each case, used or held for use in connection with, or otherwise necessary for, conducting the business of the Company as currently conducted.
“CompanyTransaction Expenses” means, without duplication, any and all fees, commissions, costs and expenses incurred, or payable, by the Seller Group and/or the Company (to the extent the Company pays or is obligated to pay such fees and expenses incurred, or payable, by the Seller Group) in connection with the negotiation, preparation and execution of this Agreement to the extent not paid at or prior to the Closing, including (without duplication): (a) all brokerage or finders’ fees or agents’ commissions or any similar charges, (b) all legal, accounting, investment banking, financial advisory, consulting and other fees, costs and expenses of third parties, (c) the amounts of any bonus, retention bonus, change of control bonus or similar payments (plus the employer portion of the related employment Taxes and payroll Taxes thereon), in each case of this clause (c), that the Company is obligated to pay to any director, manager, officer, employee, consultant or independent contractor of the Company or to any other Person as a result of the consummation of the transactions contemplated hereby, (d) the R&W Insurance Expenses, and (e) the Related Party Indebtedness; provided, any amounts with respect to clause (a), (b) and (d), such amounts shall be multiplied by the Allocation Percentage.
“Competing Business” has the meaning set forth in Section 6.3(a)(i).
“ConfidentialCommunications” has the meaning set forth in Section 8.12(b).
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“ConfidentialData” means all data for which the Company is required by Law, Contract or privacy policy to safeguard and/or keep confidential or private, including all Customer Information and all other such data transmitted to the Company by Persons that interact with the Company.
“ConfidentialInformation” means information that is not generally known to the public (including the existence and content of this Agreement), that has a competitive value because of its secrecy, and that is used, developed or obtained by any member of the Seller Group in connection with its business, including, but not limited to, information, observations and data obtained by the Seller during the Seller’s employment with, or ownership of, the Company concerning (A) the business or affairs of the Company, and (B) products, services, fees, costs, pricing structures, analyses, drawings, photographs and reports, computer software (including operating systems, applications and program listings), data bases, accounting and business methods, inventions (whether patentable or unpatentable and whether or not reduced to practice), devices, new developments, methods and processes, customers and clients and customer and client lists, information on current and prospective independent sales agents, software vendors or partners, all technology trade secrets and know how, and all similar and related information in whatever form but shall not include any information that has been published in a form generally available to the public prior to the date of disclosure or use of such information, and through no breach of this Agreement.
“Contract” means any written or oral contract, agreement, purchase order, commitment, engagement letter, Permit, loan or credit agreement, note, bond, mortgage, indenture, lease, sublease, purchase order or other agreement, instrument, concession, franchise or license, including customer contracts, customer orders, royalty and license agreements and rights, and purchase agreements.
“Contributed Interests” has the meaning set forth in the Recitals.
“Contributions” has the meaning set forth in the Recitals.
“Conversion” has the meaning set forth in the Recitals.
“COVID-19” means SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), coronavirus disease or COVID-19.
“COVID-19 Measures” means any quarantine, “shelter in place”, “stay at home”, workforce reduction, social distancing, shut down, closure, sequester or any other similar Law, Order, directive, guidelines or recommendations by any Government Entity in connection with or in response to COVID-19, including, but not limited to, the CARES Act.
“CustomerInformation” means all non-public records, books, reports, data and other information concerning customers of the Company.
“DirectClaim” has the meaning set forth in Section 7.6.
“DisputeNotice” has the meaning set forth in Section 2.7(b)(ii).
“Effective Time” has the meaning set forth in Section 2.3.
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“EmployeeBenefit Plan” means any “employee benefit plan” (within the meaning of Section 3(3) of ERISA) and any other compensation plan, agreement or arrangement providing compensatory benefits, in each case, currently maintained, sponsored or contributed to by the Company on behalf of, relating to, or with respect to any current or former employees, officers, consultants, independent contractors (who are natural persons) or directors of the Company or for which the Company has or may have any other Liability, contingent or otherwise, including, without limitation, by or through an ERISA Affiliate, including (A) any profit-sharing, deferred compensation, bonus, retention, stock option, equity compensation, profits interest, equity-based, equity appreciation, phantom stock, stock purchase, pension, consulting, retirement, change in control, golden parachute, incentive, supplemental retirement, stock appreciation, employment, severance, welfare or incentive plan, agreement or arrangement and (B) any plan, agreement or arrangement providing for “fringe benefits” or perquisites including benefits relating to the Company’s automobiles, clubs, vacation, paid time off, child care, parenting, sabbatical, sick leave, medical, dental, vision, disability, health, welfare, cafeteria plan, hospitalization, and, life insurance; provided, however, that none of the following shall be treated as an Employee Benefit Plan: (i) base salary and hourly wages in the ordinary course to employee.
“Encumbrance” means, with respect to any property or asset, any mortgage, lien, pledge, charge, right of way, security interest, license, encumbrance or other adverse claim of any kind in respect of such property or asset, including any voting or other transfer restrictions, options, right of first refusal, encroachment, easement or other claim.
“EnvironmentalLaw” means any Law relating to, regulating, or imposing an obligation or standards of conduct concerning (i) releases or threatened releases of Hazardous Substances or materials containing Hazardous Substances; (ii) the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Substances or materials containing Hazardous Substances; or (iii) pollution or protection of the environment, worker health and safety and/or natural resources.
“EquityInterests” means (a) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether voting or nonvoting) of capital stock, including each class of common stock and preferred stock of such Person and all securities convertible into or exchangeable for shares of capital stock of such Person, and all options, warrants, and other rights to purchase or otherwise acquire from such Person shares of such capital stock, including any stock appreciation or similar rights, contractual or otherwise and (b) with respect to any Person that is not a corporation, any and all general partnership interests, limited partnership interests, membership units (including each class), membership or limited liability company interests, beneficial interests or other equity interests of or in such Person (including any common, preferred or other interest in the capital or profits of such Person, and whether or not having voting or similar rights) and all securities convertible into or exchangeable for equity interests of such Person, and all options, warrants, and other rights to purchase or otherwise acquire from such Person equity interests, including any equity interest appreciation or similar rights, contractual or otherwise.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the related regulations promulgated thereunder.
“ERISAAffiliate” means any entity that is treated as a single employer with the Company under Section 4001 of ERISA or Section 414(b), (c), (m) or (o) of the Code.
“Estimated BanescoLine of Credit Amount” has the meaning set forth in Section 2.7(a).
“Estimated CompanyCash” has the meaning set forth in Section 2.7(a).
“Estimated CompanyTransaction Expenses” has the meaning set forth in Section 2.7(a).
“F-Reorganization” has the meaning set forth in the Recitals.
“Final AllocationSchedule” has the meaning set forth in Section 6.1(c).
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“Final****Banesco Line of Credit Amount” has the meaning set forth in Section 2.7(c).
“FinalClosing Statement” has the meaning set forth in Section 2.7(c).
“FinalCompany Cash” has the meaning set forth in Section 2.7(c).
“FinalCompany Transaction Expenses” has the meaning set forth in Section 2.7(c).
“FinalNet Working Capital” has the meaning set forth in Section 2.7(c).
“FinalPromissory Note Amount” means an amount equal to:
(a) the sum of:
| (i) | the Company Base Valuation; minus |
|---|---|
| (ii) | the Cash Payment Amount; minus |
| --- | --- |
| (iii) | the amount, if any, by which the Minimum Company Cash exceeds the Final Company Cash; plus |
| --- | --- |
| (iv) | the amount, if any, by which the Final Company Cash exceeds the Minimum Company Cash; minus |
| --- | --- |
| (v) | the Buyer Interest Amount; minus |
| --- | --- |
| (vi) | the amount, if any, by which the Final Banesco Line of Credit Amount exceeds the Maximum Banesco Line<br>of Credit Amount; plus |
| --- | --- |
| (vii) | the amount, if any, by which the Final Banesco Line of Credit Amount is less than the Maximum Banesco<br>Line of Credit Amount; minus |
| --- | --- |
| (viii) | the amount, if any, by which the Target Net Working Capital exceeds the Final Net Working Capital; plus |
| --- | --- |
| (ix) | the amount, if any, by which the Final Net Working Capital exceeds the Target Net Working Capital; |
| --- | --- |
(b) multiplied by the Allocation Percentage, minus
| (i) | the amount, if any, by which the Final Company Transaction Expenses exceeds the Estimated Company Transaction<br>Expenses; plus |
|---|---|
| (ii) | the amount, if any, by which the Estimated Company Transaction Expenses exceeds the Final Company Transaction<br>Expenses. |
| --- | --- |
“FinancialStatements” has the meaning set forth in Section 3.5(a).
“Flow-Thru Entity” means (a) any entity, plan or arrangement that is treated for Income Tax purposes as a partnership, (b) a “specified foreign corporation” within the meaning of Section 965 of the Code, or (c) a “passive foreign investment company” within the meaning of Section 1297 of the Code.
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“Fraud” means an act, committed by a party to this Agreement, with intent to deceive another party to this Agreement, in connection with this Agreement and requires (a) a false representation of material fact made in Article 3, Article 4 or Article 5 by such party; (b) with actual knowledge (not imputed or constructive knowledge) that such representation is false; (c) with an intention to induce the party to whom such representation is made to act or refrain from acting in reliance upon it; (d) causing that party, in justifiable reliance upon such false representation and with ignorance to the falsity of such representation, to take or refrain from taking action; and (e) causing such party to suffer damage by reason of such reliance. For the avoidance of doubt, “Fraud” will not include any type of constructive or equitable fraud or fraud based on recklessness or negligence.
“FundamentalRepresentations” means, collectively, the Seller’s Fundamental Representations and the Buyer’s Fundamental Representations.
“GAAP” means generally accepted accounting principles in the United States, as in effect on the date hereof, and applied on a consistent basis.
“GovernmentEntity” means any government or political subdivision, whether federal, state, provincial, territorial, municipal or local, or any agency or instrumentality of any such government or political subdivision, or any federal, state, provincial, territorial, municipal or local court or arbitrator of competent jurisdiction, or regulatory authority, in each case, whether domestic or foreign.
“HazardousSubstances” means (i) any waste or substance that forms the basis for liability or is regulated under any Environmental Law; and (ii) any substance, material or waste that is defined or classified pursuant to any Environmental Law as a “hazardous waste,” “hazardous material,” “hazardous substance,” “extremely hazardous waste,” “pollutant,” “restricted hazardous waste,” “contaminant,” “toxic waste,” or “toxic substance” or words of similar import, including, without limitation, petroleum, or any fraction or derivative thereof, asbestos or asbestos-containing material, urea formaldehyde, per- and polyfluoroalkyl substances, and polychlorinated biphenyls (PCBs).
“Income Tax” and “Income Taxes” means any Tax that is based upon, measured by, or calculated with respect to net income.
“Income Tax Return” shall mean any Tax Return that relates to Income Taxes.
“Indebtedness” means, at any particular time, without duplication of any amount included in this definition or otherwise in any other component of the definition of “Purchase Price,” any and all outstanding liabilities for the principal amount or aggregate amount, as applicable, of the Company (a) with respect to any borrowed money, whether current, short-term or long-term, secured or unsecured, (b) under any note, bond, performance bond, debenture, letter of credit, bankers’ acceptances or other debt security issued for the Company’s account, (c) with respect to the indebtedness of any Person that is guaranteed by the Company, (d) with respect to any obligations under capitalized leases other than any operating lease liabilities recorded on balance sheet pursuant to ASC842, (e) with respect to borrowed money secured by an Encumbrance on the Company’s assets filed with a Government Entity, (f) with respect to the deferred and unpaid purchase price of property (other than trade and other payables, accrued expenses and other current liabilities) with respect to which the Company is liable, as obligor or otherwise, including all deferred purchase price liabilities related to past acquisitions, whether contingent or otherwise (including any “earn-out” or similar payments or obligations), (g) with respect to interest rate swaps, collars, caps and similar hedging obligations and any interest, commodity or currency rate or exchange protection contracts or transactions, or other contracts or transactions that are intended to benefit from or reduce or eliminate the risk of fluctuations in interest rates, currencies or the price of commodities or any derivatives thereof (valued at the termination value thereof), (h) the amount of underfunding of employer contributions with respect to any retirement plan, and the amount of underfunding with respect to any non-qualified deferred compensation plan, program, agreement or arrangement, (i) with respect to any accrued and unused vacation, paid time off, or sick leave, any accrued and unpaid bonuses, commissions or severance, and any other bonuses and commissions related to the pre-Closing period, and (j) with respect to any obligation for interest, principal, premiums, penalties, fees, make-whole payments, expenses, indemnities, breakage costs and bank overdrafts with respect to items described in clauses (a) through (i) above, whether resulting from payment or discharge or otherwise. For the avoidance of doubt, (i) trade payables, accrued expenses, and other current liabilities, (ii) the deferred purchase price for property that is included in the Company’s inventory, (iii) credit card debt incurred in the ordinary course of business, (iv) undrawn amounts under surety bonds, letters of credit, banker’s acceptances, performance letters, comfort letters, and other arrangements similar to the foregoing, (v) any liability that is taken into account as a Company Transaction Expenses or as a current liability in the Final Net Working Capital to the extent so taken into account, and (vi) the PPP Loans, shall not constitute “Indebtedness” for purposes of this Agreement.
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“Indebtednessof the Company” means Indebtedness of the Company as of immediately prior to the Closing.
“IndemnifiedParty” means the Party entitled to indemnification under Article 7.
“IndemnifiedTaxes” means any of the following Taxes (in each case, whether imposed, assessed, due or otherwise payable directly, as a successor or transferee, jointly and/or severally, pursuant to a Contract or other agreement entered (or assumed) by the Company on or prior to the Closing Date, shown as payable on a Tax Return (including an amended Tax Return), resulting from an adjustment or assessment by a Government Entity by means of withholding or for any other reason and whether disputed or not), without duplication:
(a) All Taxes of the Seller Group (other than Transfer Taxes);
(b) All Taxes of the Company (other than Transfer Taxes, which are governed by clause (d) of this definition) for any Pre-Closing Tax Period (in the case of any Straddle Period, calculated in accordance with Section 6.6(a));
(c) All Taxes of any other Person imposed on the Company (i) pursuant to Treasury Regulation Section 1.1502-6 or any similar provision of state, local or foreign Law by reason of the Company being a member of an Affiliated Group prior to Closing or (ii) pursuant to Contract (other than Ordinary Course Tax Provisions), where such Contract was entered into by the Company prior to the Closing, as a transferee or successor, where such status arose prior to the Closing, or by operation of Law (which Taxes described in this clause (ii) relate to an event or transaction occurring prior to the Closing); and
(d) Transfer Taxes allocable to the Seller as determined under Section 6.6(b).
Notwithstanding the foregoing, to the extent any Taxes (i) are included as a liability in the computation of the Final Net Working Capital, the Final Banesco Line of Credit Amount, Final Company Transaction Expenses or otherwise as a reduction to the Purchase Price, (ii) are attributable to Buyer’s breach of a Tax covenant under Section 6.6, or (iii) arise due to actions taken by Buyer (or any of its Affiliates) on the Closing Date after the Closing that are outside of the ordinary course of business and not expressly contemplated by this Agreement, such Taxes shall not constitute “Indemnified Taxes.”
“IndemnifyingParty” means the Party obligated to provide indemnification under Article 7.
“IndependentAuditor” means Grant Thornton LLP, or if Grant Thornton LLP is unable to serve, a nationally recognized independent accounting firm mutually agreed upon by the Parties, which firm is not the regular auditing firm of the Buyer, the Seller Owners, the Seller, or any of their respective Affiliates.
“Initial Allocation Schedule” has the meaning set forth in Section 6.1(a).
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“Initial Promissory Note Amount” means an amount equal to:
(a) the sum of:
| (i) | the Company Base Valuation; minus |
|---|---|
| (ii) | the Cash Payment Amount; minus |
| --- | --- |
| (iii) | the amount, if any, by which the Minimum Company Cash exceeds the Estimated Company Cash; plus |
| --- | --- |
| (iv) | the amount, if any, by which the Estimated Company Cash exceeds the Minimum Company Cash; minus |
| --- | --- |
| (v) | the Buyer Interest Amount; minus |
| --- | --- |
| (vi) | the amount, if any, by which the Estimated Banesco Line of Credit Amount exceeds the Maximum Banesco Line<br>of Credit Amount; minus |
| --- | --- |
| (vii) | the amount, if any, by which the Estimated Banesco Line of Credit Amount is less than the Maximum Banesco<br>Line of Credit Amount; minus |
| --- | --- |
| (viii) | the amount, if any, by which the Target Net Working Capital exceeds the Closing Net Working Capital; plus |
| --- | --- |
| (ix) | the amount, if any, by which the Closing Net Working Capital exceeds the Target Net Working Capital; |
| --- | --- |
(b) multiplied by the Allocation Percentage.
“IntellectualProperty” means all of the following worldwide: (a) trademarks, service marks, certification marks, logos, slogans, tag lines, Internet domain names, social media accounts and webpages, trade dress, trade or business names, fictitious business names (d/b/a’s), and other identifiers of source or business or designators of origin (all whether registered or unregistered), all applications and registrations for any of the foregoing, all renewals and extensions thereof, and all common law rights in and goodwill associated with any of the foregoing (collectively, “Trademarks”); (b) patents (utility and design), industrial designs and utility models, invention disclosures and applications for any of the foregoing, and all including divisions, continuations, continuations-in-part, provisionals, renewal applications and renewals, extensions, reexaminations and reissues; and all patents, applications, documents and filings claiming priority to or serving as a basis for priority thereof; (c) proprietary information, Confidential Information and trade secrets, including know-how, inventions (whether or not patentable), invention disclosures, ideas, improvements, developments, designs, drawings, methods, specifications, processes, techniques, formulae, research and development, compilations, compositions, manufacturing processes, production processes, devices, customer lists, vendor lists, supplier lists, sales records/databases, pricing information, cost information, business plans, business proposals, technical information, technical data, specifications, reports, analyses, data analytics, marketing information, marketing plans, marketing proposals, algorithms, source code, object code, Software and applications (collectively, the “Trade Secrets”); (d) works of authorship, copyrights, mask work rights, database rights, design rights and Software, all whether registered or unregistered, registrations and applications for any of the foregoing, and renewals, extensions, restorations and reversions thereof; and all moral rights associated with any of the foregoing; and all economic rights of authors and inventors, however denominated, associated with any of the foregoing; (e) any rights recognized under applicable Law that are equivalent or similar to any of the foregoing; and (f) all other intellectual property rights of any nature, including the right to recover for damages and profits for past and future infringement or other violation of any part of the foregoing.
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“InterimBalance Sheet Date” has the meaning set forth in Section 3.5(a)(ii).
“IPAgreements” means all Contracts relating to the development, ownership, use, registration or enforcement of, or exercise of any rights under, any Intellectual Property, excluding: (i) “shrink wrap,” “click through,” “browse wrap” or other license agreements for commercially available off-the-shelf Software having an annual license fee of less than Ten Thousand Dollars ($10,000) that is not incorporated in, linked to, distributed with or used to host or provide any Company product or service or Owned Software, and (ii) non-exclusive licenses granted by the Company to its customers in the ordinary course of business consistent with past practice in the form provided by the Company to the Buyer.
“IRS” means the Internal Revenue Service or any successor entity.
“Knowledge” of any Person means the actual knowledge of such Person after making reasonable inquiry and exercising such due diligence as a prudent businessperson would have made or exercised in the management of his or her business affairs. When used with respect to (i) any Seller, the term “Knowledge of the Seller Group,” means the knowledge of the Seller and each of the Seller Owners, and (ii) with respect to the Company, the term “Knowledge of the Company” means the knowledge of each Seller Owner and Rafael Sonder.
“Law” means any constitutional provision, statute or other law, rule, regulation, treaty, convention, directive, legislation, ordinance, decree, requirement, proclamation, judgment or interpretation, holding or rule of construction of any Government Entity or any similar provision having the force of law, including, without limitation, any Order and any Permit, and the common law.
“LeasedReal Property” means all leasehold or sub-leasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures or other interest in the real property held by the Company.
“LeasedWorker” means any contingent worker or worker provided by a staffing company, temporary employee agency, professional employer organization or similar entity.
“Leases” means all leases, subleases, licenses and other Contracts, including all amendments, extensions, renewals, guaranties and other agreements with respect thereto, pursuant to which the Company holds any Leased Real Property, including the right to all security deposits and other amounts and instruments deposited by or on behalf of the Company thereunder.
“Liability” or “Liabilities” means any or all obligations (whether to make payments, to give notices or to perform or not perform any action and including as related to Taxes), commitments, contingencies and other liabilities of a Person (whether known or unknown, asserted or unasserted, absolute, accrued, unaccrued, contingent, fixed or otherwise, determined or determinable, liquidated or unliquidated and whether due or to become due).
“Lock-Up Agreement” has the meaning set forth in Section 2.4(a)(iv).
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“Losses” means any and all losses, Taxes, claims, shortages, damages, liabilities, expenses (including reasonable attorneys’ and accountants’ and other professionals’ fees, litigation expenses and other costs of investigation or defense) assessments, penalties, interest and expenses provided, that, except as awarded by a competent tribunal to a third party in connection with Third Party Claims, “Loss” will not include any punitive, special or exemplary damages.
“Malware” means any virus, Trojan horse, worm, back door, time bomb, drop dead device or other Software routine designed to disable a computer program automatically with the passage of time or under the positive control of a Person other than the user of the program, or other Software routines or hardware components designed to permit unauthorized access, to disable, erase or otherwise harm Software, hardware or data.
“MaterialAdverse Effect” means any state of facts, change, event, effect or occurrence (whether or not constituting a breach of a representation, warranty or covenant set forth in this Agreement) that, individually or in the aggregate, is or would reasonably be expected to be materially adverse to the businesses, financial condition, results of operations, properties, assets or liabilities of the Company; provided, however, none of the following (nor the effects thereof) shall be deemed, individually or in the aggregate, to constitute, and none of the following (nor the effects thereof) shall be taken into account in determining whether there has been or will be, a Material Adverse Effect: (i) changes or conditions generally affecting the United States economy or financial markets or foreign economies or financial markets; (ii) changes in or developments generally affecting the industry in which the Company operates; (iii) any failure, in and of itself, by the Company to meet internal or other estimates, predictions, projections or forecasts of revenue, net income or any other measure of financial performance (it being understood that, with respect to clause (iii), the facts or circumstances giving rise or contributing to such failure to meet estimates, predictions, projections or forecasts may be deemed to constitute, or be taken into account in determining whether there has been, a Material Adverse Effect); (iv) any changes in Law or GAAP becoming effective after the date hereof; (v) changes or conditions resulting from acts of war, terrorism. Pandemics, or nature or political or regulatory conditions; (vi) changes resulting solely from the announcement of the transactions contemplated by this Agreement (including, but not limited to, any resulting adverse changes in the Company’s relationship with its employees, customers, partners or suppliers), in each case to the extent resulting from the identity of the Buyer or any of its Affiliates as the acquirer of the Company; (vii) any action taken by the Company on or after the Closing Date that is contemplated or required by this Agreement or otherwise taken at the written request or with the written consent of the Buyer; (viii) any natural disasters, pandemics, or acts of God; provided, further, however, that clauses (i), (ii), (iv), (v), and (viii) shall not apply to the extent such effect, change, circumstance, development or event has had a disproportionate impact on the Company (taken as a whole), compared to other participants in their industry (in which case only the incrementally disproportionate effect may be taken into account in determining whether a Material Adverse Effect has occurred).
“MaterialContract” has the meaning set forth in Section 3.10(a).
“MaterialCustomers” has the meaning set forth in Section 3.23(a).
“MaterialSuppliers” has the meaning set forth in Section 3.24(a).
“Maximum BanescoLine of Credit Amount” means $5,265,000.
“Minimum CompanyCash” means an amount equal to $1,829,000.
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“Net Working CapitalCalculation” means the calculation set forth on Schedule 1.1(a).
“Non-RecourseParty” means, with respect to a party, any of such party’s former, current, and future equity holders, controlling Persons, directors, officers, employees, agents, representatives, Affiliates, members, managers, general or limited partners, or assignees (or any former, current, or future equity holder, controlling Person, director, officer, employee, agent, representative, Affiliate, member, manager, general or limited partner, or assignee of any of the foregoing).
“Note Interests” has the meaning set forth in the Recitals.
“Operating Line” has the meaning set forth in Section 6.3(a)(i).
“Order” means any decree, compliance agreement, injunction, judgment, order, ruling, assessment or writ, edict, decision, opinion, stipulation or award issued, entered or rendered by, and any other legally binding determinations of, any Government Entity or self-regulatory organization.
“Ordinary CourseTax Provisions” has the meaning set forth in Section 3.8(m).
“OrganizationalDocuments” means (a) the articles or certificate of incorporation and the bylaws of a corporation, (b) operating agreement, limited liability company agreement or similar document governing a limited liability company, (c) any charter or similar document adopted or filed in connection with the creation, formation or organization of a Person, (d) a trust agreement or similar document of a trust and all documents relating to the rights of the trustees and the beneficiaries thereunder and (e) any amendment to any of the foregoing.
“OwnedIntellectual Property” means all Intellectual Property owned or purported to be owned by the Company.
“OwnedSoftware” means all Software that is Owned Intellectual Property.
“Parties” or “Party” has the meaning set forth in the Preface.
“Payables” has the meaning set forth in Section 3.21(a).
“Permit” means any consent, qualification, license, authorization, certificate, filing or registration, approval, exception, classification, variance, permit, franchise or certificate of authority, or any waiver of the foregoing and similar documents, required to be issued by or any rights obtained or required to be obtained from, any Government Entity.
“PermittedEncumbrance” means (i) Encumbrances for Taxes not yet due and payable, (ii) Encumbrances that are being contested in good faith and for which adequate reserves have been recorded on the books of the Company, and (iii) statutory Encumbrances of landlords and Encumbrances of carriers, warehousemen, mechanics, materialmen and repairmen incurred in the ordinary course of business and not yet delinquent, (iv) statutory Encumbrances in favor of lessors arising in connection with any Leased Real Property, and (v) Encumbrances relating to the Banesco Line of Credit.
“Person” means any individual, sole proprietorship, partnership, corporation, association, trust, limited liability company or partnership, joint venture, unincorporated organization or other entity, or any Government Entity or quasi-Government Entity.
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“PersonalInformation” means any data that identifies, relates to, describes, is reasonably capable of being associated with, or would reasonably be linked, directly or indirectly, with a particular individual or household, including: name; Social Security number; government-issued identification numbers; health or medical information, including health insurance information; financial account information; passport numbers; user names/email addresses in combination with a password or security code that would allow access to an online account; unique biometric identifiers (e.g., fingerprints, retinal scans, face scans, or DNA profile); employee ID numbers; date of birth; digital signature; and Internet Protocol (IP) addresses; or any other data that constitutes personal information or personal data under applicable Law.
“PPP Loan” and “PPP Loans” has the meaning set forth in Section 3.27(c).
“Pre-ClosingTax Period” means any taxable period ending on or before the Closing Date and the portion of any Straddle Period ending on the Closing Date.
“Privacyand Security Requirements” means, to the extent applicable to the Company, (a) any Laws regulating the Processing of Personal Information including, without limitation, Section 5 of the Federal Trade Commission Act, all state Laws related to unfair or deceptive trade practices, the Fair Credit Reporting Act (“FCRA”), the Controlling the Assault of Non-Solicited Pornography And Marketing Act of 2003 (“CAN-SPAM”), all Laws related to online privacy policies, the Telephone Consumer Protection Act (“TCPA”), the Illinois Biometric Information Privacy Act (“BIPA”), all Laws related to faxes, telemarketing and text messaging, and all Laws related to breach notification; (b) all Laws related to the Processing of Confidential Data; (c) the Payment Card Industry Data Security Standard issued by the PCI Security Standards Council, as it may be amended from time to time (“PCI DSS”); (d) all Contracts between the Company and any Person that is applicable to the PCI DSS and/or the Processing of Protected Data; and (e) all policies and procedures applicable to the Company relating to the PCI DSS and/or the Processing of Protected Data, including without limitation all website and mobile application privacy policies and internal information security procedures.
“PrivateResolution Period” has the meaning set forth in Section 2.7(c).
“Pro Rata Share” means, with respect to each Seller Owner, the percentage set forth the Flow of Funds Memorandum, which amounts will total to exactly one hundred percent (100%).
“Process” means the creation, collection, use (including, without limitation, for the purposes of sending telephone calls, text messages and emails), storage, maintenance, processing, recording, distribution, transfer, transmission, receipt, import, export, protection, safeguarding, access, disposal or disclosure or other activity regarding data (whether electronically or in any other form or medium).
“Promissory Note” has the meaning set forth in Section 2.2(b).
“ProtectedData” means Personal Information and Confidential Data.
“PubliclyAvailable Software” means (i) any Software that contains, or is derived in any manner (in whole or in part) from, any Software that is distributed as free software or open source software (e.g., Software distributed under the GNU General Public License, the GNU Lesser General Public License, the Afero General Public License or the Apache Software License), or pursuant to open source, copyleft or similar licensing and distribution models; and (ii) any Software that requires as a condition of use, modification and/or distribution of such Software that such Software or other Software incorporated into, derived from, or distributed with such Software (A) be disclosed or distributed in source code form, (B) be licensed for the purpose of making derivative works or (C) be redistributable at no or minimal charge.
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“Purchase Price” has the meaning set forth in Section 2.2.
“Purchased Interests” has the meaning set forth in the Recitals.
“R&W InsuranceExpenses” means all costs and expenses related to the procurement and binding of the R&W Insurance Policy, including the total premium, underwriting costs, brokerage commission, Taxes related to such policy, and any other fees and expenses related to such policy.
“R&W InsurancePolicy” means that certain Buyer-Side Representations and Warranties Insurance Policy to be issued following the Closing Date by R&W Insurance Provider, and bound as of the date of this Agreement, in each case, pursuant to the binder agreement by and between Buyer and R&W Insurance Provider in the form set forth on Exhibit G.
“R&W InsuranceProvider” means Berkley Transactional.
“Receivables” has the meaning set forth in Section 3.21(b).
“Records” means all records of the Company, including expiration records, client or broker information and files, client or broker lists, prospective client or broker lists, files, books and operating data, policy expiration information, invoices, databases, manuals and other materials, whether in print, electronic or other media, confidential information, books of account, correspondence, financial, sales, market and credit information and reports, drawings, patterns, slogans, market research and other research materials.
“RegisteredIntellectual Property” means all of the Owned Intellectual Property that is the subject of an application (pending or otherwise), certificate, filing, registration or other document issued by, filed with, or recorded by any Government Entity, quasi-Government Entity or registrar.
“RegistrationRights Agreement” has the meaning set forth in Section 2.4(a)(iii).
“RelatedParty” means a Seller Owner, a Seller or an Affiliate of any Seller Owner, Seller, or the Company (in each case, other than the Company).
“Related PartyIndebtedness” means the calculation set forth on Schedule 1.1(c).
“Release” means any release, spill, leaking, pumping, pouring, emission, migration, emptying, depositing, discharging, injection, escape, leaching, disposal or dumping into the environment.
“ReleasedPersons” has the meaning set forth in Section 6.5(a).
“ReleasingParties” has the meaning set forth in Section 6.5(a).
“Response Period” has the meaning set forth in Section 7.6.
“RestrictedCash” means Cash subject to a lockbox, dominion, control or similar agreement, or otherwise subject to any legal or contractual restriction on the ability to freely transfer or use such Cash for any lawful purpose. For the avoidance of doubt, (i) Cash in reserve accounts, including chargeback reserve accounts, trust accounts, custodial and similar accounts, or Cash in the form of merchant and similar deposits, shall be considered “Restricted Cash” and (ii) notwithstanding clause (i) of this definition, amounts subject to a legal or contractual restriction to pay the Company Transaction Expenses or the Banesco Line of Credit Amount will not constitute “Restricted Cash” and (iii) negative covenants relating to the making of advances, distributions and loans under the Banesco Loan Agreement will not cause the Cash of the Company to constitute “Restricted Cash.”
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“RestrictedPeriod” means the time period commencing on the Closing Date and ending on the fifth anniversary of the Closing Date.
“RestrictedTerritory” means Worldwide.
“ReviewPeriod” has the meaning set forth in Section 2.7(b)(ii).
“SBA” means the United States Small Business Administration.
“SecuritiesAct” means the Securities Act of 1933, as amended, or any successor federal law, and the rules and regulations promulgated thereunder, all as the same may from time to time be in effect.
“SecurityBreach” means any actual (i) unauthorized access, acquisition, use, disclosure, modification, deletion or destruction of information (including Protected Data); (ii) unauthorized interference with system operations or security safeguards of the Company IT Assets that results in a cessation of business operations; or (iii) phishing incident or ransomware attack.
“Seller” has the meanings set forth in the Preface.
“Seller Affiliates” has the meaning set forth in Section 6.9.
“Seller ControlledTax Contest” has the meaning set forth in Section 6.6(c)(ii).
“Seller’sFundamental Representations” means the representations and warranties contained in Sections 3.1 (Organization), 3.2 (Capitalization), 3.3 (Authorization; Enforceability), 3.28 (No Brokers or Finders), 4.1 (Organization), 4.2 (Title), 4.3 (Authorization; Enforceability), 4.6 (No Brokers or Finders), and 4.8 (Investment Representations).
“Seller Group” means the Seller and the Seller Owners.
“Seller Owners” means the shareholder(s) of Seller.
“Seller PreparedReturn” has the meaning set forth in Section 6.6(d)(i).
“Seller’sReleased Claims” has the meaning set forth in Section 6.5(a).
“Seller’sRepresentative” has the meaning set forth in the Preface.
“Software” means all forms of software, applications, firmware, middleware, development tools, comments, user interfaces, menus, buttons, icons, databases and collections of data (whether in source code or object code form), and all files, data, scripts, application programming interfaces, manuals, design notes, programmers’ notes, algorithms and other items and documentation related to any of the foregoing or associated therewith; and any derivative works, foreign language versions, fixes, upgrades, updates, enhancements, new versions, previous versions, new releases and previous releases thereof; and all media and other tangible property necessary for the delivery or transfer thereof.
“StatutoryRepresentations” means the representations and warranties contained in Section 3.8 (Tax).
“StraddlePeriod” has the meaning set forth in Section 6.6(a).
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“Subsidiary” means any corporation, partnership, limited liability company, association or other business entity of which (a) if a corporation, a majority of the total voting power of shares of stock entitled (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (b) if a partnership, limited liability company, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof.
“TargetNet Working Capital” means $22,986,000.
“Tax” means any gross or net income, gross or net receipts, gross or net proceeds, capital gains, sales and use, user, lease, leasing, excise, fuel, interest equalization, registration, occupation, turnover, franchise, real and personal property (tangible or intangible), transfer, ad valorem, value added, gross or net receipt, capital stock, production, business and occupation, profits, license, estimated, goods and services, stamp, recording, premium, unclaimed or abandoned property or other escheat, social security, environmental, natural resources, gaming, estimated, alternative or add-on, registration, windfall or excess profits, disability, unemployment, employment, payroll, severance or withholding tax, or other tax or customs duties, or other charge or amount in the nature of a tax imposed by (or otherwise payable to) any Government Entity, including any interest, penalties, additions to tax and additional amounts related thereto, in each case, whether disputed or not.
“TaxContest” has the meaning set forth in Section 6.6(c)(i).
“TaxReturn” means a report, return, information return, declaration, claim for refund or other document or statement (including amendments) required to be filed with (or actually filed with) a Government Entity or third party with respect to Taxes, including any schedule or attachment thereto and any amendment thereof.
“Texas Courts” has the meaning set forth in Section 8.4(b).
“ThirdParty Claim” has the meaning set forth in Section 7.5(a).
“ThirdParty Claim Notice” has the meaning set forth in Section 7.5(a).
“TradeSecrets” has the meaning set forth in the definition of Intellectual Property.
“Trademarks” has the meaning set forth in the definition of Intellectual Property.
“TransferTaxes” has the meaning set forth in Section 6.6(b).
“Treasury Regulations” means the final and temporary United States federal income tax regulations promulgated under the Code.
“USAPatriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, as such may be amended from time to time.
“XTI” means XTI Aerospace, Inc., a Nevada corporation.
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Article 2
CONTRIBUTION, SALE AND TRANSFER OF ACQUIRED INTERESTS
2.1 Contribution,Purchase and Sale. Subject to the terms and conditions set forth in this Agreement and in reliance upon the representations and warranties set forth herein, at the Closing, the Seller shall contribute, sell, assign and transfer to the Buyer, and the Buyer shall accept, purchase and acquire from the Seller, all right, title and interest in and to the Acquired Interests, free and clear of all Encumbrances (other than restrictions on transfer under federal and state securities Laws).
**2.2 Consideration.**The aggregate consideration to be paid by the Buyer for the Acquired Interests (the “Purchase Price”) shall be equal to the following consideration set forth in Section 2.2(a), Section 2.2(b), and Section 2.2(c), subject to adjustment as otherwise provided herein.
(a) The aggregate cash consideration to be paid by the Buyer to the Seller in exchange for the Purchased Interests shall be an amount equal to the Cash Payment Amount multiplied by the Allocation Percentage.
(b) The aggregate consideration to be paid by the Buyer to the Seller in exchange for the Note Interests shall be the delivery of the promissory note payable to the Seller in the original principal amount equal to the Initial Promissory Note Amount, substantially in the form provided on Exhibit A (the “Promissory Note”) (subject to adjustment as further provided for herein).
(c) The aggregate consideration to be paid by the Buyer in exchange for the Contributed Interests shall be the issuance of the Buyer Interests free and clear of any and all Encumbrances (other than pursuant to the Company Agreement of the Buyer, the Joinder Agreement, and under any applicable federal and/or state securities Laws) by the Buyer to the Seller. The Buyer Interests shall be issued subject to the terms of the Company Agreement of the Buyer and the Joinder Agreement.
2.3 Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall take place effective as of 11:59 p.m. Eastern Time on the Closing Date (the “Effective Time”) remotely via electronic exchange of documents and signatures, or at such other time and place as may be agreed to by the Parties hereto in writing.
2.4 ClosingDeliverables; Payments.
(a) Deliverablesof the Seller Group. At or prior to the Closing, the Seller Group shall deliver, or cause to be delivered, to the Buyer the following:
(i) (A) to the extent the Acquired Interests are certificated, certificates evidencing the Acquired Interests, duly endorsed in blank or accompanied by powers duly executed in blank or other duly executed instruments of transfer as required in order to validly transfer title in and to the Acquired Interests to the Buyer, free and clear of all Encumbrances (other than restrictions on transfer under federal and state securities Laws), and (B) to the extent the Acquired Interests are not certificated, other customary evidence (reasonably acceptable to the Buyer) as may be necessary to transfer the ownership of the Acquired Interests to the Buyer, free and clear of all Encumbrances (other than restrictions on transfer under federal and state securities Laws);
(ii) duly executed counterparts of the Company Agreement of the Buyer and/or a Joinder Agreement, by and between the Buyer and the Seller, substantially in the form attached hereto as Exhibit C (the “Joinder Agreement”);
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(iii) a duly executed counterpart of the Registration Rights Agreement, by and between XTI and the Seller, substantially in the form attached hereto as Exhibit D (the “Registration Rights Agreement”);
(iv) a duly executed counterpart of the Lock-Up Agreement, by and between XTI and the Seller, substantially in the form attached hereto as ExhibitE (the “Lock-Up Agreement”);
(v) a certificate of an authorized officer of the Company, dated as of the Closing Date, certifying as to the accuracy of, and attaching with respect to the Company, (A) the Company’s Organizational Documents, (B) the incumbency of its officers executing this Agreement and each Ancillary Agreement to which it is a party and (C) the resolutions of the Company’s governing body authorizing the execution and delivery of this Agreement, the Ancillary Agreements and the performance of the transactions contemplated hereby and thereby;
(vi) a certificate of good standing of the Company issued by the responsible Government Entity of the jurisdiction of its formation, dated as of a date not more than ten (10) Business Days prior to the Closing Date, certifying as to the good standing of the Company;
(vii) a certificate of an authorized officer of the Seller, dated as of the Closing Date, certifying as to the accuracy of (A) Seller’s Organizational Documents, (B) the incumbency of its officers executing this Agreement and each Ancillary Agreement to which it is a party and (C) the resolutions of the Seller’s governing body authorizing the execution and delivery of this Agreement, the Ancillary Agreements, and the performance by such Seller of the transactions contemplated hereby and thereby;
(viii) a certificate of good standing with respect to the Seller issued by the responsible Government Entity of the jurisdiction of its formation, dated as of a date not more than ten (10) Business Days prior to the Closing Date, certifying as to the good standing of such Seller;
(ix) evidence, in form and substance reasonably satisfactory to the Buyer, that the consents, notices and approvals set forth in Schedule 2.4(a)(ix) of the Seller Disclosure Schedule have been obtained;
(x) resignations, or other evidence of removal, of the managers and officers of the Company, as reasonably requested by the Buyer;
(xi) a properly completed and executed IRS Form W-9 from Seller certifying that Seller is a “U.S. person” and is not subject to United States backup withholding;
(xii) evidence, in form and substance reasonably satisfactory to the Buyer, that the Affiliate Agreements set forth on Schedule 2.4(a)(xii) of the Seller Disclosure Schedule will terminate effective as of the Closing;
(xiii) an invoice from each Person entitled to payment of the Company Transaction Expenses;
(xiv) a memorandum setting forth the flow of funds in connection with the Closing, consistent with the terms of this Agreement (the “Flowof Funds Memorandum”), duly certified and executed by the Seller Group; and
(xv) all other documents, instruments, and agreements as the Buyer reasonably request for the purpose of consummating the transactions contemplated by this Agreement.
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(b) Deliverablesof the Buyer. At or prior to the Closing, the Buyer shall deliver, or cause to be delivered, to the Seller Group the following:
(i) the duly executed Promissory Note;
(ii) a duly executed counterpart of the Company Agreement of the Buyer and/or Joinder Agreement;
(iii) a duly executed counterpart by XTI of the Registration Rights Agreement;
(iv) a duly executed counterpart by XTI of the Lock-Up Agreement;
(v) a certificate of an authorized officer of the Buyer, dated as of the Closing Date, certifying as to the accuracy of, and attaching with respect to the Buyer, (A) the incumbency of its officers executing this Agreement and each Ancillary Agreement to which it is a party and (B) the resolutions of the Buyer’s governing body authorizing the execution and delivery of this Agreement, the Ancillary Agreements, and the performance by the Buyer of the transactions contemplated hereby and thereby;
(vi) the Flow of Funds Memorandum, duly executed by the Buyer;
(vii) confirmation from the R&W Insurance Provider (which may be via email) that the R&W Insurance Policy will be fully bound as of Closing; and
(viii) all other documents, instruments, and agreements as the Seller Group may reasonably request for the purpose of consummating the transactions contemplated by this Agreement.
(c) Paymentsat Closing. At the Closing, the Buyer shall:
(i) pay to the Seller an amount in cash equal to the sum of (1) the Cash Payment Amount multiplied by the Allocation Percentage minus (2) the Estimated Company Transaction Expenses, by wire transfer of immediately available funds to an account or accounts set forth on the Flow of Funds Memorandum; and
(ii) pay to the payees of the Company Transaction Expenses the amounts payable thereto in accordance with the invoices and wire transfer instructions delivered by the Seller to the Buyer prior to the Closing; provided, that any such amounts that are payable to an employee of the Company shall be paid by depositing such amount in the applicable payroll account of the Company and such amounts shall be promptly remitted by the Company (net of applicable withholding Taxes) to the applicable payee.
2.5 ConsiderationAllocation. The Seller shall receive, in respect of their respective transfer of the Acquired Interests pursuant to Section 2.2, (i) the Cash Payment Amount multiplied by the Allocation Percentage, (ii) the Promissory Note, and (iii) that number of Buyer Interests set forth next to the Seller’s name on Schedule I. The Seller and each member of the Seller Group agrees to the allocation and the amounts set forth on Schedule I and waives any claims that it may have against the Buyer, the Seller’s Representative, the Company or any of their respective Affiliates in connection with the preparation of such schedule or the payment of any amounts hereunder (including the payment of the Cash Payment Amount, the Initial Promissory Note Amount, or any adjustment thereto) in accordance therewith.
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2.6 Withholding. The Buyer and the Company will be entitled to deduct and withhold from any amount payable pursuant to this Agreement (including payments of the Purchase Price) such amounts as are required to be deducted and withheld with respect to the making of such payment under the Code or any other provision of applicable Law. To the extent that Buyer or the Company, as applicable, becomes aware of any obligation of such payor to deduct and withhold from the consideration otherwise payable pursuant to this Agreement (other than compensatory payments or as a result of Seller’s failure to provide IRS Form W-9 as contemplated under Section 2.4(a)(xii)), Buyer shall notify Seller in writing before the payment of such obligation and the Parties will use commercially reasonable efforts to eliminate or reduce any deduction or withholding. To the extent that amounts are so withheld by the Buyer or the Company and paid over to an applicable Government Entity, such amounts will be treated for all purposes of this Agreement as having been paid to the Person in respect of whom such deduction and withholding were made.
2.7 NetWorking Capital Adjustment.
(a) Pre-ClosingAdjustment. The Seller’s Representative has prepared in good faith and delivered to the Buyer a statement (the “EstimatedClosing Statement”) setting forth an estimated, unaudited balance sheet of the Company as of the Effective Time and the following with respect to the Company: (i) good faith estimated calculations of (A) Company Cash (the “Estimated Company Cash”), (B) Company Transaction Expenses (the “Estimated Company Transaction Expenses”), (C) the Banesco Line of Credit Amount (the “Estimated Banesco Line of Credit Amount”), and (D) the Closing Net Working Capital, and (ii) the Initial Promissory Note Amount calculated using the amounts set forth in the Estimated Closing Statement.
(b) Post-ClosingAdjustment.
(i) No later than ninety (90) days following the Closing Date, the Buyer shall prepare in good faith and deliver to the Seller’s Representative a statement (the “Closing Statement”) setting forth an unaudited balance sheet of the Company as of the Effective Time and the Buyer’s calculation of (A) the Banesco Line of Credit Amount, (B) Company Cash, (C) the Company Transaction Expenses, (D) the Closing Net Working Capital, (E) the amount, if any, by which the Target Net Working Capital exceeds the Closing Net Working Capital, and (F) the proposed Final Promissory Note Amount calculated using the amounts set forth in the Closing Statement. The Seller Group shall use commercially reasonable efforts to cooperate with the Buyer and their accountants and other advisors in connection with the preparation of the Closing Statement. If the Buyer fails to deliver the Closing Statement to the Seller’s Representative within the ninety (90) day period specified in this Section 2.7(b)(i), then the Estimated Closing Statement and the Flow of Funds Memorandum shall be deemed the Closing Statement and the Seller’s Representative may exercise his rights pursuant to this Section 2.7. The parties agree that the purpose of preparing the Closing Statement and determining the Closing Net Working Capital, the Banesco Line of Credit Amount, Company Transaction Expenses, and Company Cash is to measure the amount of the Closing Net Working Capital, the Banesco Line of Credit Amount, Company Transaction Expenses, and Company Cash calculated in accordance with the Net Working Capital Calculation, and such processes are not intended to permit the introduction of different or new judgments, accounting methods, policies, principles, practices, procedures, classifications or estimation methodologies other than the Net Working Capital Calculation for the purpose of preparing the Closing Statement or determining the Closing Net Working Capital, the Banesco Line of Credit Amount, Company Transaction Expenses, and Company Cash. The Closing Statement shall not make purchase accounting adjustments arising out of the transactions contemplated by this Agreement and shall entirely disregard (I) any and all effects on the assets or liabilities of the Company as a result of the transactions contemplated by this Agreement or of any financing or refinancing arrangements entered into at any time by the Buyer or its Affiliates or any other transaction entered into by the Buyer or its Affiliates in connection with the consummation of the transactions contemplated by this Agreement, and (II) any of the plans, transactions, or changes which the Buyer intends to initiate or make or cause to be initiated or made after the Closing with respect to the Company or its business or assets, or any facts or circumstances that are unique or particular to the Buyer or its Affiliates or any of their assets or liabilities. For the avoidance of doubt, unless the Seller’s Representative otherwise agrees in writing, the Buyer may not amend, adjust, supplement, or modify the Closing Statement or any amounts set forth therein following their delivery to the Seller’s Representative.
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(ii) The Seller’s Representative shall have a period of thirty (30) days from the receipt of the Closing Statement (the “ReviewPeriod”) to review the Closing Statement. To the extent reasonably required to complete such review of the Closing Statement, for the duration of the Review Period and the pendency of any dispute, the Buyer will, upon written request, provide the Seller’s Representative and his Representatives with reasonable access during normal business hours to all working papers in the Buyer’s or its Representatives’ possession or control to the extent related to the preparation of the Closing Statement. If, as a result of such review:
(A) the Seller’s Representative agrees with the Closing Statement, the Seller’s Representative shall deliver to the Buyer a written notice of agreement and the Closing Statement will be final, binding and non-appealable by the Seller Group;
(B) the Seller’s Representative disagrees with the Closing Statement, the Seller’s Representative shall deliver to the Buyer a written notice of disagreement (a “Dispute Notice”) prior to the expiration of the Review Period, setting forth the nature (with reasonable supporting detail) and amount of such disagreement and the Seller’s Representative’s determination thereof; provided, for the avoidance of doubt, the Parties agree that the Buyer’s failure to provide reasonable access required by Section 2.7(b)(ii) shall be deemed a sufficient basis for an objection by the Seller’s Representative.
(iii) If the Seller’s Representative does not deliver a Dispute Notice within the Review Period, then the Seller’s Representative will be deemed to have irrevocably accepted the Closing Statement delivered by the Buyer pursuant to this Section 2.7, in which case, the amounts set forth in the Closing Statement shall be final, binding, and non-appealable by the Seller Group.
(c) Resolutionof Disputes. If the Seller’s Representative delivers a Dispute Notice in accordance with this Section 2.7, then the Buyer and the Seller’s Representative shall attempt in good faith to resolve such dispute within thirty (30) days from the date of the Dispute Notice (or such longer period as the Parties may mutually agree in writing) (the “Private Resolution Period”). If the Buyer and the Seller’s Representative are unable to reach an agreement within the Private Resolution Period, then either the Buyer or the Seller’s Representative may refer the specific items in dispute to an Independent Auditor. As promptly as practicable thereafter, but no later than fifteen (15) days after the engagement of the Independent Auditor the Buyer, on the one hand, and the Seller’s Representative, on the other hand, shall each prepare and submit a presentation to the Independent Auditor. The Independent Auditor shall work to resolve such dispute promptly and, to the extent practicable, within thirty (30) days from the date the dispute is submitted to the Independent Auditor. The Independent Auditor shall act based solely on the presentations of the Buyer and Seller’s Representative and not by independent review. Any item not specifically referred to the Independent Auditor for evaluation shall be deemed final and binding on the parties. The scope of the disputes to be arbitrated by the Independent Auditor shall be limited to whether the preparation of the Closing Statement and the calculations therein were in accordance with this Section 2.7 (including whether the applicable items thereon were calculated in accordance with this Section 2.7), and the Independent Auditor shall not make any other determination. Any and all determinations by the Independent Auditor shall be made in strict accordance with the terms of this Agreement, without regard to principles of equity, and the Independent Auditor shall act as an expert and not an arbitrator. In resolving any disputed item, the Independent Auditor may not assign a value to any item greater than the greatest value for such item claimed by any Party or less than the lowest value for such item claimed by any Party. The Independent Auditor shall deliver to the Buyer and the Seller’s Representative a written opinion setting forth the final determination of the disputed amounts set forth on the Closing Statement, calculated in accordance with the provisions of this Agreement (such written opinion to include a worksheet setting forth all calculations used in arriving at such determination by the Independent Auditor and to be based solely on information provided to the Independent Auditor by the Seller’s Representative or the Buyer). The determination of the Independent Auditor shall be final and binding (absent manifest error), effective as of the date the Independent Auditor’s written opinion is received by the Buyer and the Seller’s Representative. The fees, costs and expenses of the services of the Independent Auditor shall be allocated between the Buyer, on the one hand, and the Seller’s Representative, on the other hand, in the same proportion that the aggregate amount of such unsuccessfully disputed items by each such Party (as finally determined by the Independent Auditor) bears to the total amount of such resolved disputed items so submitted to the Independent Auditor. The term “Final Closing Statement,” as used in this Agreement, shall mean the Closing Statement if deemed final in accordance with Sections 2.7(b)(ii) or 2.7(c) and each item set forth in the Final Closing Statement shall be the “Final Company Cash,” “Final Company Transaction Expenses” “FinalBanesco Line of Credit Amount,” and “Final Net Working Capital.”
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(d) FinalSettlement. Upon the determination of the Final Closing Statement, the Initial Promissory Note Amount shall be adjusted automatically to equal the Final Promissory Note Amount, which may be a positive or negative adjustment.
Article3****REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
As a material inducement to the Buyer, each of the Seller and the Seller Owner represents and warrants the following:
3.1 Organization. The Company is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its formation. The Company has all necessary organizational power and authority to own, lease and operate its properties and assets and to carry on its businesses as presently conducted. The Company is duly qualified or licensed to do business as a foreign company in each of the respective jurisdictions listed on Section 3.1 of the Seller Disclosure Schedule and is in good standing under the Laws of each such jurisdiction. The Seller Group has delivered true, correct and complete copies of the Company’s Organizational Documents to the Buyer and the Company is not in material default under or in violation of any provision thereof.
3.2 Capitalization.
(a) The Seller owns all of the issued and outstanding Equity Interests of the Company. The Equity Interests listed on Section 3.2(a) of the Seller Disclosure Schedule represent all of the issued and outstanding Equity Interests of the Company and there are no other Equity Interests of the Company authorized, issued or outstanding. Except as set forth on Section 3.2(a) of the Seller Disclosure Schedule, there are no Equity Interests of the Company issued, reserved for issuance or outstanding. Other than this Agreement, there are no outstanding Contracts or other rights to subscribe for or purchase, or Contracts or other obligations to issue or grant any rights to acquire, any Equity Interests of the Company, or any outstanding Equity Interests of the Company that are exercisable for, convertible into, exchangeable for, or which carry the right to acquire, Equity Interests of the Company, or subscriptions, warrants, options, calls, puts, convertible securities, registration or other rights, arrangements or commitments obligating the Company to issue, sell, register, purchase or redeem any of its Equity Interests or any ownership interest or rights therein.
(b) All Equity Interests of the Company have been duly authorized and validly issued. There are no preemptive rights in respect of any of the Equity Interests.
(c) There are no voting trusts or other agreements or understandings with respect to the voting of any Equity Interests of the Company. Except as disclosed on Section 3.2(c) of the Seller Disclosure Schedule, there are no appreciation rights, phantom rights or similar rights or arrangements outstanding with respect to the Company, and no derivative instruments issued by the Company exists, the underlying security of which is an Equity Interest of the Company.
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3.3 Authorization;Enforceability.
(a) This Agreement and the Ancillary Agreements have been duly executed and delivered by the Company and constitute the valid and binding agreements of the Company, enforceable against the Company in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar Laws and equitable principles relating to or limiting creditors’ rights generally (the “Bankruptcy and Insolvency Exceptions”).
(b) The Company has all requisite organizational power and authority to execute and deliver each Ancillary Agreement to which the Company is a party. The execution, delivery and performance by the Company of each Ancillary Agreement to which it is a party, any and all instruments necessary or appropriate in order to effectuate the terms and conditions of the Ancillary Agreements to which the Company is a party, and the consummation of the transactions contemplated thereby have been duly authorized by all necessary organizational action on the part of the Company.
3.4 NoConflicts. Except as set forth on Section 3.4 of the Seller Disclosure Schedule, the execution, delivery and performance of the documents associated with the F-Reorganization, this Agreement, and the Ancillary Agreements, and the consummation of the transactions contemplated hereby and thereby did not, and will not (with or without notice, lapse of time or both) (i) violate or conflict with the Organizational Documents of the Company, (ii) violate or conflict with, constitute a breach, default or loss of any benefit under, permit the acceleration of any obligation under or create in any Person the right to revoke, withdraw, suspend, terminate, modify or cancel, or otherwise require any action, consent, approval, order, authorization, registration, declaration or filing with respect to any Material Contract, (iii) violate any Law, Order or Permit of any court of Government Entity or agency applicable to the Company or its business, or (iv) result in the creation or the imposition of any Encumbrance (other than Permitted Encumbrances) upon all or any portion of the assets of the Company.
3.5 FinancialStatements; No Undisclosed Liabilities; Indebtedness.
(a) Section 3.5(a) of the Seller Disclosure Schedule contains true, correct and complete copies of the following financial statements (collectively, the “Financial Statements”):
(i) The unaudited balance sheets of the Company as of December 31, 2024, 2023, and 2022 and the related statements of income for the periods then ended; and
(ii) The unaudited balance sheet of the Company as of September 30, 2025 and the related statement of income for the nine (9)-month period ended September 30, 2025 (such date, the “Interim Balance Sheet Date”).
(b) The Financial Statements fairly present, in all material respects, the financial condition of the Company and the results of operations of the Company as of such dates and for the periods then ended. The Financial Statements are consistent with the books and records of the Company.
(c) The Company has no Liabilities, except for Liabilities (i) that are reflected, disclosed or reserved against in the Financial Statements (ii) that are set forth in Section 3.5(c) of the Seller Disclosure Schedule hereto, or (iii) Liabilities incurred in the ordinary course of business following the Interim Balance Sheet Date.
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(d) The Financial Statements reflect a true, correct and complete accounting of the Indebtedness of the Company, other than any Indebtedness of the Company incurred in the ordinary course of business following the Interim Balance Sheet Date. The Company has performed in all material respects all of its obligations required to be performed by it under each document evidencing its Indebtedness and there is no continuing event of default under any such document evidencing such Indebtedness.
(e) Section 3.5(e) of the Seller Disclosure Schedule sets forth a true, correct and complete list of (i) all bank accounts, brokerage accounts, crypto accounts and safe deposit boxes of the Company and all Persons who are signatories thereunder or who have access thereto and (ii) the names of all Persons holding general or special powers of attorney from the Company, true, complete and correct copies of which have been made available to the Buyer.
3.6 Absenceof Certain Changes.
(a) Except in connection with the F-Reorganization or as otherwise contemplated by this Agreement, since January 1, 2025, the Company has operated in the ordinary course of business and no event has occurred which has had a Material Adverse Effect on the Company. Without limiting the generality of the foregoing, except as set forth on Section 3.6(a) of the Seller Disclosure Schedule, except as contemplated by the F-Reorganization or this Agreement, since January 1, 2025 the Company has not:
(i) amended or authorized any change to its Organizational Documents;
(ii) made or agreed to make any change in its authorized or issued Equity Interests (including by way of a split, combination, reclassification or modification of the terms of any Equity Interests);
(iii) granted, issued, sold, delivered, pledged, encumbered or transferred or agreed to issue, sell, deliver, pledge, encumber or transfer, any of its Equity Interests or grant or issue any option, purchase right, convertible stock, registration right or other right to purchase or obtain (including upon conversion, exchange or exercise) in respect of such Equity Interests;
(iv) (A) acquired, by merger, consolidation, acquisition of stock or assets, or otherwise, any Person or business or division thereof, or (B) created any Subsidiaries;
(v) (A) adopted, or agreed to adopt, any plan of merger, consolidation, reorganization, recapitalization, liquidation, or other business combination or (B) filed, or agreed to file, a petition in bankruptcy under any provision of any state or federal bankruptcy law or consented to the filing of a petition of bankruptcy against it under any similar Law;
(vi) entered into, or agreed to enter into, any partnership, joint venture, alliance, profit sharing, strategic cooperative relationship or similar arrangement;
(vii) declared, set aside, or paid any dividend or distribution on or in respect of its Equity Interests;
(viii) except in the ordinary course of business (A) incurred, assumed, guaranteed, or otherwise become liable for, or agree to incur, assume, guarantee, or otherwise become liable for, any Indebtedness other than the Banesco Line of Credit Amount, (B) made, or agreed to make, any loans or advances of borrowed money, capital contributions to, or equity investments in, any Person, or (C) canceled or compromised, or agreed to cancel or compromise, owed or claimed Indebtedness;
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(ix) made, or agreed to make, or deferred, or agreed to defer, any capital expenditures greater than Fifty Thousand Dollars ($50,000);
(x) (A) sold, assigned, leased, transferred, abandoned or otherwise disposed of, or agreed to sell, assign, lease, transfer, abandon or otherwise dispose of, any material asset or (B) mortgaged, pledged or subjected, or agreed to mortgage, pledge or subject, any material asset to any Encumbrance (other than a Permitted Encumbrance);
(xi) made, or agreed to make, any material change in its customary methods of financial accounting or financial accounting practices, except as required by GAAP;
(xii) (A) changed or modified its current credit, cash management, collection or payment policies, procedures or practices, including such policies, procedures or practices, acceleration of collections or receivables (whether or not past due), (B) accelerated any billing of customers or collection of receivables or (C) delayed, postponed or canceled the payment of accounts payable or any other liability, in each case, in any material respect;
(xiii) violated or failed to comply with any Law, Order or other requirements imposed by any Government Entity;
(xiv) entered into, terminated, cancelled, renewed, or agreed to make any material change in any Material Contract or Permit, as applicable, except in the ordinary course of business;
(xv) (A) instituted or settled, or agreed to settle, any pending or threatened Action or (B) cancelled, compromised, waived or released, or agreed to cancel, compromise, waive or release, any material right or claim (including those under any Material Contract);
(xvi) purchased or acquired, or agreed to purchase or acquire, any real property;
(xvii) experienced any material damage, destruction, loss or casualty, whether or not covered by insurance;
(xviii) cancelled or terminated any insurance policy covering the Company or allowed any coverage under any insurance policy covering the Company to lapse;
(xix) (A) established, adopted, entered into, amended, modified or terminated (except as otherwise required under applicable Law, Order or other requirement imposed by any Government Entity), or made any increase in benefits payable under, any Employee Benefit Plan or any collective bargaining agreement (in each case, other than the entry into, amendment of, or termination of, employment agreements, consulting agreements, independent contractor agreements and Contracts pertaining to any Leased Worker); or (B) entered into, amended, modified, or terminated any employment agreement (including any collective bargaining agreement), consulting agreement, independent contractor agreement (with an independent contractor who is a natural person) or Contract pertaining to Leased Workers, in each case with respect to this clause (B), relating to a service provider whose annual base compensation is Seventy-Five Thousand Dollars ($75,000) or more per year;
(xx) materially modified (whether by increase, decrease or otherwise) the compensation of its employees, consultants, independent contractors (who are natural persons) or Leased Workers, including pursuant to the provisions of any change of control bonuses or other similar arrangements, in any case, other than in the ordinary course of business;
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(xxi) hired or promoted individuals who would be, or terminated the employment of any, (A) members of the management team of the Company or (B) other employee whose annual base salary is more than Seventy-Five Thousand Dollars ($75,000); or
(xxii) agreed, whether in writing or otherwise, to take any of the actions set forth in this Section 3.6.
3.7 Reserved.
3.8 Tax. Except as set forth on Section 3.8 of the Seller Disclosure Schedule:
(a) The Company has timely filed (taking into account applicable extensions) all Income Tax Returns and other material Tax Returns that it is required to file. All such Tax Returns are true, correct and complete in all material respects. The Company has timely paid all Taxes due and payable (whether or not shown or required to be shown as due on any Tax Returns). The unpaid Taxes of the Company did not, as of the Interim Balance Sheet Date, exceed the reserve for Tax liability (excluding any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the balance sheet described in Section 3.5(a)(ii).
(b) No audits, examinations, litigation, or other proceedings with respect to Taxes or Tax Returns of the Company are currently in progress, pending, or, to the Knowledge of the Company, threatened. The Company has not received a notice from any Government Entity that the Company is required to pay Taxes or file Tax Returns in a jurisdiction in which the Company does not file Tax Returns or pay Taxes that is not yet resolved. The Company has never commenced a voluntary disclosure proceeding with respect to Taxes of the Company in any state, local or non-U.S. jurisdiction that has not been fully resolved or settled.
(c) From the date of formation of the Company until the date of the Contributions, the Company was a duly elected S corporation pursuant to Section 1362(a) of the Code and, to the extent applicable, the Laws of each state in which it conducted business or is subject to Income Tax and no event has occurred (or fact has existed) that would preclude the Company from initially qualifying as an S corporation under Section 1361(a) of the Code or that would have terminated the Company’s S corporation status. No Government Entity has challenged the effectiveness of such elections. The Company has not incurred (or has any potential for) any Liability for any Income Taxes under Section 1374 of the Code or any comparable provision of state or local Law.
(d) Effective as of the date of the F-Reorganization, the Seller has been, and is currently, a validly existing S corporation for U.S. federal Income Tax purposes and, to the extent applicable, for each state in which the Seller or the Company conducts business and such treatment is allowed.
(e) Effective immediately after the Contributions and prior to the Check-the-box Election, the Seller elected to treat the Company as a “qualified subchapter S subsidiary” pursuant to Section 1361(b)(3) of the Code and, to the extent applicable, under the Laws of each state in which the Company conducted business.
(f) At all times since the Check-the-box Election, the Company has been treated as a disregarded entity for U.S. federal Income Tax purposes pursuant to Treasury Regulations Section 301.7701-3(b)(1)(ii) and, to the extent applicable, for state Income Tax purposes. No election is pending to change the Income Tax treatment of the Company after the date of the Check-the-box Election.
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(g) The Company has timely and properly withheld or collected (i) all required amounts from payments to any employee, independent contractor, creditor, shareholder, member, foreign person or other third party and (ii) all sales, use, ad valorem and value added Taxes. The Company has timely remitted all such Taxes to the proper Government Entity in accordance with all applicable Laws. The Company has properly classified all individuals as employees or independent contractors under applicable Law.
(h) The Company has not waived or extended any statute of limitations with respect to any Taxes or agreed to any extension of time for the filing of any Tax Return or with respect to a Tax assessment, deficiency or collection, which waiver or extension is currently in effect.
(i) No power of attorney has been granted by the Company with respect to any Tax matter that will be in force after the Closing. The Company does not have a request for a private letter ruling, a request for administrative relief, a request for technical advice, a request for a change of any method of accounting or any other request that is pending with any Government Entity that relates to the Taxes or Tax Returns of the Company.
(j) The Company is not a party to, or bound by, any agreement or other arrangement relating to the sharing or allocation of Tax liabilities between or among Persons other than Ordinary Course Tax Provisions.
(k) There are no Encumbrances for Taxes on any assets of the Company other than Permitted Encumbrances.
(l) The Company has never been a member of any Affiliated Group.
(m) The Company is not liable for Taxes of any other Person as a result of successor liability, transferee liability, pursuant to Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or non-U.S. Laws), or contractual liability, or otherwise (other than pursuant to provisions in Contracts or any other agreement or arrangement entered into in the ordinary course of business, a primary purpose of which is not related to sharing, indemnification or allocation of Taxes, including leases, licenses or credit agreements (“OrdinaryCourse Tax Provisions”)). All amounts payable with respect to (or by reference to) Taxes pursuant to any Ordinary Course Tax Provisions have been timely paid in accordance with the terms of such Contracts, agreements or arrangements.
(n) The Company has never engaged in any transaction that could affect the Liability for Income Taxes for any taxable year not closed by the applicable statute of limitations that is a “listed transaction” within the meaning of Treasury Regulations Section 1.6011-4(b)(2).
(o) The Company is not subject to a Tax holiday or Tax incentive or grant in any jurisdiction that will terminate (or be subject to a clawback or recapture) at or following the Closing.
(p) The Company will not be required to include an item of income, nor exclude an item of deduction, for any period after the Closing Date as a result of (i) an installment sale transaction occurring before the Closing governed by Section 453 of the Code (or any similar provision of state, local or non-U.S. Laws); (ii) a transaction occurring on or before the Closing reported as an open transaction for U.S. federal Income Tax purposes (or any similar doctrine under state, local or non-U.S. Laws); (iii) any prepaid amounts or advance payments received on or prior to the Closing Date or deferred revenue realized or received prior to the Closing; (iv) a change in method of accounting made by the Company prior to the Closing with respect to a Pre-Closing Tax Period or as a result of an impermissible method used during a Pre-Closing Tax Period (including an adjustment pursuant to Section 481 of the Code (or any similar provision of under state, local, or non-U.S. Laws)); or (v) a “closing agreement” under Section 7121 of the Code entered into with any Government Entity prior to the Closing. The Company is on the accrual method of accounting for income Tax purposes.
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(q) The Company does not own an interest in any Flow-Thru Entity.
(r) None of the (i) goodwill, (ii) going concern value or (iii) other intangible assets of the Company that would not be amortizable prior to the enactment of Section 197 of the Code was held by the Company or by any Person related to the Company (within the meaning of Section 197(f)(9)(C) of the Code) on or before August 10, 1993 or could otherwise constitute anti-churning property under Section 197(f)(9)(A) of the Code.
(s) Other than the consummation of the F-Reorganization, since the Interim Balance Sheet Date, the Company has not (i) incurred any Taxes outside the ordinary course of business, (ii) changed a method of accounting for Income Tax purposes, (iii) entered into a “closing agreement” under Section 7121 of the Code with any Government Entity with respect to any Tax matter, (iv) surrendered any right to a Tax refund (other than as a resulting of the expiration of any applicable statute of limitations on refund claims), (v) changed an accounting period with respect to Taxes, (vi) filed an amended Tax Return, (vii) made any material election with respect to Taxes inconsistent with past practices or (viii) changed or revoked any election with respect to Taxes.
(t) No member (or former member) of the Company has any right to any distributions with respect to Taxes (or otherwise) from the Company in respect of a Pre-Closing Tax Period that will survive the Closing.
(u) Any “employee retention credit” claimed by the Company pursuant to Section 2301 of the CARES Act (or any corresponding or similar provision of state, local or foreign Law) was properly claimed.
(v) The Company has timely filed or provided all material information returns or reports, including IRS Forms 1099 and W-2 (and foreign, state and local equivalents) that are required to have been filed by it.
(w) The Company will not be required to include any item of income in its taxable income for any period after the Closing Date under Section 951(a) or Section 951A of the Code (or any similar provision of state, local or foreign Law) with respect to any Pre-Closing Tax Period.
(x) The Company has not distributed the stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Sections 355 or 361 of the Code.
(y) The Company has not, or has never had, a permanent establishment in any foreign country other than the country in which the Company is organized and does not and has not engaged in a trade or business in any foreign country other than the country in which the Company is organized.
3.9 EthicalPractices. Neither the Company nor any Person acting on behalf of the Company has offered or given anything of value to any Person while knowing or having reason to know that all or a portion of such money or thing of value may be offered, given or promised, directly or indirectly, to any customer, payor, member of the government or candidate for political office where such payment would constitute a bribe, kickback or illegal or improper payment to assist the Company in obtaining or retaining business for, or with, or directing business to, any Person or otherwise influence such Person to take action in such Person’s official capacity or use such Person’s influence with any government or instrumentality thereof. The Company has never accepted or received any unlawful contributions, payments, gifts or expenditures.
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3.10 MaterialContracts.
(a) Section 3.10(a) of the Seller Disclosure Schedule contains a true, correct and complete list of each material Contract (each such contract, including all amendments, modifications and supplements thereto, a “Material Contract” and collectively, the “Material Contracts”) to which the Company is a party that is (provided, however, that other than with respect to Section 3.10(a)(xiv), no Employee Benefit Plan shall be treated as a Material Contract):
(i) a Contract involving a commitment or payment or incurrence of liabilities by the Company in excess of an aggregate of One Hundred Thousand Dollars ($100,000) in the twelve (12) months ending September 30, 2025;
(ii) a Contract relating to mortgaging, pledging or otherwise placing any Encumbrance (other than a Permitted Encumbrance) on the Company’s assets, or any guaranty of an obligation of a third party;
(iii) a Lease;
(iv) a Contract under which the Company is lessee of, or holds or operates any personal property owned by any other party calling for payments in excess of Fifty Thousand Dollars ($50,000) annually;
(v) a Contract for capital equipment that provides for payments by the Company in excess of Fifty Thousand Dollars ($50,000) in any calendar year;
(vi) a Contract evidencing Indebtedness of the type described in clauses (a) through (g) of the definition of Indebtedness;
(vii) a Contract relating to the ownership of or investment in any business or enterprise (including investments in joint ventures, partnership arrangements and minority equity investments);
(viii) a Contract relating to the sale or issuance of any Equity Interest of the Company, other than this Agreement;
(ix) a Contract (A) containing any covenant limiting in any material respect the right of the Company or any of its officers or key employees to freely engage in any line of business (whether through an exclusivity agreement or otherwise), to compete with any Person in any line of business or to compete with any Person or the manner or locations in which any of them may engage, or (B) prohibiting or limiting in any material respect the right of the Company to make, sell or distribute any products or services;
(x) a Contract pursuant to which the Company has agreed to provide “most favored nation” pricing or any arrangement whereby the Company has agreed with any Person that such Person will receive the most favorable terms and conditions that are provided by the Company to any other Person;
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(xi) a Contract or group of Contracts requiring the purchase of all or substantially all of the Company’s requirements of a particular product from a vendor;
(xii) a Contract with any Government Entity;
(xiii) a Contract pursuant to which the Company has continuing indemnification, “earn-out” or other contingent payment obligations;
(xiv) any written (i) employment agreement written consulting agreement or written services agreement with an independent contractor who is a natural person, in each case of this clause (i), whose annual base compensation is more than Seventy-Five Thousand Dollars ($75,000), (ii) collective bargaining agreement; (iii) contract relating to the engagement services of any Leased Worker; (iv) contract with any staffing companies, temporary employment agencies or professional employer organizations; or (v) change of control, severance, retention, or similar agreements or arrangements with any employee, manager, officer, or other service provider or any agreement or arrangement that provides for the acceleration of, or increase in, any payment, compensation, or benefits in connection with the consummation of the transactions contemplated hereby;
(xv) a power of attorney, except for those executed in connection with the preparation and filing of Tax returns and related filings and matters;
(xvi) an acquisition agreement, whether by merger, equity interest or asset sale or otherwise;
(xvii) a Contract for the purchase or sale of real property;
(xviii) a Contract with any Material Customer and Material Supplier;
(xix) Contracts relating to a loan to any officer, manager, director, employee, consultant, independent contractor, or Leased Worker;
(xx) a Contract granting to any Person an option or a first refusal, first-offer or similar preferential right to purchase or acquire any assets of the Company;
(xxi) an Affiliate Agreement;
(xxii) a Contract which constitutes a guaranty of any obligation of any Person (other than the Company);
(xxiii) a Contract involving a sharing of profits, losses, costs or Liabilities by the Company with any other Person;
(xxiv) (A) a Contract relating to the settlement of any pending or threatened Action or (B) Contract entered into in the past four (4) years relating to the cancellation, compromise, waiver or release of any material right or claim; or
(xxv) any IP Agreements.
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(b) Except as set forth in Section 3.10(b)(i) of the Seller Disclosure Schedule, each Material Contract is in full force and effect, constitutes the, legal, valid, and binding obligations of the respective parties thereto, and is enforceable against the Company and, to the Knowledge of the Seller Group, the other parties thereto, in accordance with its respective terms. Except as set forth in Section 3.10(b)(ii) of the Seller Disclosure Schedule, (i) the Company is not in breach or default in any material respect, or in receipt of any written notice of any breach or default in any material respect, of any Material Contract, (ii) there exists no breach or default, or any event or condition, including the execution and delivery of this Agreement and the Ancillary Agreements, or the consummation of any transaction contemplated hereby or thereby, which upon the giving of notice or the passage of time, or both, would give rise to a claim of a default or breach by the Company, (iii) the Company and, to the Knowledge of the Seller Group, each counterparty have performed all obligations under each Material Contract required to be performed and, to the Knowledge of the Seller Group, no facts exist which would render such performance unlikely, and (iv) to the Knowledge of the Seller Group, no other party to any Material Contract is in breach in any material respect of such Material Contract. There is no pending or, to the Knowledge of the Seller Group, threatened bankruptcy, insolvency or similar proceedings with respect to any party to such Material Contracts. Neither the Seller nor any member of the Seller Group is participating in any discussions or negotiations regarding modification of or amendment to any Material Contract or entry in any new Contract which, if entered into as of the date hereof, would be a Material Contract.
3.11 Titleto Assets. Except as set forth on Section 3.11 of the Seller Disclosure Schedule, the Company has good, valid and marketable title to, or a valid and enforceable leasehold interest in, the Leased Real Properties and all of its personal property and assets (including all fixtures, leasehold improvements, equipment, office, operating and other supplies and furniture) that are used in the conduct of its business, free and clear of all Encumbrances (other than Permitted Encumbrances). The material personal properties of the Company (i) are in good operating condition, a state of good maintenance and repair (and in the case of buildings and structures are structurally sound), ordinary wear and tear excepted, (ii) are usable in the regular and ordinary course of business and (iii) are in material conformance with all applicable Laws, ordinances, codes, rules and regulations applicable thereto.
3.12 IntellectualProperty.
(a) Section 3.12(a) of the Seller Disclosure Schedule sets forth a true, correct and complete list of all Registered Intellectual Property and material unregistered Owned Intellectual Property (including Trademarks and Owned Software).
(b) All of the Owned Intellectual Property is subsisting, valid and enforceable, and no such Owned Intellectual Property has been adjudged invalid or unenforceable in whole or part by a court of competent jurisdiction. The Company is the sole and exclusive owner of the entire right, title and interest in and to its applicable Owned Intellectual Property, free from any Encumbrances (other than Permitted Encumbrances and non-exclusive licenses granted by the Company in the ordinary course of business to the Company’s customers in the form provided by the Company to the Buyer). All Registered Intellectual Property has been maintained effective by the filing of all necessary filings, maintenance and renewals, and timely payment of requisite fees. No loss or expiration of any Owned Intellectual Property is threatened, pending or reasonably foreseeable, except in the case of patents expiring at the end of their statutory terms, and not as a result of any act or omission by the Company (including failure by the Company to pay any required maintenance fees). The Company owns all right, title and interest in, or has a valid and enforceable written license or other right to use its applicable Company Intellectual Property.
(c) All Owned Software (i) conforms in all material respects with all specifications, representations, warranties, undertakings and any other descriptions established by the Company or conveyed thereby to the Company’s customers or other transferees, (ii) is operative for its intended purpose, free of any material defects or deficiencies, and does not contain any Malware; and (iii) has been maintained by the Company on its own behalf or on behalf of its customers and other transferees in accordance with its contractual obligations to customers. No funding, facilities or resources of any Government Entity or university have been used in connection with the conception or reduction to practice of any Owned Intellectual Property.
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(d) No current or former founder, employee (including officers and directors), consultant or independent contractor of the Company has any right, title or interest, directly or indirectly, in whole or in part, in any Owned Intellectual Property. The Company has received and maintained from all Persons (including, all current and former founders, employees, consultants and independent contractors who have developed any Intellectual Property for the Company or have had access to any Company Intellectual Property) valid and enforceable written and fully executed agreements under which each such Person is obligated to maintain the confidentiality of such Intellectual Property and valid and enforceable written agreements under which each such Person assigns and has assigned to the Company ownership of all such Intellectual Property, or has assigned any rights as a matter of law, and the Company has delivered a true, correct and complete copy of each such agreement, or provided the form agreement confirming any deviations, to the Buyer. To the Knowledge of the Seller Group, no Person is in violation of any such agreement.
(e) The Company, the Owned Intellectual Property and the current and former products, services and conduct of the businesses of the Company, including the manufacture, importation, use, offer for sale, sale, licensing, distribution or other commercial exploitation thereof has not infringed (whether direct or otherwise), misappropriated or otherwise violated, and does not infringe, misappropriate or otherwise violate the Intellectual Property, privacy or publicity rights or any other rights of any other Person. To the Knowledge of the Seller Group, the Owned Intellectual Property is not being infringed upon, misappropriated or otherwise violated by any other Person and there has been no such case of such infringement (whether direct or otherwise), misappropriation or other violation at any time. Neither the Seller nor the Company has asserted or brought any action alleging the infringement, misappropriation or violation of any Owned Intellectual Property against any third parties at any time.
(f) There is no Action pending, threatened in writing, or, to the Knowledge of the Seller Group, threatened orally, by any Person against the Seller Group, the Company, or any of their respective Affiliates, concerning the ownership, use, validity, registrability, registration, patentability, enforceability, infringement (whether direct or otherwise), misappropriation or other violation or use of any Company Intellectual Property, and no such claims have been asserted or threatened in writing against the Company at any time. No claim or demand has been made against, and no notice has been given to, the Company by any Person that (i) challenges the validity, enforceability, use or ownership of any such Intellectual Property, (ii) alleges any infringement (whether direct or otherwise), misappropriation or other violation by the Company or its customers of any Intellectual Property, privacy or publicity right of any Person, (iii) alleges that any Intellectual Property is being licensed or sublicensed or used in conflict with the terms of any other Contract, or (iv) alleges that the Company or its customers are infringing or require a license to any of such Person’s Intellectual Property.
(g) The Company has taken commercially reasonable measures to protect, maintain and preserve: (i) the operation and security of the Company IT Assets owned by the Company and (ii) the confidentiality of all Trade Secrets, know-how and any other confidential information of the Company and any confidential information owned by any Person to whom the Company has a confidentiality obligation, including by requiring execution of confidentiality agreements by Persons who receive access to any Trade Secrets, know-how, or any other material confidential information of the Company and such confidential information of any other Person. The Company IT Assets are operational, fulfill the purposes for which they were acquired or developed, have security, back-ups and disaster recovery arrangements in place and hardware and Software capacity, support, maintenance and trained personnel which are sufficient in all material respects for the current and anticipated future needs of the Company’s business. The Company has disaster recovery, data back-up and security plans, procedures and facilities, and has taken reasonable steps consistent with or exceeding industry standards to safeguard the availability, security and integrity of the Company IT Assets and all data and information stored thereon, including from unauthorized access and infection by Malware. The Company has maintained in the ordinary course of business all required licenses and service contracts, including the purchase of a sufficient number of license seats for all Software, with respect to its respective Company IT Assets. The Company IT Assets owned by the Company have not suffered material failure.
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(h) The Company is in possession of all materials relating to the Software used in its businesses, including installation and user documentation, engineering specifications, flow charts and know-how, reasonably necessary for the use, maintenance, enhancement, development and other exploitation of such Software as used in, or currently under development for, the businesses of the Company.
(i) No Publicly Available Software (in whole or in part) has been incorporated in, linked to, distributed with or otherwise used in connection with any Owned Software or any product or service of the Company in any manner that may (i) require, or condition, the use, distribution or licensing of any such Owned Software or other Owned Intellectual Property or other product or service on the disclosure, licensing or distribution of any source code for any portion of such Owned Software, Owned Intellectual Property, or other product or service; or (ii) otherwise impose any limitation, restriction, requirement or condition on the right or ability of the Company to use, distribute, enforce or license any such Owned Intellectual Property in any manner.
(j) With respect to the Company, no Person possesses a copy, in any form (print, electronic, or otherwise), of any source code or any portion thereof for any Owned Software, and all such source code is in the sole possession of the Company and has been maintained strictly confidential. The Company does not have an obligation to afford any Person access to any such source code or any portion thereof. The Owned Software and other Owned Intellectual Property is not subject to any source code escrow or other agreement providing for the disclosure or release of any source code or any portion thereof or Trade Secrets owned by upon the occurrence of specific events or the existence of specific conditions.
(k) The execution, delivery and performance of this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby will not result in or give rise to any right of termination or other right to impair or limit, or otherwise result in a breach of, or loss or impairment of the Company’s right to own, use or retain a license to any Company Intellectual Property. Immediately subsequent to the Closing, the Company will own or be able to use its Company Intellectual Property on the same terms and conditions to those under which the Company owned or used such Intellectual Property immediately prior to the Closing without the payment of any additional fees.
3.13 LegalProceedings.
(a) Except as set forth in Section 3.13(a) of the Seller Disclosure Schedule, there is no (i) Action pending, or, to the Knowledge of the Seller Group, threatened, against or involving the Company, its business, properties, or assets, whether at law or in equity, before or by any Government Entity or (ii) Order to which the Company or any of its businesses, properties, or assets is subject or (iii) unsatisfied judgment, penalty or award against or involving the Company or any of its businesses, properties, or assets. To the Knowledge of the Seller Group, no event has occurred, or circumstance exists that would reasonably be expected to give rise to or serve as a basis for the commencement of any Action or Order. The Seller Group has provided a true, correct and complete copy of all material documents and correspondence relating to such matters referred to in this Section 3.13(a).
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(b) The Company has never received any written notice of any matter, or, to the Knowledge of the Seller Group, threatened matter against any director, officer, manager, employee, agent, representative, consultant, independent contractor or Leased Worker of the Company in connection with which any such Person has or may reasonably be expected to have any right to be indemnified by the Company.
(c) Section 3.13(c) of the Seller Disclosure Schedule lists each Action that (i) resulted in any criminal sanctions or (ii) resulted in payments in excess of Twenty-Five Thousand Dollars ($25,000) by or against the Company or any of its respective directors, officers, managers, employees, agents, representatives, consultants, independent contractors or Leased Workers (whether as a result of a judgment, civil fine, settlement or otherwise).
3.14 RealProperty.
(a) The Company has never owned, nor owns or has any obligation to purchase, any real property.
(b) The Leased Real Properties identified in Section 3.14(b) of the Seller Disclosure Schedule are the only real properties in which the Company has a leasehold interest pursuant to a Lease. Section 3.14(b) of the Seller Disclosure Schedule sets forth a true, correct and complete list of the Leased Real Properties together with a list of the Leases pursuant to which the Leased Real Property is demised to the Company, including all amendments, supplements, extensions and other modifications thereto. The Seller Group has provided a true, correct and complete copy of each Lease, together with all amendments, supplements, extensions and other modifications thereto, to the Buyer.
(c) Except as set forth in Section 3.14(c) of the Seller Disclosure Schedule, with respect to the Leased Real Properties:
(i) the Company has a valid, binding, enforceable and subsisting leasehold estate in each of its Leased Real Properties, free and clear of all Encumbrances (except Permitted Encumbrances);
(ii) in the past twelve (12) months, the possession and quiet enjoyment of the Leased Real Properties has not been disturbed;
(iii) there are no disputes with respect to any Leased Real Property;
(iv) all rents, deposits and additional rents due pursuant to the Leases have been paid in full and no security deposit or portion thereof has been applied in respect of a breach or default under such lease that has not been redeposited in full;
(v) there is no condemnation proceeding or eminent domain proceeding of any kind pending or threatened against any of the Leased Real Properties;
(vi) the Company has obtained all material licenses and Permits that are required to be obtained to permit the current use and occupancy by the Company of the premises subject to any Lease;
(vii) there are no subleases, sublicenses or other occupancy agreements, written or oral, to which the Company is a party, granting to any other party the right of use or occupancy of any portion of any Leased Real Property;
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(viii) other than the Company or its lessees disclosed pursuant to Section 3.4, no party is in possession of any portion of the Leased Real Properties;
(ix) the Company has not caused any work to be performed on or about the Leased Real Properties within the one hundred twenty (120)-day period prior to the date hereof that would legally entitle any Person to file or record any mechanic’s or materialmen’s lien which claim remains unpaid;
(x) the improvements on the Leased Real Properties are, to the Knowledge of the Seller Group, in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, and are adequate and suitable for the purposes for which they are presently being used; and
(xi) the Company has not received any written notice of a material violation of any Law, or of any covenant, condition, easement or restriction affecting any Leased Real Property or relating to its use or occupancy.
3.15 Insurance.
(a) Section 3.15(a) of the Seller Disclosure Schedule sets forth a true, correct and complete list of each insurance policy maintained by the Company.
(b) The Company maintains insurance with reputable insurers for the business against all risks normally insured against, and in amount normally carried, by Persons of similar size engaged in similar lines of business.
(c) Each insurance policy identified on Section 3.15(a) of the Seller Disclosure Schedule is (i) in full force and effect, legal, valid and binding, and (ii) to the Knowledge of the Seller Group, enforceable in accordance with its terms except as enforcement may be limited by the Bankruptcy and Insolvency Exceptions.
(d) Section 3.15(a) of the Seller Disclosure Schedule also sets forth all relevant information as to the nature and approximate amount of all claims for insured losses sustained by the Company. No policy limits for any insurance policies in effect at any time has been reached or exceeded by the Company. There is no claim by the Company pending under any of such policies or bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds or in respect of which such underwriters have reserved their rights. All premiums payable under all such policies and bonds have been timely paid, and the Company has otherwise complied in all material respects with the terms and conditions of all such policies and bonds. To the Knowledge of the Seller Group, there is no threatened termination of, premium increase with respect to, or material alteration of coverage under, any of such policies or bonds. No notice of cancellation or termination has been received by the Company with respect to any such policy. There are no historical gaps in coverage, no coverage limits of any insurance policy have been exhausted, no policies existing as of the date hereof will expire prior to the Closing (or if such policies are canceled or lapse prior to Closing, renewals or replacements thereof will be entered into in the ordinary course of business), and no further premiums or payments will be due by the Company after the Closing with respect to periods prior to the Closing.
(e) This Section 3.15 shall not apply to insurance with respect to any Employee Benefit Plan.
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3.16 Permits. Section 3.16 of the Seller Disclosure Schedule contains a true, correct and complete list of all Permits under which the Company is operating or by which any of them or any of their respective assets or properties is bound, and the Company has furnished to the Buyer true, correct and complete copies thereof. The Company has all Permits necessary for its operations and the conduct of its business as currently conducted. The Permits are valid and in full force and effect. The Company is not or has not been in violation of any Permit and there is no Action pending or, to the Knowledge of the Seller Group, threatened to revoke or limit any Permit. To the Knowledge of the Seller Group, the Company has taken all necessary action to maintain each material Permit, including, without limitation, timely filing renewal applications. None of the Permits required to be set forth in Section 3.16 of the Seller Disclosure Schedule have been adversely affected as a result of the F-Reorganization or the transactions contemplated by this Agreement or any Ancillary Agreement. No loss or expiration of any such Permit is pending or, to the Knowledge of the Seller Group, threatened.
3.17 Compliancewith Law. Except as set forth on Section 3.17 of the Seller Disclosure Schedule, without limiting the scope of any other representation in this Agreement, the Company is, and at all times has been, in compliance in all material respects with Laws and Orders applicable to it, its business, properties, or assets. The Company has not received any written, or to the Knowledge of the Seller Group oral, notice from a Government Entity of any actual, alleged, or potential violation of, or failure to comply with, any Law or Order to which it, its business, properties, or assets is subject. The Company (i) has not been charged with or, to the Knowledge of the Seller Group, under investigation with respect to any actual or alleged violation of any applicable Law, and (ii) has not been a party to or bound by any Order.
3.18 EmployeeBenefits.
(a) Section 3.18(a) of the Seller Disclosure Schedule contains a complete and correct list of all Employee Benefit Plans. With respect to each Employee Benefit Plan, the Seller Group has provided or made available to Buyer true, correct and complete copies, to the extent applicable, of the following: (i) the current plan and trust documents and funding documents, including all amendments, modifications, or supplements to such documents (or in the case of an unwritten Employee Benefit Plan, a written description of the material terms thereof); (ii) the most recent summary plan description and all summaries of material modification thereto; (iii) the most recently filed Form 5500 annual report (and schedules thereto) and compliance testing results; (iv) the most recent financial statements and actuarial reports (audited and/or unaudited) and the annual reports filed with any applicable regulatory authority with respect to each Employee Benefit Plan during the current year and each of the three preceding years; and (v) the most recent IRS determination or opinion letter, if the Company actually received such determination or opinion letter. Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter, or is entitled to rely on an opinion letter or advisory letter, from the IRS. No Employee Benefit Plan is under audit or, to the Knowledge of the Seller Group, under investigation, by the IRS, the Department of Labor or any other Government Entity.
(b) With respect to each Employee Benefit Plan, all contributions, premiums and other payments required to be made by the Company by Law or by the terms of such Employee Benefit Plan with respect to any period ending before or on the Closing Date have been made to any funds or trusts established thereunder or in connection therewith, or reserves adequate for such contributions or other payments have been or will be taken. No Employee Benefit Plan providing medical, dental, vision, disability or life insurance benefits is a self-funded or self-insured arrangement (other than flexible spending accounts and health reimbursement arrangements).
(c) Each Employee Benefit Plan has been established, operated, funded and administered in accordance in all material respects with its respective terms and in compliance in all material respects with the applicable provisions of ERISA (as amended through the date of this Agreement), the Code and all other Laws applicable to such Employee Benefit Plan. The Company performed all of its material obligations under its Employee Benefit Plans that were required to be performed prior to the date of this Agreement. Other than routine claims for benefits, there are no Actions pending or, to the Knowledge of the Seller Group, threatened, against the Employee Benefit Plans or their assets, or against the Company arising out of the Employee Benefit Plans.
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(d) Neither the Seller, any member of the Seller Group, or ERISA Affiliate has, within the past six (6) years, maintained, sponsored or contributed to, currently maintains, sponsors or contributes to, or had an obligation to maintain or contribute related to a plan that is (i) subject to Section 412 of the Code or Title IV of ERISA, (ii) a “multiemployer plan” within the meaning of Sections 3(37) and 4001(a)(3) of ERISA, (iii) a “multiple employer plan” within the meaning of Section 413(c) of the Code, (iv) subject to Sections 412 or 4971 of the Code, Section 302 of ERISA or Title IV of ERISA, or (v) a “multiple employer welfare arrangement” within the meaning of Section 3(40) of ERISA. No “prohibited transaction” within the meaning of Section 406 of ERISA or Section 4975 of the Code has occurred with respect to any Employee Benefit Plan (x) within the last three years or (y) for which any liability remains unsatisfied.
(e) All Employee Benefit Plans that are group health plans (within the meaning of Section 5000(b)(1) of the Code) have been operated in compliance in all material respects with the group health plan continuation coverage requirements of Section 4980B of the Code to the extent such requirements are applicable. Except for the continuation coverage requirements of Section 4980B of the Code, the corresponding provisions of ERISA (and similar provisions of state Law) or for coverage through the last day of the month in which termination of employment occurs (to the extent required by the terms of the Employee Benefit Plan), neither the Company nor its ERISA Affiliates have any Liability for medical, prescription drug, dental, vision or life insurance benefits to employees following retirement or other termination of employment under its respective Employee Benefit Plans that are group health or welfare plans.
(f) Each Employee Benefit Plan permits the Company to amend or terminate the Employee Benefit Plan at any time and without any Liability to the Company, or permits the Company to terminate its participation in such Employee Benefit Plan at any time and without any Liability to the Company, except for claims incurred prior to such amendment or termination, as may be required under applicable Laws, vested benefits which cannot be modified, and for administrative expenses associated with such termination or amendment.
(g) Except as set forth in Section 3.18(g) of the Seller Disclosure Schedule, the consummation of the transactions contemplated by this Agreement, whether alone or together with any other event, will not in any material respect (i) result in any payment becoming due to any current or former employee, officer, director or consultant of the Company, (ii) increase, trigger or accelerate the payment or vesting of the amount of compensation, severance or benefits due to any employee of the Company, (iii) limit the ability of the Company to terminate or amend any of the Employee Benefit Plans, or (iv) result in any breach or violation of, or a default under, any of the Employee Benefit Plans. No amount paid or payable in connection with the transaction contemplated by this Agreement will, either alone or in combination with another payment, constitute an “excess parachute payment” within the meaning of Section 280G(b)(1) of the Code (determined without regarding to the exceptions provided for in Section 280G(b)(5) of the Code). The Company is not a party to any plan, program, agreement or arrangement that provides for a gross-up or reimbursement of Taxes imposed under Section 4999 or Section 409A of the Code to any employee, director, officer, consultant, independent contractor or other service provider of the Company.
(h) Each Employee Benefit Plan that is subject to Section 409A of the Code is in material compliance with the currently applicable requirements of Code Section 409A and the regulations, rulings, and notices promulgated thereunder. The Seller has not agreed to reimburse any employees for any material Taxes imposed on any employees under Section 409A of the Code. No Employee Benefit Plan has resulted in any participant incurring income acceleration or penalties under Section 409A of the Code.
(i) No Employee Benefit Plan is subject to jurisdiction outside of the United States.
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3.19 EnvironmentalMatters. Except as set forth in Section 3.19 of the Seller Disclosure Schedule, the Company is in, and has been, in compliance in all material respects with all Environmental Laws. Except as set forth in Section 3.19 of the Seller Disclosure Schedule, to Knowledge of the Seller Group, there has been no disposal or Release of Hazardous Substances on the Leased Real Property or from an property to which Hazardous Substances generated by the Company have been transported. The Company has not been subject to or threatened with any action, demand, request for information, citation, summons, penalty or settlement with respect to any Environmental Law or has received written notice of any unsatisfied liability under any Environmental Law. The Company has not received notice of any Liabilities of any kind whatsoever arising in connection with or in any way relating to the Leased Real Property or the businesses of the Company, arising under or relating to any Environmental Law or Hazardous Substances, including without limitation any requirement to perform or fund any investigatory, remedial or corrective obligations, and there are no facts, events, conditions, situations or set of circumstances, including notice of actual or threatened Liability under CERCLA or any similar Law from any Government Entity or Person, that would reasonably be expected to result in or be the basis for any such Liability. The Company has not entered into any agreement that may require the Company to guarantee, reimburse, pledge, defend, hold harmless or indemnify any Liabilities of any other Person arising under Environmental Laws or assumed any responsibility for, either directly or indirectly, the remediation of any condition arising from or relating to the release or threatened release of Hazardous Substances. The Company has provided copies of all environmental reports, audits, assessments, sampling data, and correspondence with a Government Entity in the Company’s possession related to (i) the environmental condition of the Leased Real Property, (ii) the Company’s compliance with any Environmental Law to the Buyer, or (iii) any liability or potential liability under any Environmental Law.
3.20 Transactionswith Related Parties and Affiliates.
(a) Except as set forth in Section 3.20(a) of the Seller Disclosure Schedule, no Related Party (i) owns or, has owned, directly or indirectly, whether on an individual, joint or other basis, any interest in (A) any material property or asset, real, personal or mixed, tangible or intangible, used in or pertaining to the Company’s business, (B) any Person that has had business dealings or a financial interest in any transaction with the Company, or (C) any Person that is a supplier, customer or competitor of the Company except for securities having no more than one percent (1%) of the outstanding voting power of any such supplier, customer or competing business which are listed on any national securities exchange, (ii) is a party to any Contract with the Company, (iii) serves as an officer, director or employee of any Person that is a supplier, customer or competitor of the Company, or (iv) has engaged in any transaction with the Company in the twelve (12) months preceding the date of this Agreement (other than, in the case of clauses: (ii) and (iv), (1) an Employee Benefit Plan, (2) employment agreements, offer letters and restrictive covenant agreements with employees in the ordinary course of the Company’s standard forms and (3) transactions with employees, officers and directors involving employment, the performance of services, compensation and employee benefits in the ordinary course).
(b) Except as set forth in Section 3.20(b)(i) of the Seller Disclosure Schedule, no employee or current Equity Interest holder of the Company is (i) a party to any transaction or Contract with the Company, other than (1) an Employee Benefit Plan, (2) employment agreements, offer letters and restrictive covenant agreements with employees in the ordinary course on the Company’s standard forms and (3) transactions with employees involving employment, the performance of services, compensation and employee benefits in the ordinary course or (ii) the direct or indirect owner of an interest in any Person that is a present competitor, supplier or customer of the Company (other than non-affiliated holdings in publicly held companies). Except as set forth in Section 3.20(b)(ii) of the Seller Disclosure Schedule, the Company is not a guarantor or otherwise directly or indirectly liable for any actual or potential Liability of any Related Party.
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(c) Section 3.20(c) of the Seller Disclosure Schedule contains a true, correct and complete list of all Affiliate Agreements.
(d) Except as set forth in Section 3.20(d) of the Seller Disclosure Schedule, no Related Party has made any personal guaranty related to the Company.
3.21 AccountsPayable; Accounts Receivable.
(a) The Seller Group has made available to the Buyer a schedule of the accounts payable related to the businesses of the Company as of five (5) days prior to the date hereof (the “Payables”) showing the amount of each Payable due thereunder, which schedule is true, correct and complete as of that date. The Payables arose from bona fide transactions in the ordinary course of business and are not more than thirty (30) days past due.
(b) The Seller Group has delivered to the Buyer a schedule of the accounts receivable related to the businesses of the Company as of five (5) days prior to the date hereof (the “Receivables”) showing the amount of each Receivable and an aging of amounts due thereunder, which schedule is true, correct and complete as of that date. Except as set forth in Section 3.21(b) of the Seller Disclosure Schedule, to the Knowledge of the Seller Group, the debtors to which the Receivables relate are not in or subject to a bankruptcy or insolvency proceeding, and none of the Receivables has been made subject to an assignment for the benefit of creditors. Except as set forth in Section 3.21(b) of Seller Disclosure Schedule, all Receivables that are reflected on the Financial Statements (net of any reserves shown thereon) (i) are valid, existing and arose from bona fide transactions in the ordinary course of business and (ii) are not subject to any refunds or adjustments or any defenses, rights of set-off, assignment, restrictions, security interests or other Encumbrances. Except as set forth in Section 3.21(b) of the Seller Disclosure Schedule, there are no disputes regarding the collectability of any such Receivables and such Receivables are adequately reserved for cancellations and bad debt.
3.22 Employees.
(a) Section 3.22(a)(i) of the Seller Disclosure Schedule sets forth a true, correct and complete list of all employees of the Company as of five (5) days prior to the date hereof and, for each such employee, the employing entity, the office or other work location, annual base salary (or wage rate) or guaranteed salary, employment status (e.g., active or inactive), date of hire, and status as exempt or non-exempt under the Fair Labor Standards Act and any applicable similar Laws, which list is true, correct and complete as of that date. Except as indicated on Section 3.22(a)(ii) of the Seller Disclosure Schedule, the employment of all employees is “at will” and may be terminated by the employing entity at any time, for any reason or no reason, in accordance with applicable Laws. All employees of the Company are, and have been, properly classified under the Fair Labor Standards Act and similar state and local Law.
(b) Section 3.22(b)(i) of the Seller Disclosure Schedule lists all employees, consultants and independent contractors of the Company covered by any written non-competition, non-solicitation or non-disparagement agreement with the Company, and the Seller has provided or made available to the Buyer current and complete copies of each such agreement, as well as copies of any confidentiality or other agreement covering proprietary information. To the Knowledge of the Seller Group, except as section for in Section 3.22(b)(i) of the Seller Disclosure Schedule, no such employee, consultant or independent contractor or any Leased Worker is (a) party to or bound by any non-competition, non-solicitation, confidentiality, non-disclosure, no-hire, or similar agreement that would reasonably be expected to restrict such person in the performance of his or her duties for the Company or the ability of the Company to conduct its business; or (b) in breach of any non-competition agreement as a result of providing services to the Company.
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(c) Section 3.22(c) of the Seller Disclosure Schedule sets forth a true, correct and complete list of all consultants and independent contractors who provide, have provided or are under contract to provide services to the Company during any period in calendar years 2025 and 2024 and sets forth for each such consultant and independent contractor the fee schedule and the total amount of all fees paid or accrued for such services provided during calendar years 2025 and 2024 and summarizes the services were or are being provided. All consultants and independent contractors utilized by the Company are properly characterized as, and for the past four (4) years have been properly characterized as, independent contractors. Other than the payment of fees for services, the Company does not have any liability with respect to any Leased Workers.
(d) (i) The Company is and has been for the past four (4) years in compliance with Laws relating to the employment of labor, including provisions thereof relating to labor, employment, employment practices, terms and conditions of employment, wages, hours, equal employment opportunity, pay equity, nondiscrimination, harassment, retaliation, immigration, benefits, collective bargaining, labor relations, safety and health, workers’ compensation, affirmative action, meal and rest periods, Leased Workers, independent contractors, plant closings and mass layoffs, protection of employee data and personal information and the withholding and payment of social security and other payroll Taxes; (ii) the Company has not experienced any strike, picketing, lockout, work stoppage, work slowdown, unfair labor practice or complaint, arbitration, material grievance or other labor dispute, and no such action is pending or, to the Knowledge of the Seller Group, threatened in writing; (iii) there are no workers’ compensation claims pending against the Company not expected to be covered by the Company’s workers’ compensation insurance plan; (iv) to the Knowledge of the Seller Group, all employees of the Company are legally authorized to work in the United States; (v) the Company is not a party to or bound by any collective bargaining agreement and none of the Company’s employees, or, to the Knowledge of the Seller Group, any groups of the Company’s consultants, independent contractors or Leased Workers, are represented by any labor organization; (vi) to the Knowledge of the Seller Group there have been no organizing activities by any labor organizations at the facilities of the Company or concerning or involving the employees, consultants, independent contractors or Leased Workers of the Company; (vii) no representation Action or demand for recognition or bargaining by any labor organization has been made, filed, commenced or, to the Knowledge of the Seller Group, threatened in writing, concerning or involving the Company or any of its employees, consultants, independent contractors or Leased Workers, and no labor organization has been certified as the bargaining representative for any of the Company’s employees, consultants, independent contractors or Leased Workers; (viii) the Company is not a government contractor or subcontractor on Contracts with any Government Entity obligated to have an affirmative action plan; and (ix) in the past four (4) years no current or former employee has made any sexual harassment claim against an officer or managerial employee concerning or relating to the person’s employment with the Company.
(e) The Company has paid in full to (i) all applicable employees and former employees any wages, salaries, commissions, bonuses, benefits, compensation, overtime, cash-outs of accrued and unused vacation, paid time-off or other leave and severance and any other amounts that are due and payable prior to the Closing Date, and (ii) all independent contractors, consultants and Leased Workers, all fees for services due and payable prior to the Closing Date.
(f) In the past three (3) years, the Company has not taken any action that would reasonably be expected to constitute a “plant closing” or “mass layoff” within the meaning of the Worker Adjustment Retraining and Notification Act of 1988 or any applicable similar state or local Law or otherwise triggered any notice requirement or Liability under any applicable group termination Law.
(g) No employee of the Company is located outside of the United States.
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3.23 MaterialCustomers.
(a) Section 3.23(a) of the Seller Disclosure Schedule sets forth the top ten (10) customers of the Company (the “Material Customers”) based on consolidated gross revenue per customer for the twelve (12) months ended December 31, 2024. Since January 1, 2025, the Company, has not received any written or to the Knowledge of the Seller Group oral notice from any Material Customer to the effect that such Material Customer (i) has stopped, or will stop, use of the products, goods or services of the Company, (ii) have materially decreased, or will materially decrease, use of the products, goods or services of the Company, or (iii) has sought, or is seeking, to materially change the terms (whether related to payment, timing of payment, price or otherwise) with respect to purchasing materials, products or services of the Company (whether as a result of the consummation of the transactions contemplated hereby or otherwise). To the Knowledge of the Seller Group, no Material Customer has otherwise threatened to take any action described in the preceding sentence as a result of the consummation of the transactions contemplated by this Agreement. No Material Customer has any right to any credit or refund for products or goods sold or services rendered or to be rendered by the Company other than pursuant to the Company’s normal course credit or refund policies.
(b) Except as set forth on Section 3.23(b) of the Seller Disclosure Schedule, no Material Customer has indicated in writing or, to the Knowledge of the Seller Group, otherwise provided notice to the effect that, and the Seller Group has no Knowledge that, any such Material Customer intends to cease being a customer of the Company or intends to decrease the rate of, or change the terms with respect to, buying products and services from the Company (whether as a result of the consummation of the transactions contemplated hereby or otherwise).
3.24 MaterialSuppliers.
(a) Section 3.24(a) of the Seller Disclosure Schedule sets forth the top ten (10) suppliers of the Company (the “Material Suppliers”) based on consolidated gross revenue based on premiums written and commissions owed for the twelve (12) months ended December 31, 2024. Since January 1, 2025, no member of the Seller Group has received any written or to the Knowledge of the Seller Group oral notice from any Material Supplier to the effect that such Material Supplier (i) has stopped, or will stop, use of the products, goods or services of the Company, (ii) has materially decreased, or will materially decrease, use of the products, goods or services of the Company, or (iii) has sought, or is seeking, to materially change the terms (whether related to payment, timing of payment, price or otherwise) with respect to purchasing materials, products or services of the Company (whether as a result of the consummation of the transactions contemplated hereby or otherwise). To the Knowledge of the Seller Group, no Material Supplier has otherwise threatened to take any action described in the preceding sentence as a result of the consummation of the transactions contemplated by this Agreement. No Material Supplier has any right to any credit or refund for products or goods sold or services rendered or to be rendered by the Company other than pursuant to the Company’s normal course credit or refund policies.
(b) Except as set forth on Section 3.24(b) of the Seller Disclosure Schedule, no Material Supplier has indicated in writing or, to the Knowledge of the Seller Group, otherwise provided notice to the effect that, and the Seller Group has no Knowledge that, any such Material Supplier intends to cease doing business with the Company or intends to decrease the rate of, or change the terms with respect to, supplying materials, products or services to the Company (whether as a result of the consummation of the transactions contemplated hereby or otherwise).
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3.25 DataPrivacy.
(a) The Company is, and has been, in compliance in all material respects with all applicable Privacy and Security Requirements. The Company has not experienced any Security Breaches, and the Company is not aware of any notices or complaints from any Person regarding a Security Breach. The Company has not received any notices or complaints from any Person (including any Government Entity) regarding the Processing of Protected Data or compliance with applicable Privacy and Security Requirements. The Company maintains systems and procedures to receive and effectively respond to complaints and, to the extent required by applicable Law, individual rights requests in connection with the Company’s Processing of Personal Information, and, to the extent required by applicable Law, the Company has complied with all such individual rights requests. The Company does not engage in the sale, as defined by applicable Law, of Personal Information.
(b) The Company has valid and legal rights to Process all Protected Data that is Processed by or on behalf of the Company in connection with the use and/or operation of its products, services and business, and the execution, delivery or performance of this Agreement will not affect these rights or violate any applicable Privacy and Security Requirements. The Company has implemented reasonable physical, technical and administrative safeguards consistent with industry standards that are designed to protect Protected Data from unauthorized access by any Person, and to ensure compliance in all material respects with all applicable Privacy and Security Requirements.
3.26 Booksand Records.
(a) The books and records of the Company are true, correct and complete in all material respects and have been maintained in accordance with sound business practices. All such books and records have been made available to the Buyer.
(b) Neither the Company nor any officer, manager or director of the Company, or anyone acting on behalf of the Company, has made or received any material payments not correctly categorized and fully disclosed in the Company’s books and records.
3.27 COVID-19and COVID-19 Measures.
(a) Section 3.27(a) of the Seller Disclosure Schedule sets forth a true, correct, and complete list of each loan, exclusion, forgiveness or other item to which the Company has applied to or received pursuant to any COVID-19 Measures or CARES Act and COVID Relief Programs, including, but not limited to, any “Paycheck Protection Program” loan, “Economic Stabilization Fund” loan or other SBA loans (each, a “PPP Loan” and collectively, the “PPP Loans”), and except as set forth on Section 3.27(a) of the Seller Disclosure Schedule, each member of the Seller Group have not received any Indebtedness or grant under the CARES Act and COVID Relief Programs. (A) Each member of the Seller Group has complied in all material respects with the CARES Act and COVID Relief Programs and any documentation related thereto, (B) all applications and certifications made by each member of the Seller Group pursuant to the CARES Act and COVID Relief Programs are true, correct and complete, and (C) each member of the Seller Group have provided true, correct and complete copies of all documentation related to the eligibility of the Seller Group for relief pursuant to the CARES Act and COVID Relief Programs.
3.28 NoBrokers or Finders. Except as set forth in Section 3.28 of the Seller Disclosure Schedule, no investment banker, broker, finder or other intermediary has been retained by or is authorized to act on behalf of the Company who is entitled to any fee or commission in connection with the transactions contemplated by this Agreement.
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3.29 NoOther Representations and Warranties. Except for the representations and warranties set forth in Article 3 or Article 4 (in each case, as qualified by the Seller Disclosure Schedules), none of the Company, any member of the Seller Group or any other Person: (a) makes any representation or warranty, express or implied, including as to condition, merchantability, suitability, or fitness for a particular purpose of any of the assets of the Company or (b) makes any representation or warranty, express or implied, as to the accuracy or completeness of any information regarding the Company or the business of the Company (including any representation or warranty of any kind or nature whatsoever concerning or as to the accuracy or completeness of any projections, budgets, forecasts, or other forward-looking financial information concerning the future revenue, income, profit, or other financial results of the Company). Any and all statements or information communicated by the Company, any member of the Seller Group or any other Person outside of this Agreement, including by way of the documents provided in response to the Buyer’s due diligence requests and any management presentations provided, whether verbally or in writing, are deemed to have been superseded by this Agreement, it being agreed that no such prior or contemporaneous statements or communications outside of this Agreement will survive the execution and delivery of this Agreement.
Article4****REPRESENTATIONS AND WARRANTIES REGARDING THE SELLER GROUP
As a material inducement to the Buyer, each of the Seller and the Seller Owner, with respect to itself, himself or herself and not any other Person, represents and warrants as follows:
4.1 Organization. The Seller is duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation.
4.2 Title.
(a) The Seller is the lawful owner of record, and beneficially owns all of the issued and outstanding Equity Interests of the Company, free and clear of all Encumbrances (other than restrictions on transfer arising under applicable securities Laws). The outstanding Equity Interests of the Company have been duly authorized and validly issued and are fully paid and non-assessable. There are no other Equity Interests of the Company authorized, issued or outstanding. Except for this Agreement, there are no outstanding Contracts or understandings between any member of the Seller Group and any other Person with respect to the acquisition, disposition, transfer, registration or voting of or any other matters in any way pertaining or relating to, or any other restrictions on, any of the Acquired Interests.
(b) At the Closing, after giving effect to the acquisition of the Acquired Interests by the Buyer pursuant to the terms hereof, the Buyer will be the lawful record and beneficial owners of all of the issued and outstanding Equity Interests of the Company, free and clear of all Encumbrances (other than restrictions on transfer arising under applicable federal and state securities Laws).
4.3 Authorization;Enforceability.
(a) Each member of the Seller Group has all requisite power, authority and capacity, as applicable, to execute this Agreement and each Ancillary Agreement to which such member of the Seller Group is a party. The execution, delivery and performance by each member of the Seller Group of this Agreement and the Ancillary Agreements to which such member of the Seller Group is a party and the consummation of the transactions contemplated hereby and thereby has been duly and validly authorized by all necessary action on the part of such member of the Seller Group.
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(b) This Agreement and the Ancillary Agreements have been duly executed and delivered by each member of the Seller Group and constitute the valid and binding agreements of such member of the Seller Group, enforceable against such member of the Seller Group in accordance with their respective terms, except as enforcement may be limited by the Bankruptcy and Insolvency Exceptions.
4.4 NoConflicts. The execution, delivery and performance of the documents associated with the F-Reorganization , this Agreement, and the Ancillary Agreements, and the consummation of the transactions contemplated hereby and thereby did not, and will not (with or without notice, lapse of time, or both) (i) violate or conflict with the Organizational Documents of the Company, (ii) violate or conflict with, constitute a breach, default or loss of any benefit under, permit the acceleration of any obligation under or create in any Person the right to revoke, withdraw, suspend, terminate, modify or cancel, or otherwise require any action, consent, approval, order, authorization, registration, declaration or filing with respect to any material Contract to which the Seller is a party, (iii) violate any Law, Order, or Permit of any Government Entity applicable to the Seller or its businesses, or (iv) result in the creation or the imposition of any Encumbrance (other than Permitted Encumbrances) upon all or any portion of the assets of the Seller.
4.5 Disclaimer. Except for the specific representations and warranties expressly made by Buyer in Article 5, each member of the Seller Group acknowledges and agrees that (a) the Buyer has not made any representation or warranty, express or implied, at Law or in equity, in respect of the Buyer or each of its assets, liabilities, operations, prospects or conditions (financial or otherwise) or any other matter, including with respect to merchantability or fitness for any particular purpose of any assets, the nature or extent of any liabilities, the prospects of the businesses of the Buyer, or the effectiveness or the success of any operations, and (b) no representative of the Buyer has any authority, express or implied, to make any representations, warranties or agreements not specifically set forth in this Agreement and subject to the limited remedies herein provided. Each member of the Seller Group is engaging in the transactions contemplated hereby subject only to the specific representations and warranties contained in Article 5, and acknowledges that such member of the Seller Group disclaims any representation or warranty made by any Person beyond those specifically set forth in Article 5. Notwithstanding anything to the contrary set forth in this Section 4.5, in respect of any claim for Fraud, each member of the Seller Group shall have all remedies available under this Agreement or otherwise without giving effect to anything in this Section 4.5.
4.6 NoBrokers or Finders. Except as set forth in Section 3.28 of the Seller Disclosure Schedule, no investment banker, broker, finder or other intermediary has been retained by or is authorized to act on behalf of any member of the Seller Group who is entitled to any fee or commission in connection with the transactions contemplated by this Agreement.
4.7 LegalProceedings. There is no (a) Action pending, or, to the Knowledge of the Seller Group, threatened, against or involving any member of the Seller Group or any of its properties or assets, whether at law or in equity, before or by any Government Entity or (b) (i) Order to which any member of the Seller Group or any of its businesses, properties or assets is subject or (ii) unsatisfied judgment, penalty or award against or involving any member of the Seller Group or any of its properties or assets that, in each case, would reasonably be expected to prevent, delay, make illegal or otherwise interfere with or adversely affect the transactions contemplated hereby. To the Knowledge of the Seller Group, no event has occurred, or circumstance exists that would reasonably be expected to give rise to or serve as a basis for the commencement of any such Action or Order.
4.8 InvestmentRepresentations.
(a) The Seller Group acknowledges that the information provided by the Seller and the Seller Owners in the representation and warranties contained herein and in the Accredited Investor Questionnaire will be relied upon by the Buyer in concluding that the Buyer Interests to be issued have been issued pursuant to Section 4(a)(2) of the Securities Act or another exemption from the registration requirements of the Securities Act.
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(b) The Buyer Interests to be received by the Seller pursuant to this Agreement will be acquired by the Seller for its own account and not with a view to, or for sale in connection with, any distribution thereof, except pursuant to sales registered under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities Laws.
(c) The Seller’s financial situation is such that the Seller can afford to bear the economic risk of its investment in the Buyer for an indefinite period of time, and the Seller is capable of evaluating the merits and risks of the investment in the Buyer. Seller is able to afford a complete loss of investment.
(d) The Seller’s knowledge and experience in financial and business matters are such that such Seller is capable of evaluating the merits and risks of the investment in the Buyer.
(e) The Seller understands that the receipt of the Buyer Interests pursuant to this Agreement is a speculative investment which involves a high degree of risk of loss of the entire investment therein, that there will be substantial restrictions on the transferability of the Buyer Interests and that for an indefinite period following the Closing Date there will be no public market for the Buyer Interests and that a public market may never exist therefor, and that, accordingly, it may not be possible for the Seller to sell the Buyer Interests in case of emergency or otherwise.
(f) Upon the Closing, the only asset of the Buyer will be its ownership of all of the Equity Interests of the Company and it will not acquire additional assets while the Seller Group owns any of the Buyer Interests. As a result of the Seller owning all of the Equity Interests of the Company prior to the Closing, the Seller and the Seller Owners are informed and have sufficient knowledge of the Company, and the Seller Owners or their representatives have been given the opportunity to examine all documents and to ask questions of, and to receive answers from the Seller regarding the Company prior to the Closing and from the Buyer and its representatives, relating to the Company after the Closing as applicable, concerning the terms and conditions of the direct investment in the Buyer and indirect investment in the Company and related matters and to obtain all additional information that Seller, the Seller Owners or their representatives deem necessary. Since the Buyer Interests will be exchangeable under the terms of the Company Agreement of the Buyer into shares of common stock of XTI, par value $0.001 per share, the Seller and each of the Seller Owners has reviewed and is sufficiently aware of XTI’s business affairs and financial condition to reach an informed and knowledgeable decision to receive the Buyer Interests with the exchange rights set forth in the Company Agreement of the Buyer. Each of the Seller and each of the Seller Owners acknowledges that information regarding XTI is publicly available via the Securities and Exchange Commission’s website (www.sec.gov) and has reviewed such information in connection with making its investment decision to acquire the Buyer Interests, including the right to exchange them for XTI common stock pursuant to the terms set forth in the Company Agreement of the Buyer.
(g) Each of the Seller Owners is an “accredited investor” as such term is defined in Regulation D under the Securities Act and has completed an Accredited Investor Questionnaire attached hereto as Exhibit F.
(h) The Seller understands that no federal or state agency has made any finding or determination regarding the fairness of the offering of the Buyer Interests for investment, or any recommendation or endorsement thereof.
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(i) The Seller acknowledges that, subject to any applicable provisions of the Company Agreement of the Buyer, the Registration Rights Agreement, and the Lock-Up Agreement, the Buyer Interests may not be offered or sold unless subsequently registered under the Securities Act or unless an exemption from such registration is available.
(j) The Seller acknowledges that no Buyer Interests are being offered or sold to it by means of any form of general solicitation or general advertising.
(k) THE SELLER UNDERSTANDS AND ACKNOWLEDGES THAT THE BUYER INTERESTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY STATE SECURITIES LAW, THAT THE BUYER INTERESTS ARE BEING SOLD AND DELIVERED PURSUANT TO EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND THE BUYER INTERESTS (INCLUDING ANY XTI SHARES OF COMMON STOCK ISSUED UPON EXCHANGE OF ANY BUYER INTERESTS PURSUANT TO THE TERMS OF THE COMPANY AGREEMENT OF THE BUYER) MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. SELLER UNDERSTANDS THAT THE CERTIFICATES AND ANY OTHER DOCUMENTS REPRESENTING THE BUYER INTERESTS (INCLUDING ANY XTI SHARES OF COMMON STOCK ISSUED UPON EXCHANGE OF ANY BUYER INTERESTS PURSUANT TO THE TERMS OF THE COMPANY AGREEMENT OF THE BUYER) WILL INCLUDE A LEGEND SETTING FORTH THE RESTRICTIONS DESCRIBED IN THE PRECEDING SENTENCE AND OTHER RESTRICTIONS CONTAINED IN THIS AGREEMENT, IF APPLICABLE.
Article5****REPRESENTATIONS AND WARRANTIES OF THE BUYER
As a material inducement to the Seller Group, the Buyer represents and warrants as follows:
5.1 Organization. The Buyer is duly organized, validly existing and in good standing under the Laws of Texas. The Buyer is, and at all times since its inception, has been, validly treated as a disregarded entity for U.S. federal and applicable state and local Income Tax purposes and no election has been made (or is pending) to change such treatment.
5.2 Authorization;Enforceability.
(a) The Buyer has all requisite power, authority, and capacity, as applicable, to execute this Agreement and each Ancillary Agreement to which the Buyer is a party. The execution, delivery and performance by the Buyer of this Agreement and the Ancillary Agreements to which the Buyer is a party and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary action on the part of the Buyer.
(b) This Agreement and the Ancillary Agreements have been duly executed and delivered by the Buyer and constitute the valid and binding agreements of the Buyer, enforceable against the Buyer in accordance with their respective terms, except as enforcement may be limited by the Bankruptcy and Insolvency Exceptions.
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5.3 NoConflicts. The execution, delivery and performance of the this Agreement and the Ancillary Agreements and the consummation of the transactions contemplated hereby and thereby did not, and will not (with or without notice, lapse of time or both) (i) violate or conflict with the Organizational Documents of any Buyer, (ii) violate or conflict with, constitute a breach, default, or loss of any benefit under, permit the acceleration of any obligation under or create in any Person the right to revoke, withdraw, suspend, terminate, modify or cancel, or otherwise require any action, consent, approval, order, authorization, registration, declaration or filing with respect to any material Contract to which any Buyer is a party, or (iii) violate any Law, Order, or Permit of any Government Entity applicable to any Buyer or its businesses, except for such violations that would not materially adversely affect or delay the ability of any Buyer to consummate the transactions contemplated by this Agreement.
5.4 NoBrokers or Finders. No investment banker, broker, finder or other intermediary has been retained by or is authorized to act on behalf of the Buyer who is entitled to any fee or commission in connection with the transactions contemplated by this Agreement, except for Think Equity.
5.5 InvestmentIntent. The Buyer is acquiring all of the Acquired Interests for its own account and not with a view to any resale or distribution within the meaning of Section 2(11) of the Securities Act, and the rules and regulations promulgated thereunder. The Buyer is an “accredited investor” within the meaning of Securities and Exchange Commission Rule 501 of Regulation D, as presently in effect, and has sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of its investment in the Acquired Interests, and the Buyer is capable of bearing the economic risks of such investment, including a complete loss of its investment in the Acquired Interests. The Buyer acknowledges that the Acquired Interests have not been registered under the Securities Act, or any state securities Laws and understands and agrees that it may not sell or dispose of any of the Acquired Interests except pursuant to a registered offering in compliance with, or in a transaction exempt from, the registration requirements of the Securities Act, and any other applicable federal, state, or foreign securities Laws.
5.6 BuyerInterests. The Buyer Interests, at time of issuance, will be duly and validly authorized and, when issued to Seller in the manner contemplated by this Agreement, will be validly issued, fully paid and nonassessable, and will be free and clear of all Encumbrances, other than the Company Agreement of the Buyer, the Registration Rights Agreement, the Lock-Up Agreement, and restrictions of general applicability imposed by federal or state securities laws.
Article6****COVENANTS
6.1 Allocation.
(a) Within thirty (30) days following the final determination of the Final Net Working Capital in accordance with Section 2.7, the allocation of the Purchase Price, assumed liabilities of the Company (for Income Tax purposes), and all other amounts required to be taken into account among the assets of the Company as of the Closing shall be prepared by the Buyer (the “Initial Allocation Schedule”) and delivered to the Seller’s Representative for review, comment and approval. The Initial Allocation Schedule shall be prepared in accordance with the applicable provisions of the Code and the Treasury Regulations and consistent with the methodologies set forth in Schedule 6.1(a).
(b) The Seller’s Representative shall notify the Buyer of any comments or disputes that the Seller’s Representative has to the Initial Allocation Schedule within thirty (30) days of receipt of the schedule. The Seller’s Representative and the Buyer shall attempt in good faith to resolve their dispute regarding the Initial Allocation Schedule. If Seller’s Representative and the Buyer are unable to resolve any dispute relating to the Initial Allocation Schedule within twenty (20) days of the Buyer’s receipt of the Seller’s Representative comments, then any dispute will be submitted for final resolution to the Independent Auditor in accordance with the procedures set forth in Section 2.7(c), mutatis mutandis. The Independent Auditor will be charged with determining whether the Initial Allocation Schedule (or the portion thereof that is in dispute) has been prepared in accordance with this Section 6.1; provided, that the Independent Auditor shall be instructed to use the methodologies set forth in Schedule 6.1(a).
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(c) The purchase price allocation, as finally determined pursuant to this Section 6.1 will be the “Final Allocation Schedule.” The Buyer and the Seller Group shall file, and shall cause their respective Affiliates to file, all Tax Returns in a manner consistent with the Final Allocation Schedule, and no Party to this Agreement shall, or shall direct any other Person to, take any position inconsistent with the Final Allocation Schedule on any Tax Return or otherwise, unless required by a “determination” within the meaning of Section 1313(a) of the Code. The Buyer and the Seller’s Representative shall make appropriate adjustments to the Final Allocation Schedule to reflect changes in the Purchase Price based on the procedures of this Section 6.1.
6.2 FurtherAssurances; Cooperation. Each Party, upon the request from time to time of any other Party hereto after the Closing, and without further consideration, will take such action as may be reasonably necessary to consummate the transactions contemplated hereby. Each Party shall use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, and to assist and cooperate with the other Parties in doing, all things necessary, proper or advisable to effect and consummate the transactions contemplated hereby, including but not limited to all actions reasonably required to permit a change of control under the terms of the Banesco Loan Agreement and for all obligations of each member of the Seller Group in respect thereof to be released and discharged in full.
6.3 Non-Competition;Non-Solicitation.
(a) In furtherance of the transactions contemplated hereby and to more effectively protect the value and goodwill of the businesses of the Company, each member of the Seller Group covenants and agrees that, for the Restricted Period, such member of the Seller Group will not, directly or indirectly through another Person, through or in association with any other Person (whether as an officer, director, employee, partner, consultant, holder of equity or debt, lender, or in any other manner or capacity) (in each case, except as arising under this Agreement or any Ancillary Agreement):
(i) own, acquire, manage, control any interest, financial or otherwise in, participate in, consult with, sell, provide, or in any manner engage with or represent any business within any Restricted Territory that is competitive with the products and services sold or provided by the Company as of or prior to the Closing Date (the “Competing Business”); provided, however, that no member of the Seller Group will be precluded from (A) the ownership of securities of Persons that are listed on a national securities exchange or traded in the national over-the-counter market in an amount that will not exceed three percent (3%) of the outstanding shares of any such corporation, (B) the passive ownership of securities through a private equity, venture capital or similar fund, in each case, that engages in a Competing Business so long as such member of the Seller Group has no active participation in the business of such Competing Business; (C) serving as an officer, member or director of a non-profit organization, trade association, task force, or industry group; or (D) being employed by or otherwise providing services to a Person that has a subsidiary, division or affiliate entity or line of business (an “Operating Line”) that engages in the Competing Business, so long as such member of the Seller Group does not engage in services in support of such Operating Line or the Competing Business.
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(ii) (A) call on, solicit or service, engage or contract with or take any action, in each case, which would reasonably be expected to in any way interfere with, impair, subvert, disrupt, or alter the relationship, contractual or otherwise, between the Company and any current or prospective customer, supplier, association, distributor, payor, vendor, developer, service provider, licensor or licensee, independent sales agents or other similar business relation of the Company as of the Closing Date, (B) solicit, induce, recruit or encourage any employees of or individual consultants employed or engaged by the Company as of the Closing Date to terminate their relationship with the Company, take away or hire such employees or individual consultants, or in any way interfere with the relationship between such employee or individual consultant on the one hand, any member of the Company, on the other hand, provided, general advertisements shall not constitute a violation of this Section, (C) divert or take away the business or patronage (with respect to products or services of the kind or type developed, produced, marketed, furnished or sold by the Company prior to the Closing Date); or (D) attempt to do any of the foregoing, either for such member of the Seller Group’s own purposes or for any other third party.
(b) Each member of the Seller Group has carefully considered the nature and extent of the restrictions placed upon him, her or it by this Section 6.3, and hereby acknowledges and agrees (i) that the same are reasonable in time, scope and territory, supported by adequate consideration and necessary for the protection of the Buyer, the Company and their Affiliates, and are an essential inducement to the Buyer consummating the transactions contemplated by this Agreement and (ii) that it will not seek to challenge the validity or enforceability of the restrictions placed upon him, her or it by this Section 6.3. Each member of the Seller Group further acknowledges and agrees that any violation of these restrictions would cause immediate and irreparable injury to the Buyer, the Company, and their Affiliates for which there would be no adequate monetary damages. Each member of the Seller Group recognizes and agrees that, other than as set forth in any Ancillary Agreement, the restrictions herein supersede and control over any prior restrictive covenants he, she or it may have previously entered into with the Company, and also consents and agrees that the restrictions herein shall be enforceable by any successors or assigns of the Buyer and the Company, as applicable. In the event of a breach or a threatened breach by any member of the Seller Group of such restrictions, each member of the Seller Group acknowledges and agrees that the Buyer and the Company shall be entitled to specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions of this Section 6.3 (including the extension of the Restricted Period by a period equal to the length of the court proceedings necessary to stop such violation) without the requirement of posting bond or other security, in addition to any other remedy to which the Buyer may be entitled at law or in equity. If any court of competent jurisdiction determines that any provision of this Section 6.3 is invalid, prohibited, or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without validating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. In the event of an alleged breach or violation by any member of the Seller Group of any of the provisions of this Section 6.3, the Restricted Period will be tolled for such member of the Seller Group until such alleged breach or violation is resolved.
(c) Exclusionof Randall Warnas. Notwithstanding anything to the contrary contained herein, it is agreed by the Parties that Randall Warnas shall not be subject to the obligations and restrictions set forth in Section 6.3(a) and Section 6.3(b).
(d) Useof Name. Seller Group shall cease to conduct any business using the names “Drone Nerds Inc,” “Drone Nerds Tech SAS LLC,” “Ready Monitor LLC,” “Surf Nerds” or any confusingly similar names and any Trademarks (or any derivations thereof), and shall change its organizational documents, websites, email addresses, all advertising and similar documentation to remove any references to such name or any derivative thereof.
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6.4 Confidentiality. Each member of the Seller Group recognizes and agrees that he, she or it has Confidential Information. Each member of the Seller Group covenants and agrees that, it shall not, and shall cause its Affiliates and representatives not to, directly or indirectly, use or disclose to any Person any Confidential Information of which such member of the Seller Group is or becomes aware, whether or not such information is developed by it, for any reason or purpose whatsoever, nor shall it make use of any of the Confidential Information for its own purposes or for the benefit of any Person except for the Company, except (A) to the extent that such disclosure or use is directly related to and required by such member of the Seller Group’s performance, following the Closing, in good faith of duties assigned to such member of the Seller Group by the Buyer, the Company or their Affiliates in connection with his, her or its employment or (B) to the extent required to do so by a Government Entity; provided, that in the event any member of the Seller Group is required by any Government Entity to disclose any Confidential Information, such member of the Seller Group shall (i) provide the Buyer with prompt written notice of any such request or requirement and assist the Buyer, at the Buyer’s expense, in asserting any legal challenges to or appeals of such request or requirement that the Buyer in its sole discretion pursue, and (ii) limit his, her or its disclosure of Confidential Information to the portion Confidential Information that is expressly required to be disclosed. Each member of the Seller Group shall take all reasonable steps to safeguard Confidential Information and to protect it against disclosure, misuse, espionage, loss and theft. Notwithstanding the foregoing limitations, no member of the Seller Group will be required to keep confidential or return any Confidential Information that (a) is known or available through other lawful sources not bound by a confidentiality obligation, directly or indirectly, with the disclosing party or otherwise prohibited from disclosing such information, (b) is or becomes publicly known or generally known in the industry through no fault of the receiving party or its Representatives, (c) is developed by the receiving party independently of the disclosure by the disclosing party without reliance on the Confidential Information, (d) relates solely to the income Tax aspects and consequences of the transactions contemplated by this Agreement, or (e) is disclosed in connection with such Person’s performance, enforcement, or defense of any rights or obligations under this Agreement, the other Ancillary Agreements, or in connection with the transactions contemplated hereby or thereby.
6.5 Seller’sRelease.
(a) Effective upon the Closing, each member of the Seller Group, on behalf of itself, and its Subsidiaries, Affiliates, predecessors, successors, assigns and other Persons that have or could potentially derive rights through them (collectively, the “Releasing Parties”) hereby irrevocably waives, releases and forever discharges the Buyer, the Company, each of their Affiliates and their respective directors, officers, employees, partners, members, managers, owners, agents, representatives, heirs, beneficiaries, executors, trustees, administrators, successors and assigns (collectively, the “Released Persons”) of and from any and all Actions, judgments, Orders, rights, obligations, omissions, promises, covenants, Contracts, agreements, debts, dues, sums of money, accounts, reckonings, bongs, bills, specialties, trespasses, and Liabilities whatsoever, whether known or unknown, suspected or unsuspected, matured or unmatured, fixed or contingent, at law and in equity, which such member of the Seller Group now has, has ever had or may hereafter have (collectively, the “Seller’s Released Claims”), against the Buyer, the Company or any of their Affiliates on account of or arising out of any matter, cause or event related to the Buyer, the Company, or any of their Affiliates arising prior to, or contemporaneously with, the Closing Date; provided, however, notwithstanding the foregoing, the Seller’s Released Claims shall not release (a) any obligations of the Released Persons to the Releasing Parties arising under this Agreement or any Ancillary Agreement, (b) with respect to any Releasing Party that is an employee of the Company any claim for any compensation owed that remains unpaid (including rights to payment for salary, bonuses, commissions, and vacation pay, earned and unpaid as of the Closing Date) and any claim for accrued, vested benefits under any Tax qualified retirement plan, or employee welfare benefit plan of the Company in accordance with plan terms and applicable Law, and (c) any claim for any rights to indemnification or advance of expenses that such Releasing Party has under the terms of the Organizational Documents of the Company. Effective upon the Closing, each of the Releasing Parties hereby expressly waives and releases any rights and benefits which such Releasing Party has or may have under any Law or rule of any jurisdiction pertaining to the matters released herein and expressly waives and releases any and all rights and benefits conferred upon such Releasing Party.
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(b) Each member of the Seller Group represents to the Buyer that it has not voluntarily or involuntarily assigned or transferred or purported to assign or transfer to any Person any matter purported to be released hereby and that no Person other than such member of the Seller Group has any interest in any released matter by law or contract by virtue of any action or inaction by such member of the Seller Group.
(c) Each member of the Seller Group, for itself and its other applicable Releasing Parties, hereby irrevocably covenants to refrain from, directly or indirectly, asserting any claim or demand, or commencing, instituting, distributing or causing to be commenced, any Action of any kind against any Released Person, based upon any matter purported to be released hereby.
6.6 CertainTax Matters.
(a) StraddlePeriods. In the case of any Taxes that are payable for a Tax period that includes (but does not end on) the Closing Date (a “StraddlePeriod”), the portion of such Taxes allocable to the portion of such period ending on the Closing Date shall (i) in the case of Taxes that are either (A) based upon, or related to, income, payroll or receipts or (B) imposed in connection with any sale or other transfer or assignment of property (real or personal, tangible or intangible), equal the amount that would be payable if the taxable period ending as of the end of the day on the Closing Date using a “closing of the books methodology”; provided, however, that any transactions outside the ordinary course of business of Company following the Closing on the Closing Date will be allocable to the portion of the Straddle Period following the Closing Date; (ii) in the case of interest or penalties, equal the amount relating to Tax for the portion of such period ending on the Closing Date (determined in accordance with this Section 6.6(a)), whether such items are incurred, accrued, assessed or similarly charged on, before or after the Closing Date; and (iii) in the case of Taxes other than those described in clauses (i) and (ii) above, equal the amount of such Taxes for the entire period multiplied by a fraction (A) the numerator of which is the number of days in the taxable period prior to and including the Closing Date and (B) the denominator of which is the total number of days in the entire taxable period. For purposes of clause (i), any item determined on an annual or periodic basis (including amortization and depreciation deductions) shall be allocated to the portion of the Straddle Period ending on the Closing Date based on the mechanics set forth in clause (iii).
(b) TransferTaxes. Notwithstanding any other provision herein and to the extent applicable, all federal, state, local, and non-U.S. transfer, excise, documentary, sales, use, stamp, registration, recording, property, ad valorem, value added and other such Taxes and fees (including any penalties and interest) incurred in connection with the transactions contemplated by this Agreement (“Transfer Taxes”) shall be borne fifty percent (50%) by the Buyer and fifty percent (50%) by the Seller. The Party required by Law to file a Tax Return with respect to such Transfer Taxes shall timely prepare, with the other Party’s cooperation, and file such Tax Return. The Parties shall cooperate with each other in the preparation of Tax Returns relating to such Transfer Taxes. The applicable Parties hereto shall timely sign and deliver (or cause to be timely signed and delivered) any certificates or forms as may be necessary or appropriate and otherwise cooperate to establish any available exemption from (or otherwise reduce) such Transfer Taxes.
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(c) TaxContests.
(i) If any Government Entity issues to any Buyer, the Company or any of their Affiliates (A) a written notice or other communication of its intent to audit, examine or conduct an Action relating, in whole or in part, to Taxes or any Tax Return of the Company for any Pre-Closing Tax Period or a Straddle Period, or (B) a written notice of deficiency for Taxes for any Pre-Closing Tax Period or a Straddle Period (any of the items described in clauses (A) or (B) of this Section 6.6(c)(i), a “Tax Contest”), then the Buyer shall provide a written notice to Seller’s Representative within twenty (20) days of the receipt of such notice by Buyer, the Company or any of their Affiliates, including, to the extent known, describing in reasonable detail the facts and circumstances relating to the subject matter of the Tax Contest. No failure or delay of the Buyer in the performance of the foregoing shall reduce or otherwise affect the obligations or liabilities of the Seller Group pursuant to this Agreement except to the extent, that the relevant member of the Seller Group is actually prejudiced or adversely affected by such failure or delay.
(ii) The Seller’s Representative will have the right to control all Tax Contests referred to in Section 6.6(c)(i) that relate solely to the Company for taxable periods ending on or prior to the Closing Date. The Seller’s Representative shall promptly notify the Buyer of the intention to control such a Tax Contest. If the Seller’s Representative so elects, then the Seller will control such Tax Contest (each such claim, a “Seller Controlled Tax Contest”); provided, that (A) the Buyer, at the Buyer’s sole cost and expense, will have the right (but not the duty) to participate in any such Seller Controlled Tax Contest, including the right to receive notice and copies of all correspondence received from the Government Entity and otherwise to be reasonably apprised of the initiation and status of such Tax Contest; (B) the Buyer will have an opportunity to comment on any written materials prepared in connection with any such Tax Contest and attend any in-person or telephonic conferences relating to any such Tax Contest, (C) the Seller’s Representative shall keep the Buyer reasonably informed on a timely basis regarding the progress and substantive aspects of any such Seller Controlled Tax Contest, and (D) the Seller’s Representative shall not enter into any settlement or compromise of such Tax Contest without obtaining the Buyer’s prior written consent thereto, which shall not be unreasonably conditioned, withheld or delayed.
(iii) With respect to a Tax Contest other than a Seller Controlled Tax Contest, the Company will control such Tax Contest, provided that (1) the Seller’s Representative, at the Seller’s sole cost and expense, will have the right (but not the duty) to participate in any such Tax Contest, including the right to receive notice and copies of all correspondence received from the Government Entity and otherwise to be reasonably apprised of the initiation and status of such Tax Contest; (2) the Seller’s Representative will have an opportunity to comment on any written materials prepared in connection with any such Tax Contest and attend any in-person or telephonic conferences relating to any such Tax Contest, (3) the Buyer and the Company shall keep the Seller’s Representative reasonably informed on a timely basis regarding the progress and substantive aspects of any such Tax Contest, and (4) neither the Buyer nor the Company shall enter into any settlement or compromise of such Tax Contest without obtaining the Seller’s Representative prior written consent thereto, which shall not be unreasonably conditioned, withheld or delayed.
(iv) Notwithstanding anything to the contrary in Section 7.5, this Section 6.6(c) shall govern the conduct of any Tax Contest.
(d) TaxReturns.
(i) SellerPrepared Returns. The Seller’s Representative, at the Seller’s expense, shall timely prepare any Income Tax Returns of the Company for a tax period ending on or before the Closing Date that are to be filed after the Closing Date (each such Tax Return, a “Seller Prepared Return”). Each such Seller Prepared Return will be prepared in a manner consistent with the past practices, procedures and accounting methods of the Company, except to the extent otherwise required by applicable Laws. The Seller’s Representative shall provide the Buyer with copies of such Seller Prepared Return no later than thirty (30) days prior to due date for filing thereof (taking into account extensions), along with supporting workpapers, for the Buyer’s review and comment. The Buyer may provide Seller with any written comments to such Seller Prepared Return no later than fifteen (15) days after the delivery of a copy of such return for review. The Seller’s Representative shall reasonably consider in good faith all comments received from the Buyer in accordance with the foregoing sentence; provided, that the Seller shall incorporate the Buyer’s comments to the extent that they relate to a position for which the draft Seller Prepared Return prepared by the Seller did not have a “reasonable basis” within the meaning of Treasury Regulations Section 1.6662-3(b)(3). For the avoidance of doubt, Seller Prepared Returns shall not include any Tax Return of Seller.
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(ii) BuyerPrepared Returns. The Buyer shall prepare or cause to be prepared and file or cause to be filed on a timely basis all Tax Returns of the Company other than the Seller Prepared Returns (the “Buyer Prepared Returns”). The Buyer Prepared Returns shall be prepared in a manner consistent with the conventions provided for in Section 6.6(d)(iii), and solely to the extent related to a Pre-Closing Tax Period shall be prepared in a manner consistent with past practices, procedures and accounting methods of the Company, unless otherwise required by applicable Laws. The Buyer shall provide the Seller’s Representative with copies of any Buyer Prepared Return that relates to a Pre-Closing Tax Period or Straddle Period no later than thirty (30) days (or, in the case of non-Income Tax Returns, such shorter period as is reasonably practicable under the circumstances) prior to due date for filing thereof (taking into account extensions), along with supporting workpapers and the proposed allocation of the Straddle Period Tax liability based on Section 6.6(a), for the Seller’s Representative’s review and comment. The Seller’s Representative may provide the Buyer with any written comments to any such Buyer Prepared Return no later than fifteen (15) days (or, in the case of non-Income Tax Returns, such shorter period as is reasonably practicable under the circumstances) after the delivery of a copy of such return for review. The Buyer shall reasonably consider in good faith all comments received from the Seller in accordance with the foregoing sentence; provided, that the Buyer shall incorporate the Seller’s comments to the extent that they relate to a position for which the draft Buyer Prepared Return prepared by the Buyer did not have a “reasonable basis” within the meaning of Treasury Regulations Section 1.6662-3(b)(3). No failure or delay of the Buyer in the performance of the foregoing shall reduce or otherwise affect the obligations or liabilities of the Seller pursuant to this Agreement, except to the extent the Seller is actually and materially prejudiced by such failure or delay.
(iii) The Buyer and each member of the Seller Group agree with respect to certain Income Tax matters as follows:
(A) The Seller will be treated as transferring (1) an undivided interest in each of the assets of the Company to the Buyer for cash and the Promissory Note in a transaction intended to be governed by IRC §1001, and (2) an undivided interest in each of the assets of the Company to the Buyer for partnership interests in the Buyer in a transaction intended to be governed by IRC § 721(a).
(B) Unless otherwise required by applicable Law, to treat all indemnification payments under this Agreement as adjustments to the Purchase Price for all relevant Tax purposes.
(C) The fair market value of the Buyer Interests is equal to the Buyer Interest Amount.
Unless otherwise required by a final, non-appealable determination of a Government Entity, neither the Buyer nor any member of the Seller Group shall take any position (and the Buyer shall not allow the Company to take any position) on any Tax Return or other filing, or during the course of any audit or other Action with respect to any Taxes or Tax Returns (whether or not a Tax Contest), that is inconsistent with any election, position, treatment or other decision to which the Buyer and the Seller agreed in this Section 6.6(d)(iii).
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(e) Cooperation. The Buyer and the Seller’s Representative shall reasonably cooperate in (i) preparing and filing all Tax Returns (including amended Tax Returns and claims for refund) of the Company and resolving all disputes and Actions relating to Taxes or Tax Returns of the Company (whether or not a Tax Contest), in each case relating to any Pre-Closing Tax Period (ii) making available any information, records or other documents relating to any Taxes or Tax Returns of the Company relating to any Pre-Closing Tax Period; (iii) providing any information necessary or reasonably requested to allow the Buyer or the Company to comply with any information reporting or withholding requirements contained in the Code or other applicable Laws or to compute the amount of payroll or other employment Taxes due with respect to any payment made in connection with this Agreement; and (iv) providing certificates or forms, and timely execute any Tax Return, that are necessary or appropriate to establish an exemption for (or reduction in) any Transfer Tax.
(f) TaxDistributions. Notwithstanding anything to the contrary, the Seller covenants and agrees that it shall not retain any right to any distribution for Taxes in respect of any Pre-Closing Tax Period pursuant to the terms of the Company’s Organizational Documents of the Company.
(g) TaxRefunds. Any refund of Taxes that were imposed on the Company or otherwise taken into account to reduce the Purchase Price or borne by any Seller Group for any Pre-Closing Tax Period and any interest paid or credited with respect thereto (collectively, a “Refund”), shall be for the benefit of Seller. If any Refund is received by Buyer, the Company, or any of their respective Affiliates, including by way of credit or allowance against Taxes otherwise payable, an amount equal to such Refund (without interest, other than interest received from the Government Entity, and net of any Taxes and reasonable out-of-pocket expenses that Buyer, the Company or any of their respective Affiliates has or will incur as a result of obtaining such Refund) shall be paid to Seller within ten (10) days after receipt from the applicable Government Entity (or, in the case of any credit or allowance claimed in lieu of a refund of Taxes, within ten (10) days after filing the Tax Return claiming such credit). Buyer shall, if Seller so requests and at Seller’s expense, cause the relevant entity to file for and obtain any Refund to which Seller is entitled under this Section 6.6(g). Nothing in this Section 6.6(g) shall require the Buyer to make any payment with respect to any Refund (and such Refund shall be for the benefit of the Buyer and the Company) that is with respect to (i) any refund of Tax that is the result of the carrying back of any net operating loss or other Tax attribute or Tax credit incurred in a taxable period (or portion of any Straddle Period) beginning after the Closing Date; (ii) any refund for Tax that is reflected as a current asset (or offset to a current liability) in the Final Net Working Capital; or (iii) any refund for Tax to the extent that such Refund gives rise to a payment obligation by the Company to any Person under applicable Law or pursuant to a provision of a contract or other agreement entered (or assumed) by the Company prior to the Closing.
(h) BuyerActions. Without the prior written consent of Seller’s Representative, which such consent shall not be unreasonably withheld, conditioned or delayed, Buyer and its Affiliates (including, after the Closing, the Company) shall not (i) make, change or rescind any Tax election with respect to any taxable period ending on or before the Closing Date, (ii) amend, modify or refile any Tax Return with respect to any Pre-Closing Tax Period, (iii) surrender any right to claim a Refund with respect to any Pre-Closing Tax Period, (v) make a voluntary disclosure to a Government Entity with respect to any Tax Return (or Taxes relating thereto) for any taxable period ending on or before the Closing Date, or (vi) file any Tax Return with respect to any taxable period ending on or before the Closing Date in any jurisdiction with which the Company has not previously filed Tax Returns.
6.7 D&OIndemnification. For a period of six (6) years after the Closing Date, the Buyer will not cause the Company to amend or modify the indemnification or liability exculpation provisions in the Company’s Organizational Documents, in each case in any way adverse to each Person who is now, or has been at any time prior to the Closing Date, a Person covered by such indemnification or liability exculpation provisions.
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6.8 Reserved.
6.9 R&WInsurance. Effective as of the Closing, the Buyer will cause to be bound the R&W Insurance Policy, in the form attached hereto as Exhibit G, and the Buyer will cause to be paid the R&W Insurance Expenses, provided any such R&W Insurance Expenses shall be deemed a Company Transaction Expense. The Buyer covenants and agrees to not cancel, redeem, or take any action that would adversely affect the terms and conditions of the R&W Insurance Policy. The R&W Insurance Policy will expressly provide that the R&W Insurance Provider, except in the case of Fraud, will waive and release any right of subrogation against any member of the Seller Group or any of their respective Affiliates, or any direct or indirect equity holders, parent, subsidiary, Affiliate, trust, beneficiary, director, officer, employee, agent or advisor of any member of the Seller Group or any of their respective Affiliates (or the functional equivalent of any of the foregoing) (collectively, the “Seller Affiliates”) in connection with this Agreement. The Buyer and its Affiliates will not amend, waive, or otherwise modify the R&W Insurance Policy in any manner that could reasonably be expected to be adverse to Seller Affiliates. The R&W Insurance Policy will not increase the liability hereunder of any of the Seller Affiliates.
6.10 Acknowledgements.
(a) The Buyer acknowledges and agrees that none of any member of the Seller Group, the Company, their respective Affiliates, or their respective Representatives has made any representations or warranties regarding any member of the Seller Group, the Company, or the Company’s business operations, the assets or operations of the Company’s business, the Acquired Interests, or otherwise in connection with the transactions contemplated by this Agreement, other than the representations and warranties expressly made by the Seller Group in Article 3 and Article 4. Without limiting the generality of the foregoing, other than the representations and warranties expressly made by the Seller Group in Article 3 and Article 4, the Buyer acknowledges and agrees that no projections, forecasts, predictions, other estimates, data, financial information, documents, reports, statements (oral or written), summaries, abstracts, descriptions, presentations (including any management presentation or facility tour), memoranda, or offering material with respect to the Company, the Company’s business, or the Acquired Interests, is or will be deemed to be a representation or warranty by any member of the Seller Group or the Company to the Buyer under this Agreement, or otherwise, and that the Buyer has not relied thereon in determining to execute this Agreement and proceed with the transactions contemplated hereby. The Buyer acknowledges that, except for the representations and warranties expressly made by the members of the Seller Group in Article 3 and Article 4, no Person has been authorized by any member of the Seller Group or the Company to make any representation or warranty regarding any member of the Seller Group, the Company, the Company’s business, the assets or operations of the Company, the Acquired Interests, or the transactions contemplated hereby and, if made, such representation or warranty may not be relied upon as having been authorized by any member of the Seller Group or the Company. Under no circumstances shall any of the representations and warranties of any member of the Seller Group in Article 3 and Article 4 be imputed to, or deemed to have been made by, any other Person.
(b) The Buyer acknowledges and agrees that it (i) has made its own inquiry and investigation into, and, has formed an independent judgment concerning the Company, the Company’s business, and the Acquired Interests, and (ii) has conducted such investigations of the Company, the Company’s business, and the Acquired Interests as the Buyer deems necessary to enter into this Agreement and the Ancillary Agreements.
(c) Each member of the Seller Group acknowledges and agrees that it (i) has made its own inquiry and investigation into, and, has formed an independent judgment concerning the Buyer, the Buyer’s business, and the Buyer Interests, and (ii) has conducted such investigations of the Buyer, the Buyer’s business, and the Buyer Interests as the Seller deems necessary to enter into this Agreement and the Ancillary Agreements.
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6.11 BanescoLine of Credit. From and following the Closing, the Buyer, and the Buyer will cause the Company to, use best efforts to amend the Banesco Loan Agreement in connection with Banesco USA’s formal approval of the transactions contemplated hereby, on terms reasonably satisfactory to the Buyer and the Seller Group, by no later than November 14, 2025. From and following the Closing, the Buyer, and the Buyer will cause the Company to, use best efforts to promptly secure a new credit facility to replace the Banesco Loan Agreement, which such facility shall not require any security or obligations from the Seller Group.
Article7****INDEMNIFICATION
7.1 Obligationof the Seller Group. The Seller and each of the Seller Owners severally and not jointly in accordance with their Pro Rata Share, agree to indemnify, defend and hold harmless the Buyer Indemnified Parties from, against and in respect of any and all Losses arising from:
(a) any inaccuracy or breach of any representation or warranty of any member of the Seller Group in Article 3 and Article 4 of this Agreement or in any Ancillary Agreement;
(b) any nonperformance of any of the covenants or agreements required to be performed by any member of the Seller Group under this Agreement;
(c) any Indemnified Taxes (without duplication of any item in Section 7.1(a)-(b)); and
(d) any Company Transaction Expenses to the extent not actually paid at or prior to the Closing or otherwise reducing the Purchase Price.
The indemnification obligations set forth in this Section 7.1 for Losses shall not exceed, in the aggregate, an amount equal to the amount of the portion of proceeds received by the Seller pursuant to this Agreement or, with respect to each Seller Owner, its, his or her Pro Rata Share of such amount.
7.2 Obligationof the Buyer. The Buyer hereby agrees to indemnify, defend and hold harmless the Seller Group from, against and in respect of any and all Losses arising from:
(a) any inaccuracy or breach of any representation or warranty in Article 5 of this Agreement;
(b) any nonperformance of any of the covenants or agreements made by the Buyer in or pursuant to this Agreement;
(c) any fees, expenses or other payments incurred or owed by the Buyer to any broker, finder, investment banker or agent or comparable other Persons retained or employed by the Buyer in connection with the transactions contemplated by this Agreement and the Ancillary Agreements, in each case, to the extent not actually paid at or prior to Closing; and
(d) the Banesco Loan Agreement and the other Loan Documents (as defined in the Banesco Loan Agreement), in each case as amended or amended and restated from time to time, including without limitation any Losses arising from the limited guarantees executed by each of the Seller Owners in support of the Banesco Loan Agreement, for as long as the Banesco Loan Agreement, as amended and restated from time to time, remains outstanding.
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7.3 Survival.
(a) The representations and warranties contained in this Agreement shall expire on the date that is thirty-six (36) months from the Closing Date; provided, however, that (i) the Fundamental Representations shall survive the Closing and continue in full force and effect through the date that is six (6) years after the Closing Date, and (ii) the Statutory Representations and the Indemnified Taxes, shall survive through the date that is sixty (60) days after expiration of the applicable period of limitations under federal and state Laws relating thereto (after taking into account all extensions, waivers, tolling or mitigation thereof).
(b) All covenants of the Buyer and the Seller Group contained in this Agreement shall survive and continue in accordance with their terms until performance (or until the applicable statute of limitations has expired, if no term for performance is specified (after giving effect to any waiver, modification, tolling or extension thereof)).
(c) No claim may be made or Action instituted in respect of any breach of any representation or warranty under any provision of this Agreement (including this Article 7) unless the Indemnified Party provides written notice to the Indemnifying Party prior to the expiration of the applicable period provided for in this Section 7.3 (each such period, the “Survival Date”).
(d) Notwithstanding anything herein to the contrary, claims in respect of Fraud shall survive the Closing through the date that is sixty (60) days after expiration of the applicable period of limitations under federal and state Laws relating to such Fraud (after taking into account all extensions, waivers, tolling or mitigation thereof).
7.4 Limitationson Indemnification.
(a) BasketAmount. The Buyer Indemnified Parties shall not have the right to be indemnified under Section 7.1(a) unless the aggregate of all Losses for which the Buyer Indemnified Parties would, but for this provision, be entitled to recover exceeds an amount equal to (i) One Hundred Twenty Thousand Dollars ($120,000) multiplied by (ii) the Allocation Percentage (the “Basket Amount”), in which event the right for the Buyer Indemnified Parties to be indemnified shall apply to the extent such Losses exceed the Basket Amount.
(b) CapAmount. The maximum aggregate amount of indemnification payments that the Indemnified Parties shall be entitled to receive under Section 7.1(a) shall not exceed an amount equal to (i) One Hundred Twenty Thousand Dollars ($120,000) multiplied by (ii) the Allocation Percentage (the “Cap Amount”).
(c) Exceptionsto Limitations on Indemnification.
(i) In no event shall the Basket Amount or the Cap Amount apply to (A) claims for indemnification by the Buyer Indemnified Parties for breaches of (1) the Seller’s Fundamental Representations or (2) the Statutory Representations, (B) Sections 7.1(b) through (d), or (C) claims in respect of Fraud. Notwithstanding the foregoing, no Person shall be liable for any other Person’s Fraud.
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7.5 ThirdParty Claims.
(a) Promptly after the receipt by any Indemnified Party of notice of the commencement of any Action against such Indemnified Party by a third party (other than any Action relating to Taxes, which shall be governed by Section 6.6(c)) (any such Action, a “Third PartyClaim”), such Indemnified Party shall, if a claim with respect thereto is or may be made against any Indemnifying Party pursuant to this Article 7, give the Indemnifying Party written notice thereof (the “Third Party Claim Notice”), describing in reasonable detail the facts and circumstances with respect to the subject matter of such Third Party Claim. The failure to give a timely Third Party Claim Notice shall not relieve any Indemnifying Party from any obligation hereunder except where, and then solely to the extent that, such failure actually materially prejudices the rights of such Indemnifying Party. The Third Party Claim Notice shall describe the claim in reasonable detail and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party.
(b) If the Indemnifying Party acknowledges, in a writing delivered to the Indemnified Party, that the Indemnifying Party is obligated to indemnify, defend and hold harmless the Indemnified Party under the terms of its indemnification obligations hereunder in connection with such Action, then the Indemnifying Party shall have the right to assume the defense of such Action at its own expense and by its own counsel, which counsel shall be reasonably satisfactory to the Indemnified Party; provided, however, that the Indemnifying Party shall not have the right to assume the defense of such Third Party Claim if (i) the claim seeks an injunction or other non-monetary equitable relief as its primary source of relief; (ii) the Indemnified Party shall have been advised by counsel that there are one or more legal or equitable defenses available to it which are different from or in addition to those available to the Indemnifying Parties and, in the reasonable opinion of the Indemnified Party, counsel for the Indemnifying Party could not adequately represent the interests of the Indemnified Party because such interests could be in conflict with those of the Indemnifying Party; or (iii) if such Third Party Claim is expected to be covered in full by the R&W Insurance Policy (such that the Indemnifying Party’s aggregate liability therefor would not exceed the retention).
(c) If the Indemnifying Party elects to assume the defense of any such Third Party Claim under circumstances in which the proviso in Section 7.5(b) is not applicable, then the Indemnifying Party shall consult with the Indemnified Party and the Indemnified Party may participate in any such proceeding with counsel of its choice and at its sole cost and expense.
(d) The Indemnifying Party shall not, without the prior written consent of the Indemnified Party (which shall not be unreasonably withheld, conditioned or delayed), enter into any settlement of any claim or Action unless the proposed settlement (A) involves only the payment of money damages that will be promptly paid in full by the Indemnifying Party, (B) does not impose any injunctive or other equitable relief on the Indemnified Party, (C) includes an unconditional release from all Liability in favor of the Indemnified Party and (D) does not contain any admission or finding of wrongdoing or Liability on behalf of the Indemnified Party.
(e) If the Indemnifying Party does not elect to assume the defense of such Action in accordance with the terms of this Section 7.5, fails to defend an Action, is otherwise restricted from so defending, or if, after commencing or undertaking any such defense, the Indemnifying Party fails to prosecute or withdraws from such defense, the Indemnified Party shall have the right to defend such Action with counsel of its choice, subject to the right of the Indemnifying Party to participate (with counsel of its choice, but the fees and expenses of such additional counsel will solely be at the expense of the Indemnifying Party), and the Indemnified Party will not compromise or settle any such action, suit, proceeding, claim, or demand without the prior written consent of the Indemnifying Party, which consent will not be unreasonably withheld, conditioned, or delayed. The parties hereto agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any such indemnity related to a third-party claim.
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(f) The obligations of any member of the Seller Group to indemnify the Buyer Indemnified Parties pursuant to the terms of this Agreement are the primary obligations of the Seller Group. Each member of the Seller Group hereby waives any right to seek or obtain indemnification or contribution from the Buyer or any of its Affiliates or the Company for Losses with respect to any indemnification obligation of the Seller Group hereunder.
(g) To the extent there is a conflict between this Section 7.5 and Section 6.6(c) as to any Tax Contest, the provisions of Section 6.6(c) shall control.
7.6 DirectClaims. Any claim by an Indemnified Party for indemnification other than indemnification against a third party pursuant to Section 7.5 above (a “Direct Claim”) will be asserted by giving the Indemnifying Party prompt written notice thereof (a “Claim Notice”) describing in reasonable detail the facts and circumstances with respect to the subject matter of such claim. The failure to give a timely Claim Notice shall not relieve any Indemnifying Party from any obligation hereunder except where, and then solely to the extent that, such failure actually materially prejudices the rights of such Indemnifying Party. The Indemnifying Party will have a period of thirty (30) calendar days (the “Response Period”) within which to respond in writing to such Direct Claim. If the Indemnifying Party does not respond within the Response Period, the Indemnifying Party will be deemed to have accepted such Direct Claim. For a period of thirty (30) days after the Indemnifying Party responds to such Direct Claim, the Indemnifying Party and the Indemnified Party shall negotiate in good faith to resolve the matter. In the event that the controversy is not resolved within such thirty (30) day period, the Indemnifying Party and the Indemnified Party may thereupon proceed to pursue any and all available remedies at Law.
7.7 OtherLimitations.
(a) Notwithstanding anything to the contrary contained in this Agreement, the Parties shall be entitled to recover any amounts with respect to any indemnification claim made pursuant to this Article 7 for such Losses notwithstanding (i) the fact that such Party or any of their respective Affiliates had knowledge of the particular misrepresentation or breach of warranty, (ii) any investigation or examination conducted with respect to, or any knowledge acquired (or capable of being acquired) about the accuracy or inaccuracy of or compliance with, any representation, warranty, covenant, agreement, undertaking or obligation made by or on behalf of the Parties hereto, (iii) the waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant, agreement, undertaking or obligation or (iv) the making of this Agreement.
(b) Notwithstanding anything to the contrary set forth herein, for the purposes of determining (i) whether there has occurred (A) a breach of any representation or warranty contained in this Agreement or (B) a breach of any agreement or covenant contained in this Agreement and (ii) the amount of any Loss suffered by an Indemnified Party related thereto, the applicable representation, warranty, agreement or covenant shall be read without giving effect to any qualification that is based on materiality, including the words “material,” “Material Adverse Effect,” “in any material respect” or other similar qualifications; provided that, the foregoing will not apply (A) for purposes of determining the standard that must be met to create an obligation to include items in a list set forth in the Seller Disclosure Schedules or (B) for purposes of a claim for Fraud.
(c) No Party shall be liable more than once for any Losses arising out of any particular circumstances, even if such circumstances give rise to liability under multiple sections or subsections of this Agreement. By way of example, if particular circumstances give rise to liability under Article 3 and those circumstances would also give rise to liability for Losses under this Article 7, a member of the Seller Group’s liability for those Losses under this Article 7 will be reduced or eliminated to the extent of any indemnification, payment or reimbursement under Article 3 to avoid a double recovery by the Buyer with respect to those circumstances. Further, in the event any amount has been reserved in the Closing Statement with certain facts and circumstances, and a Loss subsequently occurs with respect to such facts and circumstances, then, subject to the other provisions of this Article 7, solely the amount of the Loss, if any, that exceeds the amount reserved or accrued on the Closing Statement with respect such facts and circumstances shall be recoverable.
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(d) Each Party with insurance coverage that may cover Losses shall use commercially reasonable efforts to pursue a claim under the relevant insurance policy; provided, that (i) no Party shall have any duty to litigate and (ii) the foregoing shall not preclude any member of the Seller Group’s obligation to pay such Losses. If, following satisfaction of a Party’s payment obligations under this Article 7, the Party that received payment under this Article 7 actually receives any insurance proceeds or otherwise, such Party will promptly pay over an amount necessary to avoid double recovery arising out of the particular facts and circumstances for which the insurance proceeds or other sources of recovery were received to the Party that made payment. All insurance proceeds required to be paid over will be reduced, to the extent not taken into account when Losses were calculated, by any out-of-pocket costs or expenses, including any increases in premiums that are solely and directly related to such Losses, incurred in connection with obtaining such insurance proceeds.
(e) The Parties intend for this Article 7 to supersede any Law that may otherwise be applicable specifically to contracts of indemnity or matters of indemnification, and this Article 7 is intended to represent a contrary intent, in all manners possible, to the extent that manifestation of a contrary intent is necessary to modify the terms of any Law that might otherwise be applicable concerning the subjects set forth in this Article 7.
(f) Notwithstanding anything in this Agreement to the contrary, each of the Parties agrees to use its commercially reasonable efforts to mitigate any Losses upon becoming aware of any event or circumstance that would reasonably expected to, or does, give rise thereto; provided, that the forgoing will not obligate any such indemnified party to commence litigation. Notwithstanding anything in this Agreement to the contrary, no Indemnifying Party shall have any obligation to indemnify any Indemnified Party under this Article 7 for any Losses that are actually recovered by the Indemnified Party from any third party (including any amounts recovered under insurance policies) net of the costs and expenses of such recovery, including any increases in premiums, and the Indemnified Party shall reimburse the Indemnifying Party in the event of a recovery by such Indemnified Party subsequent to an indemnification payment being made.
(g) Notwithstanding anything herein to the contrary, no breach of any representation, warranty, covenant, or agreement contained herein will give rise to any right on the part of any party hereto, after the consummation of the transactions contemplated hereby, to rescind this Agreement or any of the transactions contemplated hereby.
(h) Unless otherwise required by applicable Law, all indemnification payments, except from the R&W Insurance Policy, will be treated as adjustments to the Purchase Price for income Tax purposes.
(i) Notwithstanding any provision of this Agreement or otherwise, the Parties to this Agreement agree on their own behalf and on behalf of their respective Subsidiaries and Affiliates that no Non-Recourse Party of a party to this Agreement will have any liability relating to this Agreement or any of the transactions set forth herein except to the extent agreed to in writing by such Non-Recourse Party.
7.8 Assertionof Claims; Payment of Claims.
(a) Subject to the limitations set forth in this Article 7, from and after the Closing:
(i) any obligation of a member of the Seller Group to indemnify the Buyer Indemnified Parties for any Losses incurred as a result of a claim for indemnification pursuant to Section 7.1(a) (other than for a breach of a Seller’s Fundamental Representation or a Statutory Representation) shall be satisfied, (A) first, after satisfaction of the Basket Amount, by reducing the current outstanding principal amount of the Promissory Note until the retention under the R&W Insurance Policy has been satisfied, and (B) thereafter, from the R&W Insurance Policy.
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(ii) any obligation of a member of the Seller Group to indemnify the Buyer Indemnified Parties for any Losses incurred as a result of a claim for indemnification pursuant to Section 7.1(a) for a breach of a Seller’s Fundamental Representation or a Statutory Representation or Section 7.1(c) shall be satisfied, (A) first, by reducing the current outstanding principal amount of the Promissory Note until the retention under the R&W Insurance Policy has been satisfied, (B) second, the Buyer Indemnified Parties will then seek to recover such Losses from the R&W Insurance Policy and (C) thereafter, directly from the member(s) of the Seller Group whose actions or inactions gave rise to such claim for indemnification.
(iii) any obligation of the Seller Group to indemnify the Buyer Indemnified Parties for any Losses incurred as a result of a claim for indemnification pursuant to Sections 7.1(b) or (d) shall be satisfied, (A) first, by reducing the current outstanding principal amount of the Promissory Note, and (B) thereafter, directly from the member(s) of the Seller Group whose actions or inactions gave rise to such claim for indemnification.
7.9 ExclusiveRemedy. From and after the Closing, the rights of the Indemnified Parties to indemnification relating to this Agreement or the transactions contemplated hereby will be strictly limited to those contained in this Article 7 and Section 6.6, and except for Fraud, indemnification rights will be the exclusive remedies of the Indemnified Parties subsequent to the Closing Date with respect to any matter in any way relating to this Agreement or arising in connection herewith. Notwithstanding the foregoing, this Section 7.9 will not (i) interfere with or impede the operation of the provisions of Section 2.7 providing for the resolution of certain disputes relating to the Purchase Price between the parties or by the Independent Auditor or (ii) limit the rights of the parties to specific performance in accordance with Section 8.9 or other rights to equitable relief as expressly specified in this Agreement.
Article8****GENERAL
8.1 Seller’sRepresentative.
(a) By entering into and executing this Agreement, each member of the Seller Group irrevocably makes, constitutes and appoints the Seller’s Representative as his, her, or its agent, effective as of the execution hereof, and authorizes and empowers the Seller’s Representative to fulfill the role of the Seller’s Representative hereunder, and each member of the Seller Group appoints the Seller’s Representative as such member of such Seller Group’s true and lawful attorney-in-fact and agent, for such member of such Seller Group and in such member of such Seller Group’s name, place and stead for all purposes necessary in order for the Seller’s Representative to take all actions contemplated by this Agreement, including: (i) making or receiving and disbursing payments, (ii) executing and delivering all instruments, certificates and other documents of every kind incident to the foregoing for all intents and purposes, (iii) (A) executing and delivering or (B) receiving notices, documents or certificates; (iv) submitting any dispute relating to the Independent Auditor, (v) with respect to any indemnification claims, (A) noticing of claims, (B) disputing or refraining from disputing any claim made by any Buyer Indemnified Party, (C) negotiating, agreeing or entering into settlements and compromising any dispute, (D) exercising or refraining from exercising any available remedies, and (E) negotiating, agreeing, entering into, or executing any settlement agreement, release, compromise or other document with respect to any dispute, except, in each case, with respect to a dispute between any member of the Seller Group, on the one hand, and the Seller’s Representative on the other hand, and (vi) any and all actions necessary or desirable, in the reasonable judgment of the Seller’s Representative, for the accomplishment of the foregoing. The power-of-attorney granted in this Section 8.1 is coupled with an interest and is irrevocable.
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(b) The Seller’s Representative shall be entitled to rely exclusively upon any communication given or other action taken by the Buyer, any member of the Seller Group, the Company, and any third party deemed by the Seller’s Representative to be reliable pursuant to this Agreement or any Ancillary Agreement, and shall not be liable for any action taken or not taken in good faith reliance on a communication or other instruction from such Person. Any act taken or omitted to be taken by the Seller’s Representative pursuant to the advice of counsel shall be conclusive evidence of such good faith. The Seller’s Representative shall be fully justified in not taking any action under this Agreement or any Ancillary Agreement if he has received such advice as he deems appropriate with respect to such inaction or if he shall not have been expressly indemnified to his satisfaction against any and all liability and expense may be incurred by reason of taking any such action.
(c) The Buyer and each member of the Seller Group shall be entitled to rely exclusively upon any communication given or other action taken by the Seller’s Representative pursuant to this Agreement, and shall not be liable for any action taken or not taken in good faith reliance on a communication or other instruction from the Seller’s Representative.
(d) In the event of the death or incapacity or the Seller’s Representative, a majority of the members of the Seller Group shall select another Seller’s Representative and notify the Buyer in writing as to the identity of such new Seller’s Representative, and such new Seller’s Representative will become the Seller’s Representative for all purposes under this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby.
8.2 Amendmentsand Waivers. This Agreement may be amended only by an agreement in writing signed by the Buyer and the Seller’s Representative. No waiver of any provision nor consent to any exception to the terms of this Agreement shall be effective unless and until in writing and signed by the Party waiving or granting an exception, and then only to the specific purpose, extent and instance so provided.
8.3 Schedules;Exhibits; Integration. Each Schedule and Exhibit delivered pursuant to the terms of this Agreement shall be in writing and shall constitute a part of this Agreement. This Agreement, together with the Schedules and Exhibits hereto, and the Ancillary Agreements, constitute the entire agreement among the Parties pertaining to the subject matter hereof and thereof and supersede all prior agreements and understandings of the Parties in connection herewith and therewith.
8.4 GoverningLaw; Venue; Waiver of Jury Trial.
(a) This Agreement, the legal relations between the Parties and any Action, whether contractual or non-contractual, instituted by any Party with respect to matters arising under or growing out of or in connection with or in respect of this Agreement shall be governed by and construed in accordance with the Laws of the State of Texas, except to the extent that certain matters are preempted by federal Law.
(b) Each Party agrees that it will bring any Action or proceeding in respect of any claim arising out of or related to this Agreement or the transactions contemplated hereby (to the extent not subject to arbitration) exclusively in any federal or state court sitting in Dallas County, Texas (the “Texas Courts”), and, solely in connection with claims arising under this Agreement, (i) irrevocably submits to the exclusive jurisdiction of the Texas Courts, (ii) waives any objection to laying venue in any such Action or proceeding in the Texas Courts, (iii) waives any objection that the Texas Courts are an inconvenient forum or do not have jurisdiction over any Party and (iv) agrees that service of process upon such Party in any such Action or proceeding will be effective if notice is given in accordance with Section 8.8.
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(c) Each Party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues, and therefore each such Party hereby irrevocably and unconditionally waives, to the furthest extent permitted by Law at the time of institution of the applicable litigation, any right such Party may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement or the transactions contemplated by this Agreement. Each Party certifies and acknowledges that: (i) no representative, agent or attorney of any other Party has represented, expressly or otherwise, that such other Party would not, in the event of litigation, seek to enforce the foregoing waiver; (ii) each Party understands and has considered the implications of this waiver; (iii) each Party makes this waiver voluntarily; and (iv) each Party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 8.4.
8.5 Assignmentand Third-Party Beneficiaries. Neither this Agreement nor any of the rights, interests or obligations shall be assigned by any of the Parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties; provided, however, that either Buyer may assign this Agreement without consent to (a) its lenders providing financing in connection with the transactions contemplated hereby for collateral security purposes, but in each case, no such transfer or assignment will relieve the Buyer of any of its obligations hereunder or (b) any of its Affiliates. This Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assigns. This Agreement (including the documents and instruments referred to herein) is not intended to confer upon any Person other than the Parties hereto any rights or remedies hereunder.
8.6 Counterparts. This Agreement and any amendment hereto or any other agreement (or document) delivered pursuant hereto may be executed in one or more counterparts and by different parties in separate counterparts. All of such counterparts shall constitute one and the same agreement (or other document) and shall become effective (unless otherwise provided therein) when one or more counterparts have been signed by each Party and delivered to the other Party. A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more Parties hereto, and an executed copy of this Agreement may be delivered by one or more Parties hereto by facsimile or other means of electronic transmission (including .pdf files) pursuant to which the signature of or on behalf of such Party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes.
8.7 Publicityand Reports. The Buyer and the Seller’s Representative shall coordinate all publicity relating to the transactions contemplated by this Agreement and no Party shall issue any press release, publicity statement or other public notice relating to this Agreement, or the transactions contemplated by this Agreement, without obtaining the prior written consent of the Buyer and the Seller’s Representative, except to the extent that a particular disclosure is required by applicable Law or in connection with an investigation by a Government Entity; provided, if any disclosure is required under applicable Law, to the extent legally permitted, the disclosing party shall have the right to review and comment on any such release. Notwithstanding anything to the contrary, the Buyer and its Affiliates may disclose this Agreement and its terms to their limited partners, advisors, lenders, financing sources, members, prospective investors or other investors so long as such limited partners, advisors, lenders, financing sources, members, prospective investors or other investors agree to treat the disclosed information as confidential.
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8.8 Notices. Any notice or other communication hereunder must be given in writing and (a) delivered via overnight courier for next day delivery, (b) transmitted by email or other electronic mechanism; provided, that any notice so given shall request written confirmation of receipt thereof with an express acknowledgement of the contents therein; provided, further, that any notice so given shall also be mailed as provided in clause (c), or (c) mailed by certified or registered mail, postage prepaid, return receipt requested as follows:
If to the Buyer:
XTI Drones Holdings, LLC
8123 Interport Blvd., Suite C
Englewood, Colorado 80112
Attention: Brooke Turk, Chief Financial Officer
With a copy to (which shall not constitute notice):
Haynes and Boone, LLP
600 Anton Blvd., Suite 700
Costa Mesa, CA 92626
Attention: Martin Florman, Esq.
If to any member of the Seller Group (or the Company prior to the Closing), to the Seller’s Representative:
With a copy to (which shall not constitute notice):
Holland & Knight LLP
1650 Tysons Boulevard, Suite 1700
Tysons, Virginia 22102
Attention: Katherine A. Markel, Esq.
Email: Katherine.Markel@hklaw.com
or to such other address or to such other person as either Party shall have last designated by written notice to the other Party in accordance with this Section 8.8. Each such notice or other communication shall be effective (i) one (1) Business Day after deposit with an overnight courier for next day delivery, (ii) if given by facsimile, email or other telecommunication, when appropriate written confirmation is received, or (iii) if given by mail, three (3) Business Days after such communication is deposited in the mail with first class postage prepaid, addressed as aforesaid.
8.9 SpecificPerformance. The Parties hereto agree that in the event of a breach of this Agreement, the aggrieved Party or Parties may be damaged irreparably and without an adequate remedy at Law. The Parties therefore agree that in the event of a breach of this Agreement, the aggrieved Party or Parties shall be entitled to seek in any court of competent jurisdiction to enforce specific performance or to enjoin the continuing breach of such provision without the requirement of posting a bond, as well as to obtain monetary damages for breach of this Agreement as provided for in Article 7. By seeking or obtaining any such relief, the aggrieved Party shall not be precluded from seeking or obtaining indemnification in accordance with the provisions of Article 7.
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8.10 Rulesof Construction. The Parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any Law providing that ambiguities in an agreement or other document will be construed against the Party drafting such agreement or document. This Agreement and each agreement or instrument entered into by the Parties (or any of them) pursuant to the provisions hereof shall be considered for all purposes as having been prepared through the joint efforts of the Parties hereto. No presumption shall apply in favor of any Party in the interpretation of this Agreement or any such other agreement or instrument or in the resolution of any ambiguity of any provision hereof or thereof based on the preparation, substitution, submission or other event of negotiation, drafting or execution hereof or thereof. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires, (a) pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms; (b) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; (c) when reference is made in this Agreement to exhibits or schedules, such reference shall be to an exhibit or schedule to this Agreement unless otherwise indicated; (d) the words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation;” (e) the descriptive headings of the Articles, Sections and subsections of this Agreement are for convenience only and shall not affect in any way the meaning or interpretation of this Agreement; (f) any reference to a statute is deemed also to refer to any amendments or successor legislation, and all rules and regulations promulgated thereunder, as in effect at the relevant time; (g) any reference to a contract or other document as of a given date means the contract or other document as amended, supplemented and modified from time to time through such date; (h) a defined term has its defined meaning throughout this Agreement, regardless of whether it appears before or after the place in this Agreement where it is defined, including in any Article, Section, Exhibit or Schedule of or to this Agreement; and (i) the phrase “ordinary course of business” means the ordinary course of business consistent with past practice.
8.11 Severability. To the furthest extent permitted by Law or judicial determination, each provision of this Agreement will be interpreted in such manner as to be effective and valid under Law, but if any provision of this Agreement is held to be prohibited by or invalid under Law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
8.12 RepresentationBy Counsel.
(a) This Agreement constitutes notice to the Buyer that the Seller Group and the Company have engaged Holland & Knight LLP as their legal counsel in connection with the transactions contemplated by this Agreement and the Buyer hereby consents to, and waives any conflict arising from, the continued representation of the Seller Group by Holland & Knight LLP in relation to the transactions contemplated by this Agreement. In addition, the Buyer hereby acknowledges that its consent under this paragraph is voluntary and informed, and that the Buyer has obtained independent legal advice with respect to this consent.
(b) Notwithstanding any legal requirement to the contrary, (i) all attorney-client privileged communications between Holland & Knight LLP and the Seller Group, the Company, or their respective Affiliates or their respective equity holders, officers, directors, managers, or trustees that occurred in the context of Holland & Knight LLP’s representation of the Company prior to the Closing with respect to matters that are not related to the negotiation, documentation, and consummation of the transactions contemplated herein will remain privileged as between Holland & Knight LLP and the Company after the Closing and (ii) any attorney-client privilege relating to the negotiation, documentation, and consummation of the transactions contemplated by this Agreement that otherwise would be available to the Seller Group, the Company, or their respective Affiliates or their respective equity holders, officers, directors, managers, or trustees (collectively, the “Confidential Communications”) will remain privileged and each of the Company (following the Closing) and the Buyer agrees that such privilege will remain with the Seller Group and not the Company following the Closing such that, without limiting the Seller Group’s right to such privilege, the Seller Group alone will have and maintain the right to waive the privilege. The parties agree that if the Company and its Affiliates or their respective equity holders, officers, directors, managers, or trustees leave any emails and other documents (both electronic or otherwise) that contain Confidential Communications on the Company’s servers or with the Company, such occurrence will not, in and of itself, constitute a waiver of the attorney-client privilege applicable to such documents. Notwithstanding the foregoing, if after the Closing a dispute arises between the Buyer or the Company, on the one hand, and a third party other than (and unaffiliated with) any member of the Seller Group, on the other hand, then the Buyer or the Company (to the extent applicable) may assert the attorney-client privilege to prevent disclosure to such third party of the Confidential Communications, with notice to the Seller’s Representative.
[Signature Pages Follow]
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IN WITNESS WHEREOF, each of the Parties hereto duly executed this Membership Interest Purchase Agreement as of the day and year first above written.
| BUYER: | |
|---|---|
| XTI DRONES HOLDINGS, LLC | |
| By: | /s/ Brooke Turk |
| Brooke Turk, | |
| Chief Financial Officer | |
| SELLER: | |
| THE ORIGIN GROUP AZ, INC. | |
| By: | /s/ Jeremy Schneiderman |
| Jeremy Schneiderman, | |
| Chief Executive Officer | |
| COMPANY: | |
| ANZU ROBOTICS, LLC | |
| By: | /s/ Jeremy Schneiderman |
| Jeremy Schneiderman, | |
| Chief Executive Officer | |
| SELLER’S REPRESENTATIVE: | |
| /s/ Jeremy Schneiderman | |
| JEREMY SCHNEIDERMAN | |
| SELLER OWNERS: | |
| --- | |
| /s/ Jeremy Schneiderman | |
| JEREMY SCHNEIDERMAN | |
| /s/ Alex Nafissy | |
| ALEX NAFISSY | |
| /s/ Robert Weitzner | |
| ROBERT WEITZNER | |
| /s/ Randall Warnas | |
| RANDALL WARNAS |
ANNEX A-1
| 1. | Jeremy Schneiderman, an individual |
|---|---|
| 2. | Alex Nafissy, an individual |
| --- | --- |
| 3. | Robert Weitzner, an individual |
| --- | --- |
| 4. | Randall Warnas, an individual |
| --- | --- |
SCHEDULE I
| Seller | Number of <br><br>Equity <br><br>Interests of <br><br>Company | Acquired <br><br>Interests | Purchase Price <br><br>Allocation | Cash Payment <br><br>Amount for <br><br>Purchased <br><br>Interests <br><br>(After <br><br>Adjustment as<br><br>set forth in this<br><br>Agreement) | Promissory <br><br>Note Amount<br><br>for Note <br><br>Interests <br><br>(After <br><br>Adjustments as <br><br>set forth in this <br><br>Agreement) | Buyer Interestsfor ContributedInterests^1^ | ||
|---|---|---|---|---|---|---|---|---|
| The Origin Group AZ, Inc. | 100 | 100 | See Flow of Funds Memorandum | $ | 1,442,446.80 | $ | 954,459.53 | 521,966 Class B Units |
| ^1^ | The contribution of the Contributed Interests in exchange<br>for the issuance of the Buyer Interests is intended to be treated as a Section 721 contribution under the Code. | |||||||
| --- | --- |
SCHEDULE 1.1(a)
NET WORKING CAPITAL CALCULATION
[Attached]
SCHEDULE 1.1(b)
BANESCO LINE OF CREDIT
Revolving line of credit established pursuant to and evidenced by that certain Loan Agreement, dated July 10, 2025, by and among Drone Nerds Inc, Anzu Robotics, LLC and Banesco USA (the “Banesco Loan Agreement”) and the other Loan Documents (as such term is defined in the Banesco Loan Agreement).
SCHEDULE 1.1(c)
RELATED PARTY INDEBTEDNESS
| 1. | None. |
|---|
SCHEDULE 6.1(a)
ALLOCATION METHODOLOGIES
| Asset Class | Asset Category | Value |
|---|---|---|
| I | Cash and Cash Equivalents | Actual amount of Final Company Cash |
| II | Actively traded personal property and certificates of deposit | NAV |
| III | Accounts receivable and other Class III assets | NAV |
| IV | Inventory and prepaid assets | NAV |
| V | Furniture, fixtures and equipment, leasehold improvements, and other Class V Assets | Book Value |
| VI and VII | All section 197 intangibles, including goodwill and going concern value | The remainder, after the allocation to assets in Classes I through V above; provided that no more than $50,000 shall be allocated to any restrictive covenants, including those Section 6.3 of the Agreement |
“NAV” shall mean (a) to the extent such assets are included as part of Final Net Working Capital, an amount equal to the value reflected in the calculation of the Final Net Working Capital, as finally determined in accordance with Section 2.7 of the Agreement, and (b) to the extent such assets are not included as part of Final Net Working Capital, Book Value.
“Book Value” shall mean the net book value of such assets as reported on the balance sheet as of the Interim Balance Sheet Date included in the Financial Statements, increased by the cost of any such assets acquired and decreased by the amount of any such assets disposed, in each case since the Interim Balance Sheet Date until immediately prior to the Closing.
Exhibit 3.1
FRANCISCO V. AGUILAR Secretary of State 401 North Carson Street Carson City, Nevada 89701 - 4201 (775) 684 - 5708 Website: www.nvsos.gov Certificate, Amendment or Withdrawal of Designation NRS 78.1955, 78.1955(6) Certificate of Designation Certificate of Amendment to Designation - Before Issuance of Class or Series Certificate of Amendment to Designation - After Issuance of Class or Series Certificate of Withdrawal of Certificate of Designation TYPE OR PRINT - USE DARK INK ONLY - DO NOT HIGHLIGHT Name of entity: XTI Aerospace, Inc. Entity or Nevada Business Identification Number (NVID): NV19991226183 1. Entity information: For Certificate of Designation or Date: Time: Amendment to Designation Only (Optional): (must not be later than 90 days after the certificate is filed) 2. Effective date and time: The class or series of stock being designated within this filing: Series 10 Convertible Preferred Stock 3. Class or series of stock: (Certificate of Designation only) The original class or series of stock being amended within this filing: 4. Information for amendment of class or series of stock: Certificate of Amendment to Designation - Before Issuance of Class or Series As of the date of this certificate no shares of the class or series of stock have been issued. 5 . Amendment of class or series of stock : Certificate of Amendment to Designation - After Issuance of Class or Series The amendment has been approved by the vote of stockholders holding shares in the corporation entitling them to exercise a majority of the voting power, or such greater proportion of the voting power as may be required by the articles of incorporation or the certificate of designation. By resolution of the board of directors pursuant to a provision in the articles of incorporation this certificate establishes OR amends the following regarding the voting powers, designations, preferences, limitations, restrictions and relative rights of the following class or series of stock.* I, Scott Pomeroy, do hereby certify that: 1. I am the Chief Executive Officer and Secretary of XTI Aerospace, Inc., a Nevada corporation (the “Corporatio 6. Resolution: Certificate of Designation and Amendment to Designation only) Designation being Date of Withdrawn: Designation: No shares of the class or series of stock being withdrawn are outstanding. The resolution of the board of directors authorizing the withdrawal of the certificate of designation establishing the class or series of stock: * 7. Withdrawal: X /s/ Scott Pomeroy Date: 11/10/2025 Signature of Officer 8. Signature: (Required) * Attach additional page(s) if necessary This form must be accompanied by appropriate fees. Page 1 of 1 Revised: 8/1/2023
XTI,AEROSPACE, INC.
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES 10CONVERTIBLE PREFERRED STOCK
PURSUANT TO SECTION 78.1955 OF THE
Nevada Revised Statutes
I, Scott Pomeroy, do hereby certify that:
I am the Chief Executive Officer and Secretary of XTI Aerospace, Inc., a Nevada corporation (the “Corporation”).
The Corporation is authorized to issue 5,000,000 shares of preferred stock, 2 shares of which are issued and outstanding as of November 10, 2025.
The following resolutions were duly adopted by the board of directors of the Corporation (the “Board of Directors”):
WHEREAS, the articles of incorporation of the Corporation provides for a class of its authorized stock known as preferred stock, consisting of 5,000,000 shares, $0.001 par value per share, issuable from time to time in one or more series;
WHEREAS, the Board of Directors is authorized to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation preferences of any wholly unissued series of preferred stock and the number of shares constituting any series and the designation thereof, of any of them; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to fix the rights, preferences, restrictions and other matters relating to a series of the preferred stock, which shall consist of 25,000 shares of the preferred stock which the Corporation has the authority to issue, as follows:
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock for cash or exchange of other securities, rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series of preferred stock as follows:
TERMS OF PREFERRED STOCK
Section 1. Definitions. For the purposes hereof, the following terms shall have the following meanings:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act.
“Alternate Consideration” shall have the meaning set forth in Section 7(d).
“Beneficial Ownership Limitation” shall have the meaning set forth in Section 6(d).
“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York are generally are open for use by customers on such day.
“Buy-In” shall have the meaning set forth in Section 6(c)(iv).
“Close of Business” shall have the meaning set forth in Section 3(a).
“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1 of the Purchase Agreement.
“Commission” means the United States Securities and Exchange Commission.
“Common Stock” means the Corporation’s common stock, par value $0.001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed.
“Common Stock Equivalents” means any securities of the Corporation or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Conversion Amount” means the sum of the Stated Value at issue.
“Conversion Date” shall have the meaning set forth in Section 6(a).
“Conversion Price” shall have the meaning set forth in Section 6(b).
“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Preferred Stock in accordance with the terms hereof.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
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“Fundamental Transaction” shall have the meaning set forth in Section 7(d).
“Holder” shall have the meaning given such term in Section 2.
“Junior Securities” means the Common Stock and all other Common Stock Equivalents of the Corporation other than those securities which are explicitly senior or pari passu to the Preferred Stock in dividend rights or liquidation preference.
“Liquidation” shall have the meaning set forth in Section 5.
“Mandatory Conversion Date” shall have the meaning set forth in Section 8.
“Mandatory Conversion Notice” shall have the meaning set forth in Section 8.
“Mandatory Conversion Notice Date” shall have the meaning set forth in Section 8.
“Mandatory Conversion Trigger” shall have the meaning set forth in Section 8.
“Notice of Conversion” shall have the meaning set forth in Section 6(a).
“Original Issue Date” means the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Preferential Dividend Payment Date” shall have the meaning set forth in Section 3(a).
“Preferential Dividend Rate” shall have the meaning set forth in Section 3(a).
“Preferential Dividends” shall have the meaning set forth in Section 3(a).
“Preferred Stock” shall have the meaning set forth in Section 2.
“Purchase Agreement” means the Securities Purchase Agreement, dated as of the Original Issue Date, among the Corporation and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.
“Securities” means the Preferred Stock and the Underlying Shares.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Share Delivery Date” shall have the meaning set forth in Section 6(c).
“Shareholder Approval” means such approval as may be required by the applicable rules and regulations of the Nasdaq Stock Market (or any successor entity) from the shareholders of the Company with respect to the transactions contemplated by the Transaction Documents, including the issuance of all of the Underlying Shares.
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“Shareholder Approval Date” means the Trading Day that Shareholder Approval is received and deemed effective.
“Stated Value” shall have the meaning set forth in Section 2.
“Subsidiary” means any significant subsidiary of the Corporation as defined in Article 1, Rule 1-02 of Regulation S-X promulgated pursuant to the Securities Act.
“Successor Entity” shall have the meaning set forth in Section 7(d).
“Trading Day” means a day on which the principal Trading Market is open for business.
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange, the OTCQB or the OTCQX (or any successors to any of the foregoing).
“Transaction Documents” means this Certificate of Designation, the Purchase Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated pursuant to the Purchase Agreement.
“Transfer Agent” means Computershare Trust Company, N.A., the current transfer agent of the Corporation, with a mailing address of 150 Royall Street, Suite 101, Canton, MA 02021, and any successor transfer agent of the Corporation.
“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion of the Preferred Stock.
Section 2. Designation, Amount and Par Value. The series of preferred stock shall be designated as its Series 10 Convertible Preferred Stock (the “Preferred Stock”) and the number of shares so designated shall be 25,000 (which shall not be subject to increase without the written consent of the holders of a majority of the then outstanding shares of the Preferred Stock (each, a “Holder” and collectively, the “Holders”)). Each share of Preferred Stock shall have a par value of $0.001 per share and a stated value equal to $1,000 (the “Stated Value”). The shares of Preferred Stock shall initially be issued and maintained in the form of securities held in book-entry form.
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Section 3. Dividends.
a) Holders of record as they appear on the books of the Corporation on the fifteenth (15^th^) day immediately preceding the applicable Preferential Dividend Payment Date (as defined below) shall be entitled to receive, and the Corporation shall pay, out of funds or property legally available therefor under Nevada law, cumulative dividends (“Preferential Dividends”) at the rate per share of 12.0% per annum (as a percentage of the Stated Value per share) (the “Preferential Dividend Rate”) computed on the basis of a 360-day year and twelve 30-day months, and shall be payable quarterly in arrears for the previous calendar quarter on March 15, June 15, September 15 and December 15 of each year, beginning on the first such date after the date hereof (if any Preferential Dividend Payment Date is not a Business Day, the applicable payment shall be due on the next succeeding Business Day) (each such date, a “Preferential Dividend Payment Date”). The Preferential Dividends shall be mandatorily paid, in accordance with this Section 3(a), by the Corporation to the fullest extent permitted by applicable law and out of funds lawfully available therefor. Preferential Dividends on the Preferred Stock shall commence accruing on the issuance date of such Preferred Stock. Preferential Dividends shall be payable quarterly in arrears for the previous calendar quarter at the election of the Corporation, either (i) in cash out of funds or property legally available therefor under Nevada law, (ii) in shares of Common Stock (subject to the receipt of Shareholder Approval and the limitations set forth in Section 6(d)) determined by dividing the dollar amount of the Preferential Dividends by the Conversion Price, or (iii) accrue and compound, in an amount equal to the Preferential Dividend Rate multiplied by the Stated Value, before any dividends shall be declared, set apart for or paid upon the Junior Securities. As of 5:00 p.m., New York City time (the “Close of Business”) on each Preferential Dividend Payment Date, the dollar amount of the Preferential Dividends (regardless of whether or not declared) that have accumulated on the Preferred Stock for the previous calendar quarter will automatically without any further action by the Corporation or the Holders be added, effective immediately before the Close of Business on the related Preferential Dividend Payment Date, to the Stated Value of each share of Preferred Stock outstanding as of such time; provided, however, that such addition shall not occur nor be required if as of the Close of Business on such Preferential Dividend Payment Date, the Corporation, in its sole and absolute discretion, has settled the full amount of such Preferential Dividends in cash or shares of Common Stock pursuant to this Section 3(a). The dividend rights under this Section 3(a) shall expire automatically on the two-year anniversary of the Original Issue Date.
b) Except for stock dividends or distributions for which adjustments are to be made pursuant to Section 7, Holders shall be entitled to receive, and the Corporation shall pay, dividends on shares of Preferred Stock equal (on an as-if-converted-to-Common-Stock basis, disregarding for such purpose any conversion limitations hereunder) to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid on shares of the Common Stock. The Corporation shall not pay any dividends on the Common Stock unless the Corporation simultaneously complies with this provision.
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Section 4. Voting Rights. Except as otherwise provided herein or as otherwise required by law, the Preferred Stock shall have no voting rights. However, as long as any shares of Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote or written consent of the Holders of a majority of the then outstanding shares of the Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend this Certificate of Designation, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Liquidation (as defined in Section 5) senior to, or otherwise pari passu with, the Preferred Stock, (c) amend its articles of incorporation or other charter documents in any manner that adversely affects any rights of the Holders, or (d) increase the number of authorized shares of Preferred Stock.
Section 5. Liquidation. Upon any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary (a “Liquidation”), the Holders shall be entitled to receive out of the assets, whether capital or surplus, of the Corporation an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under this Certificate of Designation, for each share of Preferred Stock before any distribution or payment shall be made to the holders of any Junior Securities, and if the assets of the Corporation shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the Holders shall be ratably distributed among the Holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. A Fundamental Transaction shall not be deemed a Liquidation. The Corporation shall mail written notice of any such Liquidation, not less than 10 days prior to the payment date stated therein, to each Holder.
Section 6. Conversion.
a) Conversions at Option of Holder. To the extent not converted in connection with a Mandatory Conversion, each share of Preferred Stock shall be convertible, at any time and from time to time from and after the Shareholder Approval Date, at the option of the Holder thereof, into that number of shares of Common Stock (subject to the limitations set forth in Section 6(d)) determined by dividing the Stated Value of such share of Preferred Stock plus all unpaid accrued and accumulated Preferential Dividends on such share (whether or not declared) by the Conversion Price. Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Preferred Stock to be converted, the number of shares of Preferred Stock owned prior to the conversion at issue, the number of shares of Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by email such Notice of Conversion to the Corporation (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To effect conversions of shares of Preferred Stock, a Holder shall not be required to surrender the certificate(s), if any, representing the shares of Preferred Stock to the Corporation unless all of the shares of Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate, if any, representing such shares of Preferred Stock promptly following the Conversion Date at issue. Shares of Preferred Stock converted into Common Stock in accordance with the terms hereof shall be canceled and shall not be reissued.
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b) Conversion Price. The conversion price for the Preferred Stock shall equal $1.492, subject to adjustment herein (the “Conversion Price”).
c) Mechanics of Conversion
i. Delivery of Conversion Shares Upon Conversion. Not later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date (the “Share Delivery Date”), the Corporation shall deliver, or cause to be delivered, to the converting Holder (A) the number of Conversion Shares being acquired upon the conversion of the Preferred Stock, which Conversion Shares shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement), and (B) a bank check in the amount of accrued and unpaid dividends (if the Corporation is required to pay accrued dividends in cash). The Corporation shall deliver the Conversion Shares electronically through the Depository Trust Company or another established clearing corporation performing similar functions. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Corporation’s primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion.
ii. Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Corporation shall promptly return to the Holder any original Preferred Stock certificate delivered to the Corporation and the Holder shall promptly return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Notice of Conversion.
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iii. Obligation Absolute; Partial Liquidated Damages. The Corporation’s obligation to issue and deliver the Conversion Shares upon conversion of Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such Holder. In the event a Holder shall elect to convert any or all of the Stated Value of its Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Preferred Stock of such Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the Stated Value of Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Corporation shall issue Conversion Shares and, if applicable, cash, upon a properly noticed conversion. If the Corporation fails to deliver to a Holder such Conversion Shares pursuant to Section 6(c)(i) by the Share Delivery Date applicable to such conversion, the Corporation shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $5,000 of Stated Value of Preferred Stock being converted, $50 per Trading Day (increasing to $100 per Trading Day on the third Trading Day and increasing to $200 per Trading Day on the sixth Trading Day after such damages begin to accrue) for each Trading Day after the Share Delivery Date until such Conversion Shares are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages for the Corporation’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit a Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
iv. Compensation for Buy-In on Failure to Timely Deliver Conversion Shares Upon Conversion. In addition to any other rights available to the Holder, if the Corporation fails for any reason to deliver to a Holder the applicable Conversion Shares by the Share Delivery Date pursuant to Section 6(c)(i), and if after such Share Delivery Date such Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which such Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Corporation shall (A) pay in cash to such Holder (in addition to any other remedies available to or elected by such Holder) the amount, if any, by which (x) such Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of such Holder, either reissue (if surrendered) the shares of Preferred Stock equal to the number of shares of Preferred Stock submitted for conversion (in which case, such conversion shall be deemed rescinded) or deliver to such Holder the number of shares of Common Stock that would have been issued if the Corporation had timely complied with its delivery requirements under Section 6(c)(i). For example, if a Holder purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of shares of Preferred Stock with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Corporation shall be required to pay such Holder $1,000. The Holder shall provide the Corporation written notice indicating the amounts payable to such Holder in respect of the Buy-In and, upon request of the Corporation, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Corporation’s failure to timely deliver the Conversion Shares upon conversion of the shares of Preferred Stock as required pursuant to the terms hereof.
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v. Reservation of Shares Issuable Upon Conversion. The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Preferred Stock and payment of dividends on the Preferred Stock, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Preferred Stock), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 7) upon the conversion of the then outstanding shares of Preferred Stock and payment of dividends hereunder. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.
vi. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Preferred Stock. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share. Notwithstanding anything to the contrary contained herein, but consistent with the provisions of this subsection with respect to fractional Conversion Shares, nothing shall prevent any Holder from converting fractional shares of Preferred Stock.
vii. Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holders of such shares of Preferred Stock and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. The Corporation shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.
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d) Beneficial Ownership Limitation. The Corporation shall not effect any conversion of the Preferred Stock, and a Holder shall not have the right to convert any portion of the Preferred Stock, to the extent that, after giving effect to the conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of the Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Stated Value of Preferred Stock beneficially owned by such Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Preferred Stock) beneficially owned by such Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 6(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 6(d) applies, the determination of whether the Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and of how many shares of Preferred Stock are convertible shall be in the sole discretion of such Holder, and the submission of a Notice of Conversion shall be deemed to be such Holder’s determination of whether the shares of Preferred Stock may be converted (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and how many shares of the Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, each Holder will be deemed to represent to the Corporation each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Corporation shall have no obligation to verify or confirm the accuracy of such representation. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 6(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Corporation’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Corporation or (iii) a more recent written notice by the Corporation or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Corporation shall within one Trading Day confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Corporation, including the Preferred Stock, by such Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% (or, upon election by a Holder prior to the issuance of any shares of Preferred Stock, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Preferred Stock held by the applicable Holder. A Holder, upon notice to the Corporation, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 6(d) applicable to its Preferred Stock provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Preferred Stock held by the Holder and the provisions of this Section 6(d) shall continue to apply. Any such increase in the Beneficial Ownership Limitation will not be effective until the 61^st^ day after such notice is delivered to the Corporation and shall only apply to such Holder and no other Holder. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of Preferred Stock.
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Section 7. Certain Adjustments.
a) Stock Dividends and Stock Splits. If the Corporation, at any time while this Preferred Stock is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment of a dividend on, this Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 7(a) above, if at any time the Corporation grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holder’s Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
c) Pro Rata Distributions. During such time as this Preferred Stock is outstanding, if the Corporation shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (other than any dividend or distribution as to which an adjustment was effected pursuant to Section 7(a)) (a “Distribution”), at any time after the issuance of this Preferred Stock, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Preferred Stock (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
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d) Fundamental Transaction. If, at any time while this Preferred Stock is outstanding, (i) the Corporation, directly or indirectly, in one or more related transactions effects any merger or amalgamation consolidation of the Corporation with or into another Person, (ii) the Corporation, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding shares of Common Stock or 50% or more of the voting power of the common equity of the Corporation, (iv) the Corporation, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of shares of Common Stock or any compulsory share exchange pursuant to which shares of Common Stock are effectively converted into or exchanged for other securities, cash or property, or (v) the Corporation, directly or indirectly, in one or more related transactions consummates a share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock or 50% or more of the voting power of the common equity of the Corporation (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Preferred Stock, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of this Preferred Stock), the number of shares of Common Stock of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation or is otherwise the continuing corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of this Preferred Stock). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Preferred Stock following such Fundamental Transaction. The amount of any consideration to be received by a Holder in connection with a Fundamental Transaction shall be payable in the same type or form of consideration (and in the same proportion) that is being offered and paid to the holders of Common Stock of the Corporation in connection with the Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation with the same terms and conditions and issue to the Holders new preferred stock consistent with the foregoing provisions and evidencing the Holders’ right to convert such preferred stock into Alternate Consideration. The Corporation shall cause any successor entity in a Fundamental Transaction in which the Corporation is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents in accordance with the provisions of this Section 7(d) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Preferred Stock which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Preferred Stock (without regard to any limitations on the conversion of this Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Preferred Stock immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designation and the other Transaction Documents referring to the “Corporation” shall refer instead to the Successor Entity), and may exercise every right and power of the Corporation and shall assume all of the obligations of the Corporation under this Certificate of Designation and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Corporation herein. For the avoidance of doubt, if, at any time while this Preferred Stock is outstanding, a Fundamental Transaction occurs, pursuant to the terms of this Section 7(d), the Holder shall not be entitled to receive more than one of (i) the consideration receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Preferred Stock is convertible immediately prior to such Fundamental Transaction or (ii) the assumption by the Successor Entity of all of the obligations of the Corporation under this Certificate of Designation and the option to receive a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Certificate of Designation.
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e) Calculations. All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.
f) Notice to the Holders.
i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder by email a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Conversion by Holder. If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation (and all of its Subsidiaries, taken as a whole), or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of this Preferred Stock, and shall cause to be delivered by email to each Holder at its last email address as it shall appear upon the stock books of the Corporation, at least ten (10) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Corporation or any of the Subsidiaries, the Corporation shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert the Conversion Amount of this Preferred Stock (or any part hereof) during the 10-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 8. Mandatory Conversion. Notwithstanding anything herein to the contrary, on the date the Corporation obtains the Shareholder Approval (the “Mandatory Conversion Trigger”), each outstanding share of Preferred Stock will automatically convert into that number of shares of Common Stock (subject to the limitations set forth in Section 6(d)) determined by dividing the Stated Value of such share of Preferred Stock plus all unpaid accrued and accumulated Preferential Dividends on such share (whether or not declared) by the Conversion Price, it being agreed that the “Conversion Date” for purposes of Section 6 shall be deemed to occur no later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period following the Mandatory Conversion Notice Date (as defined below) (such date, the “Mandatory Conversion Date”). The Corporation within 1 Trading Day following the Mandatory Conversion Trigger, deliver a written notice to all Holders (a “Mandatory Conversion Notice” and the date such notice is delivered to all Holders, the “Mandatory Conversion Notice Date”) disclosing that the Mandatory Conversion Trigger has occurred and the corresponding amount of shares issuable upon the Mandatory Conversion. To the extent that the Beneficial Ownership Limitation contained in Section 6(d) applies to any Holder, such Holder shall within one Business Day of such Holder’s receipt of the Mandatory Conversion Notice, provide the Company with a written determination (a “Mandatory Conversion Determination”), delivered in accordance with Section 9, of whether such Holder’s Preferred Stock is convertible (in relation to other securities owned by such Holder together with any Affiliates and Attribution Parties) and of how many shares of Preferred Stock are convertible, and the submission of a Mandatory Conversion Determination shall be deemed to be such Holder’s determination of the maximum number of shares of Preferred Stock that may be converted, subject to the Beneficial Ownership Limitation and the portion of the shares of Common Stock issuable upon such Mandatory Conversion hereunder that would cause such Holder to exceed the Beneficial Ownership Limitation shall, at the election of the Holder, (i) be issued such shares in the form of Pre-Funded Warrants (as defined in the Purchase Agreement) or (ii) such shares shall be held by the Company in abeyance for the benefit of such Holder (which shall not give the Holder any power to vote or dispose of such shares) until such time, if ever, as such Holder’s beneficial ownership thereof would not result in such Holder exceeding the Beneficial Ownership Limitation.
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Section 9. Miscellaneous.
c) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by email, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at 8123 InterPort Blvd., Suite C, Englewood, Colorado 80112, Attention: Chief Executive Officer, email address: notices@xtiaerospace.com; or such other email address or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 9. Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by email a, or sent by a nationally recognized overnight courier service addressed to each Holder at the email address or address of such Holder appearing on the books of the Corporation, or if no such email address or address appears on the books of the Corporation, at the principal place of business of such Holder, as set forth in the Purchase Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the time of transmission, if such notice or communication is delivered via email at the email address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the time of transmission, if such notice or communication is delivered or email at the email address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.
d) Absolute Obligation. Except as expressly provided herein, no provision of this Certificate of Designation shall alter or impair the obligation of the Corporation, which is absolute and unconditional, to pay liquidated damages, accrued dividends and accrued interest, as applicable, on the shares of Preferred Stock at the time, place, and rate, and in the coin or currency, herein prescribed.
e) Lost or Mutilated Preferred Stock Certificate. If a Holder’s Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Preferred Stock so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Corporation (which shall not include the posting of any bond).
f) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designation shall be governed by and construed and enforced in accordance with the internal laws of the State of Nevada, without regard to the principles of conflict of laws thereof.
g) Waiver. Any waiver by the Corporation or a Holder of any provision of this Certificate of Designation or any breach thereof shall not operate as or be construed to be a waiver of any other provision of this Certificate of Designation or any breach thereof or a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation on any other occasion. Any waiver by the Corporation or a Holder must be in writing.
h) Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.
i) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.
j) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof.
k) Status of Converted Preferred Stock. Shares of Preferred Stock may only be issued pursuant to the Purchase Agreement. If any shares of Preferred Stock shall be converted or reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series 10 Convertible Preferred Stock.
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RESOLVED, FURTHER, that the Chairman, the Chief Executive Officer, the Chief Financial Officer, the president or any vice-president, and the secretary or any assistant secretary, of the Corporation be and they hereby are authorized and directed to prepare and file this Certificate of Designation of Preferences, Rights and Limitations in accordance with the foregoing resolution and the provisions of Nevada law.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 10th day of November 2025.
| /s/ Scott Pomeroy | |
|---|---|
| Name: | Scott Pomeroy |
| Title: | Chief Executive Officer |
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ANNEX A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert Shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series 10 Convertible Preferred Stock indicated below into shares of common stock, par value $0.001 per share (the “Common Stock”), of XTI Aerospace, Inc., a Nevada corporation (the “Corporation”), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as may be required by the Corporation in accordance with the Purchase Agreement. No fee will be charged to the Holders for any conversion, except for any such transfer taxes.
Conversion calculations:
Date to Effect Conversion: _____________________________________________
Number of shares of Preferred Stock owned prior to Conversion: _______________
Number of shares of Preferred Stock to be Converted: ________________________
Stated Value of shares of Preferred Stock to be Converted: ____________________
Number of shares of Common Stock to be Issued: ___________________________
Applicable Conversion Price: ____________________________________________
Number of shares of Preferred Stock subsequent to Conversion: ________________
Address for Delivery: ______________________
or
DWAC Instructions:
Broker no: _________
Account no: ___________
| HOLDER |
|---|
| By: |
| Name: |
| Title: |
Exhibit 4.1
FLORIDA DOCUMENTARY STAMP TAXES IN THE AMOUNT OF $2,450.00 ARE BEING PAID IN CONNECTION WITH THIS NOTE, AS REQUIRED BY FLORIDA LAW.
REVOLVINGPROMISSORY NOTE
| Effective Date: | July 10,<br>2025 |
|---|---|
| Amount of Note: | TWENTY FIVE MILLION DOLLARS ($25,000,000.00) |
| Maturity Date: | July 10, 2027 |
FOR VALUE RECEIVED,DRONE NERDS INC, a Florida corporation, and **ANZU ROBOTICS, LLC,**a Delaware limited liability company (collectively, the “Borrower”) hereby covenants and promises to pay to the order of BANESCO USA, A FLORIDA STATE CHARTERED BANK, its successors and/or assigns (the “Lender”), at 3155 NW 77th Avenue, Miami, Florida 33122, or at such other place as Lender may designate to Borrower in writing from time to time, in legal tender of the United States, TWENTY FIVE MILLION DOLLARS ($25,000,000.00), or such lesser amount as shall be the outstanding principal amount of advances made hereunder, together with all accrued interest, which shall be due and payable, and upon the following terms and conditions contained in this Revolving Promissory Note (this “Note”) and funded subject to the terms and conditions set forth in the Loan Agreement (as defined herein). Advances under this Note are subject to the terms and conditions set forth in the Loan Agreement.
| A. | Interest Rate: |
|---|
(a) From the date hereof until and including the Maturity Date, Borrower may borrow, repay and reborrow, and Lender may advance and readvance under this Note from time to time, so long as the total principal balance outstanding at any one time does not exceed the principal amount stated on the face of this Note. Lender’s obligation to make advances under this Note shall terminate upon the earlier to occur of: (i) an Event of Default under this Note or any other Loan Document, or (ii) the Maturity Date.
(b) Interest shall accrue on the unpaid principal balance of this Note from the date hereof at a rate per annum equal to the Term SOFR Rate (as defined below), plus 2.50% (as the same may be modified below, the “Interest Rate Margin”) (as the same may be modified below, the “Interest Rate”). The Interest Rate is subject to adjustment from time to time based on changes in the Term SOFR Rate. Such adjustments shall be made on the 10th day of every month (the “Reset Date”), beginning August 10, 2025 (the “Initial Reset Date”). Notwithstanding the foregoing, the Interest Rate applicable to this Note shall never be less than 6.00% per annum at any time.
(c) As used herein, “Term SOFR Rate” means the rate of interest per annum equal to the One Month Term SOFR, as published by CME Group Benchmarks Administration Limited (or a successive administrator designated by the relevant authority) for the date that is two U.S. Government Securities Business Days prior to the Reset Date (as defined herein). The Interest Rate will be effective on and from the date hereof, based on the most recent rate information available, and will be effective until the last day prior to the Initial Reset Date. The interest rate shall be thereafter be adjusted on each Reset Date to the current Term SOFR Rate or, if applicable, the current Term SOFR Successor Rate (as defined below), plus the Interest Rate Margin, or, if applicable, the Successor Interest Rate Margin (as defined below), based on the most recent rate information available on the date that the interest rate is adjusted and such rate shall be effective until the next such Reset Date.
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(d) If the Lender determines in good faith (which determination shall be conclusive, absent manifest error) that: (A) adequate and fair means do not exist for ascertaining the Term SOFR Rate; (B) the Term SOFR Rate does not accurately reflect the cost to the Lender of the Loan; or (C) a Regulatory Change (as hereinafter defined) shall, in the reasonable determination of the Lender, make it unlawful or commercially unreasonable for the Lender to use the Term SOFR Rate as the index for purposes of determining the Interest Rate, then: (i) the Term SOFR Rate shall be replaced with an alternative or successor rate or index chosen by the Lender in its reasonable discretion (the “Term SOFR Successor Rate”); and (ii) the Interest Rate Margin may also be adjusted by Lender in its reasonable discretion, giving due consideration to market convention for determining rates of interest on comparable loans. “Regulatory Change” shall mean a change in any applicable law, treaty, rule, regulation or guideline, or the interpretation or administration thereof, by the administrator of the relevant benchmark or its regulatory supervisor, any governmental authority, central bank or other fiscal, monetary or other authority having jurisdiction over Lender or its lending office.
(e) All interest hereunder shall be calculated on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method (the “365/360 calculation”). The 365/360 calculation method of interest can result in a higher amount of accrued interest based on a 360-day denominator in the calculation, than the amount of accrued interest which is based upon a 365-day calculation for the denominator. The interest rate under this Note does not change but the calculation of the amount of interest may be slightly different depending upon the basis of the calculation of interest, as described above. In the event the interest rate is the maximum rate permitted by law, the interest shall be calculated on the basis of a 365-day year and 366 days in a leap year. Borrower hereby authorizes Lender to charge against Borrower’s account with Lender any amount payable hereunder that is not paid when due.
(f) For purposes hereof, “U.S. Government Securities Business Day” means any day except for (i) a Saturday, (ii) a Sunday or (iii) a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.
| B. | Payment Terms: |
|---|
Commencing on August 10, 2025 and continuing on the 10th day of each month thereafter, Borrower shall make consecutive monthly payments of accrued interest only. Unless this Note is otherwise accelerated in accordance with the terms and conditions hereof, the entire outstanding principal balance of this Note plus all accrued interest shall be due and payable in full on July 10, 2027 (the “Maturity Date”).
If any payment of principal or interest to be made pursuant to this Note, other than a prepayment or a payment due on the Maturity Date of this Note, shall fall on a day that is not a U.S. Government Securities Business Day, payment shall be made on the next succeeding U.S. Government Securities Business Day, except that, if such succeeding U.S. Government Securities Business Day would fall in the next calendar month, such payment shall be made on the immediately preceding U.S. Government Securities Business Day. Any extension or contraction of time shall be reflected in computing interest or fees, as the case may be.
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Except as otherwise specified herein, each payment or prepayment, if any, made under this Note shall be applied to pay secured an unpaid interest, principal, late charges, and any other fees and invoiced and unpaid costs, and expenses which Borrower is obligated to pay under this Note, in such order as Bank may elect from time to time in its sole discretion. If the loan is in default, all payments made hereunder, whether they are prepayments or otherwise, shall be applied, in the Bank’s sole discretion, as it deems appropriate and unless Bank determines to apply differently, payments will be applied in the following manner: first to late charges, then to invoiced and unpaid attorney’s fees and costs, if any, then to any accrued interest and finally towards the reduction of any outstanding principal sums hereunder.
| C. | Security: |
|---|
This Note is secured, in part, by that certain Security Agreement dated as of even date herewith, from Borrower in favor of Lender (as the same may be amended or modified from time to time, the “Security Agreement”), granting Lender a lien and security interest in and to certain personal property, as more particularly described in the Security Agreement.
| D. | Loan Documents: |
|---|
This Note, the Security Agreement, that certain Loan Agreement dated as of even date herewith by and between Borrower and Lender (as the same may be amended, restated, modified or replaced from time to time, the “Loan Agreement”), that certain Limited Guaranty agreements dated as of even date herewith from JEREMY SCHNEIDERMAN, ALEX NAFISSY, ROBERT WEITZNER (collectively, the “Guarantor”) in favor of Lender (as the same may be amended, restated, modified or replaced from time to time, individually and collectively, the “Guaranty”), and all other documents and instruments executed in connection with this Note are hereinafter individually and/or collectively referred to as the “Loan Documents”.
| E. | Default Interest Rate: |
|---|
All principal and installments of interest shall, at Lender’s option, bear interest from the date that said payments are due and unpaid or from the date of occurrence of any other Event of Default (as hereinafter defined) under this Note, the Security Agreement or any other Loan Document, at a rate equal to the highest non-usurious rate, not to exceed the highest rate authorized by applicable law (the “Default Rate”).
| F. | Prepayment: |
|---|
The Borrower may prepay all or any portion of this Note at any time without fee, premium or penalty***.***
| G. | Late Charges: |
|---|
Lender may collect a late charge not to exceed an amount equal to five percent (5%) of any installment which is not paid within ten (10) days of the due date thereof, to cover the extra expense involved in handling delinquent payments, provided that collection of said late charge shall not be deemed a waiver by Lender of any of its rights under this Note. Notwithstanding the foregoing, there shall be no grace period or late charges for payments due on the outstanding principal balance due on the Maturity Date or upon acceleration, as set forth in Section H below, but such outstanding balance shall accrue interest at the Default Rate. The late charge is intended to compensate the Lender for administrative and processing costs incident to late payments. The late charge payments are not interest. The late charge payment shall not be subject to rebate or credit against any other amount due. Any late charge shall be in addition to any other interest due. In no event shall this provision waive Lender’s right to declare a default and accelerate and demand immediate payment of all of the outstanding principal balance for any payment not made within ten (10) days of the due date for said payment.
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| H. | Default and Acceleration: |
|---|
If any of the following “Events of Default” occur, at the Lender’s option, exercisable in its sole discretion, all sums of principal and interest under this Note shall be accelerated and become immediately due and payable without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character, and the Lender shall be immediately entitled to exercise all of its available remedies under the Loan Documents:
a. Borrower fails to perform any obligation under this Note to pay principal or interest when due; or
b. Borrower fails, after giving effect to any notice and/or cure period thereunder, to perform any other obligation, liability or indebtedness under the Loan Documents to pay money when due; or
c. A “Default” or an “Event of Default” (as defined in each respective document) beyond any applicable notice and cure period occurs under any of the Loan Documents.
In any such event, if so exercised by Lender, all sums of principal and interest under this Note shall automatically become immediately due and payable without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor, or other notices or demands of any kind or character. All persons now or at any time liable for payment of this Note hereby waive presentment, protest, notice of protest and dishonor. The Borrower expressly consents to any extension or renewal, in whole or in part, and all delays in time of payment or other performance which Lender may grant at any time and from time to time without limitation and without any notice or further consent of the undersigned.
The remedies of Lender as provided herein, or in the Security Agreement, the Loan Agreement or the other Loan Documents shall be cumulative and concurrent and may be pursued singularly, successively or together, at the sole discretion of Lender, and may be exercised as often as the occasion therefor shall arise.
The Lender may, in the sole discretion of Lender, accept payments made by Borrower after any default has occurred, without waiving any of Lender’s rights herein.
| I. | Costs: |
|---|
In the event that this Note is collected by law or through attorneys at law, or under advice therefrom (whether such attorneys are employees of Lender or an affiliate of Lender or are outside counsel), Borrower hereby agrees to pay all costs of collection, including reasonable attorneys’ fees, including reasonable charges for paralegals, appraisers, experts and consultants working under the direction or supervision of Lender’s attorneys; costs for evaluating preserving or disposing of any collateral granted as security for payment of this Note, including the costs of any audits, environmental inspections which Lender may deem necessary form time to time; any premiums for property insurance purchased on behalf of Borrower or on behalf of the owners of any collateral pursuant to any Security Agreement relating to any collateral, or any other charges permitted by applicable law whether or not suit is brought, and whether incurred in connection with collection, trial, appeal, bankruptcy or other creditors’ proceedings or otherwise.
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| J. | Loan Charges: |
|---|
Nothing herein contained, nor any transaction related thereto, shall be construed or so operate as to require Borrower or any person liable for the repayment of same, to pay interest in an amount or at a rate greater than the maximum allowed by applicable law. Should any interest or other charges paid by Borrower, or any parties liable for the payment of the loan made pursuant to this Note, result in the computation or earning of interest in excess of the maximum legal rate of interest permitted under the law in effect while said interest is being earned, then any and all of such excess shall be and is waived by Lender, and all such excess shall be automatically credited against and in reduction of the principal balance, and any portion of the excess that exceeds the principal balance shall be paid by Lender to Borrower or any parties liable for the payment of the loan made pursuant to this Note so that under no circumstances shall the Borrower, or any parties liable for the payment of the loan hereunder, be required to pay interest in excess of the maximum rate allowed by applicable law.
| K. | Jurisdiction: |
|---|
The laws of the State of Florida shall govern the interpretation and enforcement of this Note. In the event that legal action is instituted to collect any amounts due under, or to enforce any provision of, this instrument, Borrower and any endorser, guarantor or other person primarily or secondarily liable for payment hereof consent to, and by execution hereof submit themselves to, the jurisdiction of the courts of the State of Florida, and, notwithstanding the place of residence of any of them or the place of execution of this instrument, such litigation may be brought in or transferred to a court of competent jurisdiction in and for Miami-Dade County, Florida.
| L. | Assignment: |
|---|
Lender shall have the unrestricted right at any time and from time to time, with notice to but without Borrower’s or Guarantor’s consent, to assign all or any portion of its rights and obligations hereunder to one or more lenders or Purchasers (each, an “Assignee”) under this Note and the Loan Documents and all information now or hereafter in its possession relating to the Borrower and all Guarantors (all rights of privacy hereby being waived, and to retain any compensation received by Lender in connection with any such transaction and Borrower and Guarantor agrees that it shall execute such documents, including without limitation, the delivery of an estoppels certificate and such other documents as Lender shall deem necessary to effect the foregoing. The Borrower agrees to be bound by the terms of the Note subsequent to any transfer and agree that the terms of the Note maybe fully enforced by any subsequent holder of this Note.
| M. | Non-Waiver: |
|---|
The failure at any time of Lender to exercise any of its options or any other rights hereunder shall not constitute a waiver thereof, nor shall it be a bar to the exercise of any of its options or rights at a later date. All rights and remedies of Lender shall be cumulative and may be pursued singly, successively or together, at the option of Lender.
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| N. | Right of Setoff: |
|---|
In addition to all liens upon and rights of setoff against the Borrower’s money, securities or other property given to the Lender by law, the Lender shall have, with respect to the Borrower’s obligations to the Lender under this Note and to the extent permitted by law, a contractual possessory security interest in and a contractual right of setoff against, and the Borrower hereby grants the Lender a security interest in, and hereby assigns, conveys, delivers, pledges and transfers to the Lender, all of the Borrower’s right, title and interest in and to, all of the Borrower’s deposits, moneys, securities and other property now or hereafter in the possession of or on deposit with, or in transit to, the Lender, whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding, however, all IRA, Keogh, and trust accounts. Every such security interest and right of setoff may be exercised without demand upon or notice to the Borrower. Every such right of setoff shall be deemed to have been exercised immediately upon the occurrence of an Event of Default hereunder without any action of the Lender, although the Lender may enter such setoff on its books and records at a later time.
| O. | Miscellaneous: |
|---|
| 1. | TIME IS OF THE ESSENCE OF THIS NOTE. |
|---|---|
| 2. | It is agreed that the granting to Borrower or any other party of an extension or extensions of time for<br>the payment of any sum or sums due under this Note or under the Security Agreement or for the performance of any covenant or stipulation<br>thereof or the taking of other or additional security shall not in any way release or affect the liability of Borrower under this Note<br>or any of the Loan Documents. |
| --- | --- |
| 3. | This Note may not be changed orally, but only by an agreement in writing, signed by the party against<br>whom enforcement of any waiver, change, modification or discharge is sought. |
| --- | --- |
| 4. | All parties to this Note, whether Borrower, principal, surety, guarantor or endorser, hereby waive presentment<br>for payment, demand, notice, protest, notice of protest and notice of dishonor. |
| --- | --- |
| 5. | Notwithstanding anything herein to the contrary, the obligations of Borrower under this Note shall be<br>subject to the limitation that payments of interest shall not be required to the extent that receipt of any such payment by Lender would<br>be contrary to provisions of law applicable to Lender limiting the maximum rate of interest which may be charged or collected by Lender.<br>In the event that any charge, interest or late charge is above the maximum rate provided by law, then any excess amount over the lawful<br>rate shall be applied by Lender to reduce the principal sum of the Loan or any other amounts due Lender hereunder. |
| --- | --- |
| 6. | Borrower acknowledges that Lender shall have no obligation whatsoever to renew, modify or extend this<br>Note or to refinance the indebtedness under this Note upon the maturity thereof, except as specifically provided herein or in the Loan<br>Documents. |
| --- | --- |
| 7. | Lender shall have the right to accept and apply to the outstanding balance of this Note and all payments<br>or partial payments received from Borrower after the due date therefor, whether this Note has been accelerated or not, without waiver<br>of any of Lender’s rights to continue to enforce the terms of this Note and to seek any and all remedies provided for herein or in any<br>instrument securing the same, including, but not limited to, the right to foreclose on such security. |
| --- | --- |
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| 8. | All amounts received by Lender shall be applied to expenses, late fees and interest before principal or,<br>following an Event of Default, in any other order as determined by Lender, in its sole discretion, as permitted by law. |
|---|---|
| 9. | Borrower shall not assign Borrower’s rights or obligations under this Note without Lender’s<br>prior consent. |
| --- | --- |
| 10. | The term “Borrower” as used herein, in every instance shall include the makers of this Note,<br>and its heirs, executors, administrators, successors, legal representatives and assigns, and shall denote the singular and/or plural,<br>the masculine and/or feminine, and natural and/or artificial persons whenever and wherever the context so requires or admits. |
| --- | --- |
| 11. | If more than one party executes this Note, all such parties shall be jointly and severally liable for<br>the payment of this Note. |
| --- | --- |
| 12. | If any clause or provision herein contained operates or would prospectively operate to invalidate this<br>Note in part, then the invalid part of said clause or provision only shall be held for naught, as though not contained herein, and the<br>remainder of this Note shall remain operative and in full force and effect. |
| --- | --- |
| P. | Waiver of Jury Trial: |
| --- | --- |
BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER TO EXTEND TO BORROWER THE LOAN EVIDENCED BY THIS NOTE.
[NO FURTHER TEXT ON THIS PAGE]
Page 7
Borrower has duly executed this Note effective as of the date set forth hereinabove.
| BORROWER**:** | |
|---|---|
| DRONE NERDS INC, a Florida corporation | |
| By: | /s/ Jeremy Schneiderman |
| Print Name: | Jeremy Schneiderman |
| Title: | Chief Executive Officer |
| STATE OF FLORIDA | ) |
| --- | --- |
| ) SS: | |
| COUNTY OF BROWARD | ) |
I HEREBY CERTIFY that on this day, before me, an officer duly authorized in the State aforesaid and in the County aforesaid take acknowledgments, the foregoing instrument was acknowledged before me by means of p..physical presence or D online notarization, by Jeremy Schneiderman, as Chief Executive Officer of DRONE NERDS INC, a Florida corporation, who is personally known to me or who has produced ___________________________ as an identification.
| /s/ Marion Raudales |
|---|
| Notary Public |
| Marion Raudales |
| Typed, printed or stamped name of Notary Public |
| My Commission Expires: May 3, 2026 |
Page 8
| BORROWER**:** | |
|---|---|
| ANZU ROBOTICS, LLC, a Delaware limited liability company | |
| By: | /s/ Jeremy Schneiderman |
| Print Name: | Jeremy Schneiderman |
| Title: | Authorized Member |
| STATE OF Florida | ) |
| --- | --- |
| ) SS: | |
| COUNTY OF Broward | ) |
I HEREBY CERTIFY that on this day, before me , an officer duly authorized in the State aforesaid and in the County aforesaid to take acknowledgments, the foregoing instrument was acknowledged before me by means of{gf physical presence or D online notarization , by Jeremy Schneiderman, as Authorized Member of ANZU ROBOTICS, LLC, a Delaware limited liability company, who is personally known to me or who has produced as identification.
WITNESS my hand and official seal in the County and State last aforesaid this 10^th^ day of July, 2025*.*
| /s/ Marion Raudales |
|---|
| Notary Public |
| Marion Raudales |
| Typed, printed or stamped name of Notary Public |
| My Commission Expires: May 3, 2026 |
Page 9
Exhibit 4.2
PROMISSORY NOTE
| $10,976,284.58 | November<br>10, 2025 |
|---|
FOR VALUE RECEIVED, the undersigned, the undersigned, XTI Drones Holdings, LLC, a Texas limited liability company (“Maker”), hereby unconditionally promises to pay to the order of The Origin Group DN, Inc., a Delaware corporation (“Payee”), the principal sum of Ten Million Nine Hundred Seventy-Six Thousand Two Hundred Eighty-Four Dollars and 58/100 ($10,976,284.58) (the “Note Amount”), in lawful money of the United States of America, together with interest accrued on the unpaid balance in accordance herewith.
This Promissory Note (“Note”) is issued in connection with that certain Membership Interest Purchase Agreement, dated as of November 10, 2025 (the “MembershipInterest Purchase Agreement”; capitalized terms used herein but not defined herein are defined in the Membership Interest Purchase Agreement), by and among (a) the Maker, (b) the Payee, (c) Drone Nerds, LLC, a Florida limited liability company, and (d) each of the Seller Owners listed on Annex A-1 attached thereto. This Note is subject to adjustment as provided in the Membership Interest Purchase Agreement.
- The principal of and interest on this Note shall be payable as follows:
(a) No later than November 30, 2025 (the “First Required Payment Date”), the outstanding principal amount of this Note shall be repaid by Maker to Payee in an amount equal to Three Million Six Hundred Eighty Thousand Dollars ($3,680,000), together with all accrued and unpaid interest as of the First Required Payment Date;
(b) No later than March 31, 2026 (the “Second Required Payment Date”), the outstanding principal amount of this Note shall be repaid by Maker to Payee in an amount equal to One Million Eight Hundred Forty Thousand Dollars ($1,840,000), together with all accrued and unpaid interest as of the Second Required Payment Date;
(c) No later than June 30, 2026 (the “Third Required Payment Date”), the outstanding principal amount of this Note shall be repaid by Maker to Payee in an amount equal to One Million Three Hundred Eighty Thousand Dollars ($1,380,000), together with all accrued and unpaid interest as of the Third Required Payment Date;
(d) No later than September 30, 2026 (the “Fourth Required Payment Date”), the outstanding principal amount of this Note shall be repaid by Maker to Payee in an amount equal to One Million Three Hundred Eighty Thousand Dollars ($1,380,000), together with all accrued and unpaid interest as of the Fourth Required Payment Date;
(e) The entire outstanding principal amount of this Note shall be repaid by Maker to Payee on or prior to the one (1) year anniversary of this Note (“Due Date”), together with all accrued and unpaid interest as of the date the Note Amount has been paid in full. The period from the date hereof until the date of repayment in full of all principal, interest and any other obligations of Maker owing under this Note being referred to herein as the “Term”;
(f) All outstanding accrued interest and the unpaid principal amount of this Note shall be due and payable in full on the earlier of the following: (a) the Due Date; or (b) ninety (90) days following a capital raise (or the last capital raise, in connection with a series of transactions, whether related or unrelated) where XTI Aerospace, Inc. or one or more of its Affiliates (as defined in the Membership Interest Purchase Agreement) raise, as a result of a single transaction or a series of transactions occurring pursuant to one or more closings, in any case after the date hereof, an aggregate amount of Forty Million Dollars ($40,000,000) or more, qualified by the limitation that not more than 20% of net proceeds from any single financing shall be applied towards payment of outstanding principal, interest and any other obligations of Maker owing under this Note; or (c) such obligations becoming due and payable in accordance with Section 7 hereof;
(g) All payments due under this Note shall be paid to Payee in lawful money of the United States of America by wire transfer of immediately available funds to the account specified by Payee;
(h) Payee may, in its absolute and sole discretion, elect to waive any payment of accrued and unpaid interest in whole or in part upon prior written notice to Maker; and
(i) For the avoidance of doubt, principal payments made in compliance with Section 1(a) shall be disregarded for purposes of Section 1(b) and principal payments made in compliance with Sections 1(a) and 1(b) shall be disregarded for purposes of Section 1(c).
This Note shall accrue simple interest on the balance of principal remaining unpaid from time to time, accruing at an annual rate equal to seven and one-quarter percent (7.25%) (the “Interest Rate”) from the date hereof. Interest shall be computed based upon a 365-day year. Following the occurrence of an Event of Default, the outstanding principal balance of this Note shall accrue interest at a per annum rate equal to the Interest Rate plus 2.00%.
Maker reserves the right to prepay the outstanding principal balance and interest accrued of this Note, in whole or in part, at any time and from time to time, without premium or penalty, provided that, each such prepayment shall be accompanied by a payment of all accrued and unpaid interest together with all accrued and unpaid interest on the portion of the principal balance so prepaid. All partial prepayments shall be applied to the indebtedness owing hereunder in such order and manner as Payee may from time to time determine in its reasonable discretion. If interest is not paid as it becomes due, it shall be added to the principal of this Note, shall become and be treated as a part thereof, and shall thereafter bear like interest.
Except as set forth in the Membership Interest Purchase Agreement, the payment obligations of the Maker under this Note are absolute and unconditional, without any right of rescission, setoff, counterclaim or defense for any reason against the Payee and the Maker agrees that payment of the obligations by the Maker, when due and payable pursuant to the terms of this Note, is not subject to compromise, adjustment, extension, satisfaction, rescission, set-off, counterclaim, defense, abatement, suspension, deferment, deductible, reduction, termination or modification, whether arising out of transactions concerning the Note, or otherwise. Without limitation to the forgoing, to the fullest extent permitted under applicable law, Maker hereby waives (i) presentment, protest and demand, notice of default, notice of intent to accelerate, notice of acceleration, notice of protest, notice of demand and of dishonor and non-payment of the obligations under this Note, (ii) any requirement of diligence or promptness on Payee’s part in the enforcement of its rights under the provisions of this Note, (iii) all notices of every kind and description which may be required to be given by any statute or rule of law, (iv) the pleading of any statute of limitations as a defense to any demand under this Note and (v) any defense to the obligation to make any payments required under this Note. While any amount shall be outstanding under this Note, Maker agrees to provide Payee access to its financial statements, which Payee undertakes to keep confidential.
2
Maker hereby makes the following representations and warranties to Payee, which representations and warranties shall survive the termination or repayment of this Note:
(a) Maker hereby represents and warrants that the terms set forth in this Note are fair and reasonable in light of the risks and circumstances under which Payee is extending the loan evidenced by this Note, and Maker has been provided a sufficient opportunity to review such terms with its independent legal counsel.
(b) Maker has full power and authority to execute this Note, and any and all other documents entered into in relation to the loan evidenced by this Note and to undertake and consummate the transactions contemplated by this Note, and to pay, perform, and observe the conditions, covenants, agreements and obligations contained in this Note.
(c) The terms and conditions of this Note are fair and reasonable considering the risks to Payee, and the adequacy of security for Maker’s obligations under this Note. This Note has been duly and validly executed by Maker and constitutes legal, valid and binding obligations of Maker, which obligations are and will continue to be enforceable under all applicable laws in accordance with their respective terms, except as such enforcement may be qualified or limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights generally.
- The occurrence of any of the following shall constitute an “Event of Default”:
(a) Maker shall fail to make any payments under this Note as same shall become due and such failure continues for a period of ten (10) days;
(b) Maker shall fail to repay the entire principal balance of this Note, together with all accrued and unpaid interest and all other amounts owing under this Note, on or before the Due Date and such failure continues for a period of ten (10) days;
(c) Maker shall make a general assignment for the benefit of creditors or shall file any petition or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal, state or other law or regulation relating to bankruptcy, insolvency or other relief of debtors;
(d) Maker shall be adjudicated insolvent or bankrupt;
(e) Maker shall petition or apply for, or acquiesce in, the appointment of any receiver, custodian, liquidator, conservator or trustee of or for it or any substantial part of its property or assets;
(f) Except as set forth in clauses (a) and (b) above, Maker shall fail to observe or perform any agreement or covenant set forth in this Note and such failure continues for a period of fifteen (15) days; or
(g) Any representation or warranty made by Maker under this Note shall prove to have been false or incorrect when made.
Upon the occurrence of an Event of Default, Payee shall have the right, at its option, to do any one or more of the following: (1) declare the entire unpaid balance of principal and accrued but unpaid interest on this Note, and all other obligations of Maker under this Note, to be immediately due and payable; and/or (2) exercise any other rights or remedies under any other instrument or applicable law; provided, that, upon the occurrence of an Event of Default described in clauses (c), (d) or (e) thereof the outstanding principal amount of this Note together with all accrued and unpaid interest and all other obligations of Maker under this Note shall become due and payable automatically and without any action by the Payee. An Event of Default shall continue unless waived by Payee.
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If this Note is placed in the hands of an attorney for collection, or if it is collected through any legal proceeding at law or in equity, or in bankruptcy, receivership or other court proceedings, Maker agrees to pay all costs of collection, including, but not limited to, court costs and reasonable attorneys’ fees, including all costs of appeal.
Time is of the essence as to every term, condition and provision of this Note.
In no event, whether by acceleration of this Note, or otherwise, shall the amount of interest paid or agreed to be paid under this Note exceed the highest lawful rate allowed by applicable law as of the date of this Note, it being the express intention of Payee and Maker that in such event Payee shall be entitled to receive the maximum amount of interest allowed by applicable law. If fulfillment of any provision of this Note shall involve exceeding the maximum amount of interest as prescribed by law, then the obligation to be fulfilled shall be reduced so as not to exceed said limit. If for any reason interest, or any other payment determined to be in the nature of interest, is charged or collected by Payee, or is paid by Maker and is determined to exceed the limit prescribed by law, any sums so charged, collected or paid which exceed such limit shall be deemed to have resulted from mutual mistake, and such sums which exceed such limit shall be refunded to Maker.
This Note is being executed and delivered, and is intended to be performed, in the State of Texas. Except to the extent that the laws of the United States may apply to the terms hereof, the substantive laws of the State of Texas shall govern the validity, construction, enforcement and interpretation of this Note. Maker hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the courts of the State of Texas and of the United States, in each case located in Dallas County, Texas in any action or proceeding arising out of or relating to this Note, or for recognition or enforcement of any judgment, and Maker hereby irrevocably and unconditionally agrees, subject to Payee’s election, that all claims in respect of any such action or proceeding shall be heard and determined in any such state court or, to the extent permitted by law, in such federal court. MAKER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH MAKER OR PAYEE MAY BE PARTIES ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS NOTE. MAKER AUTHORIZES PAYEE TO FILE THIS PROVISION WITH THE CLERK OR JUDGE OF ANY COURT HEARING SUCH CLAIM. IT IS HEREBY AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY MAKER AND MAKER HEREBY ACKNOWLEDGES THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT.
If any provision of this Note shall be invalid, illegal or unenforceable in any jurisdiction, the remaining provisions shall continue to be valid and enforceable in all jurisdictions, and such provision shall continue to be valid and enforceable in each other jurisdiction.
Maker shall have no right to assign its obligations under this Note without Payee’s prior written consent, which consent may be withheld in Payee’s sole and absolute discretion. Payee shall have the right to assign all or any portion of its interest in this Note at any time.
THIS WRITTEN NOTE IS A LOAN AGREEMENT (AS DEFINED BY SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE) AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[Signature Page Follows]
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| “Maker” | |
|---|---|
| XTI DRONES HOLDINGS, LLC | |
| By: | /s/ Brooke Turk |
| Brooke Turk, | |
| Chief Financial Officer |
Exhibit 4.3
PROMISSORY NOTE
| $954,459.53 | November 10,<br>2025 |
|---|
FOR VALUE RECEIVED, the undersigned, the undersigned, XTI Drones Holdings, LLC, a Texas limited liability company (“Maker”), hereby unconditionally promises to pay to the order of The Origin Group AZ, Inc., a Delaware corporation (“Payee”), the principal sum of Nine Hundred Fifty-Four Thousand Four Hundred Fifty-Nine Dollars and 53/100 ($954,459.53) (the “Note Amount”), in lawful money of the United States of America, together with interest accrued on the unpaid balance in accordance herewith.
This Promissory Note (“Note”) is issued in connection with that certain Membership Interest Purchase Agreement, dated as of November 10, 2025 (the “MembershipInterest Purchase Agreement”; capitalized terms used herein but not defined herein are defined in the Membership Interest Purchase Agreement), by and among (a) the Maker, (b) the Payee, (c) Drone Nerds, LLC, a Florida limited liability company, and (d) each of the Seller Owners listed on Annex A-1 attached thereto. This Note is subject to adjustment as provided in the Membership Interest Purchase Agreement.
- The principal of and interest on this Note shall be payable as follows:
(a) No later than November 30, 2025 (the “First Required Payment Date”), the outstanding principal amount of this Note shall be repaid by Maker to Payee in an amount equal to Three Hundred Twenty Thousand Dollars ($320,000), together with all accrued and unpaid interest as of the First Required Payment Date;
(b) No later than March 31, 2026 (the “Second Required Payment Date”), the outstanding principal amount of this Note shall be repaid by Maker to Payee in an amount equal to One Hundred Sixty Thousand Dollars ($160,000), together with all accrued and unpaid interest as of the Second Required Payment Date;
(c) No later than June 30, 2026 (the “Third Required Payment Date”), the outstanding principal amount of this Note shall be repaid by Maker to Payee in an amount equal to One Hundred Twenty Thousand Dollars ($120,000), together with all accrued and unpaid interest as of the Third Required Payment Date;
(d) No later than September 30, 2026 (the “Fourth Required Payment Date”), the outstanding principal amount of this Note shall be repaid by Maker to Payee in an amount equal to One Hundred Twenty Thousand Dollars ($120,000), together with all accrued and unpaid interest as of the Fourth Required Payment Date;
(e) The entire outstanding principal amount of this Note shall be repaid by Maker to Payee on or prior to the one (1) year anniversary of this Note (“Due Date”), together with all accrued and unpaid interest as of the date the Note Amount has been paid in full. The period from the date hereof until the date of repayment in full of all principal, interest and any other obligations of Maker owing under this Note being referred to herein as the “Term”;
(f) All outstanding accrued interest and the unpaid principal amount of this Note shall be due and payable in full on the earlier of the following: (a) the Due Date; or (b) ninety (90) days following a capital raise (or the last capital raise, in connection with a series of transactions, whether related or unrelated) where XTI Aerospace, Inc. or one or more of its Affiliates (as defined in the Membership Interest Purchase Agreement) raise, as a result of a single transaction or a series of transactions occurring pursuant to one or more closings, in any case after the date hereof, an aggregate amount of Forty Million Dollars ($40,000,000) or more, qualified by the limitation that not more than 20% of net proceeds from any single financing shall be applied towards payment of outstanding principal, interest and any other obligations of Maker owing under this Note; or (c) such obligations becoming due and payable in accordance with Section 7 hereof;
(g) All payments due under this Note shall be paid to Payee in lawful money of the United States of America by wire transfer of immediately available funds to the account specified by Payee;
(h) Payee may, in its absolute and sole discretion, elect to waive any payment of accrued and unpaid interest in whole or in part upon prior written notice to Maker; and
(i) For the avoidance of doubt, principal payments made in compliance with Section 1(a) shall be disregarded for purposes of Section 1(b) and principal payments made in compliance with Sections 1(a) and 1(b) shall be disregarded for purposes of Section 1(c).
This Note shall accrue simple interest on the balance of principal remaining unpaid from time to time, accruing at an annual rate equal to seven and one-quarter percent (7.25%) (the “Interest Rate”) from the date hereof. Interest shall be computed based upon a 365-day year. Following the occurrence of an Event of Default, the outstanding principal balance of this Note shall accrue interest at a per annum rate equal to the Interest Rate plus 2.00%.
Maker reserves the right to prepay the outstanding principal balance and interest accrued of this Note, in whole or in part, at any time and from time to time, without premium or penalty, provided that, each such prepayment shall be accompanied by a payment of all accrued and unpaid interest together with all accrued and unpaid interest on the portion of the principal balance so prepaid. All partial prepayments shall be applied to the indebtedness owing hereunder in such order and manner as Payee may from time to time determine in its reasonable discretion. If interest is not paid as it becomes due, it shall be added to the principal of this Note, shall become and be treated as a part thereof, and shall thereafter bear like interest.
Except as set forth in the Membership Interest Purchase Agreement, the payment obligations of the Maker under this Note are absolute and unconditional, without any right of rescission, setoff, counterclaim or defense for any reason against the Payee and the Maker agrees that payment of the obligations by the Maker, when due and payable pursuant to the terms of this Note, is not subject to compromise, adjustment, extension, satisfaction, rescission, set-off, counterclaim, defense, abatement, suspension, deferment, deductible, reduction, termination or modification, whether arising out of transactions concerning the Note, or otherwise. Without limitation to the forgoing, to the fullest extent permitted under applicable law, Maker hereby waives (i) presentment, protest and demand, notice of default, notice of intent to accelerate, notice of acceleration, notice of protest, notice of demand and of dishonor and non-payment of the obligations under this Note, (ii) any requirement of diligence or promptness on Payee’s part in the enforcement of its rights under the provisions of this Note, (iii) all notices of every kind and description which may be required to be given by any statute or rule of law, (iv) the pleading of any statute of limitations as a defense to any demand under this Note and (v) any defense to the obligation to make any payments required under this Note. While any amount shall be outstanding under this Note, Maker agrees to provide Payee access to its financial statements, which Payee undertakes to keep confidential.
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Maker hereby makes the following representations and warranties to Payee, which representations and warranties shall survive the termination or repayment of this Note:
(a) Maker hereby represents and warrants that the terms set forth in this Note are fair and reasonable in light of the risks and circumstances under which Payee is extending the loan evidenced by this Note, and Maker has been provided a sufficient opportunity to review such terms with its independent legal counsel.
(b) Maker has full power and authority to execute this Note, and any and all other documents entered into in relation to the loan evidenced by this Note and to undertake and consummate the transactions contemplated by this Note, and to pay, perform, and observe the conditions, covenants, agreements and obligations contained in this Note.
(c) The terms and conditions of this Note are fair and reasonable considering the risks to Payee, and the adequacy of security for Maker’s obligations under this Note. This Note has been duly and validly executed by Maker and constitutes legal, valid and binding obligations of Maker, which obligations are and will continue to be enforceable under all applicable laws in accordance with their respective terms, except as such enforcement may be qualified or limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights generally.
- The occurrence of any of the following shall constitute an “Event of Default”:
(a) Maker shall fail to make any payments under this Note as same shall become due and such failure continues for a period of ten (10) days;
(b) Maker shall fail to repay the entire principal balance of this Note, together with all accrued and unpaid interest and all other amounts owing under this Note, on or before the Due Date and such failure continues for a period of ten (10) days;
(c) Maker shall make a general assignment for the benefit of creditors or shall file any petition or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal, state or other law or regulation relating to bankruptcy, insolvency or other relief of debtors;
(d) Maker shall be adjudicated insolvent or bankrupt;
(e) Maker shall petition or apply for, or acquiesce in, the appointment of any receiver, custodian, liquidator, conservator or trustee of or for it or any substantial part of its property or assets;
(f) Except as set forth in clauses (a) and (b) above, Maker shall fail to observe or perform any agreement or covenant set forth in this Note and such failure continues for a period of fifteen (15) days; or
(g) Any representation or warranty made by Maker under this Note shall prove to have been false or incorrect when made.
Upon the occurrence of an Event of Default, Payee shall have the right, at its option, to do any one or more of the following: (1) declare the entire unpaid balance of principal and accrued but unpaid interest on this Note, and all other obligations of Maker under this Note, to be immediately due and payable; and/or (2) exercise any other rights or remedies under any other instrument or applicable law; provided, that, upon the occurrence of an Event of Default described in clauses (c), (d) or (e) thereof the outstanding principal amount of this Note together with all accrued and unpaid interest and all other obligations of Maker under this Note shall become due and payable automatically and without any action by the Payee. An Event of Default shall continue unless waived by Payee.
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If this Note is placed in the hands of an attorney for collection, or if it is collected through any legal proceeding at law or in equity, or in bankruptcy, receivership or other court proceedings, Maker agrees to pay all costs of collection, including, but not limited to, court costs and reasonable attorneys’ fees, including all costs of appeal.
Time is of the essence as to every term, condition and provision of this Note.
In no event, whether by acceleration of this Note, or otherwise, shall the amount of interest paid or agreed to be paid under this Note exceed the highest lawful rate allowed by applicable law as of the date of this Note, it being the express intention of Payee and Maker that in such event Payee shall be entitled to receive the maximum amount of interest allowed by applicable law. If fulfillment of any provision of this Note shall involve exceeding the maximum amount of interest as prescribed by law, then the obligation to be fulfilled shall be reduced so as not to exceed said limit. If for any reason interest, or any other payment determined to be in the nature of interest, is charged or collected by Payee, or is paid by Maker and is determined to exceed the limit prescribed by law, any sums so charged, collected or paid which exceed such limit shall be deemed to have resulted from mutual mistake, and such sums which exceed such limit shall be refunded to Maker.
This Note is being executed and delivered, and is intended to be performed, in the State of Texas. Except to the extent that the laws of the United States may apply to the terms hereof, the substantive laws of the State of Texas shall govern the validity, construction, enforcement and interpretation of this Note. Maker hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the courts of the State of Texas and of the United States, in each case located in Dallas County, Texas in any action or proceeding arising out of or relating to this Note, or for recognition or enforcement of any judgment, and Maker hereby irrevocably and unconditionally agrees, subject to Payee’s election, that all claims in respect of any such action or proceeding shall be heard and determined in any such state court or, to the extent permitted by law, in such federal court. MAKER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH MAKER OR PAYEE MAY BE PARTIES ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS NOTE. MAKER AUTHORIZES PAYEE TO FILE THIS PROVISION WITH THE CLERK OR JUDGE OF ANY COURT HEARING SUCH CLAIM. IT IS HEREBY AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY MAKER AND MAKER HEREBY ACKNOWLEDGES THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT.
If any provision of this Note shall be invalid, illegal or unenforceable in any jurisdiction, the remaining provisions shall continue to be valid and enforceable in all jurisdictions, and such provision shall continue to be valid and enforceable in each other jurisdiction.
Maker shall have no right to assign its obligations under this Note without Payee’s prior written consent, which consent may be withheld in Payee’s sole and absolute discretion. Payee shall have the right to assign all or any portion of its interest in this Note at any time.
THIS WRITTEN NOTE IS A LOAN AGREEMENT (AS DEFINED BY SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE) AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[Signature Page Follows]
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| “Maker” | |
|---|---|
| XTI DRONES HOLDINGS, LLC | |
| By: | /s/ Brooke Turk |
| Brooke Turk, | |
| Chief Financial Officer |
Exhibit 4.4
NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
WARRANT TO PURCHASE COMMON STOCK
XTI AEROSPACE, INC.
Warrant Shares: [____]
Initial Exercise Date: November 12, 2025
THIS WARRANT TO PURCHASE COMMON STOCK (the “Warrant”) certifies that, for value received, [____] or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after November 12, 2025 (the “Initial Exercise Date”) and prior to at 5:00 p.m. (New York time) on the date that is five (5) years following the Commencement Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from XTI AEROSPACE, INC. a Nevada corporation (the “Company”), up to [____] shares of Common Stock, par value $0.001 per share, of the Company (the “Warrant Shares”), as subject to adjustment hereunder. The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant, the following terms have the meanings indicated in this Section 1:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
“Commencement Date” means November 10, 2025, the date on which sales of the securities issued in the Offering commenced.
“Commission” means the United States Securities and Exchange Commission.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
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“Offering” shall have the meaning ascribed to such term in the Placement Agency Agreement.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Placement Agency Agreement” means the placement agency agreement, dated November 10, 2025, by and between the Company and ThinkEquity LLC as placement agent set forth therein.
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Shareholder Approval” means the approval by the Company’s shareholders of the removal of the limitations on conversion set forth in the Certificate of Designation of the Series 10 Convertible Preferred Stock in compliance with Nasdaq Listing Rule 5635.
“Shareholder Approval Date” means the date on which the Company obtains the Shareholder Approval.
“Trading Day” means a day on which the Trading Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, or the New York Stock Exchange (or any successors to any of the foregoing).
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of a share of Common Stock for such date (or the nearest preceding date) on the OTCQB or OTCQX as applicable, (c) if Common Stock is not then listed or quoted for trading on the OTCQB or OTCQX and if prices for Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of Common Stock so reported, or (d) in all other cases, the fair market value of the Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
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Section 2. Exercise.
a) Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy (or e-mail attachment) of the Notice of Exercise Form annexed hereto. Within one (1) Trading Day following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise form be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within five (5) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within one (1) Business Day of receipt of such notice.
The Holder andany assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following thepurchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given timemay be less than the amount stated on the face hereof.
Notwithstanding the foregoing, if the Holder exercises this Warrant prior to the Shareholder Approval Date, the Holder shall receive the right to receive on the Shareholder Approval Date the number of Warrant Shares so issuable upon such exercise and, on the Shareholder Approval Date, the Company shall issue such Warrant Shares to the Holder in accordance with this Section 2(a). For the avoidance of doubt, the Holder shall not be entitled to receive any Warrant Shares until Shareholder Approval.
b) Exercise Price. The exercise price per share of the Common Stock under this Warrant shall be $1.492, subject to adjustment hereunder (the “Exercise Price”).
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c) Cashless Exercise. In lieu of exercising this Warrant by delivering the aggregate Exercise Price by wire transfer or cashier’s check, at the election of the Holder this Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
(A) = as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b)(64) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is executed during “regular trading hours” on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of “regular trading hours” on a Trading Day) pursuant to Section 2(a) or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is both executed and delivered pursuant to Section 2(a) after the close of “”regular trading hours” on such Trading Day;
(B) = the Exercise Price of this Warrant, as adjusted hereunder; and
(X) = the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise.
If Warrant Shares are issued in such a “cashless exercise,” the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the registered characteristics of this Warrant being exercised, and the holding period of this Warrant being exercised may be tacked on to the holding period of the Warrant Shares. The Company agrees not to take any position contrary to this Section 2(c).
Notwithstanding anything herein to the contrary, on the Termination Date, this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).
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d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by its transfer agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by Holder, or (B) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144 and, in either case, the Warrant Shares have been sold by the Holder prior to the Warrant Share Delivery Date (as defined below), and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is one (1) Trading Day after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”) provided that the Company shall not be obligated to deliver the Warrant Shares hereunder unless the Company has received the aggregate Exercise Price on or before the Warrant Share Delivery Date. If the Warrant Shares can be delivered via DWAC, the transfer agent shall have received from the Company, at the expense of the Company, any legal opinions or other documentation required by it to deliver such Warrant Shares without legend (subject to receipt by the Company of reasonable back up documentation from the Holder, including with respect to affiliate status) and, if applicable and requested by the Company prior to the Warrant Share Delivery Date, the transfer agent shall have received from the Holder a confirmation of sale of the Warrant Shares (provided the requirement of the Holder to provide a confirmation as to the sale of Warrant Shares shall not be applicable to the issuance of unlegended Warrant Shares upon a cashless exercise of this Warrant if the Warrant Shares are then eligible for resale pursuant to Rule 144(b)(1)). The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid. If the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a proper Notice of Exercise by the first Trading Day following the Warrant Share Delivery Date (other than any such failure that is solely due to any action or inaction by the Holder with respect to such exercise), provided that payment of the aggregate Exercise Price (other than in the instance of a cashless exercise) is received by the Company by such date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after the first Trading Day following such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise.
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause its transfer agent to deliver to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, subject to the receipt of Shareholder Approval, then the Holder will have the right to rescind such exercise; provided, however, that the Holder shall be required to return any Warrant Shares or Common Stock subject to any such rescinded exercise notice concurrently with the return to Holder of the aggregate Exercise Price paid to the Company for such Warrant Shares and the restoration of Holder’s right to acquire such Warrant Shares pursuant to this Warrant (including, issuance of a replacement warrant certificate evidencing such restored right).
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iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit to the Holder the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date (other than any such failure that is solely due to any action or inaction by the Holder with respect to such exercise), and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Warrant Shares upon exercise of the Warrant as required pursuant to the terms hereof.
v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
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vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all transfer agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
vii. Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
viii. Signature. This Section 2 and the exercise form attached hereto set forth the totality of the procedures required of the Holder in order to exercise this Purchase Warrant. Without limiting the preceding sentences, no ink-original exercise form shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any exercise form be required in order to exercise this Purchase Warrant. No additional legal opinion, other information or instructions shall be required of the Holder to exercise this Purchase Warrant. The Company shall honor exercises of this Purchase Warrant and shall deliver Warrant Shares underlying this Purchase Warrant in accordance with the terms, conditions and time periods set forth herein.
e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one (1) Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61^st^ day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
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Section 3. Certain Adjustments.
a) Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification. For the purposes of clarification, the Exercise Price of this Warrant will not be adjusted in the event that the Company or any subsidiary of the Company , as applicable, sells or grants any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents, at an effective price per share less than the Exercise Price then in effect.
b) [Reserved].
c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
d) Pro Rata Distributions. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend (other than cash dividends) or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of shares or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation). To the extent that this Warrant has not been partially or completely exercised at the time of such Distribution, such portion of the Distribution shall be held in abeyance for the benefit of the Holder until the Holder has exercised this Warrant.
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e) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person other than any Subsidiary or any Affiliate of the Company, whereby the stockholders of the Company immediately prior to such merger or consolidation do not own, directly or indirectly, at least 50% of the voting power of the surviving entity immediately after such merger or consolidation, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable by holders of Common Stock as a result of such Fundamental Transaction for each share of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.
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f) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
g) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly to the Holder a notice by mail or e-mail setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock (a reverse stock split shall not be deemed a reclassification), any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed a notice (unless such information is filed with the Commission, in which case a notice shall not be required) to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 10 calendar days prior to the applicable record or effective date hereinafter specified, stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to provide such notice or any defect therein shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the subsidiaries of the Company, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
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Section 4. Transfer of Warrant.
a) Transferability.
Subject to any applicable securities laws and the conditions set forth in Section 4(d), this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date the Holder delivers an assignment form to the Company assigning this Warrant full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
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c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
d) Representation by the Holder. The Holder, by the acceptance hereof, represents and warrants that it is acquiring this Warrant and, upon any exercise hereof, will acquire the Warrant Shares issuable upon such exercise, for its own account and not with a view to or for distributing or reselling such Warrant Shares or any part thereof in violation of the Securities Act or any applicable state securities law, except pursuant to sales registered or exempted under the Securities Act.
Section 5. Registration Rights.
5.1 Demand Registration.
a) Grant of Right. The Company, upon written demand (a “Demand Notice”) of the Holder(s) of at least 51% of the Warrants and/or the underlying Warrant Shares (“Majority Holders”), agrees to register, on one occasion, all or any portion of the Warrant Shares underlying the Warrants (collectively, the “Registrable Securities”). On such occasion, the Company will file a registration statement with the Commission covering the Registrable Securities within sixty (60) days after receipt of a Demand Notice and use its reasonable best efforts to have the registration statement declared effective promptly thereafter, subject to compliance with review by the Commission; provided, however, that the Company shall not be required to comply with a Demand Notice if the Company has filed a registration statement with respect to which the Holder is entitled to piggyback registration rights pursuant to Section 5.2 hereof and either: (i) the Holder has elected to participate in the offering covered by such registration statement or (ii) if such registration statement relates to an underwritten primary offering of securities of the Company, until the offering covered by such registration statement has been withdrawn or until thirty (30) days after such offering is consummated. The demand for registration may be made at any time beginning on the Initial Exercise Date and expiring on the fifth anniversary of the Commencement Date in accordance with FINRA Rule 5110(g)(8)(C). The Company covenants and agrees to give written notice of its receipt of any Demand Notice by any Holder(s) to all other registered Holders of the Warrants and/or the Registrable Securities within ten (10) days after the date of the receipt of any such Demand Notice.
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b) Terms. The Company shall bear all fees and expenses attendant to the registration of the Registrable Securities pursuant to Section 5.1.1, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. The Company agrees to use its reasonable best efforts to cause the filing required herein to become effective promptly and to qualify or register the Registrable Securities in such States as are reasonably requested by the Holder(s); provided, however, that in no event shall the Company be required to register the Registrable Securities in a State in which such registration would cause: (i) the Company to be obligated to register or license to do business in such State or submit to general service of process in such State, or (ii) the principal stockholders of the Company to be obligated to escrow their shares of capital stock of the Company. The Company shall cause any registration statement filed pursuant to the demand right granted under Section 5.1.1 to remain effective for a period of at least twelve (12) consecutive months after the date that the Holders of the Registrable Securities covered by such registration statement are first given the opportunity to sell all of such securities. The Holders shall only use the prospectuses provided by the Company to sell the Warrant Shares covered by such registration statement, and will immediately cease to use any prospectus furnished by the Company if the Company advises the Holder that such prospectus may no longer be used due to a material misstatement or omission. Notwithstanding the provisions of this Section 5.1.2, the Holder shall be entitled to a demand registration under this Section 5.1.2 on only one (1) occasion and such demand registration right shall terminate on the fifth anniversary of the Commencement Date in accordance with FINRA Rules 5110(g)(8)(B) and 5110(g)(8)(C).
5.2 “Piggy-Back” Registration.
a) Grant of Right. In addition to the demand right of registration described in Section 5.1 hereof, the Holder shall have the right, for a period of no more than five (5) years from the Initial Exercise Date in accordance with FINRA Rule 5110(g)(8)(D), to include the Registrable Securities as part of any other registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act or pursuant to Form S-8 or any equivalent form); provided, however, that if, solely in connection with any primary underwritten public offering for the account of the Company, the managing underwriter(s) thereof shall, in its reasonable discretion, impose a limitation on the number of Shares which may be included in the Registration Statement because, in such underwriter(s)’ judgment, marketing or other factors dictate such limitation is necessary to facilitate public distribution, then the Company shall be obligated to include in such Registration Statement only such limited portion of the Registrable Securities with respect to which the Holder requested inclusion hereunder as the underwriter shall reasonably permit. Any exclusion of Registrable Securities shall be made pro rata among the Holders seeking to include Registrable Securities in proportion to the number of Registrable Securities sought to be included by such Holders; provided, however, that the Company shall not exclude any Registrable Securities unless the Company has first excluded all outstanding securities, the holders of which are not entitled to inclusion of such securities in such Registration Statement or are not entitled to pro rata inclusion with the Registrable Securities.
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b) Terms. The Company shall bear all fees and expenses attendant to registering the Registrable Securities pursuant to Section 5.2.1 hereof, but the Holders shall pay any and all underwriting commissions and the expenses of any legal counsel selected by the Holders to represent them in connection with the sale of the Registrable Securities. In the event of such a proposed registration, the Company shall furnish the then Holders of outstanding Registrable Securities with not less than thirty (30) days written notice prior to the proposed date of filing of such registration statement. Such notice to the Holders shall continue to be given for each registration statement filed by the Company during the four and a half (4 ½) year period following the Initial Exercise Date until such time as all of the Registrable Securities have been sold by the Holder. The holders of the Registrable Securities shall exercise the “piggy-back” rights provided for herein by giving written notice within ten (10) days of the receipt of the Company’s notice of its intention to file a registration statement. Except as otherwise provided in this Warrant, there shall be no limit on the number of times the Holder may request registration under this Section 5.2.2; provided, however, that such registration rights shall terminate on the second anniversary of the Initial Exercise Date.
5.3 General Terms
a) Indemnification. The Company shall indemnify the Holder(s) of the Registrable Securities to be sold pursuant to any registration statement hereunder and each person, if any, who controls such Holders within the meaning of Section 15 of the Securities Act or Section 20 (a) of the Exchange Act against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from such registration statement but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Placement Agent contained in Section 5.1 of the Placement Agency Agreement. The Holder(s) of the Registrable Securities to be sold pursuant to such registration statement, and their successors and assigns, shall severally, and not jointly, indemnify the Company, against all loss, claim, damage, expense or liability (including all reasonable attorneys’ fees and other expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, in writing, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 5.2 of the Placement Agency Agreement pursuant to which the Placement Agent has agreed to indemnify the Company.
b) Exercise of Warrants. Nothing contained in this Warrant shall be construed as requiring the Holder to exercise its Warrants prior to or after the initial filing of any registration statement or the effectiveness thereof.
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c) Documents Delivered to Holders. The Company shall furnish to each Holder participating in any of the foregoing offerings and to each underwriter of any such offering, if any, a signed counterpart, addressed to such Holder or underwriter, of: (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion dated the date of the closing under any underwriting agreement related thereto), and (ii) a “cold comfort” letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent registered public accounting firm which has issued a report on the Company’s financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants’ letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer’s counsel and in accountants’ letters delivered to underwriters in underwritten public offerings of securities. The Company shall also deliver promptly to each Holder participating in the offering requesting the correspondence and memoranda described below and to the managing underwriter, if any, copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of FINRA. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times as any such Holder shall reasonably request.
d) Underwriting Agreement. The Company shall enter into an underwriting agreement with the managing underwriter(s), if any, selected by any Holders whose Registrable Securities are being registered pursuant to this Section 5, which managing underwriter shall be reasonably satisfactory to the Company. Such agreement shall be reasonably satisfactory in form and substance to the Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Registrable Securities and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders, their Warrant Shares and their intended methods of distribution.
e) Documents to be Delivered by Holder(s). Each of the Holder(s) participating in any of the foregoing offerings shall furnish to the Company a completed and executed questionnaire provided by the Company requesting information customarily sought of selling security holders.
f) Damages. Should the registration or the effectiveness thereof required by Sections 5.1 and 5.2 hereof be delayed by the Company or the Company otherwise fails to comply with such provisions, the Holder(s) shall, in addition to any other legal or other relief available to the Holder(s), be entitled to obtain specific performance or other equitable (including injunctive) relief against the threatened breach of such provisions or the continuation of any such breach, without the necessity of proving actual damages and without the necessity of posting bond or other security.
Section 6. Miscellaneous.
a) No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i), subject to the receipt of Shareholder Approval.
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b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then, such action may be taken or such right may be exercised on the next succeeding Trading Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
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e) The Company shall use its commercially reasonable efforts to solicit the Shareholder Approval and to cause its board of directors to recommend to the shareholders that they so approve. If Shareholder Approval is not obtained on or prior to January 31, 2026, the Company shall call a special or annual meeting of shareholders 180 days thereafter until such Shareholder Approval is obtained
Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Placement Agency Agreement.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Placement Agency Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Placement Agency Agreement.
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
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k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
| XTI AEROSPACE, INC. | |
|---|---|
| By: | |
| Name: | |
| Title: |
NOTICE OF EXERCISE
| TO: | XTI AEROSPACE, INC. |
|---|
_________________________
(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
☐ in lawful money of the United States; or
☐ if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).
(3) Please register and issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:
_______________________________
_______________________________
(4) Accredited Investor. If the Warrant is being exercised via cash exercise, the undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended
[SIGNATURE OF HOLDER]
Name of Investing Entity: _______________________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________________________
Name of Authorized Signatory: ___________________________________________________________
Title of Authorized Signatory: ____________________________________________________________
Date: ________________________________________________________________________________
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to
_______________________________________________ whose address is
_______________________________________________________________.
_______________________________________________________________
Dated: ______________, _______
Holder’s Signature: _____________________________
Holder’s Address: _____________________________
_____________________________
NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.
Exhibit 10.1
LOAN AGREEMENT
THIS LOAN AGREEMENT (this “Agreement”), dated as of this 10^th^ day of July, 2025, by and between DRONE NERDS INC, a Florida corporation and ANZU ROBOTICS, LLC, a Delaware limited liability company, whose address is 553 Anglers Avenue, Suite 109, Dania Beach, Florida 33312, and BANESCO USA, a Florida State Chartered Bank, its successors and/or assigns, whose address is 3155 NW 77th Avenue, Miami, Florida 33122.
RECITALS
A. Borrower (as defined herein) has requested and Lender (as defined herein) has agreed to make a revolving credit facility to Borrower in the maximum principal amount of $25,000,000.00 (the “Loan”) to be used by Borrower to finance short term working capital needs subject to the terms and conditions contained in this Agreement.
B. Borrower and Lender have negotiated the terms and conditions of, and wish to enter into, this Agreement in order to set forth the terms and conditions of the Loan.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, Borrower and Lender agree as follows:
- DEFINITIONS. As used in this Agreement the terms listed below shall have the following meanings unless otherwise required by the context:
(a) Account: Has the meaning set forth in the Code.
(b) Account Debtor: Means a person who is obligated under any Account.
(c) Affiliate: An Affiliate of the Borrower shall mean any entity which, directly or indirectly, controls or is controlled by or is under common control with the Borrower. An entity shall be deemed to be “controlled by” another entity if such other entity possesses, directly or indirectly, power to direct or cause the direction of the management and policies of such entity whether by contract, ownership of voting securities, membership interests or otherwise.
(d) Borrower: Shall mean DRONE NERDS INC, a Florida corporation and ANZU ROBOTICS, LLC, a Delaware limited liability company.
(e) Borrowing Base: Shall have the meaning given to such term in Section 2 hereof.
(f) Borrowing Base Certificate: Means the certificate attached hereto as Schedule 1.
(g) Capital Expenditures: Means all expenditures which would be required to be capitalized and shown on the balance sheet of the Borrower, including expenditures in respect to Capital Leases, but excluding expenditures made in connection with the replacement, substitution or restoration of assets to the extent financed (a) from insurance proceeds (or other similar recoveries) paid on account of the loss of or damage to the assets being replaced or restored or (b) with awards of compensation arising from the taking of eminent domain or condemnation of the assets being replaced.
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(h) Capital Lease: Means, with respect to any Person, any lease of (or other agreement conveying the right to use) any real and personal property by such Person that is accounted for as a capital lease on the balance sheet of such Person.
(i) Change of Control: A change of ownership in excess of ten percent (10%) of the interests of Borrower.
(j) Code: Means the Uniform Commercial Code (or any successor statute), as adopted and in force in Florida or, when the laws of any other state govern the method or manner of the perfection or enforcement of any security interest in any of the Collateral, the Uniform Commercial Code (or any successor statute) of such state. Any term used in this Agreement and in any financing statement filed in connection herewith which is defined in the Code and not otherwise defined in this Agreement or in any other Loan Document has the meaning given to the term in the Code.
(k) Collateral: Shall have the meaning set forth in the Security Agreement.
(l) Collateral Access Agreement: Means an agreement pursuant to which a mortgagee or lessor of real property on which collateral is stored or otherwise located, or a warehouseman, processor or other bailee of inventory owned by the loan party, acknowledges the liens of the lender and waives any liens held by such Person on such property, and in the case of any such agreement with a mortgagee or lessor, permits the Lender reasonable access to and use of such real property following the occurrence and during the continuance of an Event of Default to assemble, complete and sell any Collateral stored or otherwise located thereon, and contains such other provisions as otherwise acceptable to Lender.
(m) EBITDA: As applies to any Person, the sum of earnings before interest, taxes, depreciation and amortization.
(n) Eligible Domestic Insured Accounts Receivable: Means all domestic “Insured Accounts” (as hereinafter defined) in U.S. dollars evidenced by a paper invoice or electronic equivalent (valued at the face amount of such invoice, less maximum discounts, credits and allowances which may be taken by Account Debtors on such Insured Accounts, and net of any sales tax, finance charges or late payment charges included in the invoiced amount) created or acquired by Borrower arising from the sale of inventory and/or the provision of certain services in Borrower’s ordinary course of business (as approved by Lender) in which Lender has a first (and only) priority, perfected security interest, but excluding, without duplication,
(i) Insured Accounts outstanding for longer than ninety (90) days from the invoice date (each a “Late Insured Account,” and collectively, the “Late Insured Accounts”);
(ii) All Insured Accounts owed by an Account Debtor if more than thirty percent (30%) of the Accounts owed by such Account Debtor to Borrower is deemed ineligible hereunder pursuant to clause (i);
(iii) Insured Accounts owing from any Affiliate of Borrower;
(iv) Insured Accounts owed by a creditor of Borrower to the extent of the amount of the indebtedness of Borrower to such creditor;
(v) Insured Accounts that are in dispute or subject to any counterclaim, contra-account, volume rebate, cooperative advertising accrual, deposit or offset;
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(vi) Insured Accounts owing by any Account Debtor that becomes the subject of any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships;
(vii) Insured Accounts arising from a sale on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval, consignment or similar basis or which is subject to repurchase, return, rejection, repossession, loss or damage;
(viii) Insured Accounts owed by an Account Debtor that (1) is a sanctioned person or (2) is located outside of the United States of America;
(ix) Insured Accounts owed by the United States of America or other governmental or quasi-governmental unit, agency or subdivision, provided, however, accounts owed by the United States Postal Service shall be Eligible Insured Accounts Receivable;
(x) Insured Accounts as to which the goods giving rise to the Account have not been delivered to and accepted by the Account Debtor or the service giving rise to the Insured Account has not been completely performed or which do not represent a final sale;
(xi) Insured Accounts evidenced by a note or other instrument or chattel paper or reduced to judgment;
(xii) Insured Accounts will be limited to 100% of insured amount (which is 90% of the insured percentage coverage or as defined in insurance policy);
(xiii) Insured Accounts which, by contract, subrogation, mechanics’ lien laws or otherwise, are subject to claims by Borrower’s creditors or other third parties or which are owed by Account Debtors as to whom any creditor of Borrower (including any bonding company) has lien or retainage rights;
(xiv) Any and all other Insured Accounts the validity, collectability, or amount of which is determined in good faith and after reasonable due diligence by Borrower or Lender to be doubtful;
(xv) Any and all Insured Accounts owed in connection with any bonded contracts;
(xvi) Any other Insured Account which Lender in its sole and absolute discretion deems to be ineligible;
(xvii) Insured Accounts owed by an Account Debtor which is located in a jurisdiction where Borrower is required to qualify to transact business or to file reports, unless Borrower so qualify or filed; and
(xviii) Insured Accounts owed by an Account Debtor who disputes the liability thereof.
(o) Eligible Domestic Uninsured Accounts Receivable: Means all domestic “Uninsured Accounts” (as hereinafter defined) in U.S. dollars evidenced by a paper invoice or electronic equivalent (valued at the face amount of such invoice, less maximum discounts, credits and allowances which may be taken by Account Debtors on such Insured Accounts, and net of any sales tax, finance charges or late payment charges included in the invoiced amount) created or acquired by Borrower arising from the sale of inventory and/or the provision of certain services in Borrower’s ordinary course of business (as approved by Lender) in which Lender has a first (and only) priority, perfected security interest, but excluding, without duplication,
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(i) Uninsured Accounts outstanding for longer than ninety (90) days from the invoice date (each a “Late Uninsured Account,” and collectively, the “Late Uninsured Accounts”);
(ii) All Uninsured Accounts owed by an Account Debtor if more than thirty percent (30%) of the Accounts owed by such Account Debtor to Borrower is deemed ineligible hereunder pursuant to clause (i);
(iii) Uninsured Accounts owing from any Affiliate of Borrower;
(iv) Uninsured Accounts owed by a creditor of Borrower to the extent of the amount of the indebtedness of Borrower to such creditor;
(v) Uninsured Accounts that are in dispute or subject to any counterclaim, contra-account, volume rebate, cooperative advertising accrual, deposit or offset;
(vi) Uninsured Accounts owing by any Account Debtor that becomes the subject of any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships;
(vii) Uninsured Accounts arising from a sale on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval, consignment or similar basis or which is subject to repurchase, return, rejection, repossession, loss or damage;
(viii) Uninsured Accounts owed by an Account Debtor that (1) is a sanctioned person or (2) is located outside of the United States of America;
(ix) Uninsured Accounts owed by the United States of America or other governmental or quasi-governmental unit, agency or subdivision;
(x) Uninsured Accounts as to which the goods giving rise to the Account have not been delivered to and accepted by the Account Debtor or the service giving rise to the Uninsured Account has not been completely performed or which do not represent a final sale;
(xi) Uninsured Accounts evidenced by a note or other instrument or chattel paper or reduced to judgment;
(xii) Uninsured Accounts which cause the total of all Uninsured Accounts from a single Account Debtor (together with the Affiliates of such Account Debtor) to exceed thirty five percent (35%) of the total Uninsured Accounts of Borrower included in the Borrowing Base (each an “Over Concentration Account,” and collectively the “Over Concentration Accounts”), provided that Uninsured Accounts from an Account Debtor not in excess of 35% of the total Uninsured Accounts of Borrower included in the Borrowing Base shall not be excluded solely by virtue of this clause (xii) and provided, further, that at Borrower’s request Lender shall review any Over Concentration Account on a case-by-case basis, and may include any such Over Concentration Account as Eligible Domestic Uninsured Accounts Receivable as Lender shall determine in its sole and absolute discretion.
(xiii) Uninsured Accounts which, by contract, subrogation, mechanics’ lien laws or otherwise, are subject to claims by Borrower’s creditors or other third parties or which are owed by Account Debtors as to whom any creditor of Borrower (including any bonding company) has lien or retainage rights;
(xiv) Any and all other Uninsured Accounts the validity, collectability, or amount of which is determined in good faith and after reasonable due diligence by Borrower or Lender to be doubtful;
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(xv) Any and all Uninsured Accounts owed in connection with any bonded contracts;
(xvi) Any other Uninsured Account which Lender in its sole and absolute discretion deems to be ineligible;
(xvii) Uninsured Accounts owed by an Account Debtor which is located in a jurisdiction where Borrower is required to qualify to transact business or to file reports, unless Borrower so qualify or filed; and
(xviii) Uninsured Accounts owed by an Account Debtor who disputes the liability thereof.
(p) Eligible Inventory: Means all Inventory acquired by the Borrower in the ordinary course of business as presently conducted (including warehouse finished goods) which (other than with respect to inventory in-transit) are warehoused at a location for which Lender has been provided with a Collateral Access Agreement (subject to any extensions of time granted by Lender to provide such Collateral Access Agreement[s]) and which Lender has otherwise determined to be eligible for credit extensions hereunder, valued at the lower of cost or market on a first-in, first-out basis, but excluding, however, in any event, without limitation of the foregoing, unless otherwise approved by Lender, any such Inventory which:
(i) is not at all times subject to a duly perfected, first priority (and only) security interest in favor of Lender;
(ii) is not in good and saleable condition;
(iii) is on consignment from, or subject to, any repurchase agreement with any supplier;
(iv) constitutes returned, repossessed, damaged, defective, obsolete, or slow-moving goods as reasonably determined by Lender;
(v) is subject to a negotiable document of title (unless issued or endorsed to Lender);
(vi) is subject to any license or other agreement that limits or restricts the Borrower’s or the Lender’s right to sell or otherwise dispose of such inventory (unless the licensor and the Borrower enter into a licensor waiver in form and substance satisfactory to Lender;
(vii) other than with respect to inventory in-transit, is located at a leased location of the Borrower, with respect to which Lender has not received a Collateral Access Agreement from the person owning such property or in control thereof, subject to any extensions for procurement of such Collateral Access Agreements as permitted under that certain Post- Closing Agreement by and between Borrower and Lender dated even date herewith;
(viii) consists of any packaging materials, supplies or promotional materials;
(ix) constitutes Inventory consisting of parts;
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(x) constitutes duties in Inventory;
(xi) constitutes inventory aged greater than twelve (12) months;
(xii) has been returned to, or repossessed by, the Borrower;
(xiii) constitutes a demo, trade show, or event item; or
(xiv) Lender otherwise in its sole and absolute discretion deems to not be Eligible Inventory.
(q) Eligible Investment Grade Domestic Accounts Receivable: Shall mean Eligible Domestic Uninsured Accounts Receivable and Eligible Domestic Insured Accounts Receivable (Including Late Insured Accounts and Late Uninsured Accounts, subject to the maximum aging below) that have an S&P, Fitch minimum credit rating of BBB- or Baa3 by Moody’s’ that are aged one hundred twenty (120) days or less from their invoice date. Dilution of the foregoing shall not exceed five percent (5%).
The advance rate applicable to Eligible Investment Grade Domestic Accounts Receivable shall be reduced by one percentage point (1%) for each percentage point of Dilution in excess of five percent (5%), as determined for the most recently ended trailing twelve-month period as of any time of determination and determined by Lender from time to time based on field exam results or other supporting documentation reasonably acceptable to Lender. For purposes of this subsection (q), “Dilution” means the percentage of Eligible Domestic Investment Grade Accounts Receivable that are not paid in full for any reason, including bad debt write-downs, discounts, advertising allowances, credits or other dilutive items.
(r) Event of Default: Shall have the meaning given to such term in Section 7.
(s) Financing Statements: The financing statements from Borrower to Lender to perfect Lender’s security interest in the personal property described in the Security Agreement.
(t) Fiscal Year: Means the fiscal year of the Borrower, which period shall be a 12-month period ending on December 31 of each year. References to a Fiscal Year with a number corresponding to any calendar year (e.g. “Fiscal Year 2025”) refer to the Fiscal Year ending on December 31 of such calendar year.
(u) GAAP: Generally accepted accounting principles consistently applied, as adopted in the United States, and as amended from time to time.
(v) Governmental Authority: Any governmental or quasi-governmental authority, agency, authority, board, commission, or governing body authorized by federal, state or local laws or regulations as having jurisdiction over the Lender, the Borrower.
(w) Governmental Requirements: The standards for real property appraisals established under applicable regulations governing national or state chartered banks promulgated by the Board of Governors of the Federal Reserve System or the United States Comptroller of the Currency, and any other regulations promulgated by any Governmental Authority which apply to Lender.
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(x) Guarantor: JEREMY SCHNEIDERMAN, ALEX NAFISSY and ROBERT WEITZNER and any other individual or entity now or hereafter guaranteeing the Loan.
(y) Guaranty: Those certain Limited Guaranty agreements dated as of even date herewith from each Guarantor in favor of Lender, as each may be amended, restated, modified or replaced from time to time.
(z) Insured Account: Means Accounts which are insured by an insurance company acceptable to Lender.
(aa) Investor Notes: Means collectively (i) that certain Promissory Note dated January 1, 2018 by Drone Nerds Inc in favor of Seth Schneiderman in the original principal amount of $200,000.00 and (ii) that certain Promissory Note by Drone Nerds Inc in favor of Ali Paksima in the original principal amount of $250,000.00.
(bb) Inventory: Has the meaning set forth in the Code.
(cc) Lender: Shall mean BANESCO USA, a Florida State Chartered Bank, its successors and/or assigns.
(dd) Loan: That certain revolving line of credit in the amount of $25,000,000.00 as evidenced by the Note and secured by the Security Agreement and other Loan Documents as provided herein.
(ee) Loan Documents: Any and all documents evidencing, securing, or executed in connection with the Loan, including, without limitation, the Note, the Security Agreement, the Guaranty and this Agreement***.***
(ff) Material Adverse Effect: Shall mean any external event, change, circumstance, effect or other matter that has, or could reasonably be expected to have, a material and continuing adverse effect on (i) the business, assets, liabilities, condition, operating results, operations or prospects of the Borrower and/or Guarantor, (ii) any substantial portion of the Collateral, or (iii) the ability of Borrower to repay the Loan or the ability of the Borrower and/or Guarantor to perform their obligations under the Loan Documents.
(gg) Maturity Date: ________________, 2027.
(hh) Note: That certain Revolving Promissory Note dated as of even date herewith from Borrower in favor of Lender in the maximum principal amount of $25,000,000.00, as the same may be amended, restated, modified or replaced from time to time.
(ii) Person: A natural person, a partnership, a joint venture, an unincorporated association, a limited liability company, a corporation, a trust, any other legal entity, or any Governmental Authority.
(jj) Security Agreement: That certain Security Agreement dated as of even date herewith from Borrower in favor of Lender, as the same may be amended, restated, modified or replaced from time to time.
(kk) Total Liabilities: Means the Borrower’s total stated liabilities, less subordinated debt.
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(ll) Uninsured Accounts: Means those Accounts which are not Insured Accounts.
(mm) Unmatured Event of Default: Any event that, if it continues uncured, will, with lapse of time or notice, or both, constitute an Event of Default hereunder and under the other Loan Documents.
- LOAN.
(a) Provided no Unmatured Event of Default or Event of Default then exists, the proceeds of the Loan shall be advanced from time to time to Borrower in amounts such that the aggregate principal amount of the Loan at any one time outstanding, will not exceed the lesser of: (i) $25,000,000.00 (the “Maximum Amount”), or (ii) the sum of: (a) ninety five percent (95%) of the Eligible Domestic Insured Accounts Receivable (provided, however that any spillover will be eligible under Domestic Uninsured Accounts Receivable); (b) eighty five percent (85%) of the Eligible Domestic Uninsured Accounts Receivable; and (c) the lesser of: (i) ninety five percent (95%) of the Eligible Investment Grade Domestic Accounts Receivable and (ii) $3,500,000.00 (the sum of [a], [b] and [c] are known herein collectively as the “Eligible Accounts Component”), and (iii) the lesser of : (x) sixty five percent (65%) of Eligible Inventory on the lower of cost or market basis; or (y) one hundred percent (100%) of the net orderly liquidation value, (provided, however the advance rate for any in-transit inventory shall be the lesser of: [i] sixty percent [60%] of Eligible Inventory or [ii] eighty five percent [85%] of the net orderly liquidation value), with an absolute cap as to in-transit inventory of $3,000,000.00 (collectively, the “Eligible Inventory Component”), provided further, however, that in no event shall the Eligible Inventory Component of the Borrowing Base ever comprise more than 65% of the Maximum Amount (provided, however, that such Maximum Amount shall be reduced by the limitation contained in subsection 2 [c] hereof, unless and until the Accordion Feature [as defined herein] is exercised) and that all of the foregoing shall be less any reserves (inclusive of any test count or dilution reserve) as determined by Lender in its sole and absolute discretion (collectively, the “Borrowing Base”);
(b) If at any time the aggregate principal balance of the Loan exceeds the Borrowing Base, Borrower shall be required to make a principal reduction within ten (10) business days in an amount sufficient to bring the outstanding principal balance of the Loan into compliance with the Borrowing Base. The failure to make such payment shall constitute an immediate Event of Default hereunder. In addition, upon such failure to make payment, Lender shall have the option, in its sole and absolute discretion, to permanently reduce availability under the Loan by an amount equal to the amount in excess of the Borrowing Base, irrespective of any subsequent payment made by Borrower. Upon such failure to make payment, Lender in its sole and absolute discretion may reduce the advance rates set forth above, or adjust or reduce one or more of the other elements used to compute the Borrowing Base and determine availability hereunder. Within the foregoing limit, Borrower may borrow, prepay and reborrow under the Loan at any time.
(c) Notwithstanding the face amount of the Note or any of the foregoing provisions regarding advances, the maximum aggregate amount available under the Note at any time is hereby limited to $20,000,000.00, provided however the maximum aggregate amount available under the Note may be increased to $25,000,000.00 pursuant to an accordion feature (the “Accordion Feature”), provided that:
| (i) | No default or Event of Default exists or has existed under<br>the Loan; |
|---|
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| (ii) | Such increase in commitment does not cause a default in any of the financial covenants under this Loan Agreement; |
|---|---|
| (iii) | All financial covenants under the Loan, shall be tested based upon the new maximum available amount of the Loan; |
| --- | --- |
| (iv) | Lender has reviewed and is satisfied with results of the Borrower’s inventory evaluation report<br>and field exam to validate the inventory and financial records, at Lender’s discretion, at time of Borrower’s request to exercise<br>Accordion Feature; |
| --- | --- |
| (v) | No Material Adverse Effect in the Borrower’s or Guarantor’s financial condition shall have occurred, as determined in<br>the Lender’s sole discretion; and |
| --- | --- |
| (vi) | Lender’s receipt of a written request from Borrower for<br>the utilization of the Accordion Feature. |
| --- | --- |
EXPENSES: Borrower shall pay all fees and charges incurred in the procuring and making of the Loan and all other expenses incurred by Lender during the term of the Loan, including without limitation Documentary Stamp Taxes, if applicable, Intangible Taxes, if applicable, recording expenses, and the fees of the attorneys for Lender. The Borrower shall also pay any and all insurance premiums, taxes, assessments, and other charges, liens and encumbrances upon the Collateral. Such amounts, unless sooner paid, shall be paid from time to time as Lender shall request either to the Person to whom such payments are due or to Lender if Lender has paid the same.
WARRANTIES AND REPRESENTATIONS. Borrower and/or Guarantor, as applicable, represent and warrant (which representations and warranties shall be deemed continuing) as follows:
(a) Organization Status.
(i) Drone Nerds Inc (i) is duly organized under the laws of the State of Florida, (ii) is in good standing under the laws of the State of Florida, (iii) is qualified to do business in the State of Florida and any other state where it is required to be, and (iv) has shares of stock which have been duly and validly issued.
(ii) Anzu Robotics, LLC (i) is duly organized under the laws of the State of Delaware, (ii) is in good standing under the laws of the State of Delaware, (iii) is qualified to do business in the State of Delaware and any other state where it is required to be registered and
(iv) has membership interests which have been duly and validly issued.
(b) Compliance with Laws. Borrower is in compliance with all laws, regulations, ordinances and orders of all Governmental Authorities.
(c) Accurate Information. All information now and hereafter furnished to Lender is and will be true, correct and complete in all material respects. Any such information relating to Borrower’s or any Guarantor’s financial condition has and will accurately reflect such financial condition as of the date(s) thereof, (including all contingent liabilities of every type), and Borrower and each Guarantor further represent that its financial condition has not changed materially or adversely since the date(s) of such documents.
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(d) Authority to Enter into Loan Documents. The Borrower and each Guarantor have full power and authority to enter into the Loan Documents and consummate the transactions contemplated hereby, and the facts and matters expressed or implied in the opinions of its legal counsel are true and correct.
(e) Validity of Loan Documents. The Loan Documents have been approved by those Persons having proper authority, and are in all respects legal, valid and binding according to their terms.
(f) Priority of Lien on Personalty. No chattel mortgage, bill of sale, security agreement, financing statement or other title retention agreement (except those executed in favor of Lender) has been or will be executed with respect to any of the Collateral except as otherwise approved by Lender in accordance with the Security Agreement.
(g) Conflicting Transactions of Borrower. The consummation of the transaction hereby contemplated and the performance of the obligations of Borrower and Guarantor under and by virtue of the Loan Documents will not result in any breach of, or constitute a default under, any lease, loan or credit agreement, or other instrument to which Borrower or Guarantor is a party or by which they may be bound or affected.
(h) Pending Litigation. There are no actions, suits or proceedings pending against Borrower, Guarantor, or the Collateral, or circumstances which could lead to such action, suits or proceedings against or affecting Borrower, Guarantor, the Collateral, or involving the validity or enforceability of any of the Loan Documents, before or by any Governmental Authority, except actions, suits and proceedings which have been specifically disclosed to and approved by Lender in writing; and Borrower is not in default with respect to any order, writ, injunction, decree or demand of any court or any Governmental Authority.
(i) Condition of Collateral. The Collateral is not now damaged or injured as a result of any fire, explosion, accident, flood or other casualty.
(j) Discharge of Liens and Taxes. Borrower and Guarantor have duly filed, paid and/or discharged all taxes or other claims that may become a lien on any of its property or assets, except to the extent that such items are being appropriately contested in good faith and an adequate reserve for the payment thereof is being maintained.
(k) Sufficiency of Capital. Neither Borrower nor any Guarantor is, and after consummation of this Agreement and after giving effect to all indebtedness incurred and liens created by Borrower in connection with the Note and any other Loan Documents, will be, insolvent within the meaning of 11 U.S.C. § 101, as in effect from time to time.
(l) ERISA. Each employee pension benefit plan, as defined in Employee Retirement Income Security Act of 1974, as amended (“ERISA”), maintained by Borrower and/or any Guarantor meets, as of the date hereof, the minimum funding standards of ERISA and all applicable regulations thereto and requirements thereof, and of the Internal Revenue Code of 1986, as amended. No “Prohibited Transaction” or “Reportable Event” (as both terms are defined by ERISA) has occurred with respect to any such plan.
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(m) Indemnity. Borrower will indemnify Lender and its affiliates from and against any losses, liabilities, claims, damages, penalties or fines imposed upon, asserted or assessed against or incurred by Lender arising out of the inaccuracy or breach of any of the representations contained in this Agreement or any other Loan Documents.
(n) No Default. There is no Event of Default or default on the part of Borrower or Guarantor under this Agreement, the Note, the Guaranty or the Security Agreement, and no event has occurred and is continuing which with notice, or the passage of time, or either, would constitute a default under any provision thereof. Borrower is not in default in any material respect under any agreement or instrument to which it is a party or by which it may be bound which would individually or in the aggregate have a Material Adverse Effect on the financial condition or business of Borrower.
(o) Ownership of Properties/Liens. Borrower owns good and, in the case of real property, marketable title to all of its properties, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, trade names, service marks and copyrights), free and clear of all liens, charges and claims (including infringement claims with respect to patents, trademarks, service marks, copyrights and the like) except in respect of items not past due or being appropriately contested in good faith and for which an adequate reserve for the payment thereof is being maintained.
- COVENANTS. Borrower and each Guarantor, as applicable, covenants and agrees with Lender as follows:
(a) Taxes. Borrower certifies that it has filed or caused to be filed all federal, state and other tax returns which are required to be filed, and have paid or caused to be paid all taxes as shown on said returns or in any manner due to be paid (including, but not limited to, ad valorem and personal property taxes) or on any assessment received by Borrower and not being contested in good faith, to the extent that such taxes have become due. Borrower further certifies that it has paid all other taxes, levies and charges of any nature, including any governmental charges except to the extent that items not past due or being appropriately contested in good faith and for which an adequate reserve for the payment thereof is being maintained.
(b) Notice of Litigation. Borrower shall promptly give Lender written notice of (a) a judgment entered against Borrower, or (b) the commencement of any action, suit, claim, counterclaim or proceeding against or investigation of Borrower which, if adversely determined, would materially adversely affect the business of Borrower, or which questions the validity of this Agreement, the Note or the Security Agreement, or any other actions or agreements taken or to be made pursuant to any of the foregoing.
(c) Notice of Default. Borrower shall promptly give Lender written notice of any act of default under any agreement with Lender or under any other contract to which Borrower is a party and of any acceleration of indebtedness caused thereby which would have a Material Adverse Effect to the business of Borrower.
(d) Reports. Borrower shall promptly furnish Lender with copies of all governmental agency, and other special reports pertaining to or affecting Borrower, which would materially adversely affect the business of Borrower.
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(e) Change of Control. Borrower shall not have a Change of Control without the prior written approval of the Lender, which approval shall not be unreasonably withheld. Borrower shall promptly notify Lender of any change in ownership during the term of the Loan.
(f) Change in Fiscal Year. Borrower shall not change its fiscal year without the prior written consent of Lender. Borrower’s fiscal year ends on December 31.
(g) Title to Collateral. Borrower will deliver to Lender, on demand, any contracts, bills of sale, statements, receipted vouchers or agreements under which Borrower claims title to any of the Collateral.
(h) Payment of Debts. Borrower shall pay and discharge when due, and before subject to penalty or further charge, and otherwise satisfy before maturity or delinquency, all obligations, debts, taxes, and liabilities of whatever nature or amount, except those which Borrower in good faith disputes.
(i) Collection of Insurance Proceeds. Borrower will cooperate with Lender in obtaining for Lender the benefits of any insurance or other proceeds lawfully or equitably payable to it in connection with the transaction contemplated hereby and the collection of any indebtedness or obligation of Borrower to Lender incurred hereunder.
(j) Indebtedness. Borrower shall not incur, create, assume or permit to exist any indebtedness or liability on account of advances or deposits, any indebtedness or liability for borrowed money, any indebtedness constituting the deferred purchase price of any property or assets, any indebtedness owed under any conditional sale or title retention agreement, contingent obligations pursuant to guaranties, endorsements, letters of credit and other secondary liabilities, or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations without the prior written approval of Lender, except for (i) the Loan, (ii) the endorsement of checks for collection in the ordinary course of business; (iii) debt payable to suppliers and other trade creditors in the ordinary course of business on ordinary and customary trade terms and which is not past due; (iv) unsecured indebtedness not to exceed $250,000.00 (in the aggregate) without the prior written consent of Lender, in its sole discretion; and (v) indebtedness existing under the Investor Notes as of the date hereof..
(k) Guaranties. Except as may be in existence prior to the date hereof and as previously disclosed to and approved by the Lender, Borrower shall not guarantee or otherwise in any way become or be responsible for obligations of any other Person, whether by agreement to purchase the indebtedness of any other Person, or agreement for the furnishing of funds to any other Person through the purchase of goods, supplies or services (or by way of stock purchase, capital contribution, advance or loan) for the purpose of paying or discharging indebtedness of any other Person, or otherwise.
(l) Advances. Borrower shall not make any advances, dividends, loans, or distributions to Guarantor or any of its subsidiaries, affiliates, shareholders, officers or directors, without the prior written consent of Lender. Notwithstanding the foregoing, so long as no Event of Default exists, Borrower shall be permitted to make advances, dividends or distributions to Guarantor or any of its subsidiaries, affiliates, shareholders, officers or directors, in the ordinary course of Borrower’s business, without first obtaining Lender’s prior written consent, provided, however, Borrower shall comply with the requirements of Section 6 (c) hereof.
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(m) Further Assurances and Preservation of Security. Borrower will do all acts and execute all documents for the better and more effective carrying out of the intent and purposes of this Agreement, as Lender shall reasonably require from time to time, and will do such other acts necessary or desirable to preserve and protect the collateral at any time securing or intending to secure the Note, as Lender may require.
(n) No Assignment. Borrower shall not assign this Agreement or any interest therein and any such assignment is void and of no effect. Lender may assign this Agreement and any other Agreements contemplated hereby, and all of its rights hereunder and thereunder, and all provisions of this Agreement shall continue to apply to the Loan. Lender also shall have the right to participate the Loan with any other lending institution.
(o) No Sale of Assets. Borrower and Guarantor shall not, during the term of the Loan, transfer any material portion of their respective assets unless such transfer is in the ordinary course of Borrower’s or Guarantor’s business, for fair market value and such fair market value is given to Borrower or Guarantor, in its sole name, and such transfer will not have a Material Adverse Effect on the financial condition of Borrower or Guarantor and/or its ability to perform the obligations hereunder, as determined by Lender in its sole and absolute discretion.
(p) Access to Books and Records. Borrower shall allow Lender, or its agents, after reasonable prior notice and during reasonable normal business hours, to access Borrower’s books, records and such other documents, and allow Lender, at Borrower’s expense (other than the annual field exam referenced below), to inspect, audit and examine the same and to make extracts therefrom and to make copies thereof. Lender shall be entitled to a field exam, audit and inventory appraisal on an annual basis (or more frequently, if Lender deems it necessary in its sole and absolute discretion) at Borrower’s expense throughout the term of the Loan.
(q) Business Continuity. Borrower shall conduct its business in substantially the same manner and locations as such business is now and has previously been conducted during the term of the Loan.
(r) Insurance.
(A) Borrower shall obtain, maintain and keep in full force and effect during the term of the Loan adequate insurance coverage, with all premiums paid thereon and without notice or demand, with respect to its properties and business against loss or damage of the kinds and in the amounts customarily insured against by companies of established reputation engaged in the same or similar businesses including, without limitation:
(i) Public liability insurance insuring against all claims for personal or bodily injury, death, or property damage in an amount of not less than One Million Dollars ($1,000,000.00) single limit coverage, and Two Million Dollars ($2,000,000.00) in the aggregate. Such policy shall include an additional insured endorsement naming the Lender as loss payee;
(ii) Insurance on all of Borrower’s inventory as may be reasonably required by Lender; and
(iii) Insurance in such amounts and against such other casualties and contingencies as may from time to time be required by Lender including insurance on all inventory;
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(B) All policies of insurance required hereunder shall: (i) be written by carriers which are licensed or authorized to transact business in the State of Florida, and are rated “A” or higher, Class XII or higher, according to the latest published Best’s Key Rating Guide and which shall be otherwise acceptable to Lender in all other respects, (ii) provide that the Lender shall receive thirty (30) days’ prior written notice from the insurer before a cancellation, modification, material change or non-renewal of the policy becomes effective, and (iii) be otherwise satisfactory to Lender.
(C) Borrower shall not, without the prior written consent of Lender, take out separate insurance concurrent in form or contributing with regard to any insurance coverage required by Lender.
(D) At all times during the term of the Loan, Borrower shall have delivered to Lender the original (or a certified copy) of all policies of insurance required hereby, together with receipts or other evidence that the premiums therefor have been paid.
(E) Not less than thirty (30) days prior to the expiration date of any insurance policy, Borrower shall deliver to Lender the original (or certified copy), or the original certificate, as applicable, of each renewal policy, together with receipts or other evidence that the premiums therefor have been paid.
(F) The delivery of any insurance policy and any renewals thereof, shall constitute an assignment thereof to Lender, and Borrower hereby grants to Lender a security interest in all such policies, in all proceeds thereof and in all unearned premiums therefor.
(s) Lockbox. At Lender’s option, Lender may require the Borrower to establish a lockbox under the control of Lender to which all of the Account Debtors shall forward payments on the Accounts. The Borrower shall pay all of Lender’s standard fees and charges in connection with such lockbox arrangement (if any) as such charges and fees may change from time to time. In the event Lender requires a lockbox arrangement, the Borrower shall notify Account Debtors on the Accounts to forward payments on the Accounts to the lockbox; provided, however, that Lender shall have the right to directly contact Account Debtors at any time to ensure that payments on the Accounts are directed to the lockbox. The Borrower hereby grants to Lender as additional security in and lien upon all items and balances held in any lockbox as additional collateral for the obligations of the Borrower. The Lender shall be irrevocably authorized to debit and “sweep” the lockbox daily and take all sums contained therein and apply such sums against monies owed to the Lender of any kind, including, without limitation, any principal and/or interest due under the Note.
(t) Subordination of Debt. Borrower will fully subordinate all of the Borrower’s debts owed to third parties, including, without limitation, officers, employees, stockholders, and affiliates, upon terms and conditions acceptable to Lender. Notwithstanding the foregoing, so long as the Borrower is in compliance with the financial covenants contained herein and there is no Event of Default, and no condition exists, which but for the giving of notice or the passage of time would constitute and Event of Default, the Borrower shall be permitted to make regularly scheduled payments of principal and interest on such subordinated debt.
(u) Indemnification. Borrower hereby indemnifies and holds Lender, its directors, officers, agents, employees and attorneys harmless from and against any liability, loss, expenses, damage of any nature, and claims, including, without limitation, brokers’ claims, arising in connection with the Loan, provided that such liabilities, losses, expenses or damages shall not include any liability, loss, expenses or damages caused by the gross negligence or intentional misconduct of Lender as determined by a court of competent jurisdiction pursuant to a final non- appealable court order.
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(v) Estoppel Certificate. At any time during the term of the Loan, within ten (10) Business Days after written demand of such Borrower by the Lender therefor, the Borrower shall deliver to the Lender a certificate, duly executed and in form satisfactory to the Lender, stating and acknowledging, to the best of such Borrower’s knowledge, the then unpaid principal balance of, and interest due and unpaid, under the Loan, the fact that there are no defenses, off sets, counterclaims or recoupments thereto (or, if such should not be the fact, then the facts and circumstances relating to such defenses, off sets, counterclaims or recoupments.
(w) Release of Information for Marketing Purposes. The Lender hereby agrees to maintain the confidentiality of information received from Borrower or Guarantors and will not release details of the Loan to the media, radio, television, trade publications, magazines, web sites or other forms of media (collectively, the “Media”), without the prior consent of Borrower, provided that any such information may be disclosed by Lender to its affiliates, officers, employees, agents and advisors, as required by any Government Authority or applicable law, in connection with the exercise of remedies hereunder, and to any prospective assignee or participant of the Loan, provided such Person agrees to maintain the confidentiality of such information.
(x) Commitment Fee. Upon the execution of this Agreement, Borrower shall pay to Lender a commitment fee in the amount of $50,000.00 in connection with the Loan.
(y) Annual Review Fee. The Borrower shall pay to Lender an Annual Review Fee in the amount of $10,000.00, payable upon each anniversary of the Loan.
(z) Automatic Debit. If required by Lender, Borrower shall enroll in the Lender’s auto pay program, and all periodic payments of interest only, or principal and interest, as applicable, shall be made by direct charge to Borrower’s demand deposit account maintained with Lender. Although the foregoing sentence is self-operative, Borrower agrees to execute and deliver to Lender such further instruments as Lender may from time-to-time request in order to confirm such authorization
- FINANCIAL COVENANTS AND REPORTING REQUIREMENTS.
(a) Debt Service Coverage Ratio. At all times during the term of the Loan, Borrower shall maintain a minimum Debt Service Coverage Ratio of not less than 1.25 to 1.00. For purposes hereof, “Debt Service Coverage Ratio” shall mean the ratio of (a) consolidated EBITDA, less distributions for tax purposes, plus contributions, to (b) the current portion of long- term debt, plus interest expense. This covenant shall be measured for compliance on a trailing twelve-month basis (as of the end of the second and fourth quarters of each fiscal year of the Borrower) upon Lender’s receipt of the financial statements and other supporting documentation of Borrower required to be delivered under Section 6.
(b) Debt to Tangible Net Worth Ratio.
(i) At all times during the term of the Loan, Borrower shall maintain a maximum ratio of Debt to Tangible Net Worth of not more than 3.0:1.0.
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(ii) Debt is defined as total liabilities, minus subordinated debt.
(iii) Tangible Net Worth is defined as of any date of determination, the consolidated total equity of the Borrower and its Subsidiaries, as determined in accordance with GAAP and as reflected on the consolidated balance sheet of the Borrower and its Subsidiaries, plus subordinated shareholder debt, less the aggregate amount of all intangible assets, including, without limitation, goodwill, patents, trademarks, copyrights, and other similar intangible assets, as determined in accordance with GAAP and as reflected on the consolidated balance sheet of the Borrower and its Subsidiaries.
(iv) The foregoing shall be tested annually as of the end of the Borrower’s fiscal year upon Lender’s receipt of the financial statements and other supporting documentation of Borrower required to be delivered under Section 6.
(c) Maximum Distributions. Borrower shall not be permitted to make distributions (including for tax liability purposes) in excess of 75% of the net income of Borrower (in the aggregate). The foregoing covenant shall be calculated based upon dividends paid throughout the year to the owners for regular distributions and a tax distribution made in the following year after the Borrower’s CPA advises of the tax owed fiscal year end. Any tax distribution made in the current fiscal year for the prior year results would be excluded from the calculation for the current year. The foregoing covenant shall be tested on an annual basis based upon the Borrower’s annual CPA audited financial statements provided to Lender.
(d) Depository Relationship. At all times during the term of the Loan, the Borrower shall maintain all of its depository account(s) (inclusive of operating and cash collateral accounts) and treasury management services with Lender at all times during the Loan. The Borrower shall have up to ninety (90) days from the Effective Date hereof to demonstrate compliance with the foregoing requirements under this subsection (d).
(e) Sweep Account. Borrower shall maintain a cash collateral account with Lender with daily sweeps of collected funds to the line of credit.
(f) Borrower’s Annual Financial Statements. Within one hundred twenty (120) days after the end of each fiscal year, Borrower supply Lender with (i) an annual CPA audited financial statement for the prior fiscal year in form acceptable to Lender in its sole and absolute discretion, and (ii) such supporting documentation as Lender reasonably requests.
(g) Borrower’s Quarterly Financial Statements. Within forty five (45) days after the end of each fiscal quarter, Borrower supply Lender with (i) a quarterly management-prepared financial statement for the prior fiscal quarter in form acceptable to Lender in its sole and absolute discretion, prepared in accordance with GAAP and all other applicable statutes and (ii) such supporting documentation as Lender reasonably requests.
(h) Borrower Tax Returns. Within thirty (30) days of filing, Borrower shall supply Lender with a copy of its annual federal income tax returns, including, without limitation, K-1 statements for all Partnerships and Sub Chapter S Corporations, or, if an extension is filed for any tax return, within thirty (30) days after any permitted extension date.
(i) Monthly Borrowing Base Certificates. Within eighteen (18) days of the end of each month, Borrower shall supply Lender with a borrowing base certificate with the Borrowing Base calculation for such month and resulting availability under the Note duly executed by an authorized officer of the Borrower, in form attached hereto as Schedule 1.
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(j) Monthly Reports. Within eighteen (18) days of the end of each month, together with the borrowing base certificates referenced above, Borrower shall supply Lender with (i) a monthly accounts receivable aging report (aged by invoice date),(ii) a monthly inventory certification report, (iii) a monthly accounts payable aging report, (iv) a summary of all sold, purchased and current inventory and/or any other sales for such period; (v) a customer collections report, and (vi) a monthly slow-moving inventory report.
(k) Semi-Annual Inventory Reports. The Borrower shall supply Lender with its semi-annual inventory report within thirty (30) days of the anniversary of the Effective Date of the Loan, and on each six (6) month anniversary thereafter.
(l) Other Reports. Each Borrower and Guarantor shall submit such other reports or financial statements as reasonably requested by Lender within thirty (30) days of such request.
(m) Changes to Financial Reporting Requirements. Lender may, in its sole and absolute discretion, upon written notice to the Borrower and/or Guarantor, do the following: (i) change the method of preparation for the financial statements required to be provided to Lender by Borrower and/or Guarantor hereunder, or (ii) require Borrower and/or Guarantor to provide additional financial statements, reports or information regarding the Collateral, or the operation, business affairs or financial condition of Borrower and Guarantor. In the event that Lender notifies the Borrower and/or Guarantor of a change to the financial reporting requirements hereunder, Borrower and Guarantor agree (i) to execute any and all documentation required by Lender to acknowledge such change, and (ii) to comply with Lender’s request for the revised and/or additional financial reporting requirements.
(n) Form of Financial Statements. The form and content of each financial statement as required above, shall be acceptable to Lender in its sole discretion, shall be certified by each party to be correct and complete, and shall include a complete description of all contingent liabilities, including, without limitation, all indebtedness guaranteed.
- DEFAULT. Upon the occurrence of any of the following events (each an “Event of Default” and collectively, the “Events of Default”) all obligations on the part of Lender to make any advance hereunder shall, if Lender elects, terminate, and Lender may at its option exercise any of its remedies set forth herein, but Lender may make any advances or parts of advances after the happening of any Event of Default without thereby waiving the right to exercise such remedies without becoming liable to make any further advance. Upon the occurrence of any of the following events, Lender may at its option exercise any of its remedies set forth herein:
(a) Borrower fails to make any payment of principal or interest under this Agreement or the Note, when due, whether on the scheduled due date or upon acceleration, maturity or otherwise; or
(b) Borrower fails to perform any other obligation under this agreement or the other Loan Documents and such failure is not cured within 15 days following the earlier of Borrower’s knowledge of such failure or receipt of notice of such failure from the Lender, other than the failure to perform any obligation set forth in Sections 5 (j),(k), (l), (m), (n), (o), (p) or (t) or 6 (a), (b) or (c) of this Agreement, for which there shall be no cure period; or
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(c) Borrower fails to pay or perform any other obligation, liability or indebtedness to any other party (beyond any applicable notice and cure period) which for the purposes of this subsection (c) shall be those matters in excess of $75,000.00 (in the aggregate); or
(d) A “Default” or an “Event of Default” (as defined in each respective document) occurs (beyond any applicable notice and cure period) under any of the Loan Documents; or
(e) If any warranty or representation made by Borrower in this Agreement or pursuant to the terms hereof or in any of the other Loan Documents shall at any time be false or misleading in any material respect; or
(f) The dissolution of, termination of existence of, loss of good standing status by Borrower, its subsidiaries or affiliates, if any, or any party to the Loan Documents; or
(g) The resignation or withdrawal of any partner or any material owner/member of Borrower, as determined by Lender in its sole discretion; or
(h) The death of or declaration of legal incapacity of Guarantor and the failure of Borrower to provide a replacement Guarantor who is acceptable to Lender in its sole, but reasonable discretion, within sixty (60) days of such event; or
(i) Borrower becomes the subject of any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationships; or
(j) Guarantor becomes the subject of any bankruptcy or other voluntary or involuntary proceeding, in or out of court, for the adjustment of debtor-creditor relationship; or
(k) The entry of a judgment against Borrower or Guarantor which Lender deems to be of a material nature, in Lender’s sole discretion; or
(l) The seizure or forfeiture of, or the issuance of any writ of possession, garnishment or attachment, or any turnover order for any property of Borrower or Guarantor; or
(m) A material alteration in the kind or type of Borrower’s business, financial or otherwise, is made without the prior written consent of Lender; or
(n) Lender determines in good faith, in its sole, but reasonable discretion, that the prospects for payment or performance of Borrower’s obligations under the Loan Documents are impaired; or
(o) Lender determines in good faith, in its sole, but reasonable discretion, that a Material Adverse Effect has occurred; or
(p) If Borrower or any Guarantor defaults under any other loan, contract or agreement extended by Lender or any of its affiliates, as the same may be amended, restated, modified or replaced from time to time (beyond any applicable notice and cure period); or
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(q) A Change of Control occurs, except as a result of death or incapacity and which has not otherwise caused an Event of Default under Section 7 (h) hereof; or
(r) The failure of the Borrower’s business to comply with any law or regulation controlling its operation and such failure is not cured within 15 days following the earlier of Borrower’s knowledge of such failure or receipt of notice of such failure from the Lender.
- REMEDIES OF LENDER. Upon the happening of an Event of Default, then Lender may, at its option, upon written notice to Borrower:
(a) Cease making advances under the Note;
(b) Cancel this Agreement;
(c) Commence an appropriate legal or equitable action to enforce performance of this Agreement;
(d) Accelerate the payment of the Note and the Loan and any other sums secured by the Security Agreement, apply all or any portion of any equity funds toward payment of the Loan, and commence appropriate legal and equitable action to collect all such amounts due Lender;
(e) Exercise any other rights or remedies Lender may have under the Security Agreement or other Loan Documents referred to in this Agreement or executed in connection with the Loan or which may be available under applicable law.
- GENERAL TERMS. The following shall be applicable throughout the period of this Agreement or thereafter as provided herein:
(a) Rights of Third Parties. All conditions of the Lender hereunder are imposed solely and exclusively for the benefit of Lender and its successors and assigns, and no other Person shall have standing to require satisfaction of such conditions or be entitled to assume that Lender will make advances in the absence of strict compliance with any or all thereof, and no other Person shall, under any circumstances, be deemed to be a beneficiary of this Agreement or the Loan Documents, any provisions of which may be freely waived in whole or in part by the Lender at any time if, in its sole discretion, it deems it desirable to do so.
(b) Borrower is not Lender’s Agent. Nothing in this Agreement, the Note, the Security Agreement or any other Loan Document shall be construed to make the Borrower the Lender’s agent for any purpose whatsoever, or the Borrower and Lender partners, or joint or co-venturers, and the relationship of the parties shall, at all times, be that of debtor and creditor.
(c) Loan Expense/Enforcement Expense. Borrower agrees to pay to Lender on demand all reasonable costs and expenses incurred by Lender in seeking to enforce Lender’s rights and remedies under this Agreement, including court costs, costs of alternative dispute resolution and reasonable attorneys’ fees and costs, whether or not suit is filed or other proceedings are initiated hereon.
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(d) Evidence of Satisfaction of Conditions. Lender shall, at all times, be free independently to establish to its good faith and satisfaction, and in its absolute discretion, the existence or nonexistence of a fact or facts which are disclosed in documents or other evidence required by the terms of this Agreement.
(e) Headings. The headings of the sections, paragraphs and subdivisions of this Agreement are for the convenience of reference only, and shall not limit or otherwise affect any of the terms hereof.
(f) Invalid Provisions to Affect No Others. If performance of any provision hereof or any transaction related hereto is limited by law, then the obligation to be performed shall be reduced accordingly; and if any clause or provision herein contained operates or would prospectively operate to invalidate this Agreement in part, then the invalid part of said clause or provision only shall be held for naught, as though not contained herein, and the remainder of this Agreement shall remain operative and in full force and effect.
(g) Application of Interest to Reduce Principal Sums Due. In the event that any charge, interest or late charge is above the maximum rate provided by law, then any excess amount over the lawful rate shall be applied by Lender to reduce the principal sum of the Loan or any other amounts due Lender hereunder.
(h) Governing Law. The laws of the State of Florida shall govern the interpretation and enforcement of this Agreement.
(i) Number and Gender. Whenever the singular or plural number, masculine or feminine or neuter gender is used herein, it shall equally include the others and shall apply jointly and severally.
(j) Prior Agreement. To the extent necessary, this Agreement shall be deemed to be an amendment to any prior loan agreement between Borrower and Lender, and in the event of a conflict between the terms of this Agreement or any such prior agreement, the terms of this Agreement shall govern.
(k) Waiver. If Lender shall waive any provisions of the Loan Documents, or shall fail to enforce any of the conditions or provisions of this Agreement, such waiver shall not be deemed to be a continuing waiver and shall never be construed as such; and Lender shall thereafter have the right to insist upon the enforcement of such conditions or provisions. Furthermore, no provision of this Agreement shall be amended, waived, modified, discharged or terminated, except by instrument in writing signed by the parties hereto.
(l) Notices. All notices from the Borrower to Lender and Lender to Borrower required or permitted by any provision of this Agreement shall be in writing and sent by registered or certified mail or nationally recognized overnight delivery service and addressed as follows:
| TO LENDER: | BANESCO USA, a Florida State Chartered Bank<br><br> <br>3155 NW 77th Avenue<br><br>Miami, Florida 33122 |
|---|---|
| Attention: Nelson Hidalgo, EVP, Head of Corporate Banking | |
| TO BORROWER: | Drone Nerds INC<br><br> <br>Anzu Robotics, LLC<br><br> <br>5553 Anglers Avenue, Suite 109<br><br> <br>Dania Beach, Florida 33312 |
| --- | --- |
Such addresses may be changed by such notice to the other party. Notice given as hereinabove provided shall be deemed given on the date of its deposit in the United States Mail and, unless sooner actually received, shall be deemed received by the party to whom it is addressed on the third calendar day following the date on which said notice is deposited in the mail, or if a courier system is used, on the date of delivery of the notice.
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(m) Successors and Assigns. This Agreement shall inure to the benefit of and be binding on the parties hereto and their heirs, legal representatives, successors and assigns.
(n) USA Patriot Act Notice. Lender hereby notifies Borrower and Guarantor that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), Lender is required to obtain, verify and record information that identifies Borrower and Guarantor, which information includes the name and address of Borrower and Guarantor and other information that will allow Lender to identify Borrower and Guarantor in accordance with the Act.
(o) Counterparts, Facsimiles. This Agreement may be executed in counterparts. Each executed counterpart of this Agreement will constitute an original document, and all executed counterparts, together, will constitute the same agreement. Any counterpart evidencing signature by one party that is delivered by facsimile by such party to the other party hereto shall be binding on the sending party when such facsimile is sent, and such sending party shall within ten (10) days thereafter deliver to the other parties a hard copy of such executed counterpart containing the original signature of such party or its authorized representative.
(p) WAIVER OF JURY TRIAL. LENDER, BORROWER AND GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE THE RIGHT ANY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT AND ANY AGREEMENT TO BE CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER ENTERING INTO THIS AGREEMENT.
(q) Consent to Jurisdiction; Forum. Borrower and Guarantor hereby irrevocably submit generally and unconditionally for themselves and in respect of their property to the jurisdiction of any state court or any United States federal court sitting in Miami-Dade County, Florida. Borrower and Guarantor hereby irrevocably waive, to the fullest extent permitted by law, any objection that Borrower and/or Guarantor may now or hereafter have to the laying of venue in any such court and any claim that any such court is an inconvenient forum. Borrower and Guarantor hereby agree and consent that, in addition to any methods of service of process provided for under applicable law, all service of process in any such suit, action or proceeding in any state court or any United States federal court sitting in the state specified in the governing law section of this Loan Agreement may be made by certified or registered mail, return receipt requested, directed to Borrower and/or Guarantor, as applicable, at its address for notice set forth in this Loan Agreement, or at a subsequent address of which Lender received actual notice from Borrower and/or Guarantor, as applicable, in accordance with the notice section of this Loan Agreement, and service so made shall be complete five (5) days after the same shall have been so mailed. Nothing herein shall affect the right of Lender to serve process in any manner permitted by law or limit the right of Lender to bring proceedings against Borrower and/or Guarantor in any other court or jurisdiction.
(r) POST-CLOSING REQUIREMENTS. To the extent that there exist any post-closing obligations for the Borrower, the post-closing obligations are set forth in a Post- Closing Agreement, dated as of the effective date (the “Post-Closing Agreement”). If all the items set forth in the Post-Closing Agreement are not provided to Lender within the applicable time frame after the closing date, Lender may declare a default and exercise all of its rights and remedies set forth in this Agreement and in any other Loan Documents. In the event that Lender requires a holdback of funds to be held in an escrow account with Lender or some other Lender approved account to secure the obligations set forth in the Post-Closing Agreement (the “Post- Closing Escrow”), the Post-Closing Escrow shall be for amount(s) set forth in the Post-Closing Agreement. For so long as Lender has not declared Borrower in default of any of Borrower’s obligations under this Agreement, the Security Agreement, Note or any other Loan Document securing Borrower’s obligations, the Post-Closing Escrow funds shall be released to Borrower either at such time as Lender is presented with satisfactory evidence, in Lender’s sole discretion, that the post-closing obligations have been satisfied and/or cleared, or at such time as Lender is presented with evidence that the Post-Closing Escrow funds may be applied to satisfy and/or clear post-closing obligations. In Lender’s discretion, partial funding or releases from the Post-Closing Escrow may be permitted, depending on the nature and extent of the post-closing obligations. Lender may require payment from Borrower of reasonable additional attorney fees and costs if Lender is required to incur such fees or costs in the exercise of its discretion, in relation to, Borrower compliance with any post-closing requirements, whether or not the matters are specifically provided for in the Post-Closing Agreement.
[CONTINUES ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, Borrower and Lender have caused this Agreement to be executed on the date first above written.
| BORROWER**:** | |
|---|---|
| DRONE NERDS INC, a Florida corporation | |
| By: | /s/ Jeremy Schneiderman |
| Print Name: | Jeremy Schneiderman |
| Title: | Chief Executive Officer |
BORROWER(S) SIGNATURE PAGE
| BORROWER**:** | |
|---|---|
| ANZU ROBOTICS, LLC, a Delaware limited liability company | |
| By: | /s/ Jeremy Schneiderman |
| Print Name: | Jeremy Schneiderman |
| Title: | Authorized Member |
BORROWER(S) SIGNATURE PAGE
| LENDER**:** | |
|---|---|
| BANESCO USA, a Florida State Chartered Bank | |
| By: | /s/ Matthew<br>Kronfeld |
| Print Name: | Matthew<br>Kronfeld |
| Title: | SVP |
LENDER(S) SIGNATURE PAGE
JOINDER OF GUARANTOR
Each of the undersigned as Guarantor hereby joins in and consents to the foregoing Loan Agreement.
| /s/ Jeremy Schneiderman |
|---|
| JEREMY SCHNEIDERMAN |
GUARANTOR(S) SIGNATURE PAGE
| /s/ Alex Nafissy |
|---|
| ALEX NAFISSY |
GUARANTOR(S) SIGNATURE PAGE
| /s/ Robert Weitzner |
|---|
| ROBERT WEITZNER |
GUARANTOR(S) SIGNATURE PAGE
Exhibit 10.2
SECURITY AGREEMENT
Date:July 10, 2025
| Lender/Secured Party:<br><br> <br><br><br> <br>BANESCO USA, a Florida State Chartered Bank<br><br> <br>3155 NW 77th Avenue<br><br> <br>Miami, Florida 33122 | Debtor(s)/Pledgor(s):<br><br> <br><br><br> <br>DRONE NERDS INC<br><br> <br>ANZU ROBOTICS, LLC<br><br> <br>5553 Anglers Avenue, Suite 109<br><br> <br>Dania Beach, Florida 33312 |
|---|---|
| Debtor/Pledgor<br>is: ☐ Individual ☒ Corporation ☐ Partnership ☒ Other: and<br>limited liability company Address is Debtor’s/Pledgor’s: ☐ Residence ☐ Place of Business ☐ Chief Executive<br>Office if more than one place of business Collateral (hereinafter defined) is located at: ☐ Debtor’s/Pledgor’s address<br>shown above ☐ the following address: |
SecurityInterest. For good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Debtor/Pledgor (hereinafter referred to, jointly and severally, as “Debtor”) assigns and grants to Lender (also known as “Secured Party”), a security interest and lien in the Collateral (hereinafter defined) to secure the payment and the performance of the Obligation (hereinafter defined). By its signature below, Debtor hereby authorizes Lender to file, with the appropriate authority, a UCC financing statement in the form attached hereto as Exhibit 1.
Collateral. A security interest is granted in the following collateral described in this Item 2 (the “Collateral”):
A. Typesof Collateral (check as applicable)
| ☒ | Accounts: Any and all accounts and other rights of Debtor<br>to the payment for goods sold or leased or for services rendered whether or not earned by performance, including, without limitation,<br>contract rights, book debts, checks, notes, drafts, instruments, chattel paper, acceptances, and any and all amounts due to Debtor from<br>a factor or other forms of obligations and receivables, now existing or hereafter arising. |
|---|
Inventory:
☒ Blanket Lien: Any and all of Debtor’s goods held as inventory.
Equipment:
☒ Blanket Lien: Any and all of Debtor’s goods held as equipment.
Fixtures:
☒ Blanket Lien: Any and all of Debtor’s goods held as fixtures.
Instruments and/or Investment Documents:
☒ Blanket Lien: Any and all of Debtor’s instruments, documents, and other writings of any type.
General Intangibles:
☒ Blanket Lien: Any and all of Debtor’s general intangible property.
B. Substitutions,Proceeds and Related Items. Any and all substitutes and replacements for, accessions, attachments and other additions to, tools, parts and equipment now or hereafter added to or used in connection with, and all cash or non-cash proceeds and products of, the Collateral (including, without limitation, all income, benefits and property receivable, received or distributed which results from any of the Collateral, such as dividends payable or distributable in cash, property or stock; insurance distributions of any kind related to the Collateral, including, without limitation, returned premiums, interest, premium and principal payments; redemption proceeds and subscription rights; and shares or other proceeds of conversions or splits of any securities in the Collateral); any and all choses in action and causes of action of Debtor, whether now existing or hereafter arising, relating directly or indirectly to the Collateral (whether arising in contract, tort or otherwise and whether or not currently in litigation); all certificates of title, manufacturer’s statements of origin, other documents, accounts and chattel paper, whether now existing or hereafter arising directly or indirectly from or related to the Collateral; all warranties, wrapping, packaging, advertising and shipping materials used or to be used in connection with or related to the Collateral; all of Debtor’s books, records, data, plans, manuals, computer software, computer tapes, computer systems, computer disks, computer programs, source codes and object codes containing any information, pertaining directly or indirectly to the Collateral and all rights of Debtor to retrieve data and other information pertaining directly or indirectly to the Collateral from third parties, whether now existing or hereafter arising; and all returned, refused, stopped in transit, or repossessed Collateral, any of which, if received by Debtor, upon request shall be delivered immediately to Lender.
C. Balancesand Other Property. The balance of every deposit account of Debtor maintained with Lender and any other claim of Debtor against Lender, now or hereafter existing, liquidated or unliquidated, and all money, instruments, securities, documents, chattel paper, credits, claims, demands, income, and any other property, rights and interests of Debtor which at any time shall come into the possession or custody or under the control of Lender or any of its agents or affiliates for any purpose, and the proceeds of any thereof. Lender shall be deemed to have possession of any of the Collateral in transit to or set apart for it or any of its agents or affiliates.
Description ofObligation(s). The following obligations (“Obligation” or “Obligations”) are secured by this Agreement: (a) all debts, obligations, liabilities and agreements of Debtor to Lender, now or hereafter existing, arising directly or indirectly between Debtor and Lender whether absolute or contingent, joint or several, secured or unsecured, due or not due, contractual or tortious, liquidated or unliquidated, arising by operation of law or otherwise, and all renewals, extensions or rearrangement of any of the above; (b) all costs incurred by Lender to obtain, preserve, perfect and enforce this Agreement and maintain, preserve, collect and realize upon the Collateral; (c) all debt, obligations and liabilities of Debtor to Lender of the kinds described in this Item 3, now existing or hereafter arising; (d) all other costs and attorney’s fees incurred by Lender, for which Debtor is obligated to reimburse Lender in accordance with the terms of the Loan Documents (hereinafter defined), together with interest at 18% per annum; (e) all amounts which may be owed to Lender pursuant to all other Loan Documents executed between Lender and Debtor; and (f) all obligations of the Debtor in favor of the Lender (or Lender’s affiliate) now or hereafter existing under any interest rate or commodity swap, cap, floor, collar, or any combination thereof, or option with respect to these or similar transactions, for the purpose of hedging Debtor’s exposure to fluctuations in interest rates or commodity prices. If Debtor is not the obligor of the Obligation, and in the event any amount paid to Lender on any Obligation is subsequently recovered from Lender in or as a result of any bankruptcy, insolvency or fraudulent conveyance proceeding, Debtor shall be liable to Lender for the amounts so recovered up to the fair market value of the Collateral whether or not the Collateral has been released or the security interest terminated. In the event the Collateral has been released or the security interest terminated, the fair market value of the Collateral shall be determined, at Lender’s option, as of the date the Collateral was released, the security interest terminated, or said amounts were recovered.
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Debtor’s Warranties. Debtor hereby represents and warrants to Lender as follows:
A. FinancingStatements. Except for those to be released in conjunction with their closing of the loan from Secured Party to Debtor, no financing statement covering the Collateral is or will be on file in any public office, except the financing statements relating to this security interest, and except for those to be released in conjunction with the closing of the loan from Lender to Secured Party and the existing and future filings contemplated in this subparagraph, no security interest, other than the one herein created, has attached or been perfected in the Collateral or any part thereof.
B. **Ownership.**Debtor owns, or will use the proceeds of any loans by Lender to become the owner of, the Collateral free from any setoff, claim, restriction, lien, security interest or encumbrance except liens for taxes not yet due or otherwise permitted under the Loan Agreement and the security interest hereunder.
C. Fixturesand Accessions. None of the Collateral is affixed to real estate or is an accession to any goods, or will become a fixture or accession, except to the extent secured by the lien of a mortgage in favor of Secured Party as expressly set out herein.
D. Claimsof Debtors on the Collateral. All account debtors and other obligors whose debts or obligations are part of the Collateral have no right to setoffs, counterclaims or adjustments, and no defenses in connection therewith other than those which occur in the ordinary course of business.
E. EnvironmentalCompliance. The conduct of Debtor’s business operations and the condition of Debtor’s property does not and will not violate any federal laws, rules or ordinances for environmental protection, regulations of the Environmental Protection Agency and any applicable local or state law, rule, regulation or rule of common law and any judicial interpretation thereof relating primarily to the environment or any materials defined as hazardous materials or substances under any local, state or federal environmental laws, rules or regulations, and petroleum, petroleum products, oil and asbestos (“Hazardous Materials”).
F. Powerand Authority. Debtor has full power and authority to make this Agreement, and all necessary consents and approvals of any persons, entities, governmental or regulatory authorities and securities exchanges have been obtained to effectuate the validity of this Agreement.
- Debtor’sCovenants. Until full payment and performance of all of the Obligation and termination or expiration of any obligation or commitment of Lender to make advances or loans to Debtor, unless Lender otherwise consents in writing:
A. Obligationand This Agreement. Debtor shall perform all of its agreements herein and in any other agreements between it and Lender.
B. Ownershipand Maintenance of the Collateral. Debtor shall keep all tangible Collateral in good condition (subject to casualty and normal wear and tear). Debtor shall defend the Collateral against all claims and demands of all persons at any time claiming any interest therein adverse to Lender. Debtor shall keep the Collateral free from all liens and security interests except those for taxes not yet due and the security interest hereby created.
C. Insurance. Debtor shall insure the Collateral in accordance with the requirements set forth in the Loan Documents between Debtor and Secured Party.
D. Lender’sCosts. Debtor shall pay all costs necessary to obtain, preserve, perfect, defend and enforce the security interest created by this Agreement, collect the Obligation, and preserve, defend, enforce and collect the Collateral, including but not limited to taxes, assessments, insurance premiums, repairs, rent, storage costs and expenses of sales, legal expenses, reasonable attorney’s fees and other fees or expenses for which Debtor is obligated to reimburse Lender in accordance with the terms of the Loan Documents. Whether the Collateral is or is not in Lender’s possession, and without any obligation to do so and without waiving Debtor’s default for failure to make any such payment, Lender at its option may pay any such costs and expenses, discharge encumbrances on the Collateral, and pay for insurance of the Collateral, and such payments shall be a part of the Obligation and bear interest at the rate set out in the Obligation. Debtor agrees to reimburse Lender on demand for any costs so incurred.
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E. Informationand Inspection. Debtor shall (i) promptly furnish Lender any information with respect to the Collateral requested by Lender; (ii) allow Lender or its representatives to inspect the Collateral, at all reasonable times, and to inspect and copy, or furnish Lender or its representatives with copies of, all records relating to the Collateral and the Obligation; and (iii) promptly furnish Lender or its representatives such information as Lender may reasonably request to identify the Collateral, at the time and in the form reasonably requested by Lender.
F. AdditionalDocuments. Debtor shall sign and deliver any papers deemed necessary or desirable in the judgment of Lender to obtain, maintain, and perfect the security interest hereunder and to enable Lender to comply with any federal or state law in order to obtain or perfect Lender’s interest in the Collateral or to obtain proceeds of the Collateral.
G. PartiesLiable on the Collateral. Debtor shall preserve the liability of all obligors on any Collateral, shall preserve the priority of all security therefor, and shall deliver, upon Lender’s request, to Lender the original certificates of title on all motor vehicles or other titled vehicles constituting the Collateral. Lender shall have no duty to preserve such liability or security, but may do so at the expense of Debtor, without waiving Debtor’s default.
H. Recordsof the Collateral. Debtor at all times shall maintain accurate books and records covering the Collateral. Lender is hereby given the right to audit the books and records of Debtor relating to the Collateral at all reasonable times and from time to time. The amounts shown as owed to Debtor on Debtor’s books and on any assignment schedule will be the undisputed amounts owing and unpaid.
I. This space is intentionally left blank.
J. **Accounts.**Each account held as Collateral will represent the valid and legally enforceable obligation of third parties and shall not be evidenced by any instrument or chattel paper.
K. Notice/Locationof the Collateral. Debtor shall give Lender written notice of each office of Debtor in which records of Debtor pertaining to accounts held as Collateral are kept, and each location at which the Collateral is or will be kept, and of any change of any such location. If no such notice is given, all records of Debtor pertaining to the Collateral and all Collateral of Debtor are and shall be kept at the address marked by Debtor above.
L. Change ofName/Status and Notice of Changes. Without the written consent of Lender, Debtor shall not change its name, change its corporate status, use any trade name or engage in any business not reasonably related to its business as presently conducted. Debtor shall notify Lender immediately of (i) any material change in the Collateral, (ii) a change in Debtor’s residence or location, (iii) a change in any matter warranted or represented by Debtor in this Agreement, or in any of the Loan Documents or furnished to Lender pursuant to this Agreement, and (iv) the occurrence of an Event of Default (hereinafter defined).
M. Useand Removal of the Collateral. Debtor shall not use the Collateral illegally. Debtor shall not, unless previously indicated as a fixture, permit the Collateral to be affixed to real or personal property without the prior written consent of Lender. Debtor shall not permit any of the Collateral to be removed from the locations specified herein without the prior written consent of Lender, except for the sale or disposition of obsolete furniture, fixtures and equipment or the disposition of inventory in the ordinary course of business.
N. Possessionof the Collateral. Upon the request of Lender, Debtor shall deliver all investment securities and other instruments, documents and chattel paper which are part of the Collateral and in Debtor’s possession to Lender immediately, or if hereafter acquired, immediately following acquisition, appropriately indorsed to Lender’s order, or with appropriate, duly executed powers. Debtor waives presentment, notice of acceleration, demand, notice of dishonor, protest, and all other notices with respect thereto.
O. ConsumerCredit. If any Collateral or proceeds includes obligations of third parties to Debtor, the transactions giving rise to the Collateral shall conform in all respects to the applicable state or federal law including but not limited to consumer credit law. Debtor shall hold harmless and indemnify Lender against any cost, loss or expense arising from Debtor’s breach of this covenant.
P. Powerof Attorney. Debtor appoints Lender and any officer thereof as Debtor’s attorney-in-fact with full power in Debtor’s name and behalf to do every act which Debtor is obligated to do or may be required to do hereunder; however, nothing in this paragraph shall be construed to obligate Lender to take any action hereunder nor shall Lender be liable to Debtor for failure to take any action hereunder. This appointment shall be deemed a power coupled with an interest and shall not be terminable as long as the Obligation is outstanding and shall not terminate on the disability or incompetence of Debtor.
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Q. Waiversby Debtor. Debtor waives notice of the creation, advance, increase, existence, extension or renewal of, and of any indulgence with respect to, the Obligation; waives presentment, demand, notice of dishonor, and protest; waives notice of the amount of the Obligation outstanding at any time, notice of any change in financial condition of any person liable for the Obligation or any part thereof, notice of any Event of Default, and all other notices respecting the Obligation; and agrees that maturity of the Obligation and any part thereof may be accelerated, extended or renewed one or more times by Lender in its discretion, without notice to Debtor. Debtor waives any right to require that any action be brought against any other person or to require that resort be had to any other security or to any balance of any deposit account. Debtor further waives any right of subrogation or to enforce any right of action against any other Debtor until the Obligation is paid in full.
R. OtherParties and Other Collateral. No renewal or extension of or any other indulgence with respect to the Obligation or any part thereof, no release of any security, no release of any person (including any maker, indorser, guarantor or surety) liable on the Obligation, no delay in enforcement of payment, and no delay or omission or lack of diligence or care in exercising any right or power with respect to the Obligation or any security therefor or guaranty thereof or under this Agreement shall in any manner impair or affect the rights of Lender under the law, hereunder, or under any other agreement pertaining to the Collateral. Lender need not file suit or assert a claim for personal judgment against any person for any part of the Obligation or seek to realize upon any other security for the Obligation, before foreclosing or otherwise realizing upon the Collateral. Debtor waives any right to the benefit of or to require or control application of any other security or proceeds thereof, and agrees that Lender shall have no duty or obligation to Debtor to apply to the Obligation any such other security or proceeds thereof.
S. **Collection and Segregation of Accounts and Right to Notify.**Lender hereby authorizes Debtor to collect the Collateral, subject to the direction and control of Lender, but Lender may, without cause or notice, curtail or terminate said authority at any time following an Event of Default. Upon notice by Lender following an Event of Default, whether oral or in writing, to Debtor, Debtor shall forthwith upon receipt of all checks, drafts, cash, and other remittances in payment of or on account of the Collateral, deposit the same in one or more special accounts maintained with Lender over which Lender alone shall have the power of withdrawal. The remittance of the proceeds of such Collateral shall not, however, constitute payment or liquidation of such Collateral until Lender shall receive good funds for such proceeds. Funds placed in such special accounts shall be held by Lender as security for all Obligations secured hereunder. These proceeds shall be deposited in precisely the form received, except for the indorsement of Debtor where necessary to permit collection of items, which indorsement Debtor agrees to make, and which indorsement Lender is also hereby authorized, as attorney-in-fact, to make on behalf of Debtor. In the event Lender has notified Debtor to make deposits to a special account, pending such deposit, Debtor agrees that it will not commingle any such checks, drafts, cash or other remittances with any funds or other property of Debtor, but will hold them separate and apart therefrom, and upon an express trust for Lender until deposit thereof is made in the special account. Lender will, from time to time, apply the whole or any part of the Collateral funds on deposit in this special account against such Obligations as are secured hereby as Lender may in its sole discretion elect. At the sole election of Lender, any portion of said funds on deposit in the special account which Lender shall elect not to apply to the Obligations, may be paid over by Lender to Debtor. At any time, whether Debtor is or is not in default hereunder, Lender may notify persons obligated on any Collateral to make payments directly to Lender and Lender may take control of all proceeds of any Collateral. Until Lender elects to exercise such rights, Debtor, as agent of Lender, shall collect and enforce all payments owed on the Collateral.
T. Compliancewith State and Federal Laws. Debtor will maintain its existence, good standing and qualification to do business, where required, and comply with all laws, regulations and governmental requirements, including without limitation, environmental laws applicable to it or any of its property, business operations and transactions.
U. EnvironmentalCovenants. Debtor shall immediately advise Lender in writing of (i) any and all enforcement, cleanup, remedial, removal, or other governmental or regulatory actions instituted, completed or threatened pursuant to any applicable federal, state, or local laws, ordinances or regulations relating to any Hazardous Materials affecting Debtor’s business operations; and (ii) all claims made or threatened by any third party against Debtor relating to damages, contribution, cost recovery, compensation, loss or injury resulting from any Hazardous Materials. Debtor shall immediately notify Lender of any remedial action taken by Debtor with respect to Debtor’s business operations. Debtor will not use or permit any other party to use any Hazardous Materials at any of Debtor’s places of business or at any other property owned by Debtor except such materials as are necessary or incidental to Debtor’s or its tenants’ normal course of business, maintenance and repairs and which are handled in compliance with all applicable environmental laws. Debtor agrees to permit Lender, its agents, contractors and employees to enter and inspect any of Debtor’s places of business or any other property of Debtor at any reasonable times upon three (3) days prior notice for the purposes of conducting an environmental investigation and audit (including taking physical samples) to insure that Debtor is complying with this covenant and Debtor shall reimburse Lender on demand for the costs of any such environmental investigation and audit. Debtor shall provide Lender, its agents, contractors, employees and representatives with access to and copies of any and all data and documents relating to or dealing with any Hazardous Materials used, generated, manufactured, stored or disposed of by Debtor’s business operations within five (5) days of the request therefor.
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Rights and Powers of Lender.
A. General. Lender, after an Event of Default, without liability to Debtor may: obtain from any person information regarding Debtor or Debtor’s business, which information any such person also may furnish without liability to Debtor; indorse as Debtor’s agent any instruments, documents or chattel paper in the Collateral or representing proceeds of the Collateral; contact account debtors directly to verify information furnished by Debtor; take control of proceeds, including stock received as dividends or by reason of stock splits; release the Collateral in its possession to any Debtor, temporarily or otherwise; reject as unsatisfactory any property hereafter offered by Debtor as Collateral; set standards from time to time to govern what may be used as after acquired Collateral; designate, from time to time, a certain percent of the Collateral as the loan value and require Debtor to maintain the Obligation at or below such figure; take control of funds generated by the Collateral, such as cash dividends, interest and proceeds or refunds from insurance, and use same to reduce any part of the Obligation and exercise all other rights which an owner of such Collateral may exercise, except the right to vote or dispose of the Collateral before an Event of Default; at any time transfer any of the Collateral or evidence thereof into its own name or that of its nominee; and demand, collect, convert, redeem, receipt for, settle, compromise, adjust, sue for, foreclose or realize upon the Collateral, in its own name or in the name of Debtor, as Lender may determine. Lender shall not be liable for failure to collect any account or instruments, or for any act or omission on the part of Lender, its officers, agents or employees, except for its or their own willful misconduct or gross negligence. The foregoing rights and powers of Lender will be in addition to, and not a limitation upon, any rights and powers of Lender given by law, elsewhere in this Agreement, or otherwise. If Debtor fails to maintain any required insurance, to the extent permitted by applicable law Lender may (but is not obligated to) purchase single interest insurance coverage for the Collateral which insurance may at Lender’s option (i) protect only Lender and not provide any remuneration or protection for Debtor directly and (ii) provide coverage only after the Obligation has been declared due as herein provided. The premiums for any such insurance purchased by Lender shall be a part of the Obligation and shall bear interest as provided in 3(d) hereof.
B. ConvertibleCollateral. Lender may present for conversion any Collateral which is convertible into any other instrument or investment security or a combination thereof with cash, but Lender shall not have any duty to present for conversion any Collateral unless it shall have received from Debtor detailed written instructions to that effect at a time reasonably far in advance of the final conversion date to make such conversion possible.
7. Default.
A. Event of Default. An event of default (“Event of Default”) shall occur if: (i) Debtor or any other obligor on all or part of the Obligation shall fail to timely and properly pay or observe, keep or perform any term, covenant, agreement or condition in this Agreement or in any other agreement between Debtor and Lender or between Lender and any other obligor on the Obligation, following any applicable grace period, including, but not limited to, any other note or instrument, loan agreement, security agreement, deed of trust, mortgage, promissory note, guaranty, certificate, assignment, instrument, document or other agreement concerning or related to the Obligation (collectively, the “Loan Documents”) and in the case of any such failure not involving a payment obligation, to the extent such failure is reasonably capable of cure, that such failure is not cured within 15 days following the earlier of Borrower’s knowledge of such failure or receipt of notice of such failure from the Lender; (ii) Debtor shall fail to timely and properly pay or observe, keep or perform any term, covenant, agreement or condition in any agreement between such party and any affiliate or subsidiary of Lender beyond any applicable notice and/or cure period and in the case of any such failure not involving a payment obligation, to the extent such failure is reasonably capable of cure, that such failure is not cured within 15 days following the earlier of Borrower’s knowledge of such failure or receipt of notice of such failure from the Lender; (iii) Debtor shall fail to timely and properly pay or observe, keep or perform any term, covenant, agreement or condition in any lease agreement between such party and any lessor pertaining to premises at which any Collateral is located or stored; or (iv) Debtor or such other obligor abandons any leased premises at which any Collateral is located or stored and the Collateral is either moved without the prior written consent of Lender or the Collateral remains at the abandoned premises.
B. Rightsand Remedies. If any Event of Default shall occur, then, in each and every such case, Lender may, without presentment, demand, or protest; notice of default, dishonor, demand, non-payment, or protest; notice of intent to accelerate all or any part of the Obligation; notice of acceleration of all or any part of the Obligation; or notice of any other kind, all of which Debtor hereby expressly waives, (except for any notice required under this Agreement, any other Loan Document or applicable law); at any time thereafter exercise and/or enforce any of the following rights and remedies at Lender’s option:
i. **Acceleration.**The Obligation shall, at Lender’s option, become immediately due and payable, and the obligation, if any, of Lender to permit further borrowings under the Obligation shall at Lender’s option immediately cease and terminate.
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ii. Possessionand Collection of the Collateral. At its option: (a) take possession or control of, store, lease, operate, manage, sell, or instruct any Agent or Broker to sell or otherwise dispose of, all or any part of the Collateral; (b) notify all parties under any account or contract right forming all or any part of the Collateral to make any payments otherwise due to Debtor directly to Lender; (c) in Lender’s own name, or in the name of Debtor, demand, collect, receive, sue for, and give receipts and releases for, any and all amounts due under such accounts and contract rights; (d) indorse as the agent of Debtor any check, note, chattel paper, documents, or instruments forming all or any part of the Collateral; (e) make formal application for transfer to Lender (or to any assignee of Lender or to any purchaser of any of the Collateral) of all of Debtor’s permits, licenses, approvals, agreements, and the like relating to the Collateral or to Debtor’s business; (f) take any other action which Lender deems necessary or desirable to protect and realize upon its security interest in the Collateral; and (g) in addition to the foregoing, and not in substitution therefor, exercise any one or more of the rights and remedies exercisable by Lender under any other provision of this Agreement, under any of the other Loan Documents, or as provided by applicable law (including, without limitation, the Uniform Commercial Code as in effect in Florida and/or Delaware, as may be applicable to each such Debtor (hereinafter referred to as the “UCC”)). In taking possession of the Collateral Lender may enter Debtor’s premises and otherwise proceed without legal process, if this can be done without breach of the peace. Debtor shall, upon Lender’s demand, promptly make the Collateral or other security available to Lender at a place designated by Lender, which place shall be reasonably convenient to both parties.
Lender shall not be liable for, nor be prejudiced by, any loss, depreciation or other damages to the Collateral, unless caused by Lender’s willful and malicious act. Lender shall have no duty to take any action to preserve or collect the Collateral.
iii. **Receiver.**Obtain the appointment of a receiver for all or any of the Collateral, Debtor hereby consenting to the appointment of such a receiver and agreeing not to oppose any such appointment; provided, however, Secured Party shall provide notice to the Debtor at least ten (10) days prior to seeking the appointment of a receiver.
iv. Rightof Set Off. Without notice or demand to Debtor, set off and apply against any and all of the Obligation any and all deposits (general or special, time or demand, provisional or final) and any other indebtedness, at any time held or owing by Lender or any of Lender’s agents or affiliates to or for the credit of the account of Debtor or any guarantor or indorser of Debtor’s Obligation.
Lender shall be entitled to immediate possession of all books and records evidencing any Collateral or pertaining to chattel paper covered by this Agreement and it or its representatives shall have the authority to enter upon any premises upon which any of the same, or any Collateral, may be situated and remove the same therefrom without liability. Lender may surrender any insurance policies in the Collateral and receive the unearned premium thereon. Debtor shall be entitled to any surplus and shall be liable to Lender for any deficiency. The proceeds of any disposition after default available to satisfy the Obligation shall be applied to the Obligation in such order and in such manner as Lender in its discretion shall decide.
Debtor specifically understands and agrees that any sale by Lender of all or part of the Collateral pursuant to the terms of this Agreement may be effected by Lender at times and in manners which could result in the proceeds of such sale as being significantly and materially less than might have been received if such sale had occurred at different times or in different manners, and Debtor hereby releases Lender and its officers and representatives from and against any and all obligations and liabilities arising out of or related to the timing or manner of any such sale.
If, in the opinion of Lender, there is any question that a public sale or distribution of any Collateral will violate any state or federal securities law, Lender may offer and sell such Collateral in a transaction exempt from registration under federal securities law, and any such sale made in good faith by Lender shall be deemed “commercially reasonable”.
8. General.
A. PartiesBound. Lender’s rights hereunder shall inure to the benefit of its successors and assigns. In the event of any assignment or transfer by Lender of any of the Obligation or the Collateral, Lender thereafter shall be fully discharged from any responsibility with respect to the Collateral so assigned or transferred, but Lender shall retain all rights and powers hereby given with respect to any of the Obligation or the Collateral not so assigned or transferred. All representations, warranties and agreements of Debtor if more than one are joint and several and all shall be binding upon the personal representatives, heirs, successors and assigns of Debtor.
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B. **Waiver.**No delay of Lender in exercising any power or right shall operate as a waiver thereof; nor shall any single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other power or right. No waiver by Lender of any right hereunder or of any default by Debtor shall be binding upon Lender unless in writing, and no failure by Lender to exercise any power or right hereunder or waiver of any default by Debtor shall operate as a waiver of any other or further exercise of such right or power or of any further default. Each right, power and remedy of Lender as provided for herein or in any of the Loan Documents, or which shall now or hereafter exist at law or in equity or by statute or otherwise, shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by Lender of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by Lender of any or all other such rights, powers or remedies.
C. AgreementContinuing. This Agreement shall terminate upon repayment of the Obligations in full and termination of all funding obligations by the Secured Party.
D. **Definitions.**Unless the context indicates otherwise, definitions in the UCC apply to words and phrases in this Agreement; if UCC definitions conflict, Article 9 definitions apply.
E. Notices. Notice shall be deemed reasonable if mailed postage prepaid at least five (5) days before the related action (or if the UCC elsewhere specifies a longer period, such longer period) to the address of Debtor given above, or to such other address as any party may designate by written notice to the other party. Each notice, request and demand shall be deemed given or made, if sent by mail, upon the earlier of the date of receipt or five (5) days after deposit in the U.S. Mail, first class postage prepaid, or if sent by any other means, upon delivery.
F. **Modifications.**No provision hereof shall be modified or limited except by a written agreement expressly referring hereto and to the provisions so modified or limited and signed by Debtor and Lender. The provisions of this Agreement shall not be modified or limited by course of conduct or usage of trade.
G. ApplicableLaw and Partial Invalidity. This Agreement has been delivered in the State of Florida and shall be construed in accordance with federal law and the laws of that State. Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement. The invalidity or unenforceability of any provision of any Loan Document to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.
H. FinancingStatement. To the extent permitted by applicable law, a carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral shall be sufficient as a financing statement.
I. WAIVER OF JURY TRIAL. DEBTOR AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO TRIAL BY JURY IN RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS SECURITY AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY. DEBTOR ACKNOWLEDGES THAT THIS WAIVER OF JURY TRIAL IS A MATERIAL INDUCEMENT TO THE LENDER IN EXTENDING CREDIT TO THE DEBTOR, THAT THE LENDER WOULD NOT HAVE EXTENDED SUCH CREDIT WITHOUT THIS JURY TRIAL WAIVER, AND THAT DEBTOR HAS BEEN REPRESENTED BY AN ATTORNEY OR HAS HAD AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY IN CONNECTION WITH THIS JURY TRIAL WAIVER AND UNDERSTANDS THE LEGAL EFFECT OF THIS WAIVER.
J. ControllingDocument. To the extent that this Security Agreement conflicts with or is in any way incompatible with any other Loan Document concerning the Obligation, the provisions of the Loan Agreement shall control.
K. Execution Under Seal. This Agreement is being executed under seal by Debtor(s).
L. NOTICE OF FINAL AGREEMENT. THIS WRITTEN SECURITY AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[THIS SPACE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed under seal by their duly authorized representatives as of the date first above written.
| DEBTOR(S)/PLEDGOR(S)<br> : | |
|---|---|
| DRONE NERDS INC, a Florida corporation | |
| By: | /s/ Jeremy Schneiderman |
| Print Name: | Jeremy Schneiderman |
| Title: | Chief Executive Officer |
DEBTOR(S)/PLEDGOR(S) SIGNATURE PAGE
| DEBTOR(S)/PLEDGOR(S)<br> : | |
|---|---|
| ANZU ROBOTICS, LLC, a Delaware<br>limited liability company | |
| By: | /s/ Jeremy Schneiderman |
| Print Name: | Jeremy Schneiderman |
| Title: | Authorized Member |
DEBTOR(S)/PLEDGOR(S) SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed under seal by their duly authorized representatives as of the date first above written.
| LENDER/SECURED<br> PARTY: | |
|---|---|
| BANESCO USA, a Florida State Chartered Bank | |
| By: | /s/ Matthew Kronfeld |
| PrintName: | Matthew Kronfeld |
| Title: | SVP |
LENDER/SECURED PARTY(S) SIGNATURE PAGE
Exhibit 10.3
AMENDED AND RESTATED
COMPANY AGREEMENT
OF
XTI DRONES HOLDINGS, LLC
(A Texas Limited Liability Company)
THE UNITS REFERENCED HEREIN HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. WITHOUT REGISTRATION, THESE SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED AT ANY TIME WHATSOEVER, EXCEPT ON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE MANAGER OF THE COMPANY THAT REGISTRATION IS NOT REQUIRED FOR THE TRANSFER, OR THE SUBMISSION TO THE MANAGER OF THE COMPANY OF OTHER EVIDENCE SATISFACTORY TO THE MANAGER TO THE EFFECT THAT ANY TRANSFER WILL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR REGULATIONS PROMULGATED THEREUNDER. ADDITIONALLY, ANY SALE, PLEDGE OR OTHER TRANSFER OF UNITS IS SUBJECT TO CERTAIN RESTRICTIONS THAT ARE SET FORTH IN THIS AMENDED AND RESTATED COMPANY AGREEMENT.
AMENDED AND RESTATED
COMPANY AGREEMENT
OF
XTI DRONES HOLDINGS, LLC
(A Texas Limited Liability Company)
TABLE OF CONTENTS
| Page | ||
|---|---|---|
| ARTICLE 1 | DEFINITIONS | 1 |
| 1.1. | Definitions | 1 |
| 1.2. | Other Definitional Provisions | 8 |
| ARTICLE 2 | FORMATION | 8 |
| 2.1. | Name and Formation | 8 |
| 2.2. | Principal Place of Business | 8 |
| 2.3. | Registered Office and Agent | 8 |
| 2.4. | Duration | 9 |
| 2.5. | Purposes and Powers | 9 |
| 2.6. | Foreign Qualification | 9 |
| ARTICLE 3 | MEMBERSHIP | 9 |
| 3.1. | Members | 9 |
| 3.2. | Additional Members and Units | 9 |
| 3.3. | Information | 9 |
| 3.4. | Lack of Authority | 10 |
| 3.5. | Liability to Third Parties | 10 |
| 3.6. | Certificates | 10 |
| ARTICLE 4 | MEETINGS OF MEMBERS | 10 |
| 4.1. | Place | 10 |
| 4.2. | Special Meetings | 10 |
| 4.3. | Notice | 10 |
| 4.4. | Quorum | 10 |
| 4.5. | General Voting Procedures | 11 |
| 4.6. | Registered Members | 11 |
| 4.7. | Actions Without a Meeting and Telephonic Meetings | 12 |
| ARTICLE 5 | MANAGEMENT | 12 |
| 5.1. | Management by the Manager | 12 |
| 5.2. | Appointment and Removal of Manager | 12 |
| 5.3. | Officers | 12 |
| 5.4. | Conflicts of Interests | 12 |
| 5.5. | Duties and Exculpation | 13 |
| 5.6. | Indemnification | 13 |
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| ARTICLE 6 | CAPITALIZATION | 15 |
|---|---|---|
| 6.1. | Units | 15 |
| 6.2. | Capital Contributions | 15 |
| 6.3. | Withdrawal or Reduction of Capital Contributions | 15 |
| 6.4. | Member Loans | 15 |
| 6.5. | Liability of Members | 16 |
| ARTICLE 7 | ALLOCATIONS AND DISTRIBUTIONS | 16 |
| 7.1. | Distributions | 16 |
| 7.2. | Basic Allocations | 16 |
| 7.3. | Allocations on Transfers | 17 |
| 7.4. | Special Allocations | 17 |
| 7.5. | Allocations of Built-in Items | 18 |
| 7.6. | Capital Accounts | 19 |
| 7.7. | Limitations upon Distributions | 19 |
| ARTICLE 8 | TRANSFER AND PLEDGE RESTRICTIONS | 19 |
| 8.1. | Transfer and Pledge Restriction | 19 |
| 8.2. | Permitted Transfers | 20 |
| 8.4. | Substitute Member | 20 |
| 8.5. | Assignee’s Rights | 20 |
| 8.6. | Tax Matters | 20 |
| 8.7. | Withdrawal | 20 |
| 8.8. | Class B Units Exchange Rights | 20 |
| 8.9. | Mandatory Exchange of Class B Units | 22 |
| ARTICLE 9 | BOOKS AND ACCOUNTS | 23 |
| 9.1. | Accounting Principles | 23 |
| 9.2. | Records and Reports | 23 |
| 9.3. | Tax Returns and Other Elections | 23 |
| 9.4. | Partnership Representative | 24 |
| 9.5. | Bank Accounts | 26 |
| ARTICLE 10 | WINDING-UP AND TERMINATION | 26 |
| 10.1. | Events Requiring Winding-up | 26 |
| 10.2. | Process of Winding-up | 26 |
| 10.3. | Distribution of Assets on Winding-up | 27 |
| 10.4. | Distributions in Kind | 27 |
| 10.5. | Certificate of Termination | 27 |
| ARTICLE 11 | MISCELLANEOUS PROVISIONS | 27 |
| 11.1. | Notices | 27 |
| 11.2. | Amendments | 28 |
| 11.3. | Application of Texas Law | 28 |
| 11.4. | No Action for Partition | 28 |
| 11.5. | Headings and Sections | 28 |
| 11.6. | Number and Gender | 28 |
| 11.7. | Binding Effect | 28 |
| 11.8. | No Third-Party Beneficiary | 28 |
| 11.9. | Sole and Absolute Discretion | 28 |
| 11.10. | Title to Company Property | 28 |
| 11.11. | Severability | 28 |
| 11.12. | Counterparts | 28 |
| 11.13. | Entire Agreement | 28 |
| 11.14. | Waiver of Jury Trial | 28 |
| Attachment: | Exhibit A – Company Information | |
| --- | --- | |
| Exhibit B – Form of Exchange Certificate | ||
| Exhibit C – Form of Accredited Investor Questionnaire |
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AMENDED AND RESTATED
COMPANY AGREEMENT
OF
XTI DRONES HOLDINGS, LLC
(A Texas Limited Liability Company)
THIS AMENDED AND RESTATED COMPANY AGREEMENT, dated the 10th day of November, 2025 (the “Effective Date”), is hereby duly adopted as the company agreement of XTI Drones Holdings, LLC, a Texas limited liability company, by the Manager, and ratified, confirmed, and approved as such by the Members and, solely with respect to the terms and provisions set forth in Section 8.8, acknowledged, consented and agreed by XTI Aerospace, Inc., a Nevada corporation (“XTI”).
RECITALS
WHEREAS, the Company was formed on November 5, 2025 as a Texas limited liability company by the initial member of the Company; and
WHEREAS, in connection with the admission of additional members of the Company, the undersigned now desire to enter into this Agreement to set forth the conditions, restrictions, and other provisions that will govern the Company’s operation as a limited liability company on and after the Effective Date.
AGREEMENT
NOW, THEREFORE, in consideration of the covenants and conditions contained in this Agreement, and for such other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned hereby agree that the Company shall be governed by the terms and conditions set forth in this Agreement.
ARTICLE 1
DEFINITIONS
1.1. Definitions. The following terms used in this Agreement shall have the following meanings (unless otherwise expressly provided herein):
“Accountant” means the certified public accountant or firm of certified public accountants, if any, selected by the Manager to perform accounting functions on behalf of the Company.
“Additional Interests” means all Units, equity interests, warrants, options, and other rights to securities exchangeable for or convertible into Units or other equity interests in the Company issued by the Company after the Effective Date.
“Adjusted CapitalAccount Deficit” means with respect to any Member, the deficit balance, if any, in the Capital Account of that Member as of the end of the relevant Fiscal Year, giving effect to all adjustments previously made thereto pursuant to Section 7.6 and further adjusted as follows: (i) credit to such Capital Account, any amounts which that Member is obligated or deemed obligated to restore pursuant to any provision of this Agreement or pursuant to Treasury Regulations Section 1.704-1(b)(2)(ii)(c); (ii) debit to such Capital Account, the items described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), and (6); and (iii) to the extent required under the Treasury Regulations, credit to such Capital Account (A) that Member’s share of Partnership Minimum Gain and (B) that Member’s share of Partner Nonrecourse Debt Minimum Gain. (Each Member’s share of the Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain shall be determined under Treasury Regulations Sections 1.704-2(g) and 1.704-2(i)(5), respectively).
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“Adjustment Year” means any “adjustment year” of the Company as defined in Code Section 6225(d)(2).
“Affiliate” means, with respect to any Person, any other Person that directly, or indirectly through one of more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controls,” “controlled by,” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership or voting interests or capital stock, by contract or otherwise. For purposes of this Agreement, an Affiliate of the Company shall also include any Subsidiary.
“Agreement” means this Amended and Restated Company Agreement of XTI Drones Holdings, LLC, as originally adopted and as amended and/or restated from time to time.
“Assignee” means a transferee of all or any portion of a Member’s or any other transferor’s Units.
“Bankruptcy” means, with respect to any Member, that Member’s taking or acquiescing in the taking of an action seeking relief under, or advantage of, any applicable debtor relief, liquidation, receivership, conservatorship, bankruptcy, moratorium, rearrangement, insolvency, reorganization, or similar law affecting the rights or remedies of creditors generally, as in effect from time to time.
“Business Day” means a day other than a Saturday, Sunday, or other day that is a nationally recognized holiday.
“Capital Account” has the meaning set forth in Section 7.6.
“Capital Contribution” means any contribution to the capital of the Company in cash or property by a Member whenever made.
“Capital ReturnAccount” means, with respect to a Member, as of any relevant date, an amount equal to such Member’s Capital Contributions with respect to its Units over the aggregate amount of distributions previously made to such Member pursuant to Section 7.1(a)(i) (or treated as so made pursuant to Section 10.3(c)), including distributions deemed to be made under such section pursuant to Section 7.1(b).
“Certificate” means the Certificate of Formation of the Company, as amended and/or restated from time to time.
“Class A Member” means XTI Drones, LLC, a Texas limited liability company.
“Class A Units” means units of economic interest in the Company held by the Class A Member, and all rights and liabilities associated therewith, at any particular time, including, without limitation, rights to distributions (liquidating or otherwise) and allocations.
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“Class B Member” means each Person designated as a Class B Member on the books and records of the Company or any other Person admitted as a Class B Member of the Company pursuant to this Agreement, each in the capacity as a Class B Member of the Company.
“Class B Units” means units of economic interest in the Company held by the Class B Members, and all rights and liabilities associated therewith, at any particular time, including, without limitation, rights to distributions (liquidating or otherwise) and allocations.
“Class B Vote” has the meaning set forth in Section 4.4.
“Code” means the Internal Revenue Code of 1986, as amended.
“Company” means XTI Drones Holdings, LLC, a Texas limited liability company.
“Company Tax Liability” has the meaning set forth in Section 9.4(c).
“Confidential Information” has the meaning set forth in Section 3.3.
“Covered Person” has the meaning set forth in Section 5.5.
“Deferred ExchangeDate” has the meaning set forth in Section 8.9(c).
“Depreciation” means, for each Fiscal Year, an amount equal to the depreciation, amortization, or any other cost recovery deduction allowable for federal income tax purposes with respect to an asset for that year, except that if the Gross Asset Value of an asset differs from its tax basis at the beginning of the year, Depreciation shall be an amount that bears the same ratio to the beginning Gross Asset Value as the federal income tax depreciation, amortization, or other cost recovery deduction for the year bears to the beginning tax basis, except that, if the federal income tax depreciation, amortization, or other cost recovery deduction for that year is zero, Depreciation shall be determined with reference to the beginning Gross Asset Value, using any reasonable method selected by the Manager; provided, however, with respect to any property the Gross Asset Value of which differs from its adjusted tax basis for federal income tax purposes and which difference is being eliminated by use of the “remedial allocation method” pursuant to Treasury Regulations Section 1.704-3(d), Depreciation for such taxable year shall be the amount of book basis recovered for such year under the rules prescribed by Treasury Regulation Section 1.704-3(d).
“Distributable Cash” means all cash, revenues, and funds received by the Company, less the sum of the following to the extent paid or set aside by the Company: (i) all principal and interest payments on indebtedness of the Company and all other sums paid to lenders; (ii) all cash expenditures incurred incident to the normal operations of the Company’s business; and (iii) such cash reserves as the Manager deem reasonably necessary to the proper operation of the Company’s business.
“Due Date” has the meaning set forth in Section 7.1(b).
“Effective Date” has the meaning set forth in the introductory paragraph.
“Entity” means any joint venture, general partnership, limited partnership, limited liability company, corporation, trust, business trust, cooperative, association, or other incorporated or unincorporated entity.
“Exchange Certificate” has the meaning set forth in Section 8.8(d).
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“Exchange Notice” has the meaning set forth in Section 8.8(c).
“Exchange Ratio” has the meaning set forth in Section 8.8(b).
“Exchange Right” has the meaning set forth in Section 8.8(a).
“Exchanging Member” has the meaning set forth in Section 8.8(a).
“Fair Market Value” means, with respect to any Units, the price at which such Units would change hands between a willing buyer and a willing seller, provided that (i) neither such willing buyer nor willing seller is under any compulsion to buy or to sell, (ii) both such willing buyer and willing seller have reasonable knowledge of all relevant facts, and (iii) all factors reasonably related to and likely to affect the value of the Units are taken into account. The Fair Market Value shall be the amount agreed upon by the relevant parties, failing which agreement, the relevant parties shall appoint an independent appraiser whose determination of the Fair Market Value of the relevant Units shall be final. If the relevant parties do not agree on an appraiser, they each shall have twenty (20) days to appoint one (1) appraiser, the two (2) of whom shall thereupon appoint a third (3^rd^) independent appraiser, within seven (7) days of the appointment of the second appraiser. If any party fails to appoint an appraiser within the twenty (20)-day period, they shall be deemed to have consented to the appraiser selected by the other party and that appraiser’s determination of the Fair Market Value shall be final. Once three (3) appraisers are appointed, each appraiser shall determine the Fair Market Value. The Fair Market Value shall be the average of the middle value (i.e., the amount determined by the appraiser that is neither the highest nor the lowest) and the value that is closest to the middle value; provided, however, if there is an equal difference between the middle value and the other two values, the Fair Market Value shall be the middle value; provided, further, if two of the values are equal, the Fair Market Value shall be the amount agreed-upon by those two appraisers. For example, if the three values were $9, $10, and $12, the Fair Market Value would be $9.50; if the three values were $9, $10, and $11, the Fair Market Value would be $10; and if the three values were $9, $9, and $12, the Fair Market Value would be $9. Such appraiser or appraisers shall, as a condition of their employment, execute agreements to keep any information they receive concerning the Company confidential. The expenses of such appraisal shall be borne equally by the relevant parties.
“Fiscal Year” means (i) any twelve (12) month period commencing on January 1 and ending on December 31 or (ii) any portion of the period described in clause (i) for which the Company is required to allocate Profits, Losses, and other items of Company income, gain, loss, or deduction pursuant to Article 7.
“Gross Asset Value” means, with respect to any asset, the tax basis of that asset, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a Member to the Company shall be the fair market value of the asset on the date of the contribution, as determined by the contributing Member and the Manager;
(ii) The Gross Asset Values of all Company assets shall be adjusted to equal their respective fair market values, as determined by the Manager as of the following times: (A) the acquisition of an additional Membership Interest in the Company by any Member in exchange for more than a de minimis Capital Contribution; (B) the distribution by the Company to a Member of more than a de minimis amount of Property as consideration for a Membership Interest in the Company; (C) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704-1(b)(2)(ii)(g); and (D) the issuance of new Membership Interests (other than a de minimis amount) as consideration of the provision of services to or for the benefit of the Company by an existing Member acting in a Member capacity or by a new Member acting in a Member capacity or in anticipation of being a Member;
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(iii) The Gross Asset Value of any Company asset distributed to any Member shall be the fair market value of the asset on the date of distribution as determined by the Manager; and
(iv) The Gross Asset Values of Company assets shall be increased (or decreased) to reflect any adjustments to the tax basis of the assets pursuant to Code Sections 734(b) or 743(b), but only to the extent that the adjustments are taken into account in determining Capital Accounts pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not be adjusted pursuant to this paragraph (iv), to the extent the Manager determines that an adjustment pursuant to paragraph (ii) is necessary or appropriate in connection with a transaction that would otherwise result in adjustment pursuant to this paragraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to paragraphs (i), (ii), or (iv) above, that Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to the asset for purposes of computing Profits and Losses.
“Indemnitee” has the meaning set forth in Section 5.6.
“Investor Questionnaire” has the meaning set forth in Section 8.8(d).
“Mandatory Exchange” has the meaning set forth in Section 8.9(a).
“Mandatory ExchangeDate” has the meaning set forth in Section 8.9(a).
“Manager” has the meaning set forth in Section 5.1. The initial Manager of the Company is the Person designated as the Manager on Exhibit A.
“Maximum LawfulRate” means the maximum, lawful, non-usurious rate that may be charged, collected, or received on a particular loan under applicable laws.
“Member Loans” has the meaning set forth in Section 6.4.
“Members” means the Class A Member and the Class B Members.
“Membership Interest” means, with respect to any Member at any time, the entire equity interest (or “membership interest” as that term is used in the TBOC) of a Member in the Company and all rights and liabilities associated therewith, including that Member’s Units.
“Nonrecourse Deduction” has the meaning set forth in Treasury Regulations Section 1.704-2(b)(1), as computed under Treasury Regulations Section 1.704-2(c).
“Nonrecourse Liability” has the meaning set forth in Treasury Regulations Section 1.704-2(b)(3).
“Officers” has the meaning set forth in Section 5.3.
“Partially AdjustedCapital Accounts” means, with respect to any Member for any Fiscal Year, the Capital Account of such Member at the beginning of such year, adjusted for all Capital Contributions and distributions during such year and all special allocations pursuant to Section 7.4 with respect to such year before giving effect to any allocations of Profit or Loss pursuant to Section 7.2(a).
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“Partner NonrecourseDebt” has the meaning set forth in Treasury Regulations Section 1.704-2(b)(4).
“Partner NonrecourseDebt Minimum Gain” has the meaning set forth in Treasury Regulations Section 1.704-2(i).
“Partner NonrecourseDeductions” has the meaning set forth in Treasury Regulations Section 1.704-2(i)(1).
“Partnership MinimumGain” has the meaning set forth in Treasury Regulations Section 1.704-2(b).
“Partnership Representative” has the meaning set forth in Section 9.4(a).
“Pass-Thru Member” has the meaning set forth in Section 9.4(d).
“Permitted Transfer” has the meaning set forth in Section 8.2.
“Person” means any individual or Entity, and the heirs, executors, administrators, legal representatives, successors, and assigns of that Person where the context so admits.
“Pledge” or any derivation thereof, means, a pledge, encumbrance, lien, mortgage, hypothecation, or similar disposition with respect to a Membership Interest in connection with the granting of a lien or security interest to secure an obligation of the Member owning the Membership Interest.
“Prime Rate” means the rate of interest per annum stated from time to time in The Wall Street Journal (or any successor publication thereto) as the base rate on corporate loans for at least seventy-five percent (75%) of the thirty (30) largest banks in the United States.
“Pro Rata” means the ratio determined by dividing the Units of a Member to whom a particular provision of this Agreement is stated to apply by the aggregate of the Units of all Members to whom that provision is stated to apply.
“Profits” and “Losses” means, for each Fiscal Year, an amount equal to the Company’s taxable income or loss for such Fiscal Year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss, or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:
(i) **** Any income of the Company that is exempt from federal income tax and not otherwise taken into account in computing Profits or Losses pursuant to this definition of “Profits” and “Losses” shall be added to any such taxable income or loss;
(ii) Any expenditures of the Company described in Code Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into account in computing Profits or Losses pursuant to this definition of “Profits” and “Losses” shall be subtracted from any such taxable income or loss;
(iii) In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraphs (ii) or (iii) of the definition of “Gross Asset Value,” the amount of any such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Profits or Losses;
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(iv) Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost recovery deductions taken into account in computing any such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year, computed in accordance with the definition of “Depreciation;”
(vi) To the extent an adjustment to the adjusted tax basis of any Company asset pursuant to Code Section 734(b) is required pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in complete liquidation of a Member’s Membership Interest, the amount of any such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Profits or Losses; and
(vii) Notwithstanding any other provision of this definition of “Profits” and “Losses,” any items that are specially allocated pursuant to Section 7.4 shall not be taken into account in computing Profits or Losses.
“Property” means the assets of the Company.
“Registration RightsAgreement” means that certain Registration Rights Agreement, effective on or around the Effective Date, by and among XTI and each Class B Member.
“Reviewed Year” means any “reviewed year” of the Company as defined in Code Section 6225(d)(1).
“Reviewed Year Member” means each Person who was a Member during any Reviewed Year whether or not such Person is a Member during the Adjustment Year.
“Securities Act” means the U.S. Securities Act of 1933, as amended.
“Settlement Notice” has the meaning set forth in Section 5.6(c).
“Subsidiary” means any direct or indirect subsidiary of the Company.
“Substitute Member” has the meaning set forth in Section 8.4.
“Targeted Accounts” means, with respect to any Member for any Fiscal Year, an amount (either positive or negative) equal to the hypothetical distribution such Member would receive, or hypothetical contribution such Member would be required to make, as the case may be, if: (i) all Company assets, including cash, were sold for cash at an aggregate price equal to their Gross Asset Value (taking into account any adjustments to Gross Asset Value for such Fiscal Year), (ii) all liabilities were then satisfied according to their terms (limited, with respect to each Nonrecourse Liability, to the Gross Asset Value of the assets securing such liability), and (iii) all such proceeds from the disposition were distributed pursuant to Section 10.3(c), reduced by such Member’s share of Partner Nonrecourse Debt Minimum Gain and Partnership Minimum Gain immediately prior to such sale.
“Tax Distribution” has the meaning set forth in Section 7.1(b).
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“Tax Proceeding” has the meaning set forth in Section 9.4(b)(ii).
“TBOC” means the Texas Limited Liability Company Law, Title 3 of the Texas Business Organizations Code, as the same may be amended from time to time.
“Transfer,” or derivations thereof, of an interest means, as a noun, the transfer, sale, assignment, exchange or other disposition (excluding a Pledge) of a Membership Interest, or any part thereof, directly or indirectly, and as a verb, voluntarily to transfer, sell, assign, exchange, or otherwise dispose of (other than pursuant to a Pledge). For the avoidance of doubt, for purposes of this Agreement, the term “Transfer” shall include any foreclosure or similar action taken by a lender or other party exercising its rights with respect to a Pledge of any Units in accordance with the terms of this Agreement.
“Treasury Regulations” means the regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
“Units” means the Class A Units and the Class B Units.
“XTI” has the meaning set forth in the introductory paragraph.
“XTI DistributionAmount” means for each Class B Unit, an amount equal to the excess, if any, of (x) the aggregate amount of dividends or other distributions, equal to the amount of cash or the fair market value of any property distributed in kind, per share of XTI Common Stock made by XTI to holders of XTI Common Stock during the period from the date of issuance of such Class B Unit through the exchange date set forth in the Exchange Notice with respect to such Class B Unit multiplied by the Exchange Ratio at the time of each such dividend or other distribution, over (y) the aggregate amount per Class B Unit distributed by the Company during such period.
1.2. OtherDefinitional Provisions. All terms used in this Agreement that are not defined in this Article 1 have the meanings contained elsewhere in this Agreement. Defined terms used herein in the singular shall import the plural and vice versa.
ARTICLE 2
FORMATION
2.1. Nameand Formation. The name of the Company is “XTI Drones Holdings, LLC.” All business of the Company must be conducted in that name or in one or more other names that comply with applicable law and that are selected by the Manager from time to time. The Company was formed as a limited liability company upon the issuance of the Certificate to the Company from the Secretary of State of the State of Texas pursuant to the TBOC.
2.2. PrincipalPlace of Business. The principal office and place of business of the Company are set forth on Exhibit A. The Company may locate its place of business and principal office at any other place or places as the Manager may from time to time deem necessary or advisable.
2.3. RegisteredOffice and Agent. The registered office and registered agent of the Company shall be the registered office and registered agent named in the Certificate and set forth on Exhibit A. The Company may change the registered office and registered agent as the Manager may from time to time deem necessary or advisable.
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2.4. Duration. The period of duration of the Company is perpetual from the date its Certificate was filed with the Secretary of State of the State of Texas, unless the Company is earlier terminated in accordance with either the provisions of this Agreement or the TBOC.
2.5. Purposesand Powers. The purpose for which the Company is organized is to transact any or all other lawful business for which limited liability companies may be organized under the TBOC. The Company shall have any and all powers that are necessary or desirable to carry out the purposes and business of the Company, to the extent the same may be legally exercised by limited liability companies under the TBOC. The Company shall carry out the foregoing activities pursuant to the arrangements set forth in the Certificate and this Agreement.
2.6. ForeignQualification. The Manager shall cause the Company to comply, to the extent legally possible, with all requirements necessary to qualify the Company as a foreign limited liability company in each jurisdiction in which the Company conducts business. To the extent required by law or as the Manager determines is otherwise advisable, the Manager shall execute, acknowledge, swear to, and deliver all certificates and other instruments conforming with this Agreement that are necessary or appropriate to qualify, continue, and terminate the Company as a foreign limited liability company in all jurisdictions in which the Company conducts business.
ARTICLE 3
MEMBERSHIP
3.1. Members. The Members are set forth on the books and records of the Company.
3.2. AdditionalMembers and Units.
(a) Admission of Additional Members and Issuance of Additional Units. Subject to Section 4.5(b), additional Persons may be admitted to the Company as Members on the terms and conditions as determined by the Manager. Subject to Section 4.5(b), the Manager shall have the right to authorize and cause the Company to create and/or issue Additional Interests and shall have the power to amend this Agreement to reflect such additional issuances and dilution and to make any such other amendments as it deems necessary or desirable to reflect such issuances (including, without limitation, amending this Agreement to create and authorize a new class, group, or series of Membership Interests and to add the terms of such new class, group, or series, including economic and governance rights which may be different from, senior to, or more favorable than the other existing Membership Interests).
(b) Inapplicability. The provisions of this Section 3.2 shall not apply to Transfers or Pledges of Membership Interests.
3.3. Information. The Members acknowledge that, from time to time, they may, in the discretion of the Managers, receive information from or concerning the Company in the nature of trade secrets or that otherwise is confidential, the release of which may damage the Company or Persons with which it does business (“Confidential Information”). Each Member shall hold in strict confidence any Confidential Information that it receives concerning the Company and may not disclose it to any Person other than another Member or a Manager, except for disclosures (i) compelled by law (but the Member must notify the other Members promptly of any request for that information, before disclosing it, if legal and practicable), (ii) to advisers or representatives of the Member or Persons to whom that Member’s Membership Interest may be Transferred or Pledged as permitted by this Agreement, but only if the recipients have agreed to be bound by the provisions of this Section 3.3, or (iii) of information that the Member also has received from a source independent of the Company that the Member reasonably believes obtained that information without breach of any obligation of confidentiality. The Members acknowledge that breach of the provisions of this Section 3.3 may cause irreparable injury to the Company for which monetary damages are inadequate, difficult to compute, or both. Accordingly, the Members agree that the provisions of this Section 3.3 may be enforced by specific performance.
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3.4. Lackof Authority. No Member (unless that Member is also the Manager or an Officer and is acting in that capacity pursuant hereto) has the authority or power to act for or on behalf of the Company, to do any act that would be binding on the Company or to incur any expenditures on behalf of the Company.
3.5. Liabilityto Third Parties. No Member or Manager is liable for the debts, obligations, or liabilities of the Company, including under a judgment, decree, or order of a court.
3.6. Certificates. Certificates in the form determined by the Manager may be delivered representing all Membership Interests to which Members are entitled. If issued, such certificates shall be consecutively numbered, and shall be entered in the books of the Company as they are issued. Each certificate shall state on the face thereof the holder’s name, the Membership Interest represented thereby and such other matters as may be required by applicable laws. Each such certificate shall be signed by the Manager and may be sealed with the seal of the Company or a facsimile thereof if adopted. The signature of the Manager upon the certificates may be a facsimile. Subject to Section 8.1, upon surrender to the Company or the transfer agent of the Company of a certificate for Membership Interests duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Company to issue a new certificate to the Person entitled thereto, cancel the old certificate and record the transaction upon its books and records.
ARTICLE 4
MEETINGS OF MEMBERS
4.1. Place. All meetings of the Members shall be held at the principal office of the Company or at such other place within or without the State of Texas as may be determined by the Manager and set forth in the respective notice or waivers of notice of such meeting.
4.2. SpecialMeetings. Special meetings of the Members may be called by the Manager. Business transacted at all special meetings shall be confined to the purposes stated in the notice.
4.3. Notice. Written or printed notice stating the place, day and hour of the meeting and, in the case of special meetings, the purpose or purposes for which the meeting is called, shall be delivered not less than seven (7) nor more than sixty (60) days before the date of the meeting, by or at the direction of the Manager or Person calling the meeting, to each Member of record entitled to vote at such meeting.
4.4. Quorum. The presence, in person or by proxy, of the Class A Member shall constitute a quorum at all meetings of the Members, except as otherwise provided by law or necessitated by the terms of this Agreement; provided that for action requiring approval of the Class B Members, voting as a separate class (a “Class B Vote”), the presence, in person or by proxy, of holders of a majority of the outstanding Class B Units entitled to vote on such matter shall constitute a quorum with respect to a Class B Vote. Once a quorum is present at the meeting of the Members, the subsequent withdrawal from the meeting of any Member prior to adjournment or the refusal of any Member to vote shall not affect the presence of a quorum at the meeting. If, however, such quorum shall not be present at any meeting of the Members, the Members entitled to vote at such meeting shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the holders of the requisite amount of Units shall be present or represented. Unless the vote of a greater number is required by law or is varied by this Agreement, at any meeting of the Members at which a quorum is present, an action approved by the Class A Member shall be the act of the Members; provided that for an action requiring a Class B Vote, at such meeting of the Members at which a quorum is present, an action approved by the holders of a majority of the outstanding Class B Units entitled to vote on such matter shall be the act of the Class B Members.
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4.5. GeneralVoting Procedures.
(a) Each outstanding Class A Unit and Class B Unit shall be entitled to one (1) vote on each matter submitted to a vote or for approval of the applicable Members in accordance with the terms of this Agreement, unless otherwise required by an unwaivable provision of applicable law. Unless otherwise required by an unwaivable provision of the TBOC, the only voting, approval, consent and election rights of the Members are as set forth in this Agreement.
(b) Notwithstanding anything to the contrary herein, the Company, the Partnership Representative, and the Manager shall not, and shall not cause any Subsidiary to, take any of the following actions, whether directly or indirectly, by merger, consolidation or otherwise, without the prior written consent of the holders of a majority of the outstanding Class B Units, voting as a separate class:
(i) Amend, restate, waive or modify any provision of this Agreement or the Certificate in a manner that (x) adversely affects the rights, preferences or privileges of the Class B Units (including economic or exchange rights) in any material respect, or (y) disproportionately adversely affects the Class B Members relative to the Class A Member;
(ii) Authorize, create, issue or reclassify any equity securities (or securities convertible into or exchangeable for equity) of the Company or any Subsidiary that are senior to or pari passu with the Class B Units with respect to distributions or liquidation, or increase the authorized number of any such senior or pari passu securities;
(iii) Declare or pay any distributions or dividends, or make redemptions or repurchases, in a manner that is inconsistent with Article 7;
(iv) Liquidate, dissolve or wind up the Company or any material Subsidiary;
(v) Change the principal line of business of the Company or any material Subsidiary;
(vi) Change the Company’s tax classification or make any determination or election relating to the taxes of the Company that would reasonably be expected to materially and adversely affect the Class B Members relative to the Class A Member; or
(vii) settle tax audits or proceedings that would reasonably be expected to have a disproportionate adverse effect on the Class B Members.
Except as expressly set forth in this Section 4.5(b), the Class B Members shall have no right to participate in or veto the management or operations of the Company, which shall remain vested in the Manager.
4.6. RegisteredMembers. The Company shall be entitled to treat the holder of record of any Units as the holder in fact of such Units for all purposes, and accordingly shall not be bound to recognize any equitable or other claim to or interest in such Units on the part of any other Person, whether or not it shall have express or other notice of such claim or interest, except as expressly provided by this Agreement or the laws of the State of Texas.
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4.7. ActionsWithout a Meeting and Telephonic Meetings. Notwithstanding any other provision contained in this Article 4, all actions of the Members provided for herein may be taken by written consent without a meeting, or any meeting thereof may be held by means of a telephone conference. Any action that may be taken by the Members without a meeting shall be effective only if the written consent or consents are in writing, set forth the action so taken, and are signed by all of the holder or holders of Membership Interests entitled to vote on such action.
ARTICLE 5
MANAGEMENT
5.1. Managementby the Manager. Subject to the rights of the Members to consent to or approve certain matters as expressly provided in this Agreement, the business and affairs of the Company shall be managed by a single manager (the “Manager”) (who may, but need not be, a member). The Manager shall have full and complete authority, power and discretion to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incident to the management of the Company’s business.
5.2. Appointmentand Removal of Manager. The Class A Member shall have the sole and exclusive right, without the consent of any other Members, to designate, appoint, remove and replace the Manager at any time, with or without cause, by written notice to the Company and the other Members. Each Manager shall serve until such Manager’s successor is appointed, or until such Manager’s earlier death, incapacity, resignation or removal. The Manager may resign at any time by delivering a written resignation to the Company, which resignation shall be effective upon receipt thereof unless it is specified to be effective at some other time or upon the occurrence of a particular event. If the Manager is a Member, the removal or resignation of such Manager shall not affect such Manager’s rights as a Member and shall not constitute a withdrawal of such Member. XTI Drone, LLC, a Texas limited liability company, is hereby appointed as the initial Manager.
5.3. Officers. The Company may have such officers (the “Officers”) as the Manager may appoint, and such Officers shall have the power, authority, and duties set forth in this Agreement or delegated by the Manager. The Manager may remove any Officer with or without cause at any time; provided, however, any such removal shall be without prejudice to the contractual rights, if any, of the Officer so removed. Appointment of an Officer shall not of itself create contractual rights. Any such Officers may, subject to the general direction of the Manager, have responsibility for the management of the normal and customary day-to-day operations of the Company, and act as “agents” of the Company in carrying out such activities. Officers may be compensated on such terms as are determined by the Manager. Unless otherwise agreed to in writing, any Officer may resign at any time. Any such resignation shall be in writing and shall take effect at the time specified therein or, if no time is specified, at the time of its receipt by the Manager. The acceptance of a resignation shall not be necessary to make it effective unless expressly so provided in the resignation. In the event an Officer is removed from his or her position in accordance with this Section 5.3 or dies, becomes disable, or resigns, a replacement for such person may only be appointed by the Manager.
5.4. Conflictsof Interests. The Manager, Members, Officers, and their Affiliates have the right to perform advisory or other services for the Company and its subsidiaries and have the right to purchase property (including securities) from, to sell property or lend funds to, or otherwise to deal with the Company or its subsidiaries, provided that any such Person discloses such interest to, or such interest is reasonably apparent to, the Manager. To the maximum extent permitted by law, each Member and the Company hereby waive any and all claims or causes of action arising from or related to such conflicts of interest.
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5.5 Dutiesand Exculpation.
(a) Covered Persons. As used herein, the term “Covered Person” shall mean (i) each Member, Manager, Officer, employee, agent, or representative of the Company; and (ii) each officer, director, shareholder, partner, member, Affiliate, employee, agent, or representative of each Member, Manager, Officer, employee, agent, or representative of the Company.
(b) Duties. Except to the extent otherwise provided herein, each Manager and officer shall have fiduciary duties similar to that of directors and officers of business corporations organized under the TBOC.
(c) Exculpation. To the fullest extent permitted by law and without reimposing the duties restricted, eliminated, and waived pursuant to Section 5.5(b), no Covered Person shall be liable to the Company, the Manager or to any Member, whether for breach of contract, breach of duties, or otherwise, for (i) any act or omission taken or suffered by a Covered Person in connection with the conduct of the affairs of the Company, unless such act or omission resulted from fraud, bad faith, or willful or intentional misconduct or a material breach of this Agreement or any other written agreement by those Covered Persons; (ii) any action or omission taken or suffered by any other Member; or (iii) any act or omission taken in good faith reliance on the provisions of this Agreement or upon and in accordance with the advice of legal counsel or accountants. The preceding sentence shall in no way limit any Person’s right to rely on information to the extent provided in Section 3.102 of the TBOC. If a Covered Person may be held liable for an act or omission pursuant to this Section 5.5, the maximum amount for which such Covered Person may be held liable is equal to the aggregate amount of all distributions, compensation, and other payments received by such Covered Person (or an Affiliate of such Covered Person) from the Company and its Affiliates.
(d) Survival. The provisions of this Section 5.5 shall survive the winding up and termination of the Company.
5.6 Indemnification. The Company shall indemnify and hold harmless the Members, Manager, and their respective Affiliates, partners, members, officers, directors, managers, employees, and agents (each, an “Indemnitee”), as follows:
(a) (i) In any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative, or investigative, to which an Indemnitee was or is a party, is threatened to be made a party, or otherwise incurs expenses by reason of the fact that such Indemnitee is or was a Member, Manager, or Affiliate, partner, member, officer, director, manager, employee, or agent of a Member or Manager or related to or in connection with the business or affairs of the Company, the Company shall indemnify such Indemnitee against attorneys’ fees, judgments, fines, penalties, including excise and similar taxes, settlements, and reasonable expenses actually and reasonably incurred by such Indemnitee in connection with the defense and/or settlement of such action, suit, or proceeding.
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(ii) An Indemnitee shall not be entitled to indemnification under this Section 5.6 and in no event shall indemnification ever be made:
(A) If and to the extent there is a final adjudication in the underlying action or proceeding in which the indemnified expenses were incurred, by a court of competent jurisdiction, in a judgment that has become final and that is no longer subject to appeal or review, that the Indemnitee acted in bad faith, engaged in willful or intentional misconduct, committed fraud, or materially breached this Agreement or any other written agreement; and/or
(B) With respect to a claim or suit brought directly by the Company against an Indemnitee or by one Member (and/or an Affiliate thereof) against another Member (and/or an Affiliate thereof) in the capacity as a Member.
(iii) The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that an Indemnitee acted in bad faith, engaged in willful or intentional misconduct, or committed fraud, or otherwise is not subject to indemnification.
(b) If a claim or assertion of liability is made or asserted by a third party against an Indemnitee that is subject to indemnification pursuant to this Section 5.6, the Indemnitee will within twenty (20) Business Days give to the Company written notice of the claims or assertion of liability and request the Company to provide indemnification. Failure to so notify the Company will not relieve the Company of any liability which the Company might have to the Indemnitee except to the extent that such failure actually prejudices the Company’s position. The Company will periodically advance or reimburse the Indemnitee Person for its legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith; provided that the Company may, in the discretion of the Manager, condition such advancement on receiving a written undertaking from such Indemnitee agreeing to promptly repay to the Company the amount of any such advanced or reimbursed expenses paid to it to the extent that it shall ultimately be determined that such Indemnitee is not entitled to be indemnified by the Company. The Company and the Indemnitee will reasonably cooperate with each other in the defense of any such action.
(c) No Indemnitee will be entitled to indemnification under this Section 5.6 if it has entered into any settlement or compromise of any claim giving rise to any indemnifiable loss without the written consent of the Company. The Indemnitee shall promptly advise the Company of any settlement offers. If a bona fide settlement offer is made with respect to a claim and the Company desires for the Indemnitee to accept and agree to such offer and is willing to pay the full settlement amount, the Company will give written notice to the Indemnitee to that effect (the “Settlement Notice”). If the Indemnitee fails to consent to the settlement offer within ten (10) calendar days after receipt of the Settlement Notice, then the Indemnitee will be financially responsible for continuing the defense of such claim, without indemnification from the Company, and, in such event, the maximum liability of the Company as to such claim will not exceed the amount of such settlement offer plus any and all reasonable costs and expenses paid or incurred by the Indemnitee up to the date of the Settlement Notice and which are otherwise the responsibility of the Company pursuant to this Section 5.6.
(d) Any indemnification permitted under this Section 5.6 shall be made only out of the assets of the Company and no Member shall be obligated to contribute to the capital of, or loan funds to, the Company to enable the Company to provide such indemnification.
(e) The indemnification provided by this Section 5.6 shall be in addition to any other rights to which each Indemnitee may be entitled under any agreement or vote of the Members, as a matter of law or otherwise, as to action in the Indemnitee’s capacity as a Member, or as the Manager, director, officer, shareholder, constituent partner, constituent member or employee of a Member, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns, administrators, and personal representatives of the Indemnitee.
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(f) The Company may purchase and maintain insurance on behalf of any one or more Indemnitees.
(g) In no event may an Indemnitee subject a Member to personal liability by reason of the indemnification provisions of this Agreement.
(h) The provisions of this Section 5.6 are for the benefit of the Indemnitees and the heirs, successors, assigns, administrators, and personal representatives of the Indemnitees and shall not be deemed to create any rights for the benefit of any other Persons.
(i) THIS SECTION 5.6 INCLUDES AN INDEMNITY BY THE COMPANY OF EACH INDEMNITEE AGAINST SUCH INDEMNITEE’S ORDINARY NEGLIGENCE.
ARTICLE 6
CAPITALIZATION
6.1. Units.
(a) Membership Interests in the Company are represented by Units designated as “Class A Units” and “Class B Units.”
(b) The Units of each Member are set forth on such Member’s counterpart signature page to this Agreement.
6.2. CapitalContributions.
(a) The Capital Contributions of the Members are as set forth on the books and records of the Company.
(b) If at any time the Manager determines that the Company has insufficient funds to carry out the purposes of the Company, the Manager may seek additional contributions of capital from the Members or third parties. For the avoidance of doubt, except as otherwise agreed to by a Member, no Member shall be required to make additional Capital Contributions without their consent.
(c) No Member shall be paid interest on any Capital Contribution.
6.3. Withdrawalor Reduction of Capital Contributions.
(a) No Member shall have the right to withdraw all or any part of its Capital Contribution or to receive any return on any portion of its Capital Contribution, except as may be otherwise specifically provided in this Agreement. Under circumstances involving a return of any Capital Contribution, no Member shall have the right to receive property other than cash.
(b) Except as otherwise specifically provided in this Agreement, no Member shall have priority over any other Member, either as to the return of Capital Contributions or distributions; provided, however, that this Section 6.3(b) shall not apply to loans (as distinguished from Capital Contributions) that a Member has made to the Company.
6.4. MemberLoans. If the Manager makes a request for loans, the Members, Pro Rata or as they may otherwise agree, may make a loan or loans to the Company. The amount of any such loan or advance (the “Member Loans”) shall not be deemed an increase in the Capital Contributions of the Member that makes such loan or entitle that lending Member to any increase in its Membership Interest. Unless otherwise approved by the Class A Member and subject to Section 4.5(b), any Member Loan (i) shall bear interest at the lower of (A) the Prime Rate plus two percent (2.0%) per annum or (B) the Maximum Lawful Rate, which interest is payable on the first day of each month, (ii) shall have a term of three (3) years, and (iii) shall be recourse to the Company but not to any Member.
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6.5. Liabilityof Members. No Member shall be liable for the debts, liabilities, or obligations of the Company beyond such Person’s respective Capital Contribution. Except as otherwise provided herein, no Member shall be required to contribute to the capital of, or to loan any funds to, the Company.
ARTICLE 7
ALLOCATIONS AND DISTRIBUTIONS
7.1. Distributions.
(a) In General. Subject to Sections 4.5(b), 7.1(b), 7.7, 10.2, and 10.3, the Company shall distribute Distributable Cash at times and in amounts determined by the Manager in her, his or its sole discretion, which such distributions shall be made, as follows:
(i) First, the Class A Members, in proportion to their respective Capital Return Accounts, until each such Class A Member’s Capital Return Account has been reduced to zero,
(ii) Second, to the Class B Members, in proportion to their respective Capital Return Accounts, until each such Class B Member’s Capital Return Account has been reduced to zero, and then
(iii) to the Members Pro Rata.
(b) Tax Distributions. The Company shall, to the extent the Manager determines in its good faith discretion that the Company has sufficient Distributable Cash and prior to any other distributions pursuant to this Agreement, declare and make cash distributions (any such distribution a “Tax Distribution”) with respect to each Fiscal Year or other taxable period at least ten (10) days prior to any applicable due date for federal estimated income taxes for individuals with respect to such Fiscal Year or other taxable period (each, a “Due Date”) pursuant hereto to the Members to allow the federal, state and local income tax (including, without limitation, estimated tax payments) attributable to the Company’s taxable income allocable to the Members to be paid by such Members when due. Such Tax Distributions shall be made to each Member in an amount equal to the product of (i) the Company’s positive taxable income allocable to such Member during the relevant period multiplied by (ii) the highest combined marginal federal, state and local income tax rate for any individual Member (including, in the case of any Member that is an S corporation, the individual shareholders of such Member) for the Fiscal Year in which the relevant period falls. Tax Distributions shall take into account any taxable losses allocated to a Member in prior periods and not previously offset against taxable income. Any distribution made pursuant to this Section 7.1(b) shall be treated as an advance on any distributions made pursuant to Section 7.1(a) and 10.3(c).
7.2. BasicAllocations.
(a) In General. After taking into account the special allocations set forth in Section 7.4, Profits and Losses (or items thereof) for each Fiscal Year shall be allocated among the Members so as to reduce, as soon as possible, the difference between their Targeted Accounts and their Partially Adjusted Capital Accounts.
(b) Limitation on Loss Allocations. If any allocation of Losses would cause a Member to have an Adjusted Capital Account Deficit or would increase a Member’s Adjusted Capital Account Deficit, those Losses instead shall, subject to the limitations in this Section 7.2(b), be allocated to the other Members Pro Rata.
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7.3. Allocationson Transfers. Taxable items of the Company attributable to a Membership Interest that has been transferred (including the simultaneous decrease in the Membership Interest of existing Members resulting from the admission of a new Member) shall be allocated between the transferor and the transferee based on an interim closing of the books or such other permissive method in accordance with Code Section 706 reasonably selected by the Manager. Distributions of assets of the Company with respect to a Membership Interest shall be made only to the Persons who, according to the records of the Company, are the owners, on the actual date of distribution, of the Membership Interests with respect to which the distributions are made. No liability shall result from making distributions in accordance with the provisions of the preceding sentence, whether or not the Manager of the Company has knowledge or notice of a Transfer or purported Transfer of ownership of a Membership Interest.
7.4. SpecialAllocations. If the requisite stated conditions or facts are present, the following special allocations shall be made in the following order:
(a) Qualified Income Offset. If a Member unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5), or (6), then items of Company income and gain for the Fiscal Year shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations, the Adjusted Capital Account Deficit of the Member as quickly as possible, provided, however, that an allocation pursuant to this Section 7.4(a) shall be made if and only to the extent that the Member would have an Adjusted Capital Account Deficit after all other allocations provided for in this Article 7 have been tentatively made without considering this Section 7.4(a).
(b) Gross Income Allocation. If a Member has a deficit Capital Account at the end of any Fiscal Year of the Company that exceeds the sum of (i) the amount the Member is obligated to restore, and (ii) the amount of the Member’s Partnership Minimum Gain and Partner Nonrecourse Debt Minimum Gain, then each such Member shall be specially allocated items of income and gain of the Company in the amount of the excess as quickly as possible, provided that an allocation pursuant to this Section 7.4(b) shall be made if and only to the extent that the Member would have a deficit Capital Account in excess of that sum after all other allocations provided for in this Article 7 have been tentatively made without considering Section 7.4(a) or 7.4(b).
(c) Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any asset of the Company under Code Section 734(b) or Code Section 743(b) is required, pursuant to Treasury Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of the adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) and that gain or loss shall be specially allocated to the Members in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to that section of the Treasury Regulations.
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(d) Partnership Minimum Gain Chargeback. Notwithstanding any other provision of this Article 7, if there is a net decrease in Partnership Minimum Gain during any Fiscal Year, prior to any other allocation under this Agreement, each Member shall be specially allocated items of Company income and gain for that period (and, if necessary, subsequent periods) in proportion to, and to the extent of, an amount equal to such Member’s share of the net decrease in Partnership Minimum Gain during such year determined in accordance with Treasury Regulations Section 1.704-2(g)(2). The items to be allocated shall be determined in accordance with Treasury Regulations Section 1.704-2(f) and (j). This Section 7.4(d) is intended to comply with the partnership minimum gain chargeback requirements of the Treasury Regulations and shall be subject to all exceptions provided therein.
(e) Partner Nonrecourse Debt Minimum Gain Chargeback. Notwithstanding any other provision of this Article 7 (other than Section 7.4(d)), if there is a net decrease in Partner Nonrecourse Debt Minimum Gain with respect to a Partner Nonrecourse Debt during Fiscal Year, any Member with a share of such Partner Nonrecourse Debt Minimum Gain as of the beginning of the year shall be specially allocated items of Company income and gain for that period (and, if necessary, subsequent periods) in an amount equal to such Member’s share of the net decrease in the Partner Nonrecourse Debt Minimum Gain during such year determined in accordance with Treasury Regulations Section 1.704-2(i). The items to be so allocated shall be determined in accordance with Treasury Regulations Section 1.704-2(i) and (j). This Section 7.4(e) is intended to comply with the partner nonrecourse debt minimum gain chargeback requirements of the Treasury Regulations, shall be interpreted consistently with the Treasury Regulations and shall be subject to all exceptions provided therein.
(f) Nonrecourse Deductions. Nonrecourse Deductions for any taxable year or other period for which allocations are made shall be allocated among the Members Pro Rata.
(g) Partner Nonrecourse Deductions. Notwithstanding anything to the contrary in this Agreement, any Partner Nonrecourse Deductions for any Fiscal Year will be allocated to the Member who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which the Partner Nonrecourse Deductions are attributable in accordance with Treasury Regulations Section 1.704-2(i).
7.5. Allocationsof Built-in Items. In accordance with Code Sections 704(b) and 704(c) and the Treasury Regulations thereunder, income, gain, loss, and deduction with respect to property actually or constructively contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation at the time of the contribution between the tax basis of the property to the Company and the Gross Asset Value of that property. In the event the Gross Asset Value of any Company asset is adjusted pursuant to subparagraphs (ii) or (iv) of the definition of “Gross Asset Value” in Section 1.1, subsequent allocations of income, gain, loss and deduction with respect to such asset shall take account of any variation between the adjusted basis of such asset for federal income tax purposes and its Gross Asset Value in the same manner as under Code Sections 704(b) and 704(c) and the Treasury Regulations thereunder. Except as otherwise provided herein, any elections or other decisions relating to those allocations shall be made by the Manager, after consultation with the Accountant, in any manner that reasonably reflects the purpose and intent of this Agreement. Allocations of income, gain, loss, and deduction pursuant to this Section 7.5 are solely for purposes of federal, state and local taxes and shall not affect, or in any way be taken into account in computing, the Capital Account of any Member or the share of Profits, Losses, other tax items or distributions of any Member pursuant to any provision of this Agreement.
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7.6. CapitalAccounts. The Company shall establish and maintain a separate capital account (“Capital Account”) for each Member in accordance with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv) and in accordance with the following provisions:
(a) The Capital Account balance of each Member shall be credited (increased) by (i) the amount of cash contributed by such Member to the capital of the Company, (ii) the Gross Asset Value of property contributed by such Member to the capital of the Company (net of liabilities secured by such contributed property that the Company assumes or takes subject to under Code Section 752), and (iii) such Member’s allocable share of Profits and any items in the nature of income or gain which are specially allocated pursuant to Section 7.4; and
(b) The Capital Account balance of each Member shall be debited (decreased) by (i) the amount of cash distributed to such Member by the Company, (ii) the Gross Asset Value of property distributed to such Member by the Company (net of liabilities secured by such distributed property that such Member assumes or takes subject to under Code Section 752), and (iii) such Member’s allocable share of Losses and any items in the nature of expenses or losses which are specially allocated pursuant to Sections 7.4.
The provisions of this Section 7.6 and the other provisions of this Agreement relating to the maintenance of Capital Accounts have been included in this Agreement to comply with Code Section 704(b) and the Treasury Regulations promulgated thereunder and will be interpreted and applied in a manner consistent with those provisions. The Manager may modify the manner in which the Capital Accounts are maintained under this Section 7.6 in order to comply with those provisions, as well as upon the occurrence of events that might otherwise cause this Agreement not to comply with those provisions.
7.7. Limitationsupon Distributions. No distribution shall be declared and paid unless after the distribution is made, the assets of the Company are in excess of all liabilities of the Company (as determined in accordance with accounting principles applied on a consistent basis under the Company’s method of accounting), except liabilities to Members on account of their Capital Contributions.
ARTICLE 8
TRANSFER AND PLEDGE RESTRICTIONS
8.1. Transferand Pledge Restriction.
(a) Transfers. Notwithstanding any other provision of this Agreement, no Member may Transfer or Pledge in any manner whatsoever all or any part of its Units unless (i) either (A) with respect to a Transfer, such Transfer is approved by the Manager and such Member has fully complied with the provisions of Section 8.2, as applicable, or (B) with respect to a Pledge, such Pledge has been approved by the prior written consent of the Manager, (ii) unless otherwise waived by the Manager, after giving effect thereto, such Transfer or Pledge would not otherwise cause the Company to be classified as other than a partnership for U.S. federal income tax purposes, and (iii) such Transfer or Pledge would not result in a violation of applicable law, including U.S. federal or state securities laws, or any term or condition of this Agreement.
(b) Purported Transfers. Any purported Transfer by a Member or any Assignee of a Member of any Units that is not in compliance with this Agreement is hereby declared to be null and void and of no force or effect whatsoever.
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8.2. PermittedTransfers. A Member may Transfer its Class A Units and/or Class B Units to an Affiliate of such Member and the stockholders of the Class B Member, subject to the terms of such Class B Member’s governing documents, as applicable, may engage in direct or indirect transactions of capital stock in the Class B Member for bona fide estate planning purposes (each such Transfer, a “PermittedTransfer”), whether by gift, sale, or otherwise, without any offer of such Units to the Company or the other Members and without the consent of the Manager or the other Members.
8.3. [Reserved.]
8.4. SubstituteMember. No Assignee shall have the right to become a substitute Member (a “Substitute Member”) upon Transfer of any Units to it unless all the following conditions are satisfied:
(a) The Member and the Assignee shall have executed and acknowledged such other instruments and taken such other action as the Manager shall deem reasonably necessary or desirable to effect such substitution, including, without limitation, the execution by the Assignee of a subscription agreement and an appropriate amendment to this Agreement;
(b) The conditions set forth in Section 8.1 shall have been satisfied, and, if requested by the Manager, the Member or the Assignee shall have obtained an opinion of counsel satisfactory to the Manager;
(c) The Member or the Assignee shall have paid to the Company such amount of money as is sufficient to cover all expenses incurred by or on behalf of the Company in connection with such substitution; and
(d) Except for Permitted Transfers, the admission of the Assignee as a Substitute Member has been approved by the Manager.
8.5. Assignee’sRights.
(a) Unless an Assignee becomes a Substitute Member in accordance with the provisions of Section 8.4, it shall not be entitled to any of the rights (including voting rights) granted to a Member hereunder or under the TBOC, other than the right to receive the share of distributions and any other items attributable to a Member’s Units to which its assignor would otherwise be entitled.
(b) Any Member that Transfers all of its Units shall cease to be a Member.
8.6. TaxMatters. On the Transfer of all or part of any Units, at the request of the Assignee of the Units, the Manager shall cause the Company to elect, pursuant to Code Section 754 to adjust the tax basis of the properties of the Company as provided by Code Sections 734 and 743.
8.7. Withdrawal. Except as otherwise permitted by the terms of this Agreement, no Member has the right to withdraw from the Company as a Member without the consent of the Manager.
8.8. ClassB Units Exchange Rights.
(a) At any time after May 1, 2026, and from time to time, at the election of any Class B Member (an “Exchanging Member”) and subject to the terms of this Section 8.8, such Exchanging Member shall have the right to exchange all or any portion of its outstanding Class B Units for (i) a number of validly issued, fully paid and nonassessable shares of common stock, par value of $0.001 (“XTI Common Stock”) of XTI, equal to the number of Class B Units exchanged multiplied by the Exchange Ratio then in effect, together with the payment of cash in lieu of fractional shares as provided below and (ii) a cash payment equal to the XTI Distribution Amount with respect to each such Class B Unit (the “Exchange Right”).
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(b) The “Exchange Ratio” shall initially be one (1) share of XTI Common Stock for each Class B Unit exchanged, as equitably adjusted for stock splits, stock dividends, reclassifications and similar transactions affecting the XTI Common Stock.
(c) To exercise the Exchange Right, an Exchanging Member shall deliver to the Company a written notice (an “Exchange Notice”) stating (i) the number of Class B Units to be exchanged and (ii) the proposed exchange date, which shall be not less than 5 Business Days nor more than 30 Business Days following the date of the Exchange Notice. On the exchange date, subject to the satisfaction of the conditions set forth in Section 8.8(d), (A) the Exchanging Member shall deliver to the Company the Class B Units being exchanged free and clear of all liens (other than those arising under this Agreement and generally applicable restrictions on transfers under securities laws), whereupon such Class B Units shall be deemed automatically redeemed by the Company and cancelled and shall cease to be outstanding, and (B) XTI (or its designee) shall deliver to the Exchanging Member the applicable number of shares of XTI Common Stock (and cash in lieu of any fractional share) and the XTI Distribution Amount for each such Class B Unit.
(d) Prior to any shares of XTI Common Stock being issued in exchange for Class B Units pursuant to this Section 8.8, (i) the Exchanging Member must provide the Company and XTI with an Exchange Certificate in substantially the form attached hereto as Exhibit B (an “ExchangeCertificate”) and (ii) each of the legal, record and beneficial owners of all of the issued and outstanding equity interests of the Exchanging Member must complete an Accredited Investor Questionnaire in substantially the form attached hereto as Exhibit C (an “Investor Questionnaire”).
(e) The Exchange Right is subject to (i) compliance with applicable federal and state securities laws and (ii) the absence of any legal or contractual prohibition that would reasonably be expected to make the issuance of XTI Common Stock by XTI unlawful. If any such restriction applies, the exchange shall occur on the first Business Day on which such restriction no longer applies.
(f) No fractional shares of XTI Common Stock shall be issued upon an exchange pursuant to this Section 8.8. In lieu thereof, the Exchanging Member shall be entitled to receive a cash amount equal to such fraction multiplied by the volume-weighted average price of XTI Common Stock for the ten (10) trading days ending on (and including) the trading day prior to the exchange date.
(g) Each party hereto shall take all actions reasonably necessary or appropriate to facilitate the Exchange Right, including maintaining appropriate books and records, and the Class A Member shall cause XTI to issue the applicable shares and to honor the Exchange Right as provided herein. Notwithstanding anything in this Agreement to the contrary, except as otherwise provided in the Registration Rights Agreement, none of XTI or any of its Affiliates shall be obligated to register the shares of XTI common stock issued upon exchange.
(h) The parties shall cooperate in good faith to structure exchanges under this Section 8.8 in a tax-efficient manner consistent with applicable law; provided that neither the Company nor XTI makes any representation regarding the tax treatment of any exchange, and each Exchanging Member shall be solely responsible for its own tax consequences.
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8.9. MandatoryExchange of Class B Units.
(a) Notwithstanding anything to the contrary herein, on the date that is fifteen (15) months after the Effective Date (the “Mandatory ExchangeDate”), without any further action by any Person, each outstanding Class B Unit shall be exchanged for (i) a number of validly issued, fully paid and nonassessable shares of XTI Common Stock equal to the one (1) Class B Unit multiplied by the applicable Exchange Ratio then in effect, together with the payment of cash in lieu of any fractional shares as provided below, and (ii) a cash payment equal to the XTI Distribution Amount with respect to such Class B Unit (the “Mandatory Exchange”). Effective upon the Mandatory Exchange, all Class B Units so exchanged shall be deemed automatically redeemed by the Company, cancelled and no longer outstanding, and the holders thereof shall cease to have any rights with respect thereto other than the right to receive the consideration described in the preceding sentence. On the Mandatory Exchange Date, subject to the satisfaction of the conditions set forth in Section 8.9(d), (A) each Class B Member shall deliver to the Company the Class B Units being exchanged free and clear of all liens (other than those arising under this Agreement and generally applicable restrictions on transfers under securities laws), whereupon such Class B Units shall be deemed automatically redeemed by the Company and cancelled and shall cease to be outstanding, and (B) XTI (or its designee) shall deliver to each Class B Member the applicable number of shares of XTI Common Stock (and cash in lieu of any fractional share) and the XTI Distribution Amount for each such Class B Unit.
(b) Not less than ten (10) Business Days prior to the Mandatory Exchange Date, the Company shall provide written notice to each Class B Member specifying (i) the anticipated Mandatory Exchange Date, (ii) the anticipated number of shares of XTI Common Stock to be issued in exchange for such Member’s Class B Units based on the then-current Exchange Ratio, (iii) the process for delivery of any certificates or instruments evidencing Class B Units, and (iv) the anticipated XTI Distribution Amount. Delivery of any certificates or instruments evidencing Class B Units shall be a ministerial act only and shall not be a condition to the effectiveness of the Mandatory Exchange as between the parties hereto. The actual XTI Distribution Amount shall be calculated as of the Mandatory Exchange Date.
(c) The Mandatory Exchange and the issuance of XTI Common Stock in connection therewith shall be subject to (i) compliance with applicable federal and state securities laws and (ii) the absence of any legal or contractual prohibition that would make such issuance unlawful (including applicable listing rules of any national securities exchange on which XTI Common Stock is then listed). If any such restriction applies on the Mandatory Exchange Date, the Mandatory Exchange shall automatically occur on the first Business Day on which such restriction no longer applies (the “Deferred Exchange Date”), and references herein to the Mandatory Exchange Date shall be deemed to refer to the Deferred Exchange Date. The Company and the Class A Member shall cause XTI to use commercially reasonable efforts to promptly remove, cure or obtain any required waiver of any such restriction to permit the Mandatory Exchange to occur as soon as practicable.
(d) Prior to the issuance of any XTI Common Stock upon the Mandatory Exchange, each Class B Member shall (and shall cause each of its legal, record and beneficial owners to) deliver to the Company and XTI an executed Exchange Certificate and a completed Investor Questionnaire; provided, that the failure of any Person to deliver such documentation shall not, as between the parties hereto, affect the effectiveness of the Mandatory Exchange, and in such event the applicable shares may be issued in the name of such Person and held by the Company (or its designee) in escrow pending receipt of such documentation.
(e) No fractional shares of XTI Common Stock shall be issued upon the Mandatory Exchange. In lieu thereof, each Class B Member otherwise entitled to a fractional share shall be entitled to receive a cash amount equal to such fraction multiplied by the volume-weighted average price of XTI Common Stock for the ten (10) trading days ending on (and including) the trading day prior to the Mandatory Exchange Date (or, if applicable, the Deferred Exchange Date).
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(f) Each party hereto shall take all actions reasonably necessary or appropriate to effect the Mandatory Exchange, including maintaining appropriate books and records, and the Class A Member causing XTI to issue the applicable shares of XTI Common Stock and to honor the Mandatory Exchange as provided herein. The parties shall cooperate in good faith to structure the Mandatory Exchange in a tax-efficient manner consistent with applicable law; provided that neither the Company nor XTI makes any representation regarding the tax treatment of the Mandatory Exchange, and each Class B Member shall be solely responsible for its own tax consequences.
(g) Except as otherwise provided in the Registration Rights Agreement, none of XTI or any of its Affiliates shall be obligated to register the shares of XTI Common Stock issued upon the Mandatory Exchange.
ARTICLE 9
BOOKS AND ACCOUNTS
9.1. AccountingPrinciples. Profits and Losses shall be determined in accordance with the Company’s method of accounting as selected by the Manager.
9.2. Recordsand Reports.
(a) At the expense of the Company, the Manager shall maintain records and accounts of all operations and expenditures of the Company. At a minimum, the Company shall keep at its principal place of business the following records:
(i) A current list that states: (i) the name and mailing address of each Member and (ii) the Units owned by each Member;
(ii) Copies of the federal, state, and local information or income tax returns for each of the Company’s six (6) most recent tax years (or such shorter period that the Company has been in existence);
(iii) A copy of the Certificate and this Agreement, all amendments or restatements thereof, and executed copies of any powers of attorney;
(iv) Correct and complete books and records of account of the Company; and
(v) Any other books, records or documents required by this Agreement, the Certificate, the TBOC, or other applicable law.
(b) Within forty-five (45) days after the end of each fiscal quarter, the Company shall deliver to each of the Members a copy of the Company’s unaudited financial statements for that quarter in such form as regularly prepared by the Company, and within one hundred and twenty (120) days after the end of each Fiscal Year, the Company shall deliver to each of the Members a copy of the Company’s annual financial statements for the applicable Fiscal Year in such form as regularly prepared by the Company.
9.3. TaxReturns and Other Elections. The Manager and all Members intend for the Company to be treated, for federal and, where permissible, state and local income tax purposes, as a partnership. The Manager shall prepare, or cause the Accountant to prepare, all federal, state, and local income and other tax returns that the Company is required to file. The Manager will cause to be delivered to each Member a final Schedule K-1 and any other information that any Member reasonably requests relating thereto as soon as they are completed after the end of each Fiscal Year, but in any event no later than seven (7) days prior to the due date, taking into account extensions, for such federal income tax return of the Company after the end of any Fiscal Year.
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9.4. PartnershipRepresentative.
(a) The Person identified as the “Partnership Representative” on Exhibit A, or such other qualified Person designated by the Manager, shall serve as the “partnership representative” within the meaning of Code Section 6223(a) and under any comparable provision of any other applicable law (the “Partnership Representative”). Each Member shall cooperate as reasonably requested by the Manager to (i) designate the Person selected by the Manager to serve as the Partnership Representative and (ii) replace such Partnership Representative to the extent determined by the Manager.
(b) The Partnership Representative shall be subject to the following provisions.
(i) The Partnership Representative shall represent the Company with regard to any tax matters initiated by the Internal Revenue Service or any state, local, or foreign taxing authority.
(ii) Unless otherwise determined by the Manager, the Partnership Representative shall have full authority to act on behalf of the Members and the Company, as provided by applicable law, with respect to any tax audit, investigation, or other proceeding brought by any taxing authority, including administrative settlement and judicial review (a “Tax Proceeding”) and, subject to applicable law, the Members and the Company shall be bound by the actions taken by the Partnership Representative in such capacity. Unless otherwise determined by the Manager, the Partnership Representative may: (A) execute any agreement or other document relating to, or affecting, any tax matter, (B) make (or decline to make) any election under the Code or any similar provisions of applicable law, and (C) take any action and execute and file any statement or form on behalf of the Company that applicable law permits or requires, in each case in accordance with applicable law.
(iii) The Partnership Representative may employ experienced tax counsel to represent the Company in connection with any Tax Proceeding.
(iv) The Partnership Representative shall keep the Members reasonably informed regarding tax matters related to the Company.
(v) All reasonable out-of-pocket costs and expenses incurred in connection with any Tax Proceeding or otherwise incurred by the Partnership Representative in performing its duties in such capacity shall be borne by the Company. If the Partnership Representative in such capacity incurs reasonable out-of-pocket fees and expenses in connection with tax matters not affecting all the Members, then the Company shall be entitled to reimbursement from those Members on whose behalf such reasonable out-of-pocket fees and expenses were incurred.
(vi) To the extent permitted by applicable law, but subject to the limitations and exclusions of Section 5.6, the Company agrees to indemnify the Partnership Representative and save and hold it harmless, from and in respect to all (A) reasonable out-of-pocket fees, costs and expenses in connection with or resulting from any claim, action, or demand against the Partnership Representative that arise out of the Partnership Representative’s status as Partnership Representative for the Company, and (B) any losses or damages arising from such claims, actions, and demands, including amounts paid in settlement or compromise of any such claim, action, or demand; in each case to the extent such fees, costs, expenses, losses or damages resulted from the Partnership Representative’s fraud, bad faith, or willful or intentional misconduct or a material breach of this Agreement.
24
(c) If the Company incurs or is required to pay any liability for any taxes, interest, penalties, other additions to tax, or any related costs and expenses of any kind or nature that may be sustained or suffered by the Company (including any costs incurred in connection with a Tax Proceeding) for any taxable year (a “Company Tax Liability”):
(i) The Partnership Representative may cause each Reviewed Year Member to pay its allocable share of such Company Tax Liability, which shall take into account any reduction of the Company Tax Liability attributable to that Member (e.g., the tax-exempt status of that Member or the filing of an amended tax return for the Reviewed Year by that Member), all as reasonably determined by the Partnership Representative in its good faith discretion, and each such Reviewed Year Member hereby agrees to pay that amount to the Company and such amount shall not be treated as a Capital Contribution for purposes of any provision of this Agreement that affects distributions to the Members; provided that no Member shall be required to file an amended federal income tax return; and
(ii) Any amount not paid by a Reviewed Year Member at the time reasonably requested by the Partnership Representative shall accrue interest at the rate set by the Manager (not to exceed the maximum rate permitted by law) until paid, and that Member shall also be liable to the Company for any damages resulting from a delay in making such payment beyond the date such payment is reasonably requested by the Partnership Representative, and for this purpose the fact that the Company could have paid this amount with other funds shall not be taken into account in determining such damages; and
(iii) Without reduction in a Reviewed Year Member’s obligation under Section 9.4(c)(i) and Section 9.4(c)(ii), any amount paid by the Company that is attributable to a Reviewed Year Member, as determined by the Partnership Representative in its reasonable discretion, and that is not paid by that Member pursuant to Section 9.4(c)(i) or Section 9.4(c)(ii) may be treated (A) as a distribution to (and shall reduce amounts otherwise distributable to) that Member or (B) in such other manner as determined by the Partnership Representative in its sole discretion.
(d) Each Person (herein called a “Pass-Thru Member”) that holds or controls an interest as a Member on behalf of, or for the benefit of another Person or Persons, or which Pass-Thru Member is beneficially owned (directly or indirectly) by another Person or Persons shall, within thirty (30) days following receipt from the Partnership Representative of any notice, demand, request for information or similar document, convey such notice or other document in writing to all holders of beneficial interests in the Company holding such interests through such Pass-Thru Member.
(e) The Members shall cooperate as reasonably requested by the Partnership Representative in connection with any Tax Proceeding. The Members shall promptly provide upon the Partnership Representative’s request therefor, such information as the Partnership Representative may reasonably request, and shall take such action as reasonably requested by the Partnership Representative, including executing and filing forms or other statements, providing information about the Member, or any other action reasonably requested by the Partnership Representative.
(f) Each Member hereby agrees to indemnify and hold harmless the other Members from and against any liability (including any liability for taxes) with respect to income attributable to, or distributions or other payments to, such Member.
25
(g) Notwithstanding any other provision of this Agreement, the obligations of a Member under this Section 9.4 (i) may be enforced by legal process or any other lawful means, including, without limitation, by offsetting any unpaid obligations against amounts otherwise distributable to the Member, (ii) will survive indefinitely with respect to any taxes withheld by the Company, or paid by the Company or other Members, that relate to the period during which such Person was actually a Member, regardless of whether such taxes are assessed, withheld, or otherwise paid during such period, (iii) will survive the Transfer or abandonment by that Member of its Membership Interest, the withdrawal of that Member, or that Member otherwise ceasing to be a Member of the Company, (iv) will survive the dissolution, liquidation, winding up, and termination of the Company, and (v) will remain binding on the Members for as long a period of time as is necessary to resolve with the Internal Revenue Service or any other taxing authority any and all matters regarding the taxation of the Company or the Members. If any Member withdraws or disposes of its Membership Interest, such Member shall keep the Company advised of their contact information until released in writing by the Company from such obligation.
(h) References to a Reviewed Year Member in this Section 9.4 include those Persons who or which are Assignees of a Reviewed Year Member, and references to a Member in this Section 9.4 include, as applicable, those Persons who or which are (i) former Members or (ii) transferees or Assignees of Members or former Members.
(i) The Members covenant and agree that the Manager may amend this Agreement, without the consent of the Members, in order to reflect the effect of any applicable Treasury Regulations or other guidance promulgated with respect to a partnership representative.
9.5. BankAccounts. All funds of the Company shall be deposited in its name in an account maintained in an insured, commercial financial institution, as determined by the Manager. The funds of the Company shall not be commingled with the funds of any other Person. Checks may be drawn on the Company’s account or accounts only for the purposes of the Company and shall be signed by one or more of the Manager or such other Persons designated by the Manager.
ARTICLE 10
WINDING-UP AND TERMINATION
10.1. EventsRequiring Winding-up.
(a) The Company shall be wound up upon the first to occur of the following:
(i) On the election to dissolve the Company approved by the Members;
(ii) On the acquisition of all or substantially all of the Property of the Company;
(iii) On the death, retirement, resignation, expulsion, legal incapacity, dissolution, or Bankruptcy of the last remaining Member;
(iv) The entry of a judicial decree requiring winding-up under the TBOC; or
(v) The TBOC so requires and the requirement is not validly varied by the Certificate or this Agreement.
(b) Nothing contained in this Section 10.1 is intended to permit a Member to cause the Company to wind-up at will (by retirement, resignation, withdrawal, or otherwise), or to exonerate a Member from liability to the Company and the remaining Members if it causes the Company to wind-up at will. An unpermitted winding-up at will of the Company is in contravention of this Agreement for purposes of the TBOC.
10.2. Processof Winding-up.
(a) On winding-up of the Company, the business and affairs of the Company shall terminate, the assets of the Company shall be liquidated, and the Company’s affairs shall be wound up under this Article 10.
26
(b) The winding-up of the Company shall begin as of the day on which the event giving rise to the winding-up occurs, but the Company shall not terminate until (i) there has been a completion of the winding-up of the Company’s business and affairs and (ii) the Company’s assets have been distributed as provided in Section 10.3.
(c) On the winding-up of the Company, the Manager may cause any part or all of the assets of the Company to be sold in the manner in an effort to obtain the best prices for the assets; provided, however, the Manager may distribute assets of the Company in kind to the Members to the extent practicable.
10.3. Distributionof Assets on Winding-up. In settling accounts during winding-up, the assets of the Company shall be paid, reserved, or distributed in the following order:
(a) First, amounts owed to creditors shall be paid to those creditors, in the order of priority as provided by law, except those to Members on account of their Capital Contributions;
(b) Second, amounts necessary to establish, for a period not to exceed one (1) year after the date of dissolution, cash reserves that the Manager deems reasonably necessary for any contingent or unforeseen liabilities or obligations of the Company shall be held as reserves by the Company; and
(c) Third, any remainder shall be distributed to the Members in accordance with Section 7.1(a).
Distributions pursuant to this Section 10.3 may be made to a trust established for the benefit of the Members for the purposes of liquidating Company assets, collecting amounts owed to the Company, and paying contingent or unforeseen liabilities or obligations of the Company. The assets of any such trust shall be distributed to the Members from time to time in the same proportions as the amounts distributed to the trust by the Company would otherwise have been distributed to the Members pursuant to this Agreement.
10.4. Distributionsin Kind. Assets of the Company may be distributed to the Members entitled thereto as tenants-in-common in the same proportions as the Members would have been entitled to cash distributions if the property had been sold for cash and the net proceeds distributed to the Members. If distributions in kind are made to the Members on dissolution and winding up of the Company, the Capital Account balances of those Members shall be adjusted to reflect the Members’ allocable share of gain or loss that would have resulted if the distributed property had been sold at its fair market value.
10.5. Certificateof Termination. When all liabilities and obligations of the Company have been paid or discharged, or adequate provision has been made therefor, and all of the remaining property and assets of the Company have been distributed to the Members according to their respective rights and interests, a Certificate of Termination shall be executed on behalf of the Company by one or more of the Manager or an authorized Member and shall be filed with the Secretary of State of the State of Texas, and the Manager and Members shall execute, acknowledge, and file any and all other instruments necessary or appropriate to reflect the completion of the winding-up and termination of the Company.
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1. Notices.
(a) Any notice, notification, demand, or request provided or permitted to be given under this Agreement must be in writing and shall have been deemed to have been properly given, unless explicitly stated otherwise, if sent by (i) FedEx or other comparable overnight courier, (ii) facsimile transmission during normal business hours to the place of business of the recipient, or (iii) electronic transmission during normal business hours to the electronic address of the recipient.
(b) For purposes of all notices, the contact information of the Manager and the Members are set forth on Exhibit A.
(c) All notices, notifications, demands, or requests so given shall be deemed given and received (i) if sent via FedEx or other comparable overnight courier, the next Business Day after being deposited with such carrier; (ii) if sent via facsimile transmission, the next Business Day after being so transmitted; or (iii) if sent via electronic transmission, the next Business Day after being so transmitted.
27
11.2. Amendments.
(a) Except as otherwise expressly set forth in this Agreement, this Agreement may be amended, supplemented, or restated only by the Manager with the approval of the Class A Member.
(b) Except as otherwise expressly set forth in this Agreement or the Certificate, the Certificate may be amended, supplemented, or restated only upon the approval of the Class A Member. Upon obtaining the approval of any amendment to the Certificate, the Manager shall cause a Certificate of Amendment in accordance with the TBOC to be prepared, and such Certificate of Amendment shall be executed by the Manager and shall be filed in accordance with the TBOC.
11.3. Applicationof Texas Law. This Agreement and the application or interpretation hereof, shall be governed exclusively by the laws of the State of Texas, and specifically the TBOC.
11.4. NoAction for Partition. No Member shall have any right to maintain any action for partition with respect to the Property.
11.5. Headingsand Sections. The headings in this Agreement are inserted for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent, or intent of this Agreement or any provision hereof. Unless the context requires otherwise, all references in this Agreement to Sections or Articles shall be deemed to mean and refer to Sections or Articles of this Agreement.
11.6. Numberand Gender. Where the context so indicates, the masculine shall include the feminine, the neuter shall include the masculine and feminine, and the singular shall include the plural.
11.7. BindingEffect. Except as herein otherwise provided to the contrary, this Agreement shall be binding upon and inure to the benefit of the Members, their distributes, heirs, legal representatives, executors, administrators, successors, and assigns.
11.8. NoThird-Party Beneficiary. This Agreement is made solely and specifically between and for the benefit of the parties hereto and their respective successors and assigns, subject to the expressed provisions hereof relating to successors and assigns. No other Person has any rights, interest, or claims hereunder or is or will be entitled to any benefits under or on account of this Agreement as a third-party beneficiary or otherwise unless specifically provided in this Agreement.
11.9. Soleand Absolute Discretion. Except as otherwise provided in this Agreement, all actions that any Manager and/or Member may take and all determinations that any Manager and/or Member may make pursuant to this Agreement may be taken and made at the sole and absolute discretion of that Manager and/or Member, and the Manager and/or Member shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Company or the other Members.
11.10. Titleto Company Property. To the extent that Property is held in the name of a Member, the Property shall be deemed held by that Member as agent and nominee for and on behalf of the Company. Any other property acquired by or standing in the name of any Member shall be conclusively presumed not to be Property, unless an instrument in writing, signed by such Member, shall specify to the contrary.
11.11. Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, the legality, validity, and enforceability of the remaining provisions of this Agreement shall not be affected thereby, and in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be legal, valid, and enforceable.
11.12. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original and shall be binding upon the Members and Manager who executed the same, but all of such counterparts shall constitute the same Agreement.
11.13. EntireAgreement. The Certificate, this Agreement, the Registration Rights Agreement and any purchase or subscription agreements set forth the entire agreement between the parties, and fully supersede any and all prior agreements, understandings, or representations between the parties, whether oral or written, pertaining to the subject matter of this Agreement. No oral statements or other prior written material not specifically incorporated into this Agreement shall be of any force and effect, and no changes in or additions to this Agreement shall be recognized, unless incorporated into this Agreement by written amendment, such amendment to become effective on the date stipulated in it. Each party represents and acknowledges that in executing this Agreement, such party does not rely on, has not relied on, and specifically disavows any reliance on any communications, promises, statements, inducements, or representation(s), oral or written, by the Company or its agents except as expressly contained in this Agreement. Each party further represents that such party is relying on its own judgment in entering into this Agreement.
11.14. Waiverof Jury Trial. EACH PARTY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RIGHT TO A TRIAL BY JURY TO THE EXTENT PERMITTEDBY LAW IN ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF THE TERMS AND CONDITIONS OF THIS AGREEMENT. THIS WAIVER APPLIES TO ANY LEGAL ACTIONOR PROCEEDING, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. EACH PARTY ACKNOWLEDGES THAT IT HAS RECEIVED THE ADVICE OF COMPETENT COUNSEL.
Remainder of Page Intentionally Left Blank.
Signature Pages Follow.
28
IN WITNESS WHEREOF, the undersigned, being the Manager, has caused this Agreement to be duly adopted by the Company as of the Effective Date.
| XTI DRONES, LLC, | |
|---|---|
| a Texas limited liability company | |
| By: | XTI AEROSPACE, INC., |
| a Nevada corporation, | |
| its Sole Member | |
| By: | /s/ Brooke Turk |
| --- | --- |
| Brooke Turk, | |
| Chief Financial Officer |
Signature Page to
Amended and RestatedLimited Liability Company Agreement of
XTI Drones Holdings,LLC
Acknowledged, consented and agreed, solely with respect to the terms and provisions of Section 8.8.
| XTI AEROSPACE, INC. | |
|---|---|
| By: | /s/ Brooke Turk |
| Brooke Turk, | |
| Chief Financial Officer |
Signature Page to
Amended and RestatedLimited Liability Company Agreement of
XTI Drones Holdings,LLC
Counterpart Signature Page to the
Amended and Restated Company Agreement of
XTI Drones Holdings, LLC
The undersigned, as a Member of XTI Drones Holdings, LLC, a Texas limited liability company (the “Company”), does hereby ratify, confirm, and approve the adoption of this Amended and Restated Company Agreement of XTI Drones Holdings, LLC (the “Agreement”).
| CLASS A MEMBER: | ||
|---|---|---|
| XTI DRONES, LLC, | ||
| a Texas limited liability company | ||
| By: | XTI AEROSPACE, INC., | |
| a Nevada corporation, | ||
| its Sole Member | ||
| By: | /s/ Brooke Turk | |
| Brooke Turk, | ||
| Chief Financial Officer | ||
| Date of Issuance: | November 10, 2025 | |
| --- | --- | |
| Address: | XTI Drones, LLC | |
| 8123 Interport Blvd., Suite C | ||
| Englewood, Colorado 80112 | ||
| Attn: Brooke Turk, Chief Financial Officer | ||
| Number of Class A Units: | 32,786,816 | |
| --- | --- |
Signature Page to
Amended and RestatedLimited Liability Company Agreement of
XTI Drones Holdings,LLC
Counterpart Signature Page to the
Amended and Restated Company Agreement of
XTI Drones Holdings, LLC
The undersigned, as a Member of XTI Drones Holdings, LLC, a Texas limited liability company (the “Company”), does hereby ratify, confirm, and approve the adoption of this Amended and Restated Company Agreement of XTI Drones Holdings, LLC (the “Agreement”).
| CLASS B MEMBER: | |
|---|---|
| THE ORIGIN GROUP DN, INC. | |
| By: | /s/ Jeremy Schneiderman |
| Jeremy Schneiderman, | |
| Chief Executive Officer | |
| Date of Issuance: | November 10, 2025 |
| --- | --- |
| Address: | The Origin Group DN, Inc. |
| 5553 Anglers Avenue, Suite<br>109 | |
| Fort Lauderdale, Florida<br>33312 | |
| Attn: Jeremy Schneiderman,<br>Chief Executive Officer | |
| Number of Class B Units: | 6,002,610 |
| --- | --- |
Signature Page to
Amended and RestatedLimited Liability Company Agreement of
XTI Drones Holdings,LLC
Counterpart Signature Page to the
Amended and Restated Company Agreement of
XTI Drones Holdings, LLC
The undersigned, as a Member of XTI Drones Holdings, LLC, a Texas limited liability company (the “Company”), does hereby ratify, confirm, and approve the adoption of this Amended and Restated Company Agreement of XTI Drones Holdings, LLC (the “Agreement”).
| CLASS B MEMBER: | |
|---|---|
| THE ORIGIN GROUP AZ, INC. | |
| By: | /s/ Jeremy Schneiderman |
| Jeremy Schneiderman, | |
| Chief Executive Officer | |
| Date of Issuance: | November 10, 2025 |
| --- | --- |
| Address: | The Origin Group AZ, Inc. |
| 5553 Anglers Avenue, Suite<br>109 | |
| Fort Lauderdale, Florida<br>33312 | |
| Attn: Jeremy Schneiderman,<br>Chief Executive Officer | |
| Number of Class B Units: | 521,966 |
| --- | --- |
Signature Page to
Amended and RestatedLimited Liability Company Agreement of
XTI Drones Holdings,LLC
AMENDED AND RESTATED
COMPANY AGREEMENT
OF
XTI DRONES HOLDINGS, LLC
(A Texas Limited Liability Company)
EXHIBIT A
| 1. | Company Information: | |
|---|---|---|
| Name of Company: | XTI Drones<br>Holdings, LLC | |
| Contact Information of Company: | XTI Drones Holdings, LLC | |
| 8123 Interport Blvd., Suite C | ||
| Englewood, Colorado 80112 | ||
| Attn: Brooke Turk, Chief Financial Officer | ||
| Registered Agent and Registered Office: | Capitol Corporate Services, Inc. | |
| 1501 S. MoPac Expy., Suite 220 | ||
| Austin, Texas 78746 | ||
| Partnership Representative: | John<br>Griffo | |
| 2. | Manager: | |
| a. Name of Manager: | XTI Drones,<br>LLC | |
| Contact Information: | XTI Drones, LLC | |
| 8123 Interport Blvd., Suite C | ||
| Englewood, Colorado 80112 | ||
| Attn: Brooke Turk, Chief Financial Officer | ||
| 3. | Members: | |
| As set forth on counterpart signature pages to this Agreement. |
A-1
EXHIBIT B
FORM OF EXCHANGE CERTIFICATE
This Exchange Certificate (this “Certificate”) is being furnished by [____________] (the “Exchanging Member” and each of the legal, record and beneficial owners of all of the issued and outstanding equity interests of the Exchanging Member, the “Exchanging Member Owners” and collectively with the Exchanging Member, the “Exchanging Member Group”), as a Class B Member of XTI Drones Holdings, LLC (the “Company”), pursuant to Section 8.8(d) of that certain Amended and Restated Company Agreement of the Company (the “Agreement”), dated as of [___________]. Capitalized terms used but not otherwise defined in this Certificate shall have the meanings set forth in the Agreement.
The Exchanging Member hereby certifies as follows:
(a) The Exchanging Member acknowledges that the information provided by the Exchanging Member and the Exchanging Member Owners in the representation and warranties contained in this certificate and in the Accredited Investor Questionnaire, provided together with this Certificate in accordance with Section 8.8(d) of the Agreement, will be relied upon by the Company and XTI in concluding that the shares of XTI Common Stock to be issued upon exchange of the Class B Units have been issued pursuant to Section 4(a)(2) of the Securities Act or another exemption from the registration requirements of the Securities Act.
(b) The shares of XTI Common Stock to be received by the Exchanging Member pursuant to the Agreement will be acquired by the Exchanging Member for its own account and not with a view to or for sale in connection with, any distribution thereof, except pursuant to sales registered under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities laws.
(c) The Exchanging Member’s financial situation is such that the Exchanging Member can afford to bear the economic risk of its investment in XTI for an indefinite period of time, and the Exchanging Member is capable of evaluating the merits and risks of the investment in XTI.
(d) The Exchanging Member’s knowledge and experience in financial and business matters are such that the Exchanging Member is capable of evaluating the merits and risks of the investment in XTI.
(e) The Exchanging Member understands that the receipt of the shares of XTI Common Stock upon exchange of the Class B Units is a speculative investment which involves a high degree of risk of loss of the entire investment therein.
(f) The Exchanging Member and the Exchanging Member’s Owners are informed and have sufficient knowledge of XTI, and the Exchanging Member and the Exchanging Member’s Owners or their representatives have been given the opportunity to examine all documents and to ask questions of, and to receive answers from XTI regarding XTI prior to the exchange concerning the terms and conditions of the direct investment in XTI and related matters and to obtain all additional information that the Exchanging Member, the Exchanging Member’s Owners or their representatives deem necessary. The Exchanging Member and each of the Exchanging Member’s Owners has reviewed and are sufficiently aware of XTI’s business affairs and financial condition to reach an informed and knowledgeable decision to receive the shares of XTI Common Stock. Each of the Exchanging Member and each of the Exchanging Member’s Owners acknowledges that information regarding XTI is publicly available via the Securities and Exchange Commission’s website (www.sec.gov) and has reviewed such information in connection with making its investment decision to acquire the shares of XTI Common Stock.
B-1
(g) Each of the Exchanging Member’s Owners is an “accredited investor” as such term is defined in Regulation D under the Securities Act and has completed an Accredited Investor Questionnaire.
(h) The Exchanging Member understands that no federal or state agency has made any finding or determination regarding the fairness of the offering of the shares of XTI Common Stock for investment, or any recommendation or endorsement thereof.
(i) The Exchanging Member acknowledges that the shares of XTI Common Stock may not be offered or sold unless subsequently registered under the Securities Act or unless an exemption from such registration is available.
(j) The Exchanging Member acknowledges that no shares of XTI Common Stock are being offered or sold to it by means of any form of general solicitation or general advertising.
(k) THE EXCHANGING MEMBER UNDERSTANDS AND ACKNOWLEDGES THAT THE SHARES OF XTI COMMON STOCK HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY STATE SECURITIES LAW, THAT THE SHARES OF XTI COMMON STOCK ARE BEING SOLD AND DELIVERED PURSUANT TO EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND THE SHARES OF XTI COMMON STOCK MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.
| Dated: _______ __, 20__ |
|---|
| EXCHANGING MEMBER: |
| [Name of Exchanging Member] |
| By: |
| Name: |
| Title: |
B-2
EXCHANGING MEMBER OWNERS:
| By: | |
|---|---|
| [Name of Exchanging<br>Member Owner] | |
| By: | |
| --- | --- |
| [Name of Exchanging<br>Member Owner] | |
| By: | |
| --- | --- |
| [Name of Exchanging<br>Member Owner] | |
| By: | |
| --- | --- |
| [Name of Exchanging<br>Member Owner] |
B-3
EXHIBIT C
FORM OF ACCREDITED INVESTOR QUESTIONNAIRE
EACH EXCHANGING MEMBER OWNER MUST COMPLETE THISPAGE
I. AccreditedInvestor Status (INDIVIDUALS)****. Please complete each of the following certifications:
(a) I certify that I have an individual net worth (or a joint net worth^1^ with my spouse or spouse equivalent) in excess of $1,000,000 (including homes, home furnishings and automobiles).^2^
Yes ☐ No ☐
(b) I certify that I had individual income (excluding any income of my spouse) of more than $200,000 in each of the previous two calendar years, or joint income with my spouse or spouse equivalent in excess of $300,000 in each of those years, and I reasonably expect to reach the same income level in the current year.
Yes ☐ No ☐
(c) I certify that I currently hold in good standing one or more of the following professional licenses: the General Securities Representative license (Series 7), the Investment Adviser Representative license (Series 65) or the Private Securities Offerings Representative license (Series 82).
Yes ☐ No ☐
(d) I certify that I am a director or an executive officer of XTI Aerospace, Inc.
Yes ☐ No ☐
(e) I certify that I have a “family office” (as defined in Rule 202(a)(11)(G)-1) under the Investment Advisors Act of 1940, as amended (the “Advisors Act”): (1) with assets under management in excess of $5,000,000, (2) not formed for the purpose of acquiring an equity interest in XTI Aerospace, Inc. and (3) whose prospective investment in XTI Aerospace, Inc. is directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of an investment in XTI Aerospace, Inc.
Yes ☐ No ☐
(f) I certify that I am a “family client” (as defined in Rule 202(a)(11)(G)-1) under the Advisors Act of a family office meeting the requirements described above and whose prospective investment in XTI Aerospace, Inc. is directed by a person at such family office who has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in XTI Aerospace, Inc.
Yes ☐ No ☐
| Dated: _______ __, 20__ | X |
|---|---|
| PRINT Name of Exchanging Member Owner | |
| ^1^ | When calculating joint net<br>worth, assets need not be held jointly to be included and securities need not be purchased jointly to be included. |
| --- | --- |
| ^2^ | When calculating your net worth,<br>the value of your primary residence must be excluded from the calculation and the amount of debt that is secured by your primary residence<br>(for example, the amount of your mortgage) must be excluded from the calculation, unless the amount of that debt is more than the fair<br>market value of your residence. If the amount of that debt is more than the value of the residence, you must include the amount<br>by which the debt exceeds the value of your residence in calculating your net worth (i.e., deduct it from your net worth). |
C-1
Exhibit 10.4
LOCK-UP AGREEMENT
THIS LOCK-UP AGREEMENT (this “Agreement”), dated effective as of November 10, 2025 (the “Effective Date”), by and between XTI Aerospace, Inc., a Nevada corporation (“XTI”), and The Origin Group DN, Inc., a Delaware corporation (“Seller”). XTI, on the one hand, and Seller, on the other hand, are each sometimes referred to herein individually as a “Party” and collectively as the “Parties.”
WHEREAS, on November 10, 2025, (a) XTI Drones Holdings, LLC, a Texas limited liability company (the “Buyer”); (b) Seller; (c) Drone Nerds, LLC, a Florida limited liability company; (d) each of the Seller Owners listed on Annex A-1 attached thereto, and (e) Jeremy Schneiderman, solely in his capacity as representative of the Seller and the Seller Owners, entered into Membership Interest Purchase Agreement (the “Purchase Agreement”) pursuant to which Seller has received 6,002,610 Class B Units of Buyer (“Class B Units”) which are exchangeable into 6,002,610 shares of common stock, par value $0.001 (“CommonStock”) (such shares of Common Stock issuable upon conversion of the Class B Units being referred to as “CommonShares”) pursuant to the terms of the Company Agreement of Buyer (the “Company Agreement”); and
WHEREAS, pursuant to the Purchase Agreement and the Company Agreement and in view of the valuable consideration received by the Parties thereunder, XTI and Seller desire to enter this Agreement and Seller is willing to make certain representations, warranties, covenants and agreements with respect to the Common Shares.
NOW, THEREFORE, in consideration of foregoing and the premises, representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the Parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions.
For purposes of this Agreement, capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Purchase Agreement. When used in this Agreement, the following terms shall have the meanings assigned to them in this Section 1:
(a) “BeneficiallyOwn” or “Beneficial Ownership” has the meaning assigned to such term in Rule 13d-3 under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, and a Person’s beneficial ownership of securities shall be calculated in accordance with the provisions of such rule (in each case, irrespective of whether or not such rule is actually applicable in such circumstance). For the avoidance of doubt, “Beneficially Own” and “BeneficialOwnership” shall also include record ownership of securities.
(b) “BeneficialOwner” shall mean the Person who Beneficially Owns the referenced securities.
2. Representationsof Stockholder.
Seller represents and warrants to XTI on the Effective Date that:
(a) Seller has full power and authority to enter into, execute and deliver this Agreement and to perform fully Seller’s obligations hereunder. This Agreement has been duly and validly executed and delivered by Seller and constitutes the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar Laws affecting creditors’ rights generally.
(b) The execution and delivery of this Agreement by Seller does not, and the consummation of the transactions contemplated hereby and the compliance with the provisions hereof will not, conflict with or violate any Law applicable to Seller or result in any breach or violation of, or constitute a default (or an event, that with notice or lapse of time or both, would become a default) under, or give to others any rights of termination, amendment, acceleration, or cancellation of this Agreement, except for any of the foregoing as would not, or would not reasonably be expected to, individually or in the aggregate, materially impair the ability of Seller to perform its obligations under this Agreement.
(c) No consent, approval, Order or authorization of, or registration, designation, declaration or filing with, any Governmental Entity or other Person on the part of Seller is required in connection with the valid execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.
(d) There is no action, suit, investigation, or proceeding (whether judicial, arbitral, administrative, or otherwise) (each an “Action”) pending against, or, to the knowledge of Seller, threatened against, the validity of this Agreement or Seller (in each case due to any action or inaction by Seller and, for the avoidance of doubt, not due to any action or inaction by XTI) that could reasonably be expected to materially impair or materially adversely affect the ability of Seller to perform Seller’s obligations hereunder or to consummate the transactions contemplated by this Agreement on a timely basis.
3. Lock-UpAgreement.
(a) During the period commencing on the Effective Date and ending on the 365^th^ day after the Effective Date (the “Lock-UpPeriod”), except only as expressly provided in Section 3(b) below, without the prior written consent of XTI, Seller shall not:
(i) directly or indirectly, transfer, sell, offer, exchange, assign, pledge, gift, donate or otherwise dispose of or encumber any legal or Beneficial Ownership in any of the Common Shares or enter into any contract, option or other agreement with respect to, or consent to, a Transfer (as defined below) of, any of the Common Shares or Seller’s voting or economic interest therein; provided, however, that the Seller Owners are permitted to engage in direct or indirect transactions of capital stock in Seller for bona fide estate planning purposes;
(ii) enter into any swap, option (including, without limitation, put or call options), short sale, future, forward or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Shares (any of the foregoing described in clause (i) above and this clause (ii), a “Transfer”); or
(iii) publicly disclose the intention to do any of the foregoing.
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(b) Notwithstanding the foregoing restrictions in Section 3(a), so long as such Transfers are permitted by U.S. and state securities laws and the XTI’s insider trading policy which Seller hereby acknowledges that it is subject to, during the Lock-Up Period, Seller shall be permitted to Transfer the percentage of Common Shares acquired by Seller on or after the dates set forth below:
| Number of Days after Effective Date | Percentage as of the Effective Date of Aggregate Number of Common Shares Beneficially Owned by Seller Released from Lock-Up |
|---|---|
| 365 | 100% Released |
(c) Any attempted Transfer of Common Shares or any interest therein in violation of this Section 3 shall be null and void, regardless of whether the purported transferee has any actual or constructive knowledge of the transfer restrictions set forth in this Agreement. Seller hereby authorizes XTI (i) to cause any transfer agent for the Common Shares to decline to Transfer the Common Shares, and, (ii) in the case of Common Shares for which Seller is the beneficial but not the record holder, to cause the record holder to cause the relevant transfer agent to decline to Transfer the Common Shares, in each case if such Transfer would constitute a violation or breach of this Agreement.
(d) Each certificate, instrument, or book entry representing the Common Shares, other than following the expiration of the Lock-Up Period, shall be notated with a legend reading substantially as follows:
“THE TRANSFER OF THE SHARES REPRESENTED BY THIS STOCK CERTIFICATE OR BOOK ENTRY ARE SUBJECT TO A CERTAIN LOCK-UP AGREEMENT, AS THE SAME MAY BE AMENDED, RESTATED, SUPPLEMENTED, SUPERSEDED, REPLACED, RENAMED, TERMINATED AND/OR OTHERWISE MODIFIED AT ANY TIME AND FROM TIME TO TIME. A COPY OF THE CURRENT VERSION OF THE LOCK-UP AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL BE FURNISHED WITHOUT CHARGE TO THE RECORD HOLDER HEREOF UPON WRITTEN REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.”
In connection with any Transfer permitted under the terms of this Section 3 prior to the expiration of the Lock-Up Period, XTI shall (and shall cause its transfer agent to) take all actions necessary in a timely manner to remove any transfer restrictions, notations, restrictive legends or the like from the applicable Common Shares.
4. SpecificPerformance.
Each Party hereto acknowledges that it will be impossible to measure in money the damage to the other Party if a Party hereto fails to comply with any of the obligations imposed by this Agreement, that every such obligation is material and that, in the event of any such failure, the other Party will not have an adequate remedy at law or damages. Accordingly, each Party hereto agrees that injunctive relief or other equitable remedy, in addition to remedies at law or damages, is the appropriate remedy for any such failure and will not oppose the seeking of such relief on the basis that the other Party has an adequate remedy at law. Each Party hereto agrees that it will not seek, and agrees to waive any requirement for, the securing or posting of a bond in connection with the other Party’s seeking or obtaining such equitable relief.
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5. Notices.
All notices, requests, consents, claims, demands, waivers, and other communications hereunder shall be in writing and shall be deemed to have been given upon the earlier of: (a) when delivered by hand (providing proof of delivery); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); or (c) on the date sent by email if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient, in each case so long as the sending party does not receive a bounceback message or other notification that the recipient failed to receive such email notice. Such communications must be sent 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):
| If to XTI, to: | XTI Aerospace, Inc.<br><br> <br>8123 Interport Blvd., Suite C<br><br> <br>Englewood, Colorado 80112<br><br> <br>Attention: Brooke Turk, Chief Financial Officer |
|---|---|
| Copy (which shall not constitute notice) to: | Haynes and Boone, LLP<br><br> <br>600 Anton Blvd., Suite 700<br><br> <br>Costa Mesa, CA 92626<br><br> <br>E-mail: martin.florman@haynesboone.com<br><br> <br>Attention: Martin Florman, Esq. |
| If to Seller, to: | |
| Copy (which shall not constitute notice) to: | Holland & Knight LLP<br><br> <br>1650 Tysons Boulevard, Suite<br> 1700<br><br> <br>Tysons, Virginia 22102<br><br> <br>Email: Katherine.markel@hklaw.com<br><br> <br>Attention: Katherine A. Markel,<br> Esq. |
6. Miscellaneous.
(a) This Agreement, together with the Purchase Agreement and the Company Agreement, supersedes all prior agreements, written or oral, between the Parties hereto with respect to the subject matter hereof and contains the entire agreement between the Parties with respect to the subject matter hereof. This Agreement may not be amended or supplemented, and no provisions hereof may be modified or waived, except by an instrument in writing signed by each of the Parties hereto. No waiver of any provisions hereof by any Party shall be deemed a waiver of any other provisions hereof by such Party, nor shall any such waiver be deemed a continuing waiver of any provision hereof by such Party. This Agreement has been entered into freely by each of the Parties, following consultation with their respective counsel, and shall be interpreted fairly in accordance with its respective terms, without any construction in favor of or against either Party.
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(b) From time to time until the termination of this Agreement, at XTI’s reasonable request, but without further consideration, Seller agrees to cooperate with XTI in making all filings and obtaining all consents of any Governmental Entity and third parties and to execute and deliver such additional documents and take or cause to be taken all such further actions as may be necessary or desirable to effect the actions contemplated by this Agreement. Seller hereby authorizes XTI to publish and disclose in any announcement or disclosure solely to the extent required by the applicable rules and regulations of Securities and Exchange Commission and in a proxy statement such Seller’s identity and ownership of the Common Shares and the nature of Seller’s obligations under this Agreement.
(c) This Agreement shall be governed by and construed in accordance with the internal laws of Texas without giving effect to any choice or conflict of law provision or rule (whether of Texas or any other jurisdiction) that would cause the application of Laws of any jurisdiction other than those of Texas.
(d) Each of the Parties hereto irrevocably agrees that any Action with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder brought by the other Party hereto or its successors or assigns shall be brought and determined exclusively in the state and federal courts located in Dallas County, Texas. Each of the Parties hereto agrees that mailing of process or other papers in connection with any such Action in the manner provided in Section 5 or in such other manner as may be permitted by applicable Laws, will be valid and sufficient service thereof. Each of the Parties hereto hereby irrevocably submits with regard to any such Action for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court or tribunal other than the aforesaid courts. Each of the Parties hereto hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any Action with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder: (i) any claim that it is not personally subject to the jurisdiction of the above named courts for any reason other than the failure to serve process in accordance with this Section 6(d), (ii) any claim that it, or its property, is exempt or immune from 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), and (iii) to the fullest extent permitted by the applicable Law, any claim that (x) the Action in such court is brought in an inconvenient forum, (y) the venue of such Action is improper, or (z) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.
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(e) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF AN ACTION, (II) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6(e).
(f) Except as otherwise may be agreed in writing, all costs and expenses incurred in connection with this Agreement shall be paid by the Party hereto incurring such cost or expense.
(g) If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, 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 greatest extent possible.
(h) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. A signed copy of this Agreement delivered by facsimile, email, or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
(i) Each Party hereto shall execute and deliver such additional documents as may be necessary or desirable to effect the transactions contemplated by this Agreement.
(j) All section headings herein are for convenience of reference only and are not part of this Agreement, and no construction or reference shall be derived therefrom.
(k) Neither Party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other Party hereto. Any assignment contrary to the provisions of this Section 6(k) shall be null and void. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors, heirs and assigns of the Parties. Nothing in this Agreement, express or implied, is intended to confer upon any Party other than the Parties hereto or their respective successors, heirs and permitted assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties hereto have executed and delivered this Lock-Up Agreement as of the date first written above.
| XTI: | |
|---|---|
| XTI AEROSPACE, INC. | |
| By: | /s/ Brooke Turk |
| Brooke Turk, | |
| Chief Financial Officer | |
| SELLER: | |
| THE ORIGIN GROUP DN, INC. | |
| By: | /s/ Jeremy Schneiderman |
| Jeremy Schneiderman, | |
| Chief Executive Officer |
[Signature Page to Lock-UpAgreement]
Exhibit 10.5
LOCK-UP AGREEMENT
THIS LOCK-UP AGREEMENT (this “Agreement”), dated effective as of November 10, 2025 (the “Effective Date”), by and between XTI Aerospace, Inc., a Nevada corporation (“XTI”), and The Origin Group AZ, Inc., a Delaware corporation (“Seller”). XTI, on the one hand, and Seller, on the other hand, are each sometimes referred to herein individually as a “Party” and collectively as the “Parties.”
WHEREAS, on November 10, 2025, (a) XTI Drones Holdings, LLC, a Texas limited liability company (the “Buyer”); (b) Seller; (c) Anzu Robotics, LLC, a Delaware limited liability company; (d) each of the Seller Owners listed on Annex A-1 attached thereto, and (e) Jeremy Schneiderman, solely in his capacity as representative of the Seller and the Seller Owners, entered into Membership Interest Purchase Agreement (the “Purchase Agreement”) pursuant to which Seller has received 521,966 Class B Units of Buyer (“Class B Units”) which are exchangeable into 521,966 shares of common stock, par value $0.001 (“CommonStock”) (such shares of Common Stock issuable upon conversion of the Class B Units being referred to as “CommonShares”) pursuant to the terms of the Company Agreement of Buyer (the “Company Agreement”); and
WHEREAS, pursuant to the Purchase Agreement and the Company Agreement and in view of the valuable consideration received by the Parties thereunder, XTI and Seller desire to enter this Agreement and Seller is willing to make certain representations, warranties, covenants and agreements with respect to the Common Shares.
NOW, THEREFORE, in consideration of foregoing and the premises, representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the Parties hereto, intending to be legally bound, hereby agree as follows:
1. Definitions.
For purposes of this Agreement, capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Purchase Agreement. When used in this Agreement, the following terms shall have the meanings assigned to them in this Section 1:
(a) “BeneficiallyOwn” or “Beneficial Ownership” has the meaning assigned to such term in Rule 13d-3 under the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, and a Person’s beneficial ownership of securities shall be calculated in accordance with the provisions of such rule (in each case, irrespective of whether or not such rule is actually applicable in such circumstance). For the avoidance of doubt, “Beneficially Own” and “BeneficialOwnership” shall also include record ownership of securities.
(b) “BeneficialOwner” shall mean the Person who Beneficially Owns the referenced securities.
2. Representationsof Stockholder.
Seller represents and warrants to XTI on the Effective Date that:
(a) Seller has full power and authority to enter into, execute and deliver this Agreement and to perform fully Seller’s obligations hereunder. This Agreement has been duly and validly executed and delivered by Seller and constitutes the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar Laws affecting creditors’ rights generally.
(b) The execution and delivery of this Agreement by Seller does not, and the consummation of the transactions contemplated hereby and the compliance with the provisions hereof will not, conflict with or violate any Law applicable to Seller or result in any breach or violation of, or constitute a default (or an event, that with notice or lapse of time or both, would become a default) under, or give to others any rights of termination, amendment, acceleration, or cancellation of this Agreement, except for any of the foregoing as would not, or would not reasonably be expected to, individually or in the aggregate, materially impair the ability of Seller to perform its obligations under this Agreement.
(c) No consent, approval, Order or authorization of, or registration, designation, declaration or filing with, any Governmental Entity or other Person on the part of Seller is required in connection with the valid execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.
(d) There is no action, suit, investigation, or proceeding (whether judicial, arbitral, administrative, or otherwise) (each an “Action”) pending against, or, to the knowledge of Seller, threatened against, the validity of this Agreement or Seller (in each case due to any action or inaction by Seller and, for the avoidance of doubt, not due to any action or inaction by XTI) that could reasonably be expected to materially impair or materially adversely affect the ability of Seller to perform Seller’s obligations hereunder or to consummate the transactions contemplated by this Agreement on a timely basis.
3. Lock-UpAgreement.
(a) During the period commencing on the Effective Date and ending on the 365^th^ day after the Effective Date (the “Lock-UpPeriod”), except only as expressly provided in Section 3(b) below, without the prior written consent of XTI, Seller shall not:
(i) directly or indirectly, transfer, sell, offer, exchange, assign, pledge, gift, donate or otherwise dispose of or encumber any legal or Beneficial Ownership in any of the Common Shares or enter into any contract, option or other agreement with respect to, or consent to, a Transfer (as defined below) of, any of the Common Shares or Seller’s voting or economic interest therein; provided, however, that the Seller Owners are permitted to engage in direct or indirect transactions of capital stock in Seller for bona fide estate planning purposes;
(ii) enter into any swap, option (including, without limitation, put or call options), short sale, future, forward or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Shares (any of the foregoing described in clause (i) above and this clause (ii), a “Transfer”); or
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(iii) publicly disclose the intention to do any of the foregoing.
(b) Notwithstanding the foregoing restrictions in Section 3(a), so long as such Transfers are permitted by U.S. and state securities laws and the XTI’s insider trading policy which Seller hereby acknowledges that it is subject to, during the Lock-Up Period, Seller shall be permitted to Transfer the percentage of Common Shares acquired by Seller on or after the dates set forth below:
| Number of Days after Effective Date | Percentage as of the Effective Date of Aggregate Number of Common Shares Beneficially Owned by Seller Released from Lock-Up |
|---|---|
| 365 | 100% Released |
(c) Any attempted Transfer of Common Shares or any interest therein in violation of this Section 3 shall be null and void, regardless of whether the purported transferee has any actual or constructive knowledge of the transfer restrictions set forth in this Agreement. Seller hereby authorizes XTI (i) to cause any transfer agent for the Common Shares to decline to Transfer the Common Shares, and, (ii) in the case of Common Shares for which Seller is the beneficial but not the record holder, to cause the record holder to cause the relevant transfer agent to decline to Transfer the Common Shares, in each case if such Transfer would constitute a violation or breach of this Agreement.
(d) Each certificate, instrument, or book entry representing the Common Shares, other than following the expiration of the Lock-Up Period, shall be notated with a legend reading substantially as follows:
“THE TRANSFER OF THE SHARES REPRESENTED BY THIS STOCK CERTIFICATE OR BOOK ENTRY ARE SUBJECT TO A CERTAIN LOCK-UP AGREEMENT, AS THE SAME MAY BE AMENDED, RESTATED, SUPPLEMENTED, SUPERSEDED, REPLACED, RENAMED, TERMINATED AND/OR OTHERWISE MODIFIED AT ANY TIME AND FROM TIME TO TIME. A COPY OF THE CURRENT VERSION OF THE LOCK-UP AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION AND WILL BE FURNISHED WITHOUT CHARGE TO THE RECORD HOLDER HEREOF UPON WRITTEN REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.”
In connection with any Transfer permitted under the terms of this Section 3 prior to the expiration of the Lock-Up Period, XTI shall (and shall cause its transfer agent to) take all actions necessary in a timely manner to remove any transfer restrictions, notations, restrictive legends or the like from the applicable Common Shares.
4. SpecificPerformance.
Each Party hereto acknowledges that it will be impossible to measure in money the damage to the other Party if a Party hereto fails to comply with any of the obligations imposed by this Agreement, that every such obligation is material and that, in the event of any such failure, the other Party will not have an adequate remedy at law or damages. Accordingly, each Party hereto agrees that injunctive relief or other equitable remedy, in addition to remedies at law or damages, is the appropriate remedy for any such failure and will not oppose the seeking of such relief on the basis that the other Party has an adequate remedy at law. Each Party hereto agrees that it will not seek, and agrees to waive any requirement for, the securing or posting of a bond in connection with the other Party’s seeking or obtaining such equitable relief.
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5. Notices.
All notices, requests, consents, claims, demands, waivers, and other communications hereunder shall be in writing and shall be deemed to have been given upon the earlier of: (a) when delivered by hand (providing proof of delivery); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); or (c) on the date sent by email if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient, in each case so long as the sending party does not receive a bounceback message or other notification that the recipient failed to receive such email notice. Such communications must be sent 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):
| If to XTI, to: | XTI Aerospace, Inc.<br><br> <br>8123 Interport Blvd., Suite C<br><br> <br>Englewood, Colorado 80112<br><br> <br>Attention: Brooke Turk, Chief Financial Officer |
|---|---|
| Copy (which shall not constitute notice) to: | Haynes and Boone, LLP<br><br> <br>600 Anton Blvd., Suite 700<br><br> <br>Costa Mesa, CA 92626<br><br> <br>E-mail: martin.florman@haynesboone.com<br><br> <br>Attention: Martin Florman, Esq. |
| If to Seller, to: | |
| Copy (which shall not constitute notice) to: | Holland & Knight LLP<br><br> <br>1650 Tysons Boulevard, Suite<br> 1700<br><br> <br>Tysons, Virginia 22102<br><br> <br>Email: Katherine.markel@hklaw.com<br><br> <br>Attention: Katherine A. Markel,<br> Esq. |
6. Miscellaneous.
(a) This Agreement, together with the Purchase Agreement and the Company Agreement, supersedes all prior agreements, written or oral, between the Parties hereto with respect to the subject matter hereof and contains the entire agreement between the Parties with respect to the subject matter hereof. This Agreement may not be amended or supplemented, and no provisions hereof may be modified or waived, except by an instrument in writing signed by each of the Parties hereto. No waiver of any provisions hereof by any Party shall be deemed a waiver of any other provisions hereof by such Party, nor shall any such waiver be deemed a continuing waiver of any provision hereof by such Party. This Agreement has been entered into freely by each of the Parties, following consultation with their respective counsel, and shall be interpreted fairly in accordance with its respective terms, without any construction in favor of or against either Party.
(b) From time to time until the termination of this Agreement, at XTI’s reasonable request, but without further consideration, Seller agrees to cooperate with XTI in making all filings and obtaining all consents of any Governmental Entity and third parties and to execute and deliver such additional documents and take or cause to be taken all such further actions as may be necessary or desirable to effect the actions contemplated by this Agreement. Seller hereby authorizes XTI to publish and disclose in any announcement or disclosure solely to the extent required by the applicable rules and regulations of Securities and Exchange Commission and in a proxy statement such Seller’s identity and ownership of the Common Shares and the nature of Seller’s obligations under this Agreement.
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(c) This Agreement shall be governed by and construed in accordance with the internal laws of Texas without giving effect to any choice or conflict of law provision or rule (whether of Texas or any other jurisdiction) that would cause the application of Laws of any jurisdiction other than those of Texas.
(d) Each of the Parties hereto irrevocably agrees that any Action with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder brought by the other Party hereto or its successors or assigns shall be brought and determined exclusively in the state and federal courts located in Dallas County, Texas. Each of the Parties hereto agrees that mailing of process or other papers in connection with any such Action in the manner provided in Section 5 or in such other manner as may be permitted by applicable Laws, will be valid and sufficient service thereof. Each of the Parties hereto hereby irrevocably submits with regard to any such Action for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court or tribunal other than the aforesaid courts. Each of the Parties hereto hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any Action with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder: (i) any claim that it is not personally subject to the jurisdiction of the above named courts for any reason other than the failure to serve process in accordance with this Section 6(d), (ii) any claim that it, or its property, is exempt or immune from 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), and (iii) to the fullest extent permitted by the applicable Law, any claim that (x) the Action in such court is brought in an inconvenient forum, (y) the venue of such Action is improper, or (z) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.
(e) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING WAIVER IN THE EVENT OF AN ACTION, (II) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6(e).
(f) Except as otherwise may be agreed in writing, all costs and expenses incurred in connection with this Agreement shall be paid by the Party hereto incurring such cost or expense.
(g) If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, 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 greatest extent possible.
(h) This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. A signed copy of this Agreement delivered by facsimile, email, or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
(i) Each Party hereto shall execute and deliver such additional documents as may be necessary or desirable to effect the transactions contemplated by this Agreement.
(j) All section headings herein are for convenience of reference only and are not part of this Agreement, and no construction or reference shall be derived therefrom.
(k) Neither Party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other Party hereto. Any assignment contrary to the provisions of this Section 6(k) shall be null and void. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors, heirs and assigns of the Parties. Nothing in this Agreement, express or implied, is intended to confer upon any Party other than the Parties hereto or their respective successors, heirs and permitted assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties hereto have executed and delivered this Lock-Up Agreement as of the date first written above.
| XTI: | |
|---|---|
| XTI AEROSPACE, INC. | |
| By: | /s/ Brooke Turk |
| Brooke Turk, | |
| Chief Financial Officer | |
| SELLER: | |
| THE ORIGIN GROUP AZ, INC. | |
| By: | /s/ Jeremy Schneiderman |
| Jeremy Schneiderman, | |
| Chief Executive Officer |
[Signature Page to Lock-UpAgreement]
Exhibit 10.6
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the “Agreement”) is entered into effective as of November 10, 2025, by and among XTI Aerospace, Inc., a Nevada corporation (the “Company”), The Origin Group DN, Inc., a Delaware corporation (“DN S-Corp”), and The Origin Group AZ, Inc., a Delaware corporation (“AZ S-Corp”), and any successors and assigns (collectively, including DN S-Corp and AZ S-Corp, the “Holders”). In consideration of the mutual promises herein contained, and other consideration, the receipt and adequacy of which hereby is acknowledged, the parties hereto agree as follows:
- Certain Definitions.
As used in this Agreement, the following terms shall have the following respective meanings:
(a) “CommonStock” means the common stock, par value $0.001 per share, of the Company.
(b) “Demand” means a written request to the Company signed by Holders of at least 50% of the shares of the initial aggregate Registrable Securities.
(c) “ExchangeAct” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder, all as the same shall be in effect at that time.
(d) The terms “register,” “registered” and “registration” refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act (as defined below), and the declaration or ordering of the effectiveness of such registration statement.
(e) “RegistrableSecurities” means (i) the shares of Common Stock issuable or issued upon exchange of the Class B Units of XTI Drones Holdings, LLC (the “Class B Units”) pursuant to the terms of the Company Agreement of XTI Drones Holdings, LLC and (ii) any other shares of the Common Stock issued as (or issuable upon or the exercise of any right or other security which is issued as) a dividend or other distribution with respect to or in exchange for or replacement of the Common Stock issued upon exchange of the Class B Units. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (i) the SEC has declared a registration statement covering such Registrable Securities effective and such securities have been disposed of pursuant to such effective registration statement, (ii) such securities are sold under circumstances in which all of the applicable conditions of Rule 144 under the Securities Act are met, or (iii) such securities become eligible for sale pursuant to Rule 144 without volume or manner-of-sale restrictions and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144(c)(1).
(f) “RegistrationExpenses” shall mean all expenses (excluding underwriting discounts, selling commissions, and fees and expenses in excess of an aggregate of $30,000 of counsel for the Holders) incurred in connection with a registration under Section 2 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and accountants for the Company (including expenses of special audits or “cold comfort” letters or opinions) and blue sky fees and expenses.
(g) “SecuritiesAct” shall mean the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder, all as the same shall be in effect at the time.
(h) “SEC” shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.
- Demand Registration.
(a) Requestfor Demand Registration. At any time Holder(s) of at least 50% of the shares of the initial aggregate Registrable Securities (the “Demand Holder(s)”) shall have the right to make a Demand to the Company that it register for resale the number of Registrable Securities set forth in the Demand. Upon receiving a Demand, the Company shall provide to each other Holder the right to include in the registration any of each other Holder’s Registrable Securities. Collectively, the Demand Holders and such other Holders who elect to participate in the registration are referred to as the “Selling Demand Holders.”
(b) Formof Registration Statement. As soon as reasonably practicable and prior to the forty-fifth (45th) day following a Demand but not sooner than May 1, 2026, the Company shall file with the SEC a registration statement under the Securities Act covering the resale of the number of Registrable Securities elected pursuant to Section 2(a) to be included in such registration. In addition, the Company may elect to register for resale shares of Common Stock held by other security holders of the Company, so long as (i) the Registrable Securities of the Selling Demand Holders to be registered will not be reduced thereby; (ii) if such registration is an underwritten offering, such other security holders agree in writing to sell the Common Stock on the same terms and conditions as apply to the Registrable Securities being sold so long as any Common Stock to be sold pursuant to this clause (ii) will not, in the opinion of the managing underwriter(s) adversely affect the offering price of the Registrable Securities being sold; and (iii) the Company will be responsible for any and all costs (including reasonable attorneys’ fees not to exceed $30,000) incurred by the Selling Demand Holders arising out of the registration of such other security holder’s Common Stock.
(c) Effectingthe Registration Statement. The Company shall use its commercially reasonable efforts to cause the registration statement to become effective as soon as possible following the filing thereof and shall use its commercially reasonable efforts to keep the registration statement in effect and maintain compliance with all securities laws until the end of the Registration Period (hereafter defined).
(d) Numberof Demands. Subject to Section 2(g), the Company shall only be obligated under this Section 2 to effect one (1) registration on Demand for any and all Holders in each calendar year, unless the Company breaches its obligations under Sections 2(a), 2(c), 4(b)(ii), 4(b)(iii), 4(b)(iv), 4(b)(v) or 4(b)(vi).
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(e) Delaydue to Underwritten Offering. If, upon receiving a Demand, the Company is otherwise registering its securities pursuant to an underwritten public offering and in the good faith judgment of the managing underwriter, the registration of the Registrable Securities pursuant to the Demand or the resale of the Registrable Securities pursuant thereto would interfere with the Company’s successful marketing of its securities, the Company may, by giving prompt written notice to the Holders giving the Demand, delay the registration of the Registrable Securities pursuant to the Demand or any resale of such Registrable Securities for the minimum period necessary to not interfere with the Company’s offering, but in no event more than ninety (90) days. The Holders shall have piggyback rights under Section 3 with respect to the Company’s offering.
(f) UnderwrittenOffering. If any registration under Section 2 of this Agreement is an underwritten offering, the underwriter(s) that will administer the offering will be selected by the Company, provided that the Demanding Holders approve the selection (such approval shall not be unreasonably withheld or delayed).
(g) Withdrawal. If any Holder disapproves of the terms of any offering, such Holder may, in its sole discretion, withdraw such Holder’s Registrable Securities therefrom by giving written notice to the Company. Such Holder’s Registrable Securities so withdrawn from the offering shall also be withdrawn from registration. If all Holders requesting the Demand withdraw all Registrable Securities from such registration (whether before or after the registration statement is declared effective by the SEC) as a result of a Permitted Withdrawal Event (as hereafter defined), then such registration shall not be counted as or constitute the Demand effected hereunder. The term “PermittedWithdrawal Event” means (a) there has occurred any material adverse change with respect to the Company or in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, including, without limitation, as a result of terrorist activities after the date of filing of such registration statement either within or outside the United States, (b) trading in any securities of the Company has been suspended or materially limited by the SEC or the New York Stock Exchange, the NYSE American, or NASDAQ if such securities were so traded immediately prior to such suspension or material limitation, (c) a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States, or (d) a banking moratorium has been declared by either Federal or New York authorities.
- Piggyback Registration.
(a) Notice. If at any time prior to the expiration of the Registration Period, the Company shall determine to register any of its equity securities, either for its own account or for the account of a security holder or holders, other than (a) a registration pursuant to a registration statement on Form S-8 (or other registration solely relating to an offering or sale to employees or directors of the Company pursuant to any employee stock plan or other employee benefit arrangement), (b) a registration pursuant to a registration statement on Form S-4 (or similar form that relates to a transaction subject to Rule 145 under the Securities Act or any successor rule thereto) or (c) a registration in connection with any dividend or distribution reinvestment or similar plan, the Company will:
(i) promptly give the Holders written notice thereof;
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(ii) include in such registration, and in any underwriting involved therein, all of the Registrable Securities specified in a written request or requests made by the Holders within thirty (30) days after receipt of the written notice from the Company described in clause (a) above, except as set forth in Section 3(b) below. Such written request or requests shall specify all of the Holders’ Registrable Securities; provided, however, the aggregate amount of Registrable Securities specified in such written request shall not be less than 50% of the outstanding Registrable Securities; and
(iii) use its commercially reasonable efforts to keep the registration statement in effect and maintain compliance with all securities laws for the Registration Period.
(b) Underwriting. The right of the Holders to registration pursuant to this Section 3 shall be conditioned upon their participation in any underwriting and the inclusion of their Registrable Securities in such underwriting to the extent provided herein. If the Holders wish to include Registrable Securities in the registration and underwriting, if any, the Holders shall (together with the Company and the other stockholders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with an underwriter(s) selected by the Company. Notwithstanding any other provision of this Section 3, if the underwriter(s) determines that marketing factors require a limitation on the number of shares to be underwritten, then the Company shall include in such registration to the extent that such securities may be included in such registration without materially affecting the offering price thereof in the opinion of such managing underwriter in the following order: (i) if such registration is initiated by the Company proposing to register any of its Common Stock, first such Common Stock proposed to be sold by the Company; (ii) if such registration is initiated by the Company proposing to register any of its Common Stock, second, as determined on a pro rata basis of the Holders, up to all the Registrable Securities held by any Holder which have been duly requested to be included in such registration in accordance with this Agreement with the actual amount being determined by the managing underwriter; (iii) if such registration is initiated by the Company proposing to register any of its Common Stock, third, on a pro rata basis, up to all of any other shares of Common Stock held by Persons other than a Holder having rights to participate in such registration, in accordance with their agreements with respect thereto with the actual amount being determined by the managing underwriter; (iv) if such registration is initiated by a holder of Common Stock other than Registrable Securities, first, such Common Stock proposed to be sold by such holder initiating such registration; (v) if such registration is initiated by a holder of Common Stock other than Registrable Securities, second on a pro rata basis, up to all the Registrable Securities held by any Holder which have been duly requested to be included in such registration in accordance with this Agreement with the actual amount being determined by the managing underwriter; and (vi) if such registration is initiated by a holder of Common Stock other than Registrable Securities, third, as determined on a pro rata basis, up to all of any other shares of Common Stock held by Persons other than a Holder having rights to participate in such registration, in accordance with their agreements with respect thereto with the actual amount being determined by the managing underwriter. If the Holders or other stockholder disapproves of the terms of any such underwriting, the Holders or other stockholder may elect to withdraw therefrom by written notice to the Company and the underwriter(s). Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration.
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- Expenses of Registration; Registration Procedures.
(a) Expenses. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to this Agreement shall be borne by the Company.
(b) Procedures. If and whenever the Company effects the registration of any Registrable Securities as provided herein, the Company shall, subject to the limitations provided herein:
(i) if requested, prior to filing a registration statement or prospectus or any amendment or supplement thereto, furnish to the selling Holders and each underwriter, if any, of the Registrable Securities covered by such registration statement copies of such registration statement, prospectus, any amendment or supplement thereto as proposed to be filed, and such other documents reasonably requested by such Holder and provide a reasonable opportunity for review and comment on such documents by such Holder and its counsel, and the Company shall consider all such comments in good faith and make changes to such document with respect to information concerning such Holder prior to the filing thereof, as any such Holder or its counsel shall reasonably request;
(ii) prepare and file with the SEC such amendments and supplements to any registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the Holders thereof set forth in such registration statement;
(iii) furnish to the Holders of Registrable Securities covered by such registration statement such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, and such other documents, as the Holders may reasonably request;
(iv) use its commercially reasonable efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as the Holders shall reasonably request (the “BlueSky Laws”), to keep such registration or qualification in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable the Holders to consummate the disposition in such jurisdictions of the securities owned by the Holders, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this Section 4(b)(iv) be obligated to be so qualified or to consent to general service of process in any such jurisdiction;
(v) use its commercially reasonable efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other United States Federal or state governmental agencies or authorities as may be necessary to enable the Holders thereof to consummate the disposition of such Registrable Securities;
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(vi) promptly notify the Holders of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and at the request of the Holders, prepare and furnish to the Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading;
(vii) after the filing of the registration statement, promptly notify the Holders of any stop order issued or, to its knowledge, threatened by the SEC and take all reasonable actions required to prevent the entry of such stop order or to remove it if entered;
(viii) provide and cause to be maintained a transfer agent for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement;
(ix) use its commercially reasonable efforts to list all Registrable Securities covered by such registration statement on any national or regional securities exchange or quoting service on which any of the Common Stock is then listed or quoted, including any over-the-counter trading activity;
(x) the Company will make reasonably available for inspection by the Holders requesting registration of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other professional retained by the Holders or underwriter (collectively, the “Inspectors”), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the “Records”) as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information reasonably requested by any Inspectors in connection with such registration statement. Records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in such registration statement or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction. The Holders agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company or its affiliates unless and until such is made generally available to the public;
(xi) the Company will otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the SEC;
(xii) upon the transfer of any Registrable Securities by the Holders in connection with a registration hereunder, the Company shall furnish unlegended certificates representing ownership of the Registrable Securities in such denominations as shall be requested by the Holders or the underwriters; and
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(xiii) use commercially reasonable efforts to take all other actions necessary or customarily taken by issuers to effect the registration of the Registrable Securities contemplated hereby.
(c) CompanyRight to Delay. Notwithstanding anything set forth in this Agreement, the Company shall have the right to delay the filing of a registration statement pursuant to this Agreement and to suspend the effectiveness of any such Registration Statement for a reasonable period of time (not exceeding ninety (90) days in the aggregate in any twelve (12) month period) if the Company furnishes to the selling Holders a certificate signed by the Chairman of the Board or the Chief Executive Officer of the Company stating that the Company has determined in good faith that effecting such registration or offering at such time would adversely affect a material financing, acquisition or disposition of assets, distribution rights or stock, merger or other comparable transaction, or would require the Company to make public disclosure of information the public disclosure of which would have a material adverse effect upon the Company. The right pursuant to this Section 4(c) cannot be used with the delay right under Section 2(e). If a registration is delayed under Sections 2(e) or 4(c), then such registration may not also be delayed under the other section. The Company shall use commercially reasonable efforts and take such actions as are reasonably necessary to lift any suspensions as promptly as practicable.
- Indemnification.
(a) Company. The Company shall indemnify a Holder and the directors, officers, employees, agents and representatives of the Holder, and each person, if any, who controls any Holder within the meaning of Section 15 of the Securities Act, if Registrable Securities held by the Holder are included in the securities with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, against all claims, losses, damages, expenses and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement) in connection with any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein 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 the Blue Sky Laws including any rule or regulation thereunder applicable to the Company relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse the Holder and such directors, officers, employees, agents, representatives or control persons for any attorney’s fees, legal and any other expenses reasonably incurred in connection with investigating and defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement (or alleged untrue statement) or omission (or alleged omission) contained in a writing signed by that Holder and furnished to the Company by that Holder and stated to be specifically for use in preparing such prospectus, offering circular or other document in connection with such registration, qualification or compliance in that writing.
(b) Holder. Each Holder will, if Registrable Securities or other securities held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors, officers, employees, agents and representatives and each underwriter, if any, of the Company’s securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act against all claims, losses, damages, expenses and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such directors, officers, agents, representatives, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in connection with such registration, qualification or compliance and contained in a writing signed by that Holder and furnished to the Company by that Holder and stated to be specifically for use in preparing such prospectus, offering circular or other document incident to such registration, qualification or compliance in that writing. Notwithstanding anything to the contrary in this Agreement, in no event shall the aggregate liability of such Holder for indemnification or contribution under this Section 5 exceed the proceeds actually received by such Holder from the sale of shares in such offering (after deducting any and all costs, fees, and expenses, including underwriting commissions, discounts, and legal fees and expenses) (the “Net Proceeds”).
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(c) Procedures. Each party entitled to indemnification under this Section 5 (the “Indemnified Party”) shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom provided that counsel for the Indemnifying Party who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party’s expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, except to the extent that the Indemnified Party is prejudiced thereby. Each Indemnified Party, at the Indemnifying Party’s cost, shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. An Indemnified Party shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnifying Party, if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between such Indemnified Party and any other party represented by such counsel in such proceeding, provided that in no event shall the Indemnifying Party be required to pay the fees and expenses of more than one such separate counsel for all Indemnified Parties.
(d) EquitableRelief. If the indemnification provided for in this Section 5 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any losses, claims, damages, expenses or liabilities referred to herein, the Indemnifying Party, in lieu of indemnifying such Indemnified Party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such Indemnified Party as the result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the allegation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties’ relevant intent, knowledge, access to information and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by any Holder hereunder exceed the Net Proceeds from the sale of shares in the offering received by such Holder.
(e) Survival. The obligations of the Company and the Holders under this Section 5 shall survive the completion of any offering of Registrable Securities in a registration statement and the termination of this Agreement. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the prior written consent of each Indemnified Party (which consent shall not be unreasonably withheld), consent to the entry of any judgment or enter into any settlement. Unless waived by the Indemnified Party, all judgments and settlements must include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation.
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- Rule 144 Reporting and Sales.
With a view to making available the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to:
(a) PublicInformation. Make and keep public information available as those terms are understood and defined in Rule 144 under the Securities Act;
(b) Filings. Use its commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act;
(c) Compliance. So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144, and of the Securities Act and the Exchange Act;
(d) Removalof Legends. The Company will, at the written request of a Holder, upon receipt from such Holder of a certificate certifying (i) that such Holder has held its Registrable Securities for the applicable holding period under Rule 144 with respect to the Holder’s possession of such Registrable Securities, as in effect on the date of such certificate, (ii) that such Holder has not been an affiliate (as defined in Rule 144) of the Company during any of the ninety (90) preceding days, and (iii) as to such other matters as may be required in accordance with Rule 144, remove from the stock certificates or book-entries representing such Registrable Securities that portion of any restrictive legend which relates to the registration provisions of the Securities Act; and
(e) AdditionalInformation. The Company acknowledges and agrees that the purposes of the requirements contained in this Section 6 are to enable the Holders to comply with the current public information requirement contained in Paragraph (c) of Rule 144 under the Securities Act should the Holders ever wish to dispose of any of the securities of the Company acquired by it without registration under the Securities Act in reliance upon Rule 144 (or any other similar exemptive provision). The Company shall take such other measures (including removal of restrictive legends in connection with sales made under Rule 144 to the extent legends are contained on the stock certificates or book-entries), and file such other information, documents and reports, as shall hereafter be required by the SEC as a condition to the availability of Rule 144 under the Securities Act (or any similar provision hereafter in effect).
- Termination of Rights.
The provisions of this Agreement, except the provisions in Sections 5 and 6 of this Agreement, shall terminate upon the earlier of (i) the first day that all Registrable Securities have been sold by the Holders, or (ii) with regard to any specific Holder, the first day that all Registrable Securities owned by such Holder may be sold pursuant to Rule 144 promulgated under the Securities Act in any three (3) month period; provided, however, that the indemnification and contribution rights and obligations hereunder shall not terminate and shall survive forever. The period this Agreement is in effect is referred to as the “Registration Period.”
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- Miscellaneous.
(a) Transferor Assignment of Registration Rights. The rights of a Holder shall be assigned automatically to any transferee, successor or heir of Registrable Securities from such Holder as long as: (i) the Company is, within a reasonable period of time following such transfer, furnished with written notice of the name and address of such transferee and (ii) the transferee agrees in writing with the Company to be bound by all of the provisions hereof.
(b) GoverningLaw. This Agreement shall be governed by and construed under the laws of the State of Texas.
(c) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
(d) Titlesand Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
(e) Notices,Etc. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by first-class mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (i) if to a Holder, at the address of such Holder on the books of the Company, or at such other address as such Holder shall have furnished to the Company in writing, with a copy to (which shall not constitute notice) Holland & Knight LLP, 1650 Tysons Blvd., Suite 1700, Tysons, Virginia 22102, Attn: Katherine Markel, E-mail: Katherine.Markel@hklaw.com, or (ii) if to the Company, at the address of its principal offices to the attention of Brooke Turk, Chief Financial Officer.
(f) Expenses. If any action at law or in equity (including arbitration) is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, expenses and necessary disbursements in addition to any other relief to which such party may be entitled.
(g) Amendmentsand Waivers. Any term of this Agreement may be amended or waived with the written consent of the Company and the Holders of at least a majority of the outstanding Registrable Securities. Any amendment or waiver effected in accordance with this Section 8(g) shall be binding upon the Holders, each transferee of the Registrable Securities, each future holder of all such Registrable Securities, and the Company.
(h) Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, portions of such provisions, or such provisions in their entirety, to the extent necessary, shall be severed from this Agreement, and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.
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(i) Delaysor Omissions. No delay or omission to exercise any right, power or remedy accruing to any party to this Agreement, upon any breach or default of any other party, shall impair any such right, power or remedy of such non-breaching party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be made in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, or by law or otherwise afforded to the Holders, shall be cumulative and not alternative.
(j) EntireAgreement. This Agreement and the documents referred to herein constitute the entire agreement between the parties hereto pertaining to the subject matter hereof and any other written or oral agreements between the parties hereto are expressly canceled.
(k) Aggregationof Stock. All Registrable Securities held or acquired by affiliated entities or persons shall be aggregated for the purposes of determining the availability of any right under this Agreement.
(l) Adjustmentof Share Amounts. All share amounts in this Agreement are subject to adjustment (i) in the event of any stock split, stock dividend or share combination (reverse stock split) and (ii) in accordance with the Company Agreement of XTI Drones Holdings, LLC.
(m) Remedies. The Company acknowledges that in the event of any breach of this Agreement by the Company, or any controversy arises concerning any Holder’s rights or obligations under this Agreement, such Holder (1) would be irreparably and immediately harmed by such breach, (2) could not be made whole by monetary damages, and (3) shall be entitled to seek temporary and permanent injunctions (or their functional equivalents) to prevent any such breach and/or to compel specific performance of this Agreement, in addition to all other remedies to which such Holder may be entitled at law or in equity. The remedies of such Holder under this Agreement shall be cumulative of each other and of the remedies available at law or in equity. Such Holder’s full or partial exercise of any such remedy shall not preclude any subsequent exercise by such Holder of the same or any other remedy.
(n) Construction. Whenever the context requires in this Agreement, the gender of all words used in Agreement include the masculine, feminine, and neuter and the singular form of nouns, pronouns, and verbs shall include the plural and vice versa. Use of “herein,” “hereof,” “hereby,” “hereunder,” or similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision or part hereof. Unless otherwise specified, all references to a Section refer to sections of this Agreement. The terms “include,” “includes,” and “including” mean “include without limitation,” “includes without limitation,” and “including without limitation” and the term “or” has the inclusive meaning represented by the phrase “and/or.”
(o) Timeof the Essence. Time is of the essence with respect to all obligations of the Company to give notice and otherwise take action hereunder.
[Signature Page to Follow]
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IN WITNESS WHEREOF, the undersigned have executed this Registration Rights Agreement as of the date first set forth above.
| COMPANY: | |
|---|---|
| XTI AEROSPACE, INC. | |
| By: | /s/ Brooke Turk |
| Brooke Turk, | |
| Chief Financial Officer | |
| HOLDER: | |
| THE ORIGIN GROUP DN, INC. | |
| By: | /s/ Jeremy Schneiderman |
| Jeremy Schneiderman, | |
| Chief Executive Officer | |
| HOLDER: | |
| THE ORIGIN GROUP AZ, INC. | |
| By: | /s/ Jeremy Schneiderman |
| Jeremy Schneiderman, | |
| Chief Executive Officer |
Exhibit 10.7
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this “Agreement”) is dated as of November 10, 2025, between XTI Aerospace, Inc., a Nevada corporation (the “Company”), and Unusual Machines, Inc., a Nevada corporation (including its successors and assigns, the “Purchaser”).
WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(a)(2) of the Securities Act (as defined below), and Rule 506 promulgated thereunder, the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase from the Company, securities of the Company as more fully described in this Agreement;
WHEREAS, the purpose of this financing is to provide working capital to finance the Company through consummation of the Drone Nerds Acquisition (as defined below);
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser agree as follows:
ARTICLEI.
DEFINITIONS
1.1. Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:
“Action” means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or, to the Company’s Knowledge, threatened in writing against the Company, any Subsidiary or any of their respective properties or any officer, director or employee of the Company or any Subsidiary acting in his or her capacity as an officer, director or employee before or by any federal, state, county, local or foreign court, arbitrator, governmental or administrative agency, regulatory authority, stock market, stock exchange or trading facility.
“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 Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Agreement” has the meaning set forth in the Preamble.
“Anzu” means Anzu Robotics, LLC, a Delaware limited liability company.
“Board of Directors” means the board of directors of the Company.
“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York are generally open for use by customers on such day.
“Certificate of Designation” means the Certificate of Designation to be filed prior to the Closing by the Company with the Secretary of State of Nevada, in the form of Exhibit A attached hereto.
“Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1.
“Closing Date” means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchaser’s obligations to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Securities, in each case, have been satisfied or waived.
“Commission” means the United States Securities and Exchange Commission.
“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.
“Common Stock Equivalents” means any securities of the Company or any Subsidiary which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock or other securities that entitle the holder to receive, directly or indirectly, Common Stock.
“Company” has the meaning set forth in the Preamble.
“Company Counsel” means Mitchell Silberberg & Knupp LLP located at 437 Madison Avenue New York, New York 10022.
“Company’s Knowledge” means the actual knowledge, or knowledge that would have been acquired after reasonable inquiry, of the executive officers (as defined in Rule 405 under the Securities Act) of the Company, who would reasonably be expected to have knowledge with respect to the matter in question.
“Control” (including the terms “controlling,” “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of the shares of Preferred Stock in accordance with the terms of the Certificate of Designation.
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“Drone Nerds” means Drone Nerds, LLC, a Florida limited liability company.
“Drone Nerds Acquisition” means the acquisition by XTI Drones Holdings, LLC, a subsidiary of XTI Drones, LLC, which is a wholly-owned subsidiary of the Company, of 100% of the issued and outstanding equity interests of Drone Nerds and Anzu.
“Environmental Laws” has the meaning set forth in Section 3.1(z).
“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.
“Exempt Issuance” means the issuance of (i) the Securities to be sold hereunder and the warrants and shares of Common Stock issuable upon exercise of the Warrants to the Placement Agent in connection with the sale of the Securities, (ii) the issuance by the Company of shares of Common Stock upon the exercise of a stock option or warrant or the conversion of a security outstanding on the date hereof, provided that such options, warrants, and securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities or extend the terms of such securities, (iii) the issuance by the Company of stock options, or any other securities exercisable or exchangeable for or convertible into shares or capital stock of the Company, or shares of capital stock of the Company or other awards under any equity compensation plan, or stock or option plan, of the Company, or pursuant to another type of arrangement for services rendered or to be rendered to the Company, (iv) the issuance by the Company of restricted shares of Common Stock in connection with mergers, acquisitions or joint ventures, provided that such securities are issued as “restricted securities” (as defined in Rule 144), and provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, (v) the issuance by the Company of restricted shares of Common Stock to consultants in the Company’s ordinary course of business and not for capital raising transactions and carry no registration rights that require or permit the filing of any registration statement in connection therewith during the Standstill Period and (vi) the issuance by the Company of shares of Common Stock in connection with the Drone Nerds Acquisition.
“GAAP” means U.S. generally accepted accounting principles, as applied by the Company.
“Intellectual Property” has the meaning set forth in Section 3.1(p)(i).
“Legend Removal Date” has the meaning set forth in Section 4.1(c).
“Liens” means any lien, charge, claim, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
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“Material Adverse Effect” means any event, occurrence, fact, condition or change that is, or would reasonably be expected to become, individually or in the aggregate, materially adverse to the business, results of operations, condition (financial or otherwise) or assets of the Company; provided, however, that “Material Adverse Effect” shall not include any event, occurrence, fact, condition or change, directly or indirectly, arising out of or attributable to: (i) general economic or political conditions; (ii) conditions generally affecting the industries in which the Company operates; (iii) any changes in financial or securities markets in general; (iv) acts of war (whether or not declared), armed hostilities or terrorism, or the escalation or worsening thereof; (v) any action required or permitted by this Agreement; (vi) any changes in applicable laws or accounting rules, including GAAP; (vii) the public announcement, pendency or completion of the transactions contemplated by this Agreement; (viii) any natural or mad-made disaster or acts of God; or (ix) any failure by the Company to meet any internal or published projections, forecasts or revenue or earnings predictions (provided that the underlying causes of such failures (subject to the other provisions of this definition) shall not be excluded).
“Material Contract” means any contract of the Company that has been filed or was required to have been filed as an exhibit to the SEC Reports pursuant to Item 601(b)(4) or Item 601(b)(10) of Regulation S-K.
“Material Permits” has the meaning set forth in Section 3.1(n).
“OFAC” has the meaning set forth in Section 3(aa).
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, sole proprietorship, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Placement Agent” means ThinkEquity LLC.
“Preferred Stock” means up to 25,000 shares of the Company’s Series 10 Convertible Preferred Stock issued hereunder having the rights, preferences and privileges set forth in the Certificate of Designation
“Pre-Funded Warrants” means the Common Stock purchase warrants issuable upon conversion of the Preferred Stock in accordance with the terms of the Certificate of Designation to the extent the holder is limited by the Beneficial Ownership Limitation (as defined in the Certificate of Designation), which Pre-Funded Warrants shall be exercisable into shares of Common Stock, shall be in substantially the same form issued by the Company in September 2025, shall be immediately exercisable upon issuance until all of the Pre-Funded Warrants have been exercised, and shall be exercisable at an exercise price of $0.0001 per share, provided that such exercise price shall be deemed pre-paid as part of the Subscription Amount paid by the Purchaser at the Closing.
“Pre-Funded Warrant Shares” means the shares of Common Stock issuable upon exercise of the Pre-Funded Warrants, if any.
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“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
“Purchaser” has the meaning set forth in the Recitals.
“Purchaser Party” has the meaning set forth in Section 4.5.
“Registration Statement” means a registration statement covering the resale by the Purchaser of the Underlying Shares.
“Required Approvals” has the meaning set forth in Section 3.1(e).
“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“SEC Reports” has the meaning set forth in Section 3.1(h).
“Securities” means the Preferred Stock, the Pre-Funded Warrants and the Underlying Shares.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Shareholder Approval” has the meaning set forth in Section 4.8.
“Shareholder Approval Date” has the meaning set forth in Section 4.8.
“Shareholder Meeting Deadline” has the meaning set forth in Section 4.8.
“Shareholder Resolutions” has the meaning set forth in Section 4.8.
“Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include locating and/or borrowing shares of Common Stock).
“Standstill Period” has the meaning set forth in Section 4.11.
“Stated Value” means an amount per share of Preferred Stock equal to $1,000.
“Subscription Amount” means, as to the Purchaser, the aggregate amount to be paid for the Preferred Stock purchased hereunder as specified below the Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available funds.
“Subsidiary” means any subsidiary of the Company as set forth in the SEC Reports, and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof, including, for the avoidance of doubt, Drone Nerds and Anzu following the consummation of the Drone Nerds Acquisition.
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“Texas Courts” has the meaning set forth in Section 5.9.
“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange, the OTCQB or the OTCQX (or any successors to any of the foregoing).
“Transaction Documents” means this Agreement, the Certificate of Designation, all exhibits and schedules hereto, and any other documents or agreements executed in connection with the transactions contemplated hereunder.
“Transfer Agent” means Computershare Trust Company, N.A., the current transfer agent of the Company, with a mailing address of 150 Royall Street, Suite 101, Canton, MA 02021, or any successor transfer agent for the Company.
“Underlying Shares” means the Conversion Shares and Pre-Funded Warrant Shares.
ARTICLEII.
PURCHASE AND SALE
2.1. Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, the Company agrees to sell, and the Purchaser agrees to purchase, an aggregate of $25,000,000 of shares of Preferred Stock with an aggregate Stated Value for the Purchaser equal to the Purchaser’s Subscription Amount as set forth on the signature page hereto executed by the Purchaser. The aggregate number of shares of Preferred Stock sold hereunder shall be 25,000 shares. The Purchaser shall, on the Closing Date, deliver to the Company immediately available funds equal to its Subscription Amount, and on the Closing Date the Company shall deliver to the Purchaser its shares of Preferred Stock, as determined pursuant to Section 2.2(a), and the Company and the Purchaser shall deliver the other items set forth in Section 2.2 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall take place remotely by electronic transfer of the Closing documentation, or such other location as the parties shall mutually agree.
2.2. Deliveries.
(a) On or prior to the Closing Date, the Company shall deliver or cause to be delivered to the Purchaser and the Placement Agent the following:
(i) this Agreement duly executed by the Company;
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(ii) a certificate (or reasonable evidence of issuance by book-entry) evidencing a number of shares of Preferred Stock equal to the Purchaser’s Subscription Amount divided by the Stated Value, registered in the name of the Purchaser, and evidence of the filing and acceptance of the Certificate of Designation from the Secretary of State of Nevada.
(b) On or prior to the Closing Date, the Purchaser shall deliver or cause to be delivered to the Company the following:
(i) this Agreement duly executed by the Purchaser; and
(ii) the Purchaser’s Subscription Amount by wire transfer directly to the account(s) specified by the Company.
2.3. Closing Conditions.
(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Purchaser contained herein (unless such representation or warranty is as of a specific date therein in which case they shall be accurate in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) as of such date);
(ii) all obligations, covenants and agreements of the Purchaser required to be performed at or prior to the Closing Date shall have been performed; and
(iii) the delivery by the Purchaser of the items set forth in Section 2.2(b) of this Agreement.
(b) The obligations of the Purchaser hereunder in connection with the Closing are subject to the following conditions being met:
(i) the accuracy in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) when made and on the Closing Date of the representations and warranties of the Company contained herein (unless such representation or warranty is as of a specific date therein in which case they shall be accurate in all material respects (or, to the extent representations or warranties are qualified by materiality or Material Adverse Effect, in all respects) as of such date);
(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;
(iii) the consummation of the Drone Nerds Acquisition; and
(iv) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement.
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ARTICLEIII.
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Company. Except as disclosed in the Company’s SEC Reports, the Company hereby represents and warrants as of the date hereof and the Closing Date (except for the representations and warranties that speak as of a specific date, which shall be made as of such date), to the Purchaser:
(a) Subsidiaries. All direct and indirect Subsidiaries of the Company are duly organized and in good standing under the laws of the place of organization or incorporation, and each Subsidiary is in good standing in each jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to qualify would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. The Company’s ownership and control of each Subsidiary is as described in the Company’s SEC Reports.
(b) Organization and Qualification. The Company has been duly incorporated and is validly existing as a corporation and is in good standing under the laws of the State of Nevada, and is duly qualified to do business and is in good standing in each other jurisdiction in which its ownership or lease of property or the conduct of business requires such qualification, except where the failure to be so qualified or in good standing would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
(c) Authorization; Enforcement; Validity. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder. The Company’s execution and delivery of each of the Transaction Documents to which it is a party, issuance of the Securities on the terms and subject to the conditions set forth herein and therein and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company, and no further corporate action is required by the Company, its Board of Directors or its stockholders in connection therewith other than in connection with the Required Approvals. Each of the Transaction Documents to which it is a party has been (or upon delivery will have been) duly executed by the Company and is, or when delivered in accordance with the terms hereof, will constitute the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
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(d) No Conflicts. The execution, delivery and performance by the Company of the Transaction Documents to which it is a party and the consummation by the Company of the transactions contemplated hereby or thereby (including, without limitation, the issuance of the Securities) do not and will not (i) conflict with or violate any provisions of the Company’s or any Subsidiary’s articles of incorporation/certificate of incorporation, bylaws or otherwise result in a violation of the organizational documents of the Company, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would result in a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any Material Contract, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations and the rules and regulations, assuming the correctness of the representations and warranties made by the Purchaser herein, of any self-regulatory organization to which the Company or its securities are subject, including all applicable Trading Markets), or by which any property or asset of the Company or a Subsidiary is bound or affected, except in the case of clauses (ii) and (iii) such as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. Neither the Company nor any of its Subsidiaries is required to obtain any consent, waiver, authorization, approval, certification, qualification, permit or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other body or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.4 of this Agreement, (ii) the Listing of Additional Shares Notification Form with respect to the issuance and sale of the Securities in the time and manner required thereby, and (iii) the Shareholder Approval (collectively, the “Required Approvals”).
(f) Issuance of the Securities; Registration. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has reserved from its duly authorized capital stock the maximum number of shares of Common Stock currently issuable upon conversion of the Preferred Stock issued to the Purchaser at the Closing pursuant to this Agreement and/or the Pre-Funded Warrants. To the extent the Company may in the future elect to pay any dividends on such Preferred Stock in shares of Common Stock, the Company shall take all corporate action necessary at such time to authorize and reserve sufficient shares for such purpose.
(g) Capitalization. The Company had, at the date or dates indicated in the Company’s SEC Reports, the duly authorized, issued and outstanding capitalization as set forth therein. Except as set forth in, or contemplated by, the Company’s SEC Reports, there are no stock options, warrants, or other rights to purchase or otherwise acquire any authorized, but unissued shares of Common Stock of the Company or any security convertible or exercisable into shares of Common Stock of the Company, or any contracts or commitments to issue or sell shares of Common Stock or any such options, warrants, rights or convertible securities. Since the date of the most recent of the Company’s SEC Reports containing such disclosure, the Company has not issued any shares of capital stock or any securities convertible into or exercisable for shares of capital stock, other than (i) issuances pursuant to the Company’s existing equity incentive or stock purchase plans or compensation arrangements, (ii) the issuance of the Securities contemplated by this Agreement, (iii) issuances upon the exercise or conversion of securities previously outstanding and disclosed in the Company’s SEC Reports, and (iv) issuances in connection with the Drone Nerds Acquisition.
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(h) SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, from January 1, 2025 (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension, except where the failure to file on a timely basis would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. As of their respective filing dates, or to the extent corrected by a subsequent restatement, the Company’s SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the Company’s SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except as set forth in the Company’s SEC Reports, the Company has never been an issuer subject to Rule 144(i) under the Securities Act.
(i) Financial Statements. The financial statements, including the notes thereto and supporting schedules included or incorporated by reference in the Company’s SEC Reports, fairly present the financial position and the results of operations of the Company at the dates and for the periods to which they apply; and such financial statements have been prepared in conformity with GAAP, consistently applied throughout the periods involved (provided that unaudited interim financial statements are subject to year-end audit adjustments that are not expected to be material in the aggregate and do not contain all footnotes required by GAAP); and the supporting schedules included or incorporated by reference in the Company’s SEC Reports present fairly the information required to be stated therein. Except as included or incorporated by reference therein, no historical or pro forma financial statements or supporting schedules are required to be included or incorporated by reference in the Company’s SEC Reports under the Securities Act. The pro forma and pro forma as adjusted financial information and the related notes, if any, included or incorporated by reference in the Company’s SEC Reports have been properly compiled and prepared in accordance with the applicable requirements of the Securities Act and the Exchange Act and present fairly the information shown therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. All disclosures contained in the Company’s SEC Reports, or incorporated or deemed incorporated by reference therein, regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission), if any, comply with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Securities Act, to the extent applicable. The Company’s SEC Reports disclose all material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons that may have a material current or future effect on the Company’s financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenues or expenses. Except as disclosed in the Company’s SEC Reports and other than as contemplated in connection with the Drone Nerds Acquisition, (a) neither the Company nor any of its significant subsidiaries (as such term is defined in Article 1, Rule 1-02 of Regulation S-X promulgated under the Securities Act) has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions other than in the ordinary course of business, (b) the Company has not declared or paid any dividends or made any distribution of any kind with respect to its capital stock, (c) there has not been any change in the capital stock of the Company or any of such subsidiaries, or, other than in the course of business or any grants under any stock compensation plan, and (d) there has not been any Material Adverse Effect in the Company’s long-term or short-term debt.
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(j) No Material Adverse Effect. Since the respective dates as of which information is given in the Company’s SEC Reports, except as otherwise specifically stated therein, (i) there has been no Material Adverse Effect or development involving a prospective Material Adverse Effect from the latest dates as of which such condition is set forth in the Company’s SEC Reports, (ii) there have been no material transactions entered into by the Company, other than as contemplated pursuant to this Agreement; (iii) no officer or director of the Company has resigned from any position with the Company, and (iv) the Company has not sustained any material loss or interference with its business or properties from fire, explosion, flood, earthquake, hurricane, accident or other calamity. Subsequent to the respective dates as of which information is given in the Company’s SEC Reports, and except as may otherwise be indicated or contemplated herein or disclosed in the Company’s SEC Reports, the Company has not: (i) issued any securities, other than securities issued pursuant to the Company’s existing equity incentive or stock option plans or other compensation arrangements for shares of Common Stock issuable upon the exercise of then outstanding options, restricted stock units or convertible securities, or incurred any liability or obligation, direct or contingent, for borrowed money; or (ii) declared or paid any dividend or made any other distribution on or in respect to its capital stock.
(k) Litigation. There is no Action pending or, to the Company’s Knowledge, threatened against, or involving the Company, or, to the Company’s Knowledge, any executive officer or director which has not been disclosed in the Company’s SEC Reports which is required to be disclosed.
(l) Employment Matters. No material labor dispute exists or, to the Company’s Knowledge, is imminent with respect to any of the employees of the Company which would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. To the Company’s Knowledge, no executive officer, to the Company’s Knowledge, is, or is in violation in any material respect of any term of any employment contract, patent disclosure agreement, invention assignment agreement, non-competition agreement, non-solicitation agreement, nondisclosure agreement or any restrictive covenant to or with a former employer where the basis of such violation relates to such employee’s employment with the Company, or actions undertaken by the employee while employed with the Company and would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. .
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(m) Compliance. No material default exists in the due performance and observance of any term, covenant or condition of any Material Contract, except with respect to Drone Nerds’ and Anzu’s $25.0 million secured revolving credit facility and for such defaults that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. The Company is not in violation of any term or provision of its articles of incorporation of bylaws, or, in violation of any franchise, license, permit, applicable law, rule, regulation, judgment, order or decree of any court, arbitrator or governmental body having jurisdiction over the Company or its properties or assets, except for those violations that would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
(n) Regulatory Permits. The Company and each of its Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct its respective business as currently conducted and as described in the Company’s SEC Reports, except where the failure to possess such permits, individually or in the aggregate, would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect (“Material Permits”).
(o) Title to Assets. The Company and its Subsidiaries have good and marketable title in fee simple to any real property owned by them. The Company and its Subsidiaries have good and marketable title to all tangible personal property owned by them that is material to the business of the Company and its Subsidiaries, taken as whole, in each case free and clear of all Liens except such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries. Any real property and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its Subsidiaries.
(p) Intellectual Property.
(i) To the Company’s Knowledge, the Company and the Subsidiaries own, possess, license or have other rights to use, all patents, patent applications, trade and service marks, trade and service mark applications and registrations, trade names, trade secrets, inventions, copyrights, licenses, technology, know-how and other intellectual property rights and similar rights described in the Company’s SEC Reports as necessary or material for use in connection with their respective businesses and which the failure to so have would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect (collectively, the “Intellectual Property”). Except as set forth in the Company’s SEC Reports, neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of the Intellectual Property Rights used by the Company or any Subsidiary violates or infringes upon the rights of any Person. There is no pending or, to the Company’s Knowledge, threatened action, suit, proceeding or claim by any Person that the Company’s business as now conducted infringes or otherwise violates any patent, trademark, copyright, trade secret or other proprietary rights of another. To the Company’s Knowledge, there is no existing infringement by another Person of any of the Intellectual Property Rights that would have or would reasonably be expected to have a Material Adverse Effect. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
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(ii) To the Company’s Knowledge, all Intellectual Property is valid and enforceable and all maintenance/annuities fees have been timely paid, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(q) Related Party Transactions. There are no business relationships or related party transactions involving the Company or any other person required to be described in the Company’s SEC Reports that have not been described as required.
(r) Internal Accounting Controls. Except as set forth in the Company’s SEC Reports, the Company maintains systems of “internal control over financial reporting” (as defined under Rules 13a-15 and 15d-15 under the Exchange Act) that comply with the requirements of the Exchange Act and have been designed by, or under the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, including, but not limited to, internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as disclosed in the Company’s SEC Reports, the Company is not aware of any material weaknesses in its internal controls. The Company’s auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are known to the Company’s management and that have adversely affected or are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and (ii) any fraud known to the Company’s management, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting. Since the date of the latest audited financial statements, there has been no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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(s) Sarbanes-Oxley; Disclosure Controls. Except as disclosed in the Company’s SEC Reports, the Company has developed and currently maintains disclosure controls and procedures that will comply with Rule 13a-15 or 15d-15 under the Exchange Act and such controls and procedures are effective to ensure that all material information concerning the Company will be made known on a timely basis to the individuals responsible for the preparation of the Company’s Exchange Act filings and other public disclosure documents. The Company is in material compliance with the provisions of the Sarbanes-Oxley Act of 2002 applicable to it, and has implemented or will implement such programs and taken reasonable steps to ensure the Company’s future compliance (not later than the relevant statutory and regulatory deadlines therefor) with all of the material provisions of the Sarbanes-Oxley Act of 2002.
(t) Certain Fees. Except with respect to the Placement Agent’s fees, there are no claims, payments, arrangements, agreements or understandings relating to the payment of a finder’s, consulting or origination fee by the Company or any Insider with respect to the sale of the Securities hereunder.
(u) Investment Company. The Company is not and immediately after receipt of payment for the Securities will not be, required to register as an “investment company,” as defined in the Investment Company Act of 1940, as amended.
(v) Registration Rights. Other than with respect to the Placement Agent’s rights, rights granted in connection with the business combination between the Company and XTI Aircraft Company and as set forth in the Company’s SEC Reports, no holders of any securities of the Company or any rights exercisable for or convertible or exchangeable into securities of the Company have the right to require the Company to register any such securities of the Company under the Securities Act or to include any such securities in a registration statement to be filed by the Company.
(w) Listing and Maintenance Requirements. The Company’s Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to terminate the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. Except as set forth in the Company’s SEC Reports, the Company has not, in the twelve (12) months preceding the date hereof, received written notice from any Trading Market on which the Common Stock is listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. Except as set forth in the Company’s SEC Reports, the Company is in compliance with all listing and maintenance requirements of the principal Trading Market on the date hereof. The Common Stock is currently eligible for electronic transfer through the Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees to the Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer.
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(x) Insurance. The Company carries or is entitled to the benefits of insurance, with reputable insurers, in such amounts and covering such risks which the Company believes are adequate, including, but not limited to, directors and officers insurance coverage at least equal to $5,000,000 and all such insurance is in full force and effect. The Company has no reason to believe that it will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Effect.
(y) Tax Matters. The Company and each of its Subsidiaries (i) has accurately and timely prepared and filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith, with respect to which adequate reserves have been set aside on the books of the Company and (iii) has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply, except, in the case of clauses (i) and (ii) above, where the failure to so pay or file any such tax, assessment, charge or return would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. There are no unpaid taxes in any material amount claimed to be due by the Company or any of its Subsidiaries by the taxing authority of any jurisdiction.
(z) Environmental Matters. To the Company’s Knowledge, the Company and its Subsidiaries are in compliance with all foreign, federal, state and local rules, laws and regulations relating to the use, treatment, storage and disposal of hazardous or toxic substances or waste and protection of health and safety or the environment which are applicable to their businesses (“Environmental Laws”), except where the failure to comply would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. There has been no storage, generation, transportation, handling, treatment, disposal, discharge, emission, or other release of any kind of toxic or other wastes or other hazardous substances by, due to, or caused by the Company or any of its Subsidiaries (or, to the Company’s Knowledge, any other entity for whose acts or omissions the Company or any of its Subsidiaries is or may otherwise be liable) upon any of the property now or previously owned or leased by the Company or any of its Subsidiaries , or upon any other property, in violation of any law, statute, ordinance, rule, regulation, order, judgment, decree or permit or which would, under any law, statute, ordinance, rule (including rule of common law), regulation, order, judgment, decree or permit, give rise to any liability; and to the Company’s Knowledge, there has been no disposal, discharge, emission or other release of any kind onto such property or into the environment surrounding such property of any toxic or other wastes or other hazardous substances.
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(aa) Compliance with OFAC. None of the Company and any of its Subsidiaries or, to the Company’s Knowledge, any director, officer, agent, employee or affiliate of the Company and any of its Subsidiaries or any other person acting on behalf of the Company and any of its Subsidiaries, is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), and the Company will not, directly or indirectly, use the proceeds of the Offering hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.
(bb) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) taken any action that would reasonably be expected to subject the Company to any damage or penalty in any criminal or governmental litigation or proceeding under any provision of the Foreign Corrupt Practices Act of 1977, as amended.
(cc) No Stabilization. Neither the Company nor, to its knowledge, any of its employees, directors or stockholders (without the consent of the Placement Agent) has taken or shall take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under Regulation M of the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.
(dd) Full Disclosure. No representation or warranty by the Company in this Agreement and no statement contained in any certificate or other document furnished or to be furnished to the Purchaser pursuant to this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained therein, in light of the circumstances in which they are made, not misleading.
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3.2. Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein, in which case they shall be accurate as of such date):
(a) Organization; Authority. The Purchaser is an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by the Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of the Purchaser. Each Transaction Document to which it is a party has been duly executed by the Purchaser, and when delivered by the Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.
(b) Understandings or Arrangements. The Purchaser is acquiring the Securities as principal for its own account and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Securities (this representation and warranty not limiting the Purchaser’s right to sell the Securities in compliance with applicable federal and state securities laws).
(c) Purchaser Status. At the time the Purchaser was offered the Securities, it was, and as of the date hereof it is, either: (i) an “accredited investor” as defined in Rule 501 under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.
(d) Experience of the Purchaser. The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment. The Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
(e) Access to Information. The Purchaser acknowledges that it has had the opportunity to review the Transaction Documents (including all exhibits and schedules thereto), the SEC Reports and investor corporate presentation, and has been afforded, (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. The Purchaser acknowledges and agrees that neither the Placement Agent nor any Affiliate of the Placement Agent has provided the Purchaser with any information or advice with respect to the Securities nor is such information or advice necessary or desired. Neither the Placement Agent nor any Affiliate has made or makes any representation as to the Company or the quality of the Securities and the Placement Agent and any Affiliate may have acquired non-public information with respect to the Company which the Purchaser agrees need not be provided to it. In connection with the issuance of the Securities to the Purchaser, neither the Placement Agent nor any of its Affiliates has acted as a financial advisor or fiduciary to such Purchaser.
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(f) Certain Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, the Purchaser has not, nor has any Person acting on behalf of or pursuant to any understanding with the Purchaser, directly or indirectly executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that the Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof. Other than to the Purchaser’s representatives, including, without limitation, its officers, directors, partners, legal and other advisors, employees, agents and Affiliates, the Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction and the Drone Nerds Acquisition).
(g) Independent Advice. The Purchaser understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to the Purchaser in connection with the purchase of the Securities constitutes legal, tax or investment advice.
(h) Restricted Securities. The Purchaser understands that the Securities are characterized as “restricted securities” under the U.S. federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and have not been registered under the Securities Act or any state securities law in reliance on the availability of an exemption from such registration and that under such laws and applicable regulations such Securities may be resold without registration under the Securities Act only in certain limited circumstances.
(i) General Solicitation. The Purchaser did not learn of the investment in the Securities as a result of any general solicitation or general advertising.
(j) No Government Recommendation or Approval. The Purchaser understands that no United States federal or state agency, or similar agency of any other country, has reviewed, approved, passed upon, or made any recommendation or endorsement of the Company or the purchase of the Securities.
(k) Residency. The Purchaser’s office in which its investment decision with respect to the Securities was made is located at the address immediately below the Purchaser’s name on its signature page hereto.
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(l) No Conflicts. The execution, delivery and performance by the Purchaser of the Transaction Documents and the consummation by the Purchaser of the transactions contemplated hereby will not (i) result in a violation of the organizational documents of the Purchaser or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Purchaser is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to the Purchaser, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of the Purchaser to perform its obligations hereunder.
The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect the Purchaser’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transactions contemplated hereby.
ARTICLEIV.
OTHER AGREEMENTS OF THE PARTIES
4.1. Transfer Restrictions.
(a) The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of the Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights and obligations of the Purchaser under this Agreement.
(b) The Purchaser agrees to the imprinting, so long as is required by this Section 4.1, of a legend on any of the Securities in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
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(c) Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof), (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, (ii) following any sale of such Underlying Shares pursuant to Rule 144, (iii) if such Underlying Shares are eligible for sale under Rule 144 or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission). The Company shall cause its counsel to issue a legal opinion to the Transfer Agent or the Purchaser if required by the Transfer Agent to effect the removal of the legend hereunder, or if requested by the Purchaser, respectively. The Company agrees that at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three (3) Trading Days following the delivery by the Purchaser to the Company or the Transfer Agent of a certificate representing the Underlying Shares, as the case may be, issued with a restrictive legend (such date, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4. Certificates for Securities subject to legend removal hereunder shall be transmitted by the Transfer Agent to the Purchaser by crediting the account of the Purchaser’s prime broker with the Depository Trust Company System as directed by such Purchaser.
(d) The Purchaser agrees with the Company that the Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom, and that if Securities are sold pursuant to a Registration Statement, they will be sold in compliance with the plan of distribution set forth therein, and acknowledges that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance upon this understanding.
4.2. Securities Laws Disclosure; Publicity. The Company shall file a Current Report on Form 8-K, including the Transaction Documents as exhibits thereto, with the Commission within the time required by the Exchange Act. The Company and the Purchaser shall consult with each other in issuing any press releases with respect to the transactions contemplated hereby, and neither the Company nor the Purchaser shall issue any such press release, nor otherwise make any such public statement, without the prior consent of the Company, with respect to any press release of the Purchaser, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication.
4.3. Intentionally Omitted.
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4.4. Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities for general corporate and working capital purposes, including, but not limited to, uses in furtherance of the Drone Nerds Acquisition.
4.5. Indemnification of Purchaser. Subject to the provisions of this Section 4.5, the Company will indemnify and hold the Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls the Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is solely based upon a material breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which is finally judicially determined to constitute fraud, gross negligence or willful misconduct). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (x) the employment thereof has been specifically authorized by the Company in writing, (y) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (z) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (1) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (2) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 4.5 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.
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4.6. Reservation of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Preferred Stock, the Conversion Shares and the Pre-Funded Warrant Shares pursuant to this Agreement, the Preferred Stock and the Pre-Funded Warrants (if any), respectively.
4.7. Listing of Common Stock. The Company hereby agrees to use best efforts to maintain the listing or quotation of the Common Stock on the Trading Market on which it is currently listed. The Company further agrees, if the Company applies to have the Common Stock traded on any other Trading Market, it will then include in such application all of the Underlying Shares and will take such other action as is necessary to cause all of the Underlying Shares to be listed or quoted on such other Trading Market as promptly as possible. The Company will then take all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market. The Company agrees to maintain the eligibility of the Common Stock for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.
4.8. Shareholder Approval. The Company shall provide each shareholder entitled to vote at a special meeting of shareholders of the Company (or an annual meeting in lieu thereof at the discretion of the Company) (the “Shareholder Meeting”), which shall be promptly called and held not later than January 31, 2026 (the “Shareholder Meeting Deadline”), a proxy statement soliciting each such shareholder’s affirmative vote at the Shareholder Meeting for approval of resolutions (“Shareholder Resolutions”) providing for the approval of the removal of the limitations on conversion set forth in the Certificate of Designation in compliance with Nasdaq Listing Rule 5635 (the “Shareholder Approval”, and the date the Shareholder Approval is obtained, the “Shareholder Approval Date”), and the Company shall use its commercially reasonable efforts to solicit its shareholders’ approval of such resolutions and to cause the Board to recommend to the shareholders that they approve such resolutions. The Company shall be obligated to seek to obtain the Shareholder Approval by the Shareholder Meeting Deadline. If, despite the Company’s reasonable best efforts the Shareholder Approval is not obtained on or prior to the Shareholder Meeting Deadline, the Company shall call a special or annual meeting of shareholders every one hundred eighty (180) days thereafter and shall include a proposal and recommendation to approve the Shareholder Resolutions in the proxy statement for each such meeting of shareholders, until such Shareholder Approval is obtained, provided, however, that such obligation shall terminate on the two year anniversary of the Closing Date.
4.9. Certain Transactions and Confidentiality. The Purchaser covenants that neither it nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any purchases or sales, including Short Sales of any of the Company’s securities during the period commencing with the execution of this Agreement and ending at such time that the transactions contemplated by this Agreement, including the Drone Nerds Acquisition, are first publicly disclosed. The Purchaser covenants that until such time as the transactions contemplated by this Agreement are publicly disclosed, the Purchaser will maintain the confidentiality of the existence and terms of this transaction and the Drone Nerds Acquisition. Notwithstanding the foregoing, and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees that (i) no Purchaser makes any representation, warranty or covenant hereby that it will not engage in effecting transactions in any securities of the Company after the time that the transactions contemplated by this Agreement, including the Drone Nerds Acquisition, are first publicly disclosed, (ii) the Purchaser shall not be restricted or prohibited from effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the time that the transactions contemplated by this Agreement, including the Drone Nerds Acquisition, are first publicly disclosed and (iii) the Purchaser shall have no duty of confidentiality or duty not to trade in the securities of the Company to the Company, any of its Subsidiaries, or any of their respective officers, directors, employees, Affiliates or agent, after the time that the transactions contemplated by this Agreement, including the Drone Nerds Acquisition, are first publicly disclosed.
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4.10. Registration Rights.
(a) The Company agrees that within ninety (90) days of the Closing Date, the Company shall file the Registration Statement. The Company shall use commercially reasonable efforts to cause such registration to become effective within sixty (60) days (or ninety (90) days if the Commission notifies the Company that it will “review” the registration statement) following the initial filing of such registration statement and to keep such registration statement effective at all times until the earlier of (i) the time that the Purchaser does not own any Securities or (ii) the date on which the Underlying Shares may be sold without restriction, including volume or manner-of-sale restrictions, pursuant to Rule 144. The Purchaser agrees to furnish to the Company a completed questionnaire prior to the filing of the Registration Statement. The Purchaser further agrees that it shall not be entitled to be named as a selling stockholder in the Registration Statement or use the prospectus contained in such registration statement for offers and resales of the Underlying Shares at any time, unless the Purchaser has returned to the Company a completed and signed questionnaire.
(b) Notwithstanding the registration obligations set forth in this Section 4.10, if the Commission informs the Company that all of the Underlying Shares cannot, as a result of the application of Rule 415 promulgated under the Securities Act or otherwise, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly inform the Purchaser and use its commercially reasonable efforts to file amendments to any effective Registration Statement(s) (or file separate Registration Statements) as required by the Commission, covering the maximum number of the Underlying Shares permitted to be registered by the Commission, on Form S-1 (or if available, Form S-3) to register for resale the Underlying Shares as a secondary offering; provided, however, that prior to filing such amendment, the Company shall be obligated to use commercially reasonable efforts to advocate with the Commission for the registration of all of the Underlying Shares in accordance with applicable Commission guidance, including without limitation, Compliance and Disclosure Interpretation 612.09.
4.11. Standstill. From the date of this Agreement until the later of the date that is five (5) days from the date (a) Shareholder Approval is obtained and (b) the date that the Registration Statement has been declared effective by the Commission (such period, the “Standstill Period”), the Company shall not enter into any transaction for the sale of any of its equity securities or securities convertible into its equity securities unless the price per share of Common Stock or per unit price (or conversion price or exercise price, as applicable) is equal to or greater than $2.50. Notwithstanding the foregoing, this section shall not apply to any Exempt Issuance.
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4.12. Financial Information Covenant. The Company acknowledges that, following the Closing, the Purchaser may have public reporting obligation requirements that require the Purchaser to have access to the Company’s financial information. So long as the Purchaser beneficially owns any Preferred Stock, to assist the Purchaser in complying with its required financial reporting obligations, upon the Purchaser’s reasonable written request, the Company agrees to, and to cause its Affiliates and representatives to, reasonably cooperate with the Purchaser solely in connection therewith by providing the Purchaser with reasonable access to the Company’s accounting books and records. Notwithstanding the foregoing, the Purchaser covenants that it will maintain the confidentiality of all material non-public information provided to the Purchaser pursuant to the preceding sentence and will not use such information for any purpose other than to satisfy its own financial reporting or compliance obligations, nor trade, or cause any other person or entity to trade, in the securities of the Company while in possession of such material non-public information, in each case until such information is publicly disclosed by the Company or otherwise agreed to by the Company, except that such information may be disclosed to the Purchaser’s outside attorney, accountant or auditor only to the extent necessary for the performance of the necessary or required tax, accounting, financial, legal, or administrative tasks and services related to the Purchaser’s financial reporting obligations. The Purchaser shall cause its directors, officers, employees, agents, accountants, advisors and other representatives to comply with the foregoing obligations.
4.13. Legal Opinion. No later than two (2) day after the Closing, the Company shall cause its counsel, Mitchell Silberberg & Knupp LLP, to deliver a legal opinion, dated the date of delivery and addressed to the Placement Agent and the Purchaser, in form and substance reasonably acceptable to the Placement Agent, the Purchaser and Mitchell Silberberg & Knupp LLP.
ARTICLEV.
MISCELLANEOUS
5.1. Termination. This Agreement may be terminated by the Purchaser by written notice to the other parties, if the Closing has not been consummated on or before the fifth (5th) Trading Day following the date hereof; provided, however, that no such termination will affect the right of any party to sue for any breach by any other party (or parties).
5.2. Fees and Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company and any conversion notice delivered by the Purchaser), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchaser.
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5.3. Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings, discussions and representations, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. At or after the Closing, and without further consideration, the Company and the Purchaser will execute and deliver to the other such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under the Transaction Documents.
5.4. Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the time of transmission, if such notice or communication is delivered via email attachment at the email address as set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the time of transmission, if such notice or communication is delivered via email attachment at the email address as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the first (1st) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto. To the extent that any notice provided pursuant to any Transaction Document constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.
5.5. Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right. Any amendment effected in accordance with this Section 5.5 shall be binding upon the Purchaser and holder of Securities and the Company.
5.6. Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. 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. This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of the Transaction Documents.
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5.7. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser (other than by merger). The Purchaser may assign any or all of its rights under this Agreement to any Person to whom the Purchaser assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchaser.”
5.8. No Third-Party Beneficiaries. The Placement Agent shall be the third party beneficiary of the representations and warranties of the Company in Section 3.1 and the representations and warranties of the Purchaser in Section 3.2. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.5 and this Section 5.8.
5.9. Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Nevada, without regard to the principles of conflicts of law thereof. Each party agrees that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective Affiliates, employees or agents) shall be commenced exclusively in any federal or state court sitting in Dallas County, Texas (the “Texas Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the Texas Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such Texas Court, or that such Proceeding has been commenced in an improper or inconvenient forum. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BYJURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
5.10. Survival. Subject to applicable statute of limitations, the representations, warranties, agreements and covenants contained herein shall survive the Closing and the delivery of the Securities.
5.11. Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by e-mail delivery (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com) or other transmission method, such signature shall be deemed to have been duly and validly delivered and shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof.
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5.12. Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
5.13. Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever the Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then the Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.
5.14. Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.
5.15. Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Purchaser and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any Action for specific performance of any such obligation the defense that a remedy at law would be adequate.
5.16. Payment Set Aside. To the extent that the Company makes a payment or payments to the Purchaser pursuant to any Transaction Document or the Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
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5.17. Intentionally Omitted.
5.18. Intentionally Omitted.
5.19. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
5.20. Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement.
5.21. Termination. This Agreement may be terminated and the sale and purchase of the Securities abandoned at any time prior to the Closing by either the Company or the Purchaser upon written notice to the other, if the Closing has not been consummated on or prior to 5:00 P.M., New York City time, on November 12, 2025; provided, however, that the right to terminate this Agreement under this Section 5.21 shall not be available to any Person whose failure to comply with its obligations under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such time. Nothing in this Section 5.21 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents. Upon a termination in accordance with this Section 5.21, the Company and the Purchaser shall not have any further obligation or liability (including arising from such termination) to the other.
(Signature Pages Follow)
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
| XTI AEROSPACE, INC. | Address for Notice: |
|---|---|
| XTI Aerospace, Inc. | |
| 8123 InterPort Blvd., Suite C | |
| Englewood, Colorado 80112 | |
| Attn: Scott Pomeroy, Chief Executive Officer | |
| Email: spomeroy@xtiaerospace.com | |
| By: | /s/ Scott Pomeroy |
| --- | --- |
| Name: Scott Pomeroy | |
| Title: Chief Executive Officer |
With a copy to (which shall not constitute notice):
Mitchell Silberberg & Knupp LLP
437 Madison Avenue
New York, New York 10022
Attn: Blake Baron
Email: bjb@msk.com
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
[PURCHASER SIGNATURE PAGES TO SECURITIES
PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
Name of Purchaser: Unusual Machines, Inc.
| Signature of Authorized Signatory of Purchaser: | /s/ Allan Evans |
|---|
Name of Authorized Signatory: Allan Evans
Title of Authorized Signatory: Chief Executive Officer
Email Address of Authorized Signatory:
Address for Notice to Purchaser:
Subscription Amount: $25,000,000
Number of Shares of Preferred Stock: 25,000
EIN Number:
Exhibit 10.8
PLACEMENT AGENCY AGREEMENT
November 10, 2025
ThinkEquity LLC
17 State Street, 41^st^ Floor
New York, NY 10004
Ladies and Gentlemen:
Introductory. This Placement Agency Agreement the (“Agreement”) sets forth the terms upon which ThinkEquity LLC, (“ThinkEquity” or the “Placement Agent”) shall be engaged by XTI Aerospace, Inc., a corporation formed under the laws of the State of Nevada (the “Company”), to act as the exclusive Placement Agent in connection with the private placement (hereinafter referred to as the “Offering”) of securities of the Company, as more fully described below. Capitalized terms used but not defined in this Agreement shall have the meaning ascribed to them in the Securities Purchase Agreement (defined below).
The Offering will consist of an aggregate of 25,000 shares (the “Shares”) of the Company’s newly designated Series 10 Convertible Preferred Stock, $0.001 par value per share (the “Preferred Stock” and the shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) issuable upon conversion of the Preferred Stock are referred to as the “ConversionShares”) at a purchase price of $1,000 per Share.
The Preferred Stock will be offered and sold to Unusual Machines, Inc., a Nevada corporation (the “Investor”) in the Offering pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended, and the rules and regulations of the Securities and Exchange Commission (the “Commission”) thereunder (collectively, the “Securities Act”), in reliance upon Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated by the Commission under the Securities Act (“RegulationD”).
The term of the Placement Agent’s exclusive engagement will be until the earlier of (i) the completion and consummation of the Offering, and (ii) 30 days after the receipt by either party hereto of written notice of termination, provided that no such notice may be given by the Company prior to November 21, 2026 (the “Offering Period”). The date on which the engagement terminates as referenced in the prior sentence shall be referred to as the “Termination Date.” Notwithstanding anything to the contrary contained herein, the provisions concerning indemnification and contribution contained herein and the Company’s obligations contained in the indemnification provisions will survive any expiration or termination of this Agreement, and the Company’s obligation to pay fees actually earned and payable and to reimburse expenses actually incurred and reimbursable pursuant to Section 1 hereof and which are permitted to be reimbursed under Rule 5110(f)(2)(D) of the Financial Industry Regulatory Authority (“FINRA”), will survive any expiration or termination of this Agreement. The Company may hold the closing at any time after the conditions to closing have been satisfied or, where legally permissible, waived (the “Closing”). Nothing in this Agreement shall be construed to limit the ability of the Placement Agent or its Affiliates to pursue, investigate, analyze, invest in, or engage in investment banking, financial advisory or any other business relationship with Persons (as defined below) other than the Company. As used herein (i) “Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind and (ii) “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 405 under the Securities Act.
The Securities shall be sold to the Investor pursuant to the terms and subject to the conditions contained in the securities purchase agreement to be entered into by the Company and the Investor on the date hereof (the “Securities Purchase Agreement”). As used in this Agreement, the term “Offering Documents” means, collectively, this Agreement and the Securities Purchase Agreement and each of the other agreements and instruments entered into or delivered in connection with the transactions contemplated hereby and thereby, as may be amended from time to time.
The Company hereby confirms its agreement with the Placement Agent as follows:
Section 1. Agreement to Act as Placement Agent;Placement Agent Compensation.
(a) On the basis of the representations, warranties and agreements of the Company herein contained, and subject to all the terms and conditions of this Agreement between the Company and the Placement Agent, the Placement Agent is appointed as the Company’s exclusive placement agent during the Offering Period. On the basis of such representations and warranties and subject to such terms and conditions, the Placement Agent hereby accepts such appointment and agrees to perform the services hereunder diligently and in good faith and in a professional and businesslike manner and to use its reasonable best efforts to assist the Company in finding subscribers of the Securities who qualify as “accredited investors,” as such term is defined in Rule 501 of Regulation D, and to complete the Offering. The Placement Agent has no obligation to purchase any of the Securities. Unless sooner terminated in accordance with this Agreement, the engagement of the Placement Agent hereunder shall continue until the later of the Termination Date or the Closing.
(b) As compensation for services rendered, on the Closing Date, the Company shall pay to the Placement Agent a cash fee (the “Cash Fee”) equal to 7.0% of the aggregate purchase price paid by the Investor in respect of the Securities at the Closing. The Cash Fee shall be deducted from the purchase price payable at the Closing. The Company also agrees to reimburse the Placement Agent for all reasonable and out-of-pocket expenses incurred in connection with the Placement Agent’s engagement, including reasonable fees and expenses of the Placement Agent’s legal counsel and due diligence analysis, which amount shall be paid at the Closing from the gross proceeds of the sales of the Securities, provided that such reimbursement shall be limited to $175,000 (inclusive of any expense advance provided to the Placement Agent by the Company) without prior written approval by the Company; provided that in the event that the Offering shall not be consummated for any reason whatsoever, within the time specified herein or any extensions thereof pursuant to the terms hereof, the Company shall be obligated to pay to the Placement Agent its actual and accountable reasonable out-of-pocket expenses related to the transactions contemplated herein then due and payable (including the fees and disbursements of the Placement Agent’s counsel) up to $80,000, and upon demand the Company shall pay the full amount thereof to the Placement Agent.
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The Company will issue to the Placement Agent or its designees a warrant (the “Placement Agent’s Warrants”) to purchase an aggregate of 837,801 shares of Common Stock (the “Placement Agent’s Warrant Shares”). The Placement Agent’s Warrant Agreement, in the form attached hereto as Exhibit A (the “Placement Agent’s Warrant Agreement”), shall be exercisable, in whole or in part, commencing on the Closing and expiring on the five-year anniversary of the date thereof at an initial exercise price per share of Common Stock of $1.492, which is equal to 100% of the Share Offering Price. The Placement Agent’s Warrant Agreement and the shares of Common Stock issuable upon exercise thereof are hereinafter referred to together as the “Placement Agent’sSecurities.”
(c) The Company hereby acknowledges that (i) the Offering, including the determination of the offering price of the Shares any related discounts, commissions and fees, shall be an arm’s-length commercial transaction between the Company and the Investor, (ii) the Placement Agent will be acting as an independent contractor and will not be the agent or fiduciary of the Company or its stockholders, creditors, employees, the Investor or any other party, (iii) the Placement Agent shall not assume an advisory or fiduciary responsibility in favor of the Company (irrespective of whether the Placement Agent has advised or is currently advising the Company on other matters) and the Placement Agent shall not have any obligation to the Company with respect to the Offering, except as may be set forth expressly herein, (iv) the Placement Agent and its Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Company and (v) the Placement Agent will not provide any legal, accounting, regulatory or tax advice with respect to the Offering, and the Company shall consult its own legal, accounting, regulatory and tax advisors to the extent it deems appropriate.
(d) The Company is and will be solely responsible for the contents of any and all written or oral communications provided to the Investor regarding the Offering or the Securities; and the Company recognizes that the Placement Agent, in acting pursuant to this Agreement, will be using information provided by the Company and its agents and representatives and the Placement Agent assumes no responsibility for, and may rely, without independent verification, on the accuracy and completeness of any such information.
(e) The Company agrees that any information or advice rendered by the Placement Agent or any of its representatives in connection with this engagement is for the confidential use of the Board of Directors of the Company and the management of the Company only and the Company will not, and will not permit any third party to, disclose or otherwise refer to such advice or information, in any manner without the Placement Agent’s prior written consent.
Section 2. Representations, Warranties andAgreements of the Company.
The Company hereby represents, warrants and covenants to the Placement Agent as of the date hereof, and as of the date of the Closing, as follows, except as otherwise disclosed in the Securities Purchase Agreement or the SEC Documents:
(a) Compliancewith Applicable Regulations. The Offering Documents have been prepared by the Company in conformity with all applicable laws and in compliance with Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D and the requirements of all other rules and regulations of the Commission relating to offerings of the type contemplated by the Offering and the applicable securities laws and the rules and regulations of those jurisdictions wherein the Placement Agent notifies the Company that the Securities are to be offered and sold. The Securities will be offered and sold to the Investor in the Offering pursuant to the exemption from the registration requirements of the Securities Act in reliance upon Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D as a transaction not involving a public offering and the requirements of any other applicable state securities or “Blue Sky” laws and the respective rules and regulations thereunder in those United States jurisdictions in which the Placement Agent notifies the Company that the Securities are being offered for sale. None of the Company, its affiliates, or any person acting on its or their behalf (other than the Placement Agent, its affiliates or any person acting on its behalf, in respect of which no representation is made) has taken nor will it take any action that conflicts with the conditions and requirements of, or that would make unavailable with respect to the Offering, the exemption(s) from registration available pursuant to Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D, or knows of any reason why any such exemption would be otherwise unavailable to it. None of the Company, its predecessors or affiliates has been subject to any order, judgment or decree of any court of competent jurisdiction temporarily, preliminarily or permanently enjoining such person for failing to comply with Rule 503 of Regulation D. The Company has not, for a period of six months prior to the commencement of the offer and sale of the Securities, sold, offered for sale or solicited any offer to buy any of its securities in a manner that would cause the exemption from registration set forth in Rule 506 of Regulation D to become unavailable with respect to the offer and sale of the Securities pursuant to the Offering Documents.
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(b) NoMaterial Misstatements or Omissions. The SEC Documents (as defined below) do not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. None of the statements, documents, certificates or other items made, prepared or supplied by the Company with respect to the Offering and the other transactions contemplated by the Offering Documents contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading. There is no fact which the Company has not disclosed in the SEC Documents or the Offering Documents and of which the Company is aware that materially adversely affects or that could reasonably be expected to have a material adverse effect on the ability of the Company to fully and timely perform its obligations under this Agreement and the other Offering Documents (a “MaterialAdverse Effect”).
(c) OfferingMaterials. The Company made available to the Placement Agent copies of its most recent Annual Report on Form 10-K filed with the SEC and any other SEC Documents filed subsequent to the end of the fiscal period covered thereby and the Offering Documents (collectively, the “Disclosure Package”). The Company has not distributed and will not distribute, prior to the Closing, any materials in connection with the Offering other than the Disclosure Package.
(d) Incorporationand SEC Filings. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Nevada. From January 1, 2025, the Company has timely filed all reports, schedules, forms, proxy statements, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder (the “Exchange Act”) (all of the foregoing filed prior to the date hereof, including without limitation, Current Reports on Form 8-K filed by the Company with the Commission whether required to be filed or not (but excluding Item 7.01 thereunder), and all exhibits and appendices included therein (other than Exhibits 99.1 to any Current Reports on Form 8-K disclosing matters exclusively under Item 7.01) and financial statements, notes and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”). All such SEC Documents, as at their respective filing dates, complied in all material respects with the requirements of the Exchange Act. There has been no action instigated or, to our knowledge, threatened or otherwise commenced by any applicable regulatory body alleging that, the SEC Documents failed to so comply.
(e) CorporateAuthority. The Company has all requisite corporate power and authority to conduct its business as presently conducted and as proposed to be conducted as described in the Disclosure Package, has all the necessary and requisite documents and approvals from any applicable governmental authorities, has all requisite corporate power and authority to enter into and perform its obligations under this Agreement and the other Offering Documents, to issue, sell and deliver the Securities, and to make the representations in this Agreement and the other Offering Documents accurate and not misleading. Prior to the Closing, this Agreement and each of the other Offering Documents will have been duly authorized by all necessary corporate action of the Company. This Agreement has been duly authorized, executed and delivered and constitutes and each of the other Offering Documents, upon due execution and delivery, will constitute, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms (i) except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect related to laws affecting creditors’ rights generally, including the effect of statutory and other laws regarding fraudulent conveyances and preferential transfers, and except that no representation is made herein regarding the enforceability of the Company’s obligations to provide indemnification and contribution remedies under the securities laws and (ii) subject to the limitations imposed by general equitable principles (regardless of whether such enforceability is considered in a proceeding at law or in equity).
(f) Authorizationof Securities. Upon filing of the Certificate of Designation of the Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Nevada, the Securities will be duly authorized, validly issued, fully paid and non-assessable upon payment of the purchase price therefor to the Company in accordance with the terms of the Securities Purchase Agreement, and will have the rights, preferences and priorities set forth in the Company’s Articles of Incorporation and the Certificate of Designation of the Preferred Stock (the “Certificate of Designation”) to be filed with the Secretary of State of the State of Nevada prior to the Closing. The Shares constitute the valid and binding obligations of the Company to issue the Conversion Shares in accordance with the terms of the Certificate of Designation. The Conversion Shares have been duly reserved for issuance and, when issued will be duly authorized, validly issued, fully paid and non-assessable upon conversion of the Shares. The holders of Securities will not be subject to personal liability solely by reason of being such holders.
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(g) NoConflicts. None of the execution and delivery of or performance by the Company under this Agreement or any of the other Offering Documents or the consummation of the transactions herein or therein contemplated conflicts with or violates, or will result in the creation or imposition of, any lien, charge or other encumbrance upon any of the assets of the Company under (i) any agreement or other instrument to which the Company is a party or by which the Company or its assets may be bound, (ii) any term of the Certificate of Incorporation or Bylaws of the Company, or (iii) any license, permit, judgment, decree, order, statute, rule or regulation applicable to the Company or any of its assets, except in the case of (i) or (iii) above, as disclosed in the Securities Purchase Agreement or that would not, or could not reasonably be expected to, have a Material Adverse Effect.
(h) Consents. The Company is not required to obtain any consent from, authorization or order of, or make any filing or registration with (other than (i) a Form D and Schedule 14A with the SEC and any other filings as may be required by any state securities agencies, (ii) such as may be required under applicable state securities or “Blue Sky” laws and (iii) a Listing of Additional Shares submission with the principal securities exchange or trading market where the Common Stock is listed or traded) any court, governmental agency or any regulatory or self-regulatory agency or any other person in order for it to execute, deliver or perform any of its obligations under, or contemplated by, this Agreement or any of the other Offering Documents, in each case, in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain at or prior to the Closing shall have been obtained or effected on or prior to the Closing, and the Company is not aware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the registration, application or filings contemplated by this Agreement, or the other Offering Documents.
(i) Litigation. Except as set forth in the SEC Documents, there is no action, suit, claim, proceeding, hearing, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company, any securities of the Company or any of the Company’s officers or directors (in their capacity as such) which is outside of the ordinary course of business or individually or in the aggregate material to the Company or, if determined adversely to the Company or such officer or director, could reasonably be expected to adversely affect the Offering or the enforceability of this Agreement or the other Offering Documents.
(j) Brokers. Except for the Placement Agent, there is no broker, finder or other party that is entitled to receive from the Company any brokerage or finder’s fee or other fee or commission as a result of the Offering.
(k) NoRegistration Required Under the Securities Act. Assuming the accuracy of the representations and warranties of the Investor contained in the Securities Purchase Agreement and the compliance of such parties with the agreements set forth therein, it is not necessary, in connection with the issuance and sale of the Securities under the Offering Documents, to register the such offerings, issuances and sales under the Securities Act or any state securities or “Blue Sky” laws.
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(l) NoTransfer Taxes or Other Fees. There are no transfer taxes or other similar fees or charges under United States law or the laws of any state or any political subdivision thereof, required to be paid in connection with the execution and delivery of this Agreement and the other Offering Documents or the issuance and sale by the Company of the Securities.
(m) NoGeneral Solicitation. Neither the Company nor any of its affiliates have engaged, or will engage, directly or indirectly in any form of “general solicitation” or “general advertising” in connection with the Offering of the Securities (as those terms are used in Regulation D) under the Securities Act or in any manner involving a public offering within the meaning of Section 4(a)(2) of the Securities Act; and the Company has not entered, and will not enter, into any arrangement or agreement with respect to the distribution of the Securities, except for the Offering Documents.
(n) NoIntegration. Neither the Company nor any of its affiliates has directly or indirectly sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of any “security” (as defined in the Securities Act) that is, or would be, integrated with the sale of any of the Securities in a manner that would require the registration of the offering, issuance or sale of any of the Securities under the Securities Act.
(o) PatriotAct Compliance. Neither the issuance and sale of the Securities by the Company nor the Company’s use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. The Company is in compliance, in all material respects, with the USA Patriot Act of 2001 (signed into law October 26, 2001).
(p) NoThird Parties. The Company represents to the Placement Agent that the Company has not engaged and is not working with any third party finder in connection with the Offering or the introduction of the Company to the Placement Agent and the Company agrees not to engage, work with or pay fees to any third party finder in connection with the Offering or the introduction of the Company to the Placement Agent. The Company represents and warrants to the Placement Agent that the entry into this Agreement or any other action of the Company in connection with the Offering will not violate any agreement between the Company and any other broker-dealer.
(q) NoDisqualification Events. Neither the Company nor any Company Related Persons (as defined below) are subject to any of the disqualifications set forth in Rule 506(d) of Regulation D (each, a “Disqualification Event”). The Company has exercised reasonable care to determine whether any Company Related Person is subject to a Disqualification Event. The Disclosure Package contains a true and complete description of the matters required to be disclosed with respect to the Company and the Company Related Persons pursuant to the disclosure requirements of Rule 506(e) of Regulation D, to the extent applicable. As used herein, “Company Related Persons” means any predecessor of the Company, any affiliated issuer, any director, executive officer, other officer of the Company participating in the Offering, any general partner or managing member of the Company, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, and any “promoter” (as defined in Rule 405 under the Securities Act) connected with the Company in any capacity. The Company will promptly notify the Placement Agent in writing of (1) any Disqualification Event relating to any Company Related Person and (2) any event that would, with the passage of time, become a Disqualification Event relating to any Company Related Person.
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(r) Certificates. Any certificate signed by an officer of the Company and delivered to the Placement Agent in connection herewith or in connection with any Offering shall be deemed to be a representation and warranty by the Company to the Placement Agent as to the matters set forth therein.
(s) Disclosure. The representations and warranties of the Company in Section 3.1 of the Securities Purchase Agreement are true and correct as of the date of the Closing. For the benefit of the Placement Agent, the Company hereby incorporates by reference all of its representations and warranties as set forth in Section 3.1 of the Securities Purchase Agreement with the same force and effect as if specifically set forth herein.
In addition, for the benefit of the Placement Agent, each of the representations and warranties (together with any related disclosure schedules thereto) made by the Company to the Investor in the Offering Documents, is hereby incorporated in this Section 2 by reference as though fully restated herein, and each is hereby made to, and in favor of, the Placement Agent.
Section 3. Representations, Warranties andAgreements of Placement Agent.
The Placement Agent hereby represents, warrants and covenants to the Company as of the date hereof, and as of the date of the Closing, as follows:
(a) Authority. This Agreement has been duly authorized, executed and delivered by the Placement Agent, and upon due execution and delivery by the Company, this Agreement will be a valid and binding agreement of the Placement Agent enforceable against it in accordance with its terms, except as may be limited by principles of public policy and, as to enforceability, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws relating to or affecting creditor’s rights from time to time in effect and subject to general equity principles.
(b) NoConflict. None of the execution or delivery of or performance by the Placement Agent under this Agreement or any other agreement or document entered into by the Placement Agent in connection herewith or the consummation of the transactions herein or therein contemplated conflicts with or violates, any agreement or other instrument to which the Placement Agent is a party or by which its assets may be bound, or its limited liability company agreement, or any license, permit, judgment, decree, order, statute, rule or regulation applicable to the Placement Agent or any of its assets, except in each case as would not have a material adverse effect on the transactions contemplated hereby.
(c) Compliancewith FINRA; Regulation D. The Placement Agent is a member in good standing of FINRA and is registered as a broker-dealer under the Exchange Act, and under the securities acts of each state into which it is making offers or sales of the Securities. The Placement Agent is in compliance with all applicable rules and regulations of the Commission and FINRA, except to the extent that such noncompliance would not have a material adverse effect on the transactions contemplated hereby. None of the Placement Agent or its affiliates, or any person acting on behalf of the foregoing (other than the Company or its affiliates or any person acting on its or their behalf, in respect of which no representation is made) has taken nor will take any action that conflicts with the conditions and requirements of, or that would make unavailable with respect to the Offering, the exemption(s) from registration available pursuant to Rule 506(b) of Regulation D or Section 4(a)(2) of the Securities Act, or knows of any reason why any such exemption would be otherwise unavailable to it.
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(d) NoDisqualification Event. Neither the Placement Agent nor any of the Placement Agents Related Persons (as defined below) are subject to any Disqualification Event as of the date hereof. The Placement Agent has exercised reasonable care to determine whether any Placement Agent Related Person is subject to such a Disqualification Event. As used herein, “Placement Agent Related Persons” means any predecessor of the relevant Placement Agent, any affiliated issuer, any director, executive officer, other officer of the Placement Agent participating in the Offering, any general partner or managing member of the Placement Agent, any beneficial owner of 20% or more of the Placement Agent’s outstanding voting equity securities, calculated on the basis of voting power, and any “promoter” (as defined in Rule 405 under the Securities Act) connected with the Placement Agent in any capacity. The Placement Agent agrees to promptly notify the Company in writing of (1) any Disqualification Event relating to any Placement Agent Related Person and (2) any event that would, with the passage of time, become a Disqualification Event relating to any Placement Agent Related Person.
Section 4. Right of First Refusal
(a) Provided that the Shares are sold in accordance with the terms of this Agreement, the Placement Agent shall have an irrevocable right of first refusal (the “Right of First Refusal”), for a period twelve months commencing upon the Closing to act as sole and exclusive investment banker, sole and exclusive book-runner, sole and exclusive financial advisor, sole and exclusive underwriter and/or sole and exclusive placement agent, at the Placement Agent’s sole and exclusive discretion, for each and every future public and private equity and debt offering, including all equity linked financings (each, a “Subject Transaction”), during such twelve (12) month period, of the Company, or any successor to or subsidiary of the Company, on terms and conditions customary to the Placement Agent for such Subject Transactions. The Company shall notify the Placement Agent of its intention to pursue a Subject Transaction, including the material terms thereof, by providing written notice thereof by registered mail or overnight courier service addressed to the Placement Agent. If the Placement Agent fails to exercise its Right of First Refusal with respect to any Subject Transaction within ten (10) Business Days after the mailing of such written notice, then the Placement Agent shall have no further claim or right with respect to the Subject Transaction. The Placement Agent may elect, in its sole and absolute discretion, not to exercise its Right of First Refusal with respect to any Subject Transaction; provided that any such election by the Placement Agent shall not adversely affect the Placement Agent’s Right of First Refusal with respect to any other Subject Transaction during the twelve (12) month period agreed to above.
Section 5. Offering and Closing Procedures
(a) The Company shall cause to be delivered to the Placement Agent copies of the Offering Documents and has consented, and hereby consents, to the use of such copies for the purposes permitted by the Securities Act and applicable securities laws and in accordance with the terms and conditions of this Agreement, and hereby authorizes the Placement Agent and its agents and employees to use the Offering Documents in connection with the offering of the Securities until the earlier of (i) November 30, 2025 or (ii) the Closing, and no person or entity is or will be authorized to give any information or make any representations other than those contained in the Disclosure Package and the Offering Documents or to use any offering materials other than those contained in the Disclosure Package in connection with the issuance and sale of the Securities, unless the Company first provides the Placement Agent with notification of such information, representations or offering materials.
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(b) The Company shall make available to the Placement Agent and its representatives such information, including, but not limited to, financial information, and other information regarding the Company (the “Information”), as may be reasonably requested in making a reasonable investigation of the Company and its affairs. The Company shall provide access to the officers, directors, employees, independent accountants, legal counsel and other advisors and consultants of the Placement Agent as shall be reasonably requested by the Placement Agent. The Company recognizes and agrees that the Placement Agent (i) will use and rely primarily on the Information and generally available information from recognized public sources in performing the services contemplated by this Agreement without independently verifying the Information or such other information, (ii) does not assume responsibility for the accuracy of the Information or such other information, and (iii) will not make an appraisal of any assets or liabilities owned or controlled by the Company or its market competitors.
(c) Each of the Company and the Investor will be required to complete and execute an original signature page for each of the Offering Documents to which it is a party, which will be forwarded or delivered to the Placement Agent at the Placement Agent’s offices at the address set forth in Section 10.
(d) If all of the conditions set forth elsewhere in this Agreement and in the Securities Purchase Agreement are fulfilled or, where legally permissible, waived by the applicable party, a Closing shall be held promptly with respect to the Securities sold in the Offering. Delivery of payment for the Securities will be made at the Closing against delivery of the Securities sold by the Company.
Section 6. Further Covenants of the Company.
The Company further covenants to and agrees with the Placement Agent as follows:
(a) Representationsand Warranties True and Correct. Except upon prior written notice to the Placement Agent, the Company shall not, at any time prior to the Closing, knowingly take any action that would cause any of the representations and warranties made by it in this Agreement not to be complete and correct in all material respects on and as of the date of the Closing (the “Closing Date”) with the same force and effect as if such representations and warranties had been made on and as of the Closing Date (except to the extent any such representation or warranty expressly speaks of an earlier date or time, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date or time, as applicable).
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(b) BlueSky Compliance. The Company will cooperate with the Placement Agent and the Investor in endeavoring to qualify the Securities for sale under the securities or “Blue Sky” laws of such jurisdictions (United States and foreign) as the Placement Agent and the Investor may reasonably request and will make such applications, file such documents, pay such fees and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent. The Company will, from time to time, prepare and file such statements, reports and other documents as are or may be required to continue such qualifications in effect for so long a period as the Placement Agent may reasonably request with respect to the Offering. All such filings under applicable state securities or “Blue Sky” laws related to this Offering shall be prepared by the Company’s counsel at the Company’s expense, with copies of all filings to be promptly forwarded to the Placement Agent and its counsel. The Company shall comply with the Securities Act, all applicable state securities or “Blue Sky” laws and the rules and regulations thereunder in the states in which the Placement Agent may reasonably request with respect to the Offering so as to permit the continuance of the sales of the Securities, and will file or cause to be filed with the Commission no later than 15 days after the commencement of the sale of Securities, and shall promptly thereafter forward or cause to be forwarded to the Placement Agent, any and all Notice of Sales of Securities on Form D and shall file all amendments thereto with the Commission as may be required. Copies of all Form D and all amendments thereto shall be provided to the Placement Agent.
(c) Amendmentsand Supplements to the Disclosure Package. If, at any time prior to the Closing, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the information or documents, or other information in the Disclosure Package in order to make the statements therein, in the light of the circumstances when the Disclosure Package is delivered to an Investor, not misleading, or if it is otherwise necessary to amend or supplement any portion of the Disclosure Package to comply with the Securities Act or any other applicable law, then the Company agrees to promptly prepare and furnish at its own expense to the Placement Agent, amendments or supplements to the Disclosure Package so that the statements therein as so amended or supplemented will not, in the light of the circumstances when the Disclosure Package is delivered to an Investor, be misleading or so that the Disclosure Package, as amended or supplemented, will comply with the Securities Act and other applicable law. Neither the Placement Agent’s consent to, nor delivery of, any such amendment or supplement shall constitute a waiver of any of the Company’s obligations under this Section 6(c). The Company agrees to furnish to the Placement Agent and counsel to the Placement Agent, without charge, as soon as available, as many copies of any amendments and supplements to the Disclosure Package as the Placement Agent or its counsel may request. The Company shall not at any time before the Closing prepare or use any amendment or supplement to the Disclosure Package with respect to which the Placement Agent has not been previously advised and furnished with a copy, or that is not in compliance with the Securities Act and other applicable law. As soon as the Company is advised thereof, the Company shall advise the Placement Agent and its counsel, and confirm the advice in writing, of any order preventing or suspending the use of the Disclosure Package, or the suspension of or exemption for such qualification or registration thereof for offering in any jurisdiction, or of the institution or threatened institution of any proceedings for any of such purposes, and the Company will use its reasonable best efforts to prevent the issuance of any such order and, if issued, to obtain as soon as reasonably possible the lifting thereof.
(d) Marketing. The Company shall participate, and cause its officers and representatives to participate, in the Offering as reasonably requested by the Placement Agent, including in the marketing of the Securities and meeting with the Investor, and afford the Investor the opportunity to conduct customary due diligence and make inquiries relevant to their investment decisions regarding the Securities.
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(e) Use of Proceeds. The Company shall apply the net proceeds from the sale of the Securities sold by it in the manner to be described under the caption “Use of Proceeds” in the Offering Documents.
(f) Legends. The Company shall place a legend, upon conversion or exercise, as applicable, on certificates representing the Securities, that the offering, issuance, sale or resale of the securities evidenced thereby has not been registered under the Securities Act or applicable state securities or “Blue Sky” laws, setting forth or referring to the applicable restrictions on transferability and sale of such securities under the Securities Act and applicable state securities or “Blue Sky” laws.
(g) NoRequirement to Register as an Investment Company. The Company shall not invest, or otherwise use the proceeds received by the Company from its sale of the Securities in such a manner as would require the Company to register as an investment company under the Investment Company Act.
(h) PressReleases. Prior to the earlier of the Closing or November 30, 2025 and except as otherwise required or advisable by law or regulation (including the rules of the Commission), the Company shall not issue any press release or other communication directly or indirectly or hold any press conference with respect to the Company, its condition, financial or otherwise, or earnings, business affairs or business prospects (except for routine oral marketing communications in the ordinary course of business and consistent with the past practices of the Company and of which the Placement Agent is notified), without the prior written consent of the Placement Agent, which consent shall not be unreasonably withheld, conditioned or delayed and which may be provided to the Company via e-mail. If practical, the Company shall afford the Placement Agent and its counsel with the opportunity to review and comment upon the form and substance of, and shall give reasonable consideration to all such comments from the Placement Agent and its counsel on, the initial press release, Commission filing or any other public disclosure by or on behalf of the Company relating to the Offering, the Securities, the Investor, the Placement Agent or any aspect of the Offering Documents or the transactions contemplated thereby, not less than 24 hours prior to the issuance, filing or public disclosure thereof (provided such time period is practicable).
(i) Compliance with Rule 502(d). The Company will exercise reasonable care to assure that no Investor is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act and, without limiting the foregoing, that such purchases will comply with Rule 502(d) under the Securities Act.
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(j) NoStabilization or Manipulation. Neither the Company nor any of its officers, directors or Affiliates has taken or will take, directly or indirectly, any action designed or intended to stabilize or manipulate the price of any security of the Company, or that caused or resulted in, or that might in the future reasonably be expected to cause or result in, stabilization or manipulation of the price of any security of the Company.
(k) Additional Documents. In addition to the Offering Documents, the Company will execute and deliver any other customary agreements, documents, certificates and instruments as the Placement Agent or the Investor deems reasonably necessary or appropriate to consummate the Offering, all of which will be in form and substance reasonably acceptable to the Placement Agent and the Investor. The Company agrees that the Placement Agent may rely upon, and is a third party beneficiary of, the representation and warranties (together with any related disclosure schedules thereto) and applicable covenants set forth in the Offering Documents to be executed and delivered by the Company at the Closing and any other agreements, documents, legal opinions, certificates and instruments executed and delivered by the Company or otherwise in connection with the Offering.
Section 7. Conditions to the Obligations ofthe Placement Agent.
The obligation of the Placement Agent hereunder shall be subject to the accuracy of the representations and warranties on the part of the Company set forth in Section 2 as of the date hereof and as of the Closing Date as though then made, to the timely performance by the Company of its covenants and other obligations hereunder on and as of such dates, and to the satisfaction or, where legally permissible, the waiver, of each of the following additional conditions:
(a) CorporateProceedings. All corporate proceedings and other legal matters incident to the authorization, form and validity of the Offering Documents, the Securities, and all other legal matters relating to the offering, issuance and sale, as applicable, of the Securities and the other transactions contemplated hereby and under the Offering Documents shall be reasonably satisfactory in all material respects to the Placement Agent; and the Company shall have furnished to the counsel to the Placement Agent, all documents and information that it may reasonably request to enable them to pass upon such matters, including a Secretary’s Certificate, if requested.
(b) Consents and Approvals. On or prior to the Closing Date, the Company shall have obtained all consents, waivers and approvals required to be obtained by the Company in connection with the consummation of the transactions contemplated hereby.
(c) DisclosurePackage. The Disclosure Package did not, does not and, as of the date of any amendment or supplement thereto, will not, include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. No order enjoining the Offering or the issuance and sale of the Securities shall have been issued, and no proceedings for that purpose or a similar purpose shall have been initiated or pending, or, to the Company’s knowledge, threatened.
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(d) No Material Adverse Effect. Subsequent to the execution and delivery of this Agreement and as of the Closing Date, there shall not have occurred any change, event or development resulting or that could reasonably be expected to result in a Material Adverse Effect, which, in the Placement Agent’s sole judgment, makes it impracticable or inadvisable to proceed with the Offering.
(e) OfferingDocuments. Each of the Offering Documents shall be in form and substance reasonably satisfactory to the Placement Agent and shall have been duly executed and delivered by the Company and the other parties thereto, and the Securities shall have been duly issued, executed (as applicable) and delivered by the Company.
(f) PlacementAgent Compensation. The Cash Fee and Placement Agent’s Warrants calculated in the manner provided in Section 1(b) of this Agreement and reimbursement of expenses calculated in the manner provided in Section 1(b) of this Agreement shall have been paid to the Placement Agent by wire transfer of immediately available funds to an account specified by the Placement Agent to the Company prior to the Closing.
(g) AdditionalDocuments. On or before the Closing Date, the Placement Agent and counsel for the Placement Agent shall have received such information and documents as they may reasonably require for the purposes of enabling them to pass upon the issuance and sale of the Securities as contemplated herein, or in order to evidence the accuracy of any of the representations and warranties, or the satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 7 is not satisfied when and as required to be satisfied, this Agreement may be terminated by the Placement Agent by notice to the Company at any time on or prior to the Closing Date, which termination shall be without liability on the part of any party to any other party, except that Section 1(b), Section 2, Section 8 and Section 9 shall at all times be effective and shall survive such termination. In addition, no later than two (2) days after the Closing, the Company shall cause its counsel, Mitchell Silberberg & Knupp LLP, to deliver a legal opinion, dated the date of delivery and addressed to the Placement Agent and the Investor, in form and substance reasonably acceptable to the Placement Agent and Mitchell Silberberg & Knupp LLP.
Section 8. Indemnification and Contribution.
(a) Indemnificationof the Placement Agent. In consideration of the Placement Agent’s execution and delivery of, and the performance of its obligations under, this Agreement, and in addition to all of the Company’s other obligations under the Offering Documents, the Company shall defend, indemnify and hold harmless the Placement Agent, each of its Affiliates, each Person, if any, who controls the Placement Agent or any of its Affiliates within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and each of its and its directors, officers, partners, members, shareholders, direct or indirect investors, employees, representatives and agents (including, without limitation, those attorneys and other agents retained by Placement Agent or any such other Person in connection with the transactions contemplated by this Agreement and the other Offering Documents) (collectively, the “Placement Agent Indemnified Parties,” and each a “Placement Agent Indemnified Party”), from and against any and all claims, actions, causes of action, suits, proceedings (including, without limitation, as a party in interest or otherwise in any action or proceeding for injunctive or other equitable relief), including, without limitation, any and all derivative actions brought on behalf of the Company or any majority or wholly owned subsidiary (each, a “Subsidiary”), and any and all civil, criminal or regulatory investigations, whether formal or informal, to which any Placement Agent Indemnified Party may become subject (irrespective of whether any such Placement Agent Indemnified Party is a party, threatened to be made a party, or a witness to the claim, action, cause of action, suit, proceeding or investigation for which indemnification hereunder is sought), and all damages, losses, liabilities and expenses (including the reasonable fees and expenses of counsel) incurred by any Placement Agent Indemnified Party (including, without limitation, in settlement of any claim, action, cause of action, suit, proceeding or investigation), in each case as incurred (collectively, a “Claim”), as a result of, or arising out of, or relating to (i) any misrepresentation, inaccuracy or breach of any representation or warranty made by the Company or any Subsidiary in this Agreement or in any of the other Offering Documents, (ii) any breach of any covenant, agreement or obligation of the Company or any Subsidiary contained in this Agreement or in any of the other Offering Documents, (iii) the execution, delivery, performance or enforcement of this Agreement or any of the other Offering Documents, (iv) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, (v) any untrue statement or alleged untrue statement of a material fact contained in any SEC Document or in any Offering Document, or any amendment thereto, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, (vi) the status of such Placement Agent Indemnified Party as a holder of any of the Securities, or as a party (or agent or attorney of such party) to this Agreement or any of the other Offering Documents, (vii) any act or failure to act by any Placement Agent Indemnified Party in connection with, or relating in any manner to, the Securities, the Offering or any of the transactions contemplated by this Agreement or any of the other Offering Documents, provided that the Company shall not be liable under this clause (vii) to the extent that a court of competent jurisdiction shall have determined by a final, non-appealable judgment that such claim, action, cause of action, suit, proceeding, investigation, damage, loss, liability or expense resulted from the gross negligence, bad faith or willful misconduct of any Placement Agent Indemnified Party; and to reimburse such Placement Agent Indemnified Party for any and all expenses (including the reasonable fees and disbursements of counsel chosen by such Placement Agent Indemnified Party) incurred by such Placement Agent Indemnified Party in connection with investigating, defending, settling, compromising or paying any such claim, action, cause of action, suit, proceeding, investigation, damage, loss, liability or expense. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the indemnified liabilities which is permissible under applicable law as provided in Section 8(d).
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(b) Notifications and Other Indemnification Procedures. Promptly after receipt by a Placement Agent Indemnified Party under this Section 8 of notice of the commencement of any action, such Placement Agent Indemnified Party will, if a claim in respect thereof is to be made against the Company under this Section 8, notify the Company in writing of the commencement thereof, but the omission so to notify the Company will not relieve it from any liability that it may have to any Placement Agent Indemnified Party for contribution to the extent it is not prejudiced as a proximate result of such failure. In case any such action is brought against any Placement Agent Indemnified Party and the such Placement Agent Indemnified Party seeks or intends to seek indemnity from the Company, the Company shall assume the defense thereof with counsel reasonably satisfactory to such Placement Agent Indemnified Party; provided, however, if the defendants in any such action include both the Placement Agent Indemnified Party and the Company, and the Placement Agent Indemnified Party shall have reasonably concluded on the advice of its counsel that a conflict may arise between the positions of the Company and the Placement Agent Indemnified Party in conducting the defense of any such action or that there may be legal defenses available to it and/or other Placement Agent Indemnified Parties that are different from or additional to those available to the Company, such Placement Agent Indemnified Party or Placement Agent Indemnified Parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such Placement Agent Indemnified Party or Placement Agent Indemnified Parties. Upon receipt of notice from the Company to the Placement Agent Indemnified Party of the Company’s assumption the defense of such action and approval by such Placement Agent Indemnified Party of counsel, the Company will not be liable to such Placement Agent Indemnified Party under this Section 8 for any legal or other expenses subsequently incurred by such Placement Agent Indemnified Party in connection with the defense thereof unless: (i) the Placement Agent Indemnified Party shall have employed separate counsel in accordance with the proviso to the immediately preceding sentence (it being understood, however, that the Company shall not be liable for the expenses of more than one separate counsel (together with local counsel), approved by the Company), representing the Placement Agent Indemnified Parties who are parties to such action; (ii) the Company shall not have employed counsel satisfactory to the Placement Agent Indemnified Party to represent the Placement Agent Indemnified Party within a reasonable time after notice of commencement of the action; or (iii) the Company has authorized the employment of counsel for the Placement Agent Indemnified Party at the expense of the Company, in each of which cases the fees and expenses of counsel shall be at the expense of the Company.
(c) Settlements. The Company shall not be liable under this Section 8 for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably conditioned, withheld or delayed, but if settled with such consent or if there be a final judgment for the plaintiff, the Company agrees to indemnify the applicable Placement Agent Indemnified Party or Placement Agent Indemnified Parties against any claim, action, cause of action, suit, proceeding, investigation, damage, loss, liability or expense by reason of such settlement or judgment. The Company shall not, without the prior written consent of the Placement Agent Indemnified Party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any Placement Agent Indemnified Party is or could have been a party and indemnity was or could have been sought hereunder by such Placement Agent Indemnified Party, unless such settlement, compromise or consent includes: (i) an unconditional release of such Placement Agent Indemnified Party from all liability on claims that are the subject matter of such action, suit or proceeding; and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any Placement Agent Indemnified Party.
(d) Contribution. If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless a Placement Agent Indemnified Party under Section 8(a) above in respect of any claim, action, cause of action, suit, proceeding, investigation, damage, loss, liability or expense, then the Company shall contribute to the aggregate amount paid or payable by such Placement Agent Indemnified Party in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and such Placement Agent Indemnified Party, on the other, from the Offering. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law then the Company shall contribute to such amount paid or payable by such Placement Agent Indemnified Party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company, on the one hand, and such Placement Agent Indemnified Party, on the other, in connection with the actions or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action or omission.
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The Company and Placement Agent agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 8(d). The amount paid or payable by a Placement Agent Indemnified Party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 8(d) shall be deemed to include any legal or other expenses reasonably incurred by such Placement Agent Indemnified Party in connection with investigating or defending any such claim, action, cause of action, suit, proceeding or investigation. Notwithstanding the provisions of this subsection (d): (i) the Placement Agent shall not be required to contribute any amount in excess of the amount of the Cash Fee actually received by Placement Agent pursuant to this Agreement; and (ii) 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.
(e) Timingof Any Payments of Indemnification. Any losses, claims, damages, liabilities or expenses for which a Placement Agent Indemnified Party is entitled to indemnification or contribution under this Section 8 shall be paid by the Company to the Placement Agent Indemnified Party as such losses, claims, damages, liabilities or expenses are incurred, but in all cases, no later than fifteen (15) days of invoice to the Company.
(f) Acknowledgements of Parties. The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding the provisions hereof including, without limitation, the provisions of this Section 8, and are fully informed regarding said provisions. They further acknowledge that the provisions of this Section 8 fairly allocate the risks in light of the ability of the parties to investigate the Company and its business in order to assure that adequate disclosure is made in the Disclosure Package.
Section 9. Representations and Indemnitiesto Survive Delivery.
The respective indemnities, agreements, representations, warranties and other statements of the Company or any of its Subsidiaries set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of: (i) any investigation made by or on behalf of any Placement Agent Indemnified Party or any of their respective representatives or agents; (ii) acceptance of any Securities and payment therefor; and (iii) any termination of this Agreement or expiration of the Offering Period. A successor to any Placement Agent Indemnified Party shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in Section 8.
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Section 10. Notices.
All communications hereunder shall be in writing and shall be mailed (registered or certified mail, return receipt requested), personally delivered or sent by electronic mail transmission and confirmed and shall be deemed given when so delivered and confirmed or if mailed, two (2) days after such mailing as follows:
| If to Placement Agent: |
|---|
| ThinkEquity LLC |
| 17 State Street, 41st Floor |
| New York, NY 10004 |
| Attn: Head of Investment Banking |
| Email: Notices@think-equity.com |
| With a copy to (which copy shall not constitute notice): |
| --- |
| Blank Rome LLP |
| 1271Avenue of the Americas<br><br>New York, NY 10020<br><br>Attention: Brad L. Shiffman |
| Email: brad.shiffman@blankrome.com |
| If to the Company: |
| XTI Aerospace, Inc.<br><br>8123 InterPort Blvd., Suite C<br><br>Englewood, Colorado 80112<br><br>Attn: Scott Pomeroy, Chief Executive Officer<br><br>Email: spomeroy@xtiaerospace.com |
| With a copy to (which copy shall not constitute notice): |
| Mitchell Silberberg & Knupp LLP |
| 437 Madison Avenue<br><br>New York, New York 10022<br><br>Attn: Blake Baron<br><br>Email: bjb@msk.com |
Any party hereto may change the address for receipt of communications by giving written notice to the others.
Section 11. Successors.
This Agreement will inure to the benefit of and be binding upon the parties hereto, and to the benefit of the Placement Agent Indemnified Parties (or any of their respective successors) referred to in Section 8, and to their respective successors, and personal representatives, and no other person will have any right or obligation hereunder.
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Section 12. Partial Unenforceability.
The invalidity or unenforceability of any section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other section, paragraph or provision hereof. If any section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable.
Section 13. Governing Law Provisions.
(a) GoverningLaw. This agreement shall be governed by and construed in accordance with the internal laws of the state of New York applicable to agreements made and to be performed in such state.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in the federal courts of the United States of America located in New York, New York, or the courts of the State of New York in each case located in the Borough of Manhattan (collectively, the “Specified Courts”), and each party irrevocably submits to the exclusive jurisdiction (except for proceedings instituted in regard to the enforcement of a judgment of any such court, as to which such jurisdiction is non-exclusive) of such courts in any such suit, action or proceeding. Service of any process, summons, notice or document by mail to such party’s address set forth above shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in an inconvenient forum. EACH OF THE PLACEMENT AGENT AND THE COMPANY HEREBY WAIVES (ON ITS OWN BEHALF AND, TO THE EXTENT PERMITTED BY LAW, ON BEHALF OF ITS RESPECTIVE EQUITY HOLDERS AND CREDITORS) ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED UPON, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY (INCLUDING, WITHOUT LIMITATION, THE OFFERING).
Section 14. General Provisions.
This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to this Offering. This Agreement may be executed in two or more counterparts, each one of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement may not be amended or modified unless in writing by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing by each party whom the condition is meant to benefit. Section headings herein are for the convenience of the parties only and shall not affect the construction or interpretation of this Agreement.
[Signature Page Follows]
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If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company the enclosed copies hereof, whereupon this instrument, along with all counterparts hereof, shall become a binding agreement in accordance with its terms.
| Very truly yours, | ||
|---|---|---|
| XTI AEROSPACE, INC. | ||
| By: | /s/ Scott Pomeroy | |
| Name: | Scott Pomeroy | |
| Title: | Chief Executive Officer |
The foregoing Placement Agency Agreement is hereby confirmed and accepted by the Placement Agent as of the date first above written.
THINKEQUITY LLC
| By: | /s/ Eric Lord | |
|---|---|---|
| Name: | Eric Lord | |
| Title: | Head of Investment Banking |
[Signature Page to Placement Agency Agreement]
Exhibit 23.1
Consent of Independent Auditor
We hereby consent to the incorporation by reference in the Registration Statements on Form S-1 (File Nos. 333-287989, 333-279901 and 333-233763), Form S-3 (File No. 333-289194) and Form S-8 (File Nos. 333-284979, 333-280189, 333-276335, 333-261282, 333-256831, 333-237659, 333-234458, 333-230965, 333-229374, 333-224506, 333-216295 and 333-195655) of XTI Aerospace, Inc. of our report dated November 11, 2025, relating to the consolidated financial statements of Drone Nerds, Inc. and Subsidiaries, which appears in this Form 8-K.
/s/ BDO USA, P.C.
Fort Lauderdale, Florida
November 12, 2025
Exhibit 99.1
XTI Aerospace Acquires Drone Nerds and Closes$25 Million Strategic Investment by Unusual Machines
Drone Nerds considered by OEMs to be among thelargest U.S. based drone distributors
Unusual Machines leading supplier to drone industry
Englewood, Colorado – November 12, 2025 – XTI Aerospace, Inc. (“XTI” or the “Company”) [NASDAQ: XTIA], the developer of vertical flight technologies and the TriFan 600 next-generation vertical takeoff and landing (VTOL) aircraft for commercial and defense aerospace applications and the emerging Vertical EconomyÔ, today announced that on November 10, 2025, it acquired Drone Nerds, LLC (“Drone Nerds”), one of the largest distributors and service providers of drones in the United States with more than $100 million in 2024 annual revenue, greater than $55 million in revenue this year through June 30, 2025, and a ten-year record of profitability.
Immediately following the acquisition, XTI closed a $25 million private placement investment by Unusual Machines, Inc. (“Unusual Machines” or “UMAC”) [NYSE American: UMAC], a strategic investor that manufactures and sells drone components and drones across a diversified brand portfolio. XTI issued 25,000 shares of newly designated Series 10 Convertible Preferred Stock (the “Series 10 Preferred Stock”), at a subscription amount of $1,000 per share of Series 10 Preferred Stock, convertible into shares of XTI’s common stock at a conversion price of $1.492 upon shareholder approval required by Nasdaq Listing Rule 5635. XTI plans to commence the proxy process for shareholder approval prior to year-end.
XTI will benefit from Drone Nerds’ market-leading position in unmanned aircraft systems (UAS) solutions, which spans systems design and configuration including hardware and software for wide-ranging corporate and consumer operational missions. XTI also acquired a business focused on the development and marketing of enterprise drone solutions.
The total purchase consideration was approximately $40 million:
| ● | $20 million in cash (paid from XTI’s cash<br>on-hand); |
|---|---|
| ● | $11.9 million in the form of promissory notes<br>(including approximately $1.6 million in working capital adjustments); and |
| --- | --- |
| ● | $9.7 million equity consideration, granted as<br>units of the Drone Nerds subsidiary, which on or after May 1, 2026, can be exchanged for 6,524,576 common shares of XTI, representing<br>19.9% of the common shares of XTI outstanding pre-acquisition. Upon any conversion, the resulting XTI common stock will be locked-up until<br>November 10, 2026. |
| --- | --- |
No XTI common stock has been issued to Drone Nerds, any acquired party or UMAC as of the closing of the acquisition or the private placement.
“The acquisition of Drone Nerds is a foundational step as we advance our strategy to build the most comprehensive portfolio of vertical flight and UAS capabilities in the industry,” commented Scott Pomeroy, CEO of XTI. “The addition of Drone Nerds significantly expands XTI’s scale, recurring revenue base and near-term operating footprint.”
“As the largest drone distributor in the United States, Drone Nerds brings deep technical expertise, broad industry reach, and strong alignment with XTI’s advanced aviation vision,” added Jeremy Schneiderman, CEO of Drone Nerds. “We are excited about this next chapter as Drone Nerds continues to capture more and higher-margin enterprise business and we grow our influence in autonomous flight, drones-as-as-service, and first person view (FPV) immersive and dynamic drone use cases. We stand ready as an XTI company to support our expanding customer base with our unmatched sector knowledge, experience, dealer network, and service capabilities. We take pride in helping customers select secure, high-performance drone systems and software that improve operational efficiency.”
“Drone Nerds has an unprecedented opportunity to define the entire domestic drone landscape over the next few years as the U.S. intensifies its ban on Chinese drone companies,” said Allan Evans, CEO of Unusual Machines. “We are excited to be a part of the Drone Nerds - XTI strategy and look forward to further strengthening our years-long relationship with Drone Nerds, and we are demonstrating our confidence in the XTI strategy by our investment as we collectively build the American aerospace ecosystem.”
“We believe joining XTI positions Drone Nerds at the center of aviation’s next transformation,” continued Mr. Schneiderman. “Together our solutions are aimed at enabling customers to realize meaningful cost efficiencies, as well as speed and competitive advantages that drones and unmanned flight can deliver across a variety of economic sectors from logistics and emergency response to defense, security, delivery, and energy, agriculture and infrastructure inspection. We have built a close relationship with the XTI executive team over the last several months and we are excited to support their innovative approach to advancing U.S. drone leadership consistent with the June 6, 2025, White House Executive Order on domestic drone development and the broader Vertical Economy framework.”
ThinkEquity acted as the introducing party and exclusive M&A advisor to XTI in connection with the acquisition of Drone Nerds. ThinkEquity also acted as the exclusive placement agent with respect to the $25 million private placement investment by Unusual Machines.
Additional information regarding the transactions described in this press release, including the material terms of the acquisition agreements, will be contained in a Current Report on Form 8-K that XTI intends to file with the SEC. Investors are encouraged to read such information once filed.
About XTI Aerospace, Inc.
XTI Aerospace, Inc. [Nasdaq: XTIA] is the parent company of XTI Aircraft Company, an aviation business based near Denver, Colorado, currently developing the TriFan 600, a fixed-wing business aircraft designed to have the vertical takeoff and landing (VTOL) capability of a helicopter, maximum cruising speeds of over 300 mph and a range up to 1,000 miles, creating an entirely new category – the xVTOL. Additionally, the Inpixon (inpixon.com) business unit of XTI is a leader in real-time location systems (RTLS) technology with customers around the world who use its location intelligence solutions in factories and other industrial facilities to help optimize operations, increase productivity, and enhance safety. For more information about XTI, please visit xtiaerospace.com and follow XTI on LinkedIn, Instagram, X, and YouTube.
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About Drone Nerds, LLC.
Drone Nerds, LLC. provides comprehensive drone solutions for enterprise, private, and recreational needs. Established in 2014, Drone Nerds focuses on ensuring that its customers have the right UAS solution for their unique operational needs. With its proprietary Always FlyingÔ program, Drone Nerds provides reliability and assurance for enterprise implementations across industry verticals, including public safety, government, agriculture, construction, energy, inspection, and more. For more information, visit www.dronenerds.com.
Cautionary Statement Regarding Forward-LookingStatements
This press release contains certain “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act. All statements other than statements of historical fact contained in this press release, including, without limitation, statements about the expected benefits of the Drone Nerds acquisitions, the products under development by XTI, the advantages of XTI’s technology and VTOL technology, and XTI’s future plans, objectives, and strategies are forward-looking statements.
Some of these forward-looking statements can be identified by the use of forward-looking words, including “believe,” “continue,” “could,” “would,” “will,” “estimate,” “expect,” “intend,” “plan,” “target,” “projects,” or the negatives of these terms or variations of them or similar expressions. All forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. All forward-looking statements are based upon estimates, forecasts, and assumptions that, while considered reasonable by XTI and its management, are inherently uncertain, and many factors may cause the actual results to differ materially from current expectations which include, but are not limited to, changes in market demand for VTOL technology, changes in applicable laws or regulations, the ability to integrate the Drone Nerds acquired parties, the impact of the regulatory environment and complexities and related compliance requirements and the receipt of shareholder approval for the conversion of the Series 10 Preferred Stock. XTI undertakes no obligation to update or revise any forward-looking statements in order to reflect events or circumstances that might subsequently arise. Readers are urged to carefully review and consider the risk factors discussed from time-to-time in XTI’s filings with the SEC, including those factors discussed under the caption “Risk Factors” in its most recent annual report on Form 10-K, filed with the SEC on April 15, 2025, and in subsequent reports filed with or furnished to the SEC.
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Exhibit 99.2
XTI AEROSPACE Powering the vertical economy. Corporate Presentation November 2025
DISCLAIMER This presentation is made solely for information purposes and no representation or warranty, express or implied, is made by XTI Aerospace, Inc. (“XTI,” “we,” “us,” “our,” and, together with our subsidiaries, the “Company”) or any of its representatives as to the information contained in this presentation. This presentation contains forward - looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this presentation, including, without limitation, statements regarding future actions; prospective products, anticipated expenses, applications, customers and technologies; future performance or results of anticipated products; and projected expenses and financial results, are forward - looking statements You can find many (but not all) of these forward - looking statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may,” or other similar expressions in this presentation. These forward - looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections, including, without limitation: the Company’s history of losses; our ability to achieve or maintain profitability in the future; our limited operating history after our recent business combination with XTI Aircraft Company; our ability to meet the development and commercialization schedule with respect to the TriFan 600; the risk that we have not yet manufactured any non - prototype aircraft or delivered any aircraft to a customer, and that our and our current and future collaborators may be unable to successfully develop and market our aircraft or solutions, or may experience significant delays in doing so; the uncertainties associated with obtaining regulatory approvals of our aircraft including certification by the Federal Aviation Administration, which is a lengthy and costly process; our ability to obtain adequate financing in the future as needed; the risk that our conditional pre - orders for our aircraft (which include conditional aircraft purchase agreements, non - binding reservations, and options) are canceled, modified, delayed or not placed and that we must return refundable deposits; emerging competition and rapidly advancing technology that may outpace our technology; customer demand for the products and services we develop; the impact of competitive or alternative products, technologies and pricing; our ability to develop other new products and technologies; our ability to navigate the regulatory environment and complexities with compliance related to such environment; our ability to attract customers and/or fulfill customer orders; our ability to enhance and maintain the reputation of our brand and expand our customer base; our ability to scale in a cost - effective manner and maintain and expand our manufacturing and supply chain relationships; general economic conditions and events and the impact they may have on us and our potential customers, including, but not limited to increases in inflation rates and rates of interest, supply chain challenges; cybersecurity attacks; our ability to maintain compliance with the continued listing requirements of the Nasdaq Capital Market; lawsuits and other claims by third parties or investigations by various regulatory agencies that we may be subjected to and are required to report; our ability to respond to a failure of our systems and technology to operate our business; our ability to protect our intellectual property; the outcome of any known and unknown litigation and regulatory proceedings; our success at managing the risks involved in the foregoing items; and other risks and uncertainties described in our public filings with the SEC, which are accessible at www.sec.gov, and which you are advised to consult. This presentation does not constitute an offer to sell, or the solicitation of an offer to buy, any securities, nor shall there be any sale of securities in any states or jurisdictions in which such offer, solicitation or sale would be unlawful. The forward - looking statements are based upon management’s beliefs and assumptions and are made as of the date of this presentation. We undertake no obligation to publicly update or revise any forward - looking statements included in this presentation. You should not place undue reliance on these forward - looking statements. This presentation also contains estimates, projections and other information concerning our industry and our business, including data regarding the estimated size of our markets and their projected growth rates. Unless otherwise indicated, such estimates, projections and other information is based on information released by independent industry analysts and other third - party sources and management estimates. In some cases, we do not expressly refer to the sources from which these data are derived. Management estimates are derived from publicly available information released by independent industry analysts and other third - party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data, and our experience in, and knowledge of, such industry and markets, which we believe to be reasonable. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a variety of factors, including those described above. These and other factors could cause results to differ materially from those expressed in the estimates made by independent parties and by us.
We believe this is a strategic union that strongly positions XTI Aerospace to become the leader in the manned and unmanned aviation industry. XTI Aerospace is pleased to announce the acquisition of Drone Nerds, one of the largest and most established largest drone distributors and service providers in the U.S., with over $110 million in annual revenue. This transaction represents a strategic combination of XTI’s advanced aviation vision with Drone Nerds’ market - leading unmanned systems, enterprise integrations and operational expertise . Together, the companies are expected to create a unified platform across commercial, consumer and government sectors . We believe this acquisition will create an aerospace ecosystem, where manned and unmanned aviation evolve together . Introducing RECENTLY ACQUIRED
We are developing a regional vertical takeoff and landing (“VTOL”) airplane, the TriFan 600, designed to take off and land like a helicopter and cruise at the speed and range of a fixed - wing business airplane. We are currently engaged in developing the aerodynamic performance and top - level engineering design of the TriFan 600. The TriFan 600 is expected to be one of the first civilian fixed - wing, regional VTOL airplanes that offers the speed and comfort of a business airplane and the versatility of VTOL for a wide range of customer applications. We refer to this new category of VTOL as “xVTOL.” Applications include: o Business / Private Travel o Military – Troop Transport, Reconnaissance etc. o Regional Charter o Emergency Medical Services XTI has generated 140 conditional pre - orders & 154 non - binding reservations & options equating to over $3B in potential future revenue.
XTI AEROSPACE TECHNOLOGY ECOSYSTEM The 7 pillars of the vertical economy shown below reflect the strategic framework guiding XTI's integrated growth through an INVEST – BUY – BUILD approach that unites all facets of modern aviation. 7 Pillars of the Vertical Economy Unmanned Aircraft & Drones Manned Aircraft Power Technology Airspace & Infrastructure Management Artificial Intelligence Advanced Materials Next Gen Manufacturing FUTURE
Introducing RECENTLY ACQUIRED
DRONE NERDS BRIEF HISTORY 2014 FOUNDED DRONE NERDS 2014 OPENED SERVICE CENTER 2016 DEDICATED ENTERPRISE SALES 2018 PLATINUM LEVEL DJI ENTERPRISE DEALER 2021 SCALED SALES & MARKETING 2023 ONE OF THE LEADING DRONE PROVIDERS IN THE U.S 2024 OVER 30+ BRANDS SUPPORTED
• Established Brand with Positive Track Record • Expansive Market Reach and Customer Base • Industry Knowledge and Expertise • Comprehensive Marketing & Sales Support • Outsourced Warranty Management • Collaborative Partnerships As one of the largest drone distributors and solution providers in the U.S., we believe Drone Nerds brings unparalleled expertise, industry reach, and dedication to ensuring their products thrive in the market. DRONE NERDS DISTRIBUTION
One of the Largest Inventories in the U.S. Drone Nerds reputation and reach are built on longstanding partnerships with major manufacturers and their ability to manage a large inventory effectively. We believe this positions us as a trusted supplier who can deliver product where and when it is needed. Extensive Market Penetration With a network of dealers spanning the U.S. and LATAM as well as clients spanning the public sector, commercial enterprises, and consumer retail, Drone Nerds can potentially break into and expand market share in any target market. Collaborative Partnerships The Drone Nerds ecosystem includes collaborative partnerships with bundled hardware, software, and accessories providers. We believe that these partnerships will enable us to offer comprehensive solutions that will drive increased platform sales, which is anticipated to boost demand and maximize the value of the Drone Nerds' platform. DRONE NERDS MARKET REACH & CUSTOMER BASE
Dedicated Enterprise Division The Drone Nerds enterprise team specializes in complex integrations and deployments, ensuring that their products are effectively represented in professional markets across major verticals with large market penetration in the following sectors: • Agriculture • Public Safety & Government • Construction • Energy & Infrastructure • Insurance Specialized Focus on Drones & Technology With over a decade of experience and an exclusive focus on the drone industry, Drone Nerds brings a wealth of technical knowledge that we believe enables it to effectively and accurately represent its products. Solutions experts have a breadth of in - depth knowledge that customers rely on, including : • Drone Platforms, Payloads, and Accessories • LiDAR Technology • Thermal Imaging • Multispectral Imaging • AI in Drone Application • Processing Software & Operational/Fleet Management Software DRONE NERDS INDUSTRY KNOWLEDGE & EXPERTISE
DRONE NERDS CHANNEL EXPANSION STRATEGY • Agriculture: Partnering with dealers who serve large Farming Operations or distribute Agri - tech Products , focusing on precision agriculture and crop management. • Construction: Targeting dealers involved with surveying, GIS Technology and Construction Equipment sales to capitalize on site surveying and progress tracking needs. • Public Safety & Government: Engaging dealers experienced in government contracts, emergency services and defense, leveraging drone technology for Emergency Response , Surveillance , and Search & Rescue . • Energy & Infrastructure: Collaborating with dealers specializing in Infrastructure Inspection , Renewable Energy , and Safety Tools addressing the growing need for asset monitoring and environmental safety. • Insurance: Collaborating with dealers and technology partners serving Insurance Carriers , Claims Adjusters , and Risk Assessment Providers , positioning drone solutions for property inspections, disaster documentation, roof and structural assessments, and rapid claims processing which we expect will improve accuracy and reduce cycle times. TARGETED VERTICAL MARKET FOCUS COMPREHENSIVE DEALER SUPPORT GEOGRAPHIC EXPANSION • Streamlined Onboarding: Implemented processes with comprehensive support, including access to our Always Flying Program. • InDepth Training: Both online and in - person training, ensuring that dealers are equipped to sell and support advanced drone technology. • Emerging and Regional Markets: Focusing on regions across the U.S. with lower dealer presence today and where drone technology is still in the early adoption phase, and continued growth in LATAM. • Mature Markets: Identifying underserved U.S. niches and continue expansion across our target verticals based on market needs and new or growing use cases.
Advanced Inventory & Logistics Infrastructure Scalable Capacity: With the ability to store and manage large inventory, we aim to ensure our products are available when and where they’re needed, minimizing stockouts and delays. Efficient Supply Chain: The Drone Nerds logistics team aims to ensure fast and reliable deliveries, with an infrastructure primed for scale as our business needs grow. Transparency & In - Depth Analytics Data - Driven Insights: From performance metrics to customer feedback, Drone Nerds provides regular reports and analytics, helping our manufacturers make well - informed decisions. DRONE NERDS INVENTORY INFRASTRUCTURE LOGISTICS & ANALYTICS
DRONE NERDS COMMERCIAL TRAINING & SUPPORT Customer - Centric Support & Training Teams Drone Nerds takes pride in offering a customer - focused support experience, guiding end - users through every step of their journey with our products and services. For those navigating complex deployments or technical challenges, Drone Nerds’ experienced technicians deliver in - depth troubleshooting to ensure issues are resolved swiftly and accurately. We believe this dedication to customer success not only enhances satisfaction but also builds trust in their brand, fostering long - term loyalty.
We believe the regional powered - lift sector (VTOL) was the most overlooked economy in aviation until this year. VTOL EXPECTED GROWTH $1T $9T By 2040 By 2050 * eVTOL/Urban Air Mobility TAM Update: A Slow Take - Off, But Sky's the Limit - Morgan Stanley Powered lift aircraft are the first new category of aircraft in nearly 80 years and this historic rule will pave the way for accommodating wide - scale Advanced Air Mobility in the future. “ ” MIKE WHITAKER Former Federal Aviation Administration (FAA) Administrator October 22, 2024
xVTOL MARKET OPPORTUNITY URBAN eVTOL 100+ Competitors REGIONAL xVTOL Less than 5 Competitors No New Infrastructure Required 0 100 200 300 400 500 600 700 800 Range in Miles *Our TriFan 600 airplane is under development. Estimated performance based on our preliminary analysis. Subject to change and FAA certification. 900 1000
xVTOL INNOVATION The XTI xVTOL solution will help power the emerging Vertical Economy. 7 Pillars of the Vertical Economy: • Manned Aircraft • Unmanned Aircraft (UAS) & Drones • Airspace & Infrastructure Management • Power Technology • Advanced Materials • Artificial Intelligence • Next Gen Manufacturing Partnering With Leaders We are building partnerships with world class organizations and industry innovators. Revolutionary Airplane We believe our airplane technology transforms regional mobility with VTOL capabilities and jet - like performance. Seamless Certification Leveraging largely pre - certified components improves speed to market. *Our TriFan 600 airplane is under development. Estimated performance based on our preliminary analysis. Subject to change and FAA certification.
TriFan 600 THE OPTIMAL xVTOL SOLUTION SUPERIOR MAX CRUISE SPEED 311 mph EXTENDED RANGE 1,000+ miles PAYLOAD 7 Occupants PRESURIZED CABIN 25,000 ft Cruising *Our TriFan 600 airplane is under development. Estimated performance based on our preliminary analysis. Subject to change and FAA certification.
XTI xVTOL FUTURE PRODUCT FAMILY Autonomous / Cargo 2 - 4 Seat Payload All Electric Hybrid - electric Military / Government 8 - 12 Seat Payload Cargo *Our TriFan 600 airplane is under development. Estimated performance based on our preliminary analysis. Subject to change and FAA certification.
XTI xVTOL TARGET MARKETS Executive Transport Private, Corporate, Charter and Fractional *Our TriFan 600 airplane is under development. Estimated performance based on our preliminary analysis. Subject to change and FAA certification. Regional Transport City Center to City Center or Rural Destination Medical & Disaster EMS and 1 st Response Configurations Government & Military Agency Mission Capable
Federal Tailwinds: EXECUTIVE ORDER VALIDATES XTI’S VISION June 6, 2025 Executive Order on Unmanned Aircraft Systems (UAS) ▪ Federal Recognition of VTOL : Officially acknowledged as essential to next - gen mobility. ▪ eVTOL Integration Pilot Program (eIPP) : Launch of a new testbed; XTI fully intends to pursue participation in the Pilot program as an alternative advanced aviation aircraft, consistent with Section 6(vii) of the Executive Order ▪ Access to Federal Test Ranges : Unlocks critical real - world testing capabilities. ▪ “Buy American” Momentum : Boost for U.S. - built aerial systems in federal and international markets. President Trump’s Executive Order marks a pivotal moment in U.S. aerospace strategy — validating XTI’s xVTOL leadership and creating new pathways to deployment Strategic Implications for XTI Aerospace ”This Executive Order affirms the operational and commercial necessity of VTOL systems. It’s a significant step forward — and one that directly supports the TriFan 600’s path to market.” — Scott Pomeroy, Chairman & CEO, XTI Aerospace
Flight PATHWAY Preliminary Design Conceptual Design Critical Design First Flight *Stages for Joby, Archer, and Eve reflect XTI’s current understanding based on available information. These assessments have not been publicly disclosed by the respective companies, may be inaccurate, and have not been independently verified. Joby Archer Eve XTI Aerospace TriFan 600 First Flight expected 2027
Preliminary Design Review (PDR): During the preliminary design phase, we evaluate the overall design approach, ensuring that the top - level requirements are satisfied and that the project can move to detailed design and testing. G - 1, Stage 1 Approval: The G - 1 is a foundational document in the FAA aircraft certification process. It designates the specific airworthiness and environmental regulations — including noise, fuel venting, and exhaust emissions — that an aircraft must meet to achieve FAA type certification. The G - 1 has four stages. Once stage four of the G - 1 is complete, we plan to move to the G - 2, which involves building and testing to demonstrate compliance, and development of the operator’s manual. IN PROCESS Critical Design Review (CDR): Expect to complete this one year after the PDR. During the critical design phase, we and our suppliers perform detailed airplane design and ensure requirements are met before proceeding to manufacturing, integration, and testing. All the development of the airplane has largely been software based up until this point, to “computer fly them”. The CDR is when we freeze the design of the airplane, and cutting of metal can start to happen. First Flight of Full - Scale, Piloted Demonstrator: The "first flight" marks the culmination of ground testing of structures, systems and subsystems to a confidence level sufficient for the first crewed airborne flight tests. Type Certification Granted: Following satisfactory completion of the FAA's certification process to include extensive ground and airborne testing, as well as detailed safety analysis, the FAA issues a type certificate for the TriFan 600 design. 2027 Upcoming FUTURE MILESTONES & APPROVAL PATHWAY *Our TriFan 600 airplane is under development. Estimated performance based on our preliminary analysis. Subject to change and FAA certification.
XTI AEROSPACE & DRONE NERDS PROFORMA BALANCE SHEET Combined Pro Forma As of 6/30/2025 *** Drone Nerds Stand Alone As of 6/30/2025 ** XTI Stand alone As of 6/30/2025 * Balance Sheet Data (In Thousands) $44,323 $2,257 $20,046 Cash and Cash equivalents $73,755 $27,523 $24,212 Total Current Assets $105,931 $29,770 $35,448 Total Assets $56,225 $8,217 $21,837 Total Current Liabilities $58,247 $9,993 $22,083 Total Liabilities $44,959 $19,777 $12,405 Stockholders' Equity * Includes $1.4mm of customer deposits, and $14.6mm derivative warrant liabilities. ** Includes $2.6mm of liabilities owed under a line of credit, $1.9mm of operating lease liabilities, and $0.45mm of notes payable to related parties of Drone Nerds. ***Reflects the combined balance sheets of XTI and Drone Nerds, impact of equity financings completed by XTI subsequent to June 30, 2025, impact of XTI’s investment in Valkyrie Sciences, LLC, and the impact of (i) a preliminary allocation of the Acquisition’s purchase price and (ii) other transactions related to the Acquisition. The Combined Pro Forma data is for informational purposes only and does not purport to indicate the results that would have been obtained had the Acquisition and related transactions actually been completed on the assumed date or for the periods presented, or which may be realized in the future. •
XTI AEROSPACE & DRONE NERDS PROFORMA INCOME STATEMENT * Post - Acquisition Combined financial data is for informational purposes only. They do not purport to indicate the results that would have been obtained had the Acquisition and related transactions actually been completed on the assumed date or for the periods presented, or which may be realized in the future. * *For the year ended 12/31/2024, includes $6.5mm of merger related transaction costs, $2.5mm for the impairment of intangible assets, and $0.6mm for the amortization of intangible assets. For the six months ended 6/30/2025, includes $4mm for the impairment of goodwill, $0.6mm for the impairment of intangible assets, and $0.2mm for the amortization of intangible assets. 6 months ended June 30, 2025 For the Year ended Dec 31, 2024 (Numbers in thousands) Drone Nerds Stand Alone $55,624 $111,201 Revenue $13,493 $17,333 Gross Profit $6,753 $3,932 Operating Income $6,424 $2,980 Net Income XTI Pre - Acquisition $1,084 $3,202 Revenue $818 $1,888 Gross Profit $(21,532) $(36,980) Operating loss** $(33,730) $(35,603) Net loss** Post - Acquisition Combined* $56,708 $114,403 Revenue $14,312 $16,195 Gross Profit $(14,779) $(38,074) Operating loss** $(27,206) $(38,193) Net loss**
POST - ACQUISITION CAPITALIZATION TABLE Outstanding Post - Acquisition Cap Table (As Converted) 56,067,425 Common shares outstanding* 11,616,956 Options ($3.38 WAEP) 24,375,616 Warrants ($2.99 WAEP) 92,059,997 Fully Diluted Shares Outstanding • *Includes Series 4 & 5 convertible preferred stock, which convert to a total of 2 shares of common stock in the aggregate; includes 6,524,576 shares issuable upon the exchange of the class B units issued for the acquisition of Drone Nerds. Upon any conversion, the resulting XTI common stock will be locked - up until November 10, 2026, and at 15 months post - closing of the acquisition, any class B units remaining will automatically be exchanged to shares of common stock. The aggregate purchase price for the acquisition of Drone Nerds was $40mm (~$9.7mm of equity at a $1.492 exchange price, $20mm in cash, and promissory notes for ~$11.9mm (including ~$1.6mm in working capital adjustments)); includes 16,756,032 shares upon the conversion of series 10 convertible preferred stock, which will be convertible into common stock at a fixed conversion price of $1.492 per share upon receipt of required shareholder approval, at which time all shares will automatically convert.
We believe that together, XTI and Drone Nerds create a unified platform, and is strongly positioned to become the leader in the manned and unmanned aviation industry. The TriFan 600 is expected to be one of the first civilian fixed - wing, regional VTOL airplanes that offers the speed and comfort of a business airplane and the versatility of VTOL for a wide range of customer applications. XTI has generated 140 conditional pre - orders & 154 non - binding reservations & options equating to over $3B in potential future revenue. Drone Nerds brings unparalleled expertise, industry reach, and dedication, which we believe will help ensure our products thrive in the market. Drone Nerds is one of the largest drone distributors and service providers in the U.S., with over $110 million of revenue for the year ended December 31, 2024, and $55 million of revenue for the 6 months ended June 30, 2025. INVESTMENT HIGHLIGHTS
THANK YOU.
Exhibit 99.3
Drone Nerds, Inc. and Subsidiaries
Consolidated Financial Statements
Years Ended December 31, 2024 and 2023
Drone Nerds, Inc. and Subsidiaries
Contents
| Independent Auditor’s Report | 3 - 4 |
|---|---|
| Consolidated Financial Statements | 5 |
| Consolidated Balance Sheets as of December 31, 2024, and 2023 | 6 |
| Consolidated Statements of Operations for the Years Ended December 31, 2024, and 2023 | 7 |
| Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2024, and 2023 | 8 |
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, and 2023 | 9 |
| Notes to Consolidated Financial Statements | 10 - 24 |
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| Tel: 954-989-7462 | 515 E Las Olas Blvd, 5th Floor |
|---|---|
| Fax: 954-962-1021 | Fort Lauderdale, FL 33301 |
| www.bdo.com |
Independent Auditor’s Report
To the Stockholders of
Drone Nerds, Inc. and Subsidiaries
Fort Lauderdale, Florida
Opinion
We have audited the consolidated financial statements of Drone Nerds, Inc. and Subsidiaries (the Company), which comprise the consolidated balance sheets as of December 31, 2024 and 2023, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued or available to be issued.
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Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.
In performing an audit in accordance with GAAS, we:
| ● | Exercise professional judgment and maintain professional skepticism throughout the audit. |
|---|---|
| ● | Identify and assess the risks of material misstatement of the consolidated financial statements, whether<br>due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test<br>basis, evidence regarding the amounts and disclosures in the consolidated financial statements. |
| --- | --- |
| ● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures<br>that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s<br>internal control. Accordingly, no such opinion is expressed. |
| --- | --- |
| ● | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting<br>estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements. |
| --- | --- |
| ● | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise<br>substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
| --- | --- |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audits.
/s/ BDO USA, P.C.
November 11, 2025
BDO USA, P.C., a Virginia professional corporation, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
BDO is the brand name for the BDO network and for each of the BDO Member Firms.
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Consolidated Financial Statements
Drone Nerds, Inc. and Subsidiaries
Consolidated Balance Sheets
| December 31, | 2023 | ||||
|---|---|---|---|---|---|
| Assets | |||||
| Current Assets | |||||
| Cash | 1,838,454 | $ | 1,657,345 | ||
| Accounts receivable, net | 10,882,066 | 14,846,990 | |||
| Inventories, net | 23,912,058 | 16,529,138 | |||
| Vendor deposits | 9,086,624 | 5,407,613 | |||
| Prepaid expenses and other assets | 806,451 | 982,384 | |||
| Total Current Assets | 46,525,653 | 39,423,470 | |||
| Property and equipment, net | 276,246 | 141,085 | |||
| Operating leases - right-of-use assets, net | 2,251,539 | 1,072,564 | |||
| Goodwill | 170,000 | 170,000 | |||
| Total Assets | 49,223,438 | $ | 40,807,119 | ||
| Liabilities and Stockholders’ Equity | |||||
| Current Liabilities | |||||
| Accounts payable | 5,135,940 | $ | 6,966,685 | ||
| Accrued expenses and other liabilities | 10,516,952 | 1,657,499 | |||
| Line of credit | 15,240,950 | 14,000,551 | |||
| Operating lease liabilities | 738,055 | 560,988 | |||
| Total Current Liabilities | 31,631,897 | 23,185,723 | |||
| Notes payable, related parties | 450,000 | 450,000 | |||
| Operating lease liabilities, net of current portion | 1,605,282 | 640,887 | |||
| Total Liabilities | 33,687,179 | 24,276,610 | |||
| Commitments and Contingencies | |||||
| Stockholders’ Equity | |||||
| Common stock; 1 par value; 400 shares authorized, issued and outstanding | 400 | 400 | |||
| Additional paid-in capital | 99,700 | 99,700 | |||
| Retained earnings | 15,549,554 | 16,541,580 | |||
| Due from stockholder | (113,395 | ) | (111,171 | ) | |
| Total Stockholders’ Equity | 15,536,259 | 16,530,509 | |||
| Total Liabilities and Stockholders’ Equity | 49,223,438 | $ | 40,807,119 |
All values are in US Dollars.
See accompanying notes to consolidated financial statements.
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Drone Nerds, Inc. and Subsidiaries
Consolidated Statements of Operations
| Year Ended December 31, | 2024 | 2023 | ||||
|---|---|---|---|---|---|---|
| Sales | $ | 111,201,111 | $ | 123,616,405 | ||
| Cost of sales | 93,868,447 | 103,107,314 | ||||
| Gross profit | 17,332,664 | 20,509,091 | ||||
| Operating expenses | ||||||
| Salaries and benefits | 7,670,050 | 6,611,554 | ||||
| Other selling, general and administrative expenses | 4,495,158 | 4,398,238 | ||||
| Professional fees | 1,235,296 | 844,823 | ||||
| Income from operations | 3,932,160 | 8,654,476 | ||||
| Other income | 154,071 | - | ||||
| Interest expense, net | (1,106,243 | ) | (987,465 | ) | ||
| Net Income | $ | 2,979,988 | $ | 7,667,011 |
See accompanying notes to consolidated financial statements.
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Drone Nerds, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
| Shares of<br> Common Stock | Common Stock | Additional Paid-In<br> Capital | Retained<br> Earnings | Due from<br> Stockholder | Total<br> Stockholders’<br> Equity | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balances at January 1, 2023 | 400 | $ | 400 | $ | 99,700 | $ | 12,838,571 | $ | (111,171 | ) | $ | 12,827,500 | |||
| Net income | - | - | - | 7,667,011 | 7,667,011 | ||||||||||
| Distributions to stockholders | - | - | - | (3,964,002 | ) | (3,964,002 | ) | ||||||||
| Balances at December 31, 2023 | 400 | 400 | 99,700 | 16,541,580 | (111,171 | ) | 16,530,509 | ||||||||
| Net income | - | - | - | 2,979,988 | 2,979,988 | ||||||||||
| Distributions to stockholders | - | - | - | (3,972,014 | ) | (3,972,014 | ) | ||||||||
| Due from stockholder | - | - | - | - | (2,224 | ) | (2,224 | ) | |||||||
| Balances at December 31, 2024 | 400 | $ | 400 | $ | 99,700 | $ | 15,549,554 | $ | (113,395 | ) | $ | 15,536,259 |
See accompanying notes to consolidated financial statements.
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Drone Nerds, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| Year Ended December 31, | 2024 | 2023 | ||||
|---|---|---|---|---|---|---|
| Cash Flows From Operating Activities | ||||||
| Net Income | $ | 2,979,988 | $ | 7,667,011 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Bad debt expense | 177,358 | 14,109 | ||||
| Depreciation and amortization | 78,814 | 84,896 | ||||
| Amortization of deferred loan costs | 64,925 | 79,243 | ||||
| Non-cash lease expense | 578,684 | 528,792 | ||||
| Changes in operating assets and liabilities: | ||||||
| Decrease (Increase) in operating assets: | ||||||
| Accounts receivable | 3,787,566 | (414,098 | ) | |||
| Inventories | (7,382,920 | ) | 1,926,220 | |||
| Vendor deposits | (3,679,011 | ) | (1,542,069 | ) | ||
| Prepaid expenses and other assets | 175,933 | 101,876 | ||||
| Increase (decrease) in operating liabilities: | ||||||
| Accounts payable | (1,830,745 | ) | (4,435,622 | ) | ||
| Accrued expenses and other liabilities | 8,859,453 | 1,657,499 | ||||
| Operating lease liabilities | (616,197 | ) | (551,221 | ) | ||
| Net Cash Provided By Operating Activities | 3,193,848 | 5,116,636 | ||||
| Cash Flows From Investing Activities | ||||||
| Purchases of property and equipment | (213,975 | ) | (35,747 | ) | ||
| Net Cash Used In Investing Activities | (213,975 | ) | (35,747 | ) | ||
| Cash Flows From Financing Activities | ||||||
| Loans to stockholders | (2,224 | ) | (2,180 | ) | ||
| Distributions to stockholders | (3,972,014 | ) | (3,964,002 | ) | ||
| Borrowings under lines of credit | 54,687,802 | 17,891,768 | ||||
| Repayments on lines of credit | (53,512,328 | ) | (19,056,903 | ) | ||
| Net Cash Used In Financing Activities | (2,798,764 | ) | (5,131,317 | ) | ||
| Net increase (decrease) in cash | 181,109 | (50,428 | ) | |||
| Cash - beginning of year | 1,657,345 | 1,707,773 | ||||
| Cash - end of year | $ | 1,838,454 | $ | 1,657,345 | ||
| Supplemental Disclosure of Cash Flow Information: | ||||||
| Cash paid for interest | $ | 1,271,058 | $ | 1,003,836 | ||
| Supplemental Schedule of Non-cash investing and financing activities: | ||||||
| Right of use assets recognized due to lease amendment | $ | 1,757,659 | $ | - |
See accompanying notes to consolidated financial statements.
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Drone Nerds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
| 1. | Description of Business |
|---|
Business
Drone Nerds, Inc. was incorporated in 2014 as a Florida corporation and is headquartered in Dania Beach, Florida. Drone Nerds, Inc. specializes in wholesale and retail sales of high-end drones for a variety of commercial, private and recreational needs. Additionally, Drone Nerds, Inc. operates a retail store in South Florida.
Surf Nerds, LLC was incorporated in 2019 as a Florida Limited Liability Company and is headquartered in Dania Beach, Florida. Surf Nerds, LLC operates online, selling electric surfboards.
Anzu Robotics, LLC was incorporated in 2023 as a Delaware Limited Liability Company and is headquartered in Austin, Texas. Anzu Robotics, LLC commenced its operations in 2024 and is engaged in the development and sale of commercial drone technology.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Drone Nerds, Inc., Surf Nerds, LLC, and Anzu Robotics, LLC (collectively referred to as the “Company”). All intercompany accounts and transactions have been eliminated in consolidation.
The Company evaluates its relationships with other entities to determine whether any such entities are variable interest entities (“VIEs”) and whether the Company is the primary beneficiary of any VIEs. A VIE is an entity in which the Company, through contractual or other arrangements, has an interest that will absorb portions of the entity’s expected losses or receive portions of the entity’s expected residual returns, or both. The Company consolidates a VIE if it is determined to be the primary beneficiary, which is defined as the entity that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
As of December 31, 2024 and 2023, the Company has determined that Surf Nerds, LLC and Anzu Robotics, LLC meet the criteria to be considered variable interest entities (“VIEs”) under Accounting Standard Codification (ASC) 810, Consolidation, and that Drone Nerds, Inc. is the primary beneficiary. Accordingly, their financial results have been included in the accompanying consolidated financial statements.
Basis of Presentation
The consolidated financial statements of the Company have been prepared on the accrual basis of accounting and in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).
| 2. | Summary of Significant Accounting Policies |
|---|
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
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Drone Nerds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Significant assumptions and estimates were used in determining the collectability of accounts receivable and the carrying value of inventory. Actual results could differ from those estimates and those differences may be material.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents. As of December 31, 2024 and 2023, the Company had no cash equivalents and all cash amounts consisted of cash on deposit.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash deposits in excess of the Federal Deposit Insurance Corporation insured limit of $250,000. At times, such balances exceed these insured limits. The Company generally limits its exposure by placing its deposits with quality financial institutions. The Company has not experienced losses in such accounts.
Concentrations
As of December 31, 2024, accounts receivable totaling approximately $5,493,000 from two customers represented approximately 53% of total accounts receivable, net. As of December 31, 2023, accounts receivable totaling approximately $6,789,000 from two customers represented approximately 47% of total accounts receivable, net. As of December 31, 2024 and 2023, approximate information regarding major customers representing more than 10% of total accounts receivable from unrelated parties is as follows:
| December 31, | 2024 | **** | 2023 | |||
|---|---|---|---|---|---|---|
| Customer A | **** | 35 | % | ** | ||
| Customer B | **** | 18 | % | 33 | % | |
| Customer C | **** | ** | **** | 14 | % |
** - Concentration did not exceed 10% of total accounts receivable, net.
11
Drone Nerds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As of December 31, 2024 and 2023, accounts payable totaling approximately $3,240,000 and $4,914,000, respectively, to one vendor, primarily located in China and represented approximately 71% and 73% of total accounts payable, respectively. As of December 31, 2024 and 2023, approximate information regarding major vendors representing more than 10% of total accounts payable to unrelated parties is as follows:
| December 31, | 2024 | 2023 | ||||
|---|---|---|---|---|---|---|
| Vendor A | 71 | % | 73 | % | ||
| Vendor B | 11 | % | ** |
**
- Concentration did not exceed 10% of total accounts payable.
Vendor purchases of inventory totaling approximately $71,258,000 and $80,161,000 from the same vendor represented approximately 70% and 78% of total vendor purchases of inventory for the years ended December 31, 2024 and 2023, respectively.
In February 2018, the Company signed a 5-year contract extension with its largest vendor to be the official non-exclusive dealer of its products in the United States and Canada. In September 2022, the Company signed a contract extension until September 2025 (Note 11).
Risks and Uncertainties
Credit Risk
In the normal course of business, the Company encounters economic risk, mainly comprised of credit risk and market risk. Credit risk is the risk of default on the Company’s accounts receivable balances from the customers’ inability or unwillingness to make contractually required payments.
Market Risk
Market risk reflects the risk that conditions in which the Company sells its products could change such that a significant effect on the Company’s operations could occur. The Company derives most of its sales from the wholesale and online retail industry. The Company could experience declines in demand for products as a result of general economic conditions. Furthermore, the Company is dependent on borrowings provided by a line of credit to fund its current working capital needs.
Tariff Risk
The Company is currently subject to various international trade policies and regulations, which may impact the cost of inventory purchases. There remains uncertainty regarding the potential imposition of new tariffs or changes to existing tariffs on goods imported from certain countries where the Company sources its inventory.
Management is actively monitoring the situation and assessing the potential impact on the Company’s financial position and results of operations. While it is not possible to predict the outcome of these developments, any significant increase in tariffs could result in higher costs of goods sold and may adversely affect the Company’s profitability.
12
Drone Nerds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Regulatory and Supply Chain Risk
The Company is subject to risks arising from ongoing regulatory discussions and potential legislative actions targeting its primary supplier. Under the 2025 National Defense Authorization Act (NDAA), a U.S. national-security agency is required to complete a security review of certain suppliers, including the Company’s primary supplier, by December 23, 2025. If no agency completes this review by the deadline, the law instructs the Federal Communications Commission (FCC) to automatically add these suppliers to the FCC “Covered List,” which would effectively block new FCC equipment authorizations for their technology and drones in the U.S. (i.e., new models could not be approved).
Management is actively monitoring these developments and evaluating their potential impact on the Company’s financial position and results of operations. As of the issuance of these financial statements, all products purchased from the primary supplier in the Company’s distribution channel possess valid FCC authorizations. Accordingly, management does not anticipate any material impact on the Company’s operations, as revenue is expected to continue to be generated from existing, approved product lines.
The ultimate outcome of these regulatory and legislative matters cannot be predicted. Any significant regulatory changes or supply chain disruptions could result in inventory shortages and materially impact the operations, which ultimately may adversely affect the Company’s future profitability.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist mainly of prepaid insurance. Premiums paid for receivable and cargo insurance during the year are amortized evenly over the term covered by the payment, generally twelve months.
Accounts Receivable, Net and Allowance for Credit Losses
Accounts receivable are recorded at the stated amount of the transactions with the Company’s customers. Credit is extended based upon evaluation of the customers’ financial condition. Payment terms vary and amounts due from customers are stated in the consolidated financial statements net of an allowance for credit losses.
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326).The ASU introduces a new credit loss methodology, Current Expected Credit Losses (CECL), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. Since its original issuance in 2016, the FASB has issued several updates to the original ASU.
The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity securities and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The methodology replaces the multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized. For available-for-sale securities where fair value is less than cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk. This update is effective on a modified retrospective basis for financial statements issued for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company adopted ASU 2016-13 on January 1, 2023.
13
Drone Nerds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Company recognizes an allowance for credit losses for accounts receivable based on its best estimate of the net amount expected to be collected. The Company determines the allowance based on a review of individual past due balances and potential collectability of these balances. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Accounts that are outstanding longer than the payment terms are considered past due. As of December 31, 2024 and 2023, the allowance for credit losses was approximately $100,000 and $50,000 respectively, and is reflected as a reduction of “Accounts receivable, net” on the accompanying consolidated balance sheets. For the years ended December 31, 2024 and 2023, bad debt expense was approximately $177,000 and $14,000, respectively. Certain accounts receivable balances serve as collateral to the line of credit (Note 6).
Inventories
Inventories, consisting principally of drones and drone accessories, are stated at the lower of cost or net realizable value. Cost is determined using the specific identification method. Net realizable value is defined as the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. Inventories include the capitalization of certain costs related to purchasing, freight and handling costs associated with placing inventory in its location and condition for sale.
Selling expenses and general and administrative expenses are reported as period costs and are excluded from inventory cost. The Company reviews the components of its inventory on a regular basis for excess and obsolete inventory based on estimated future usage and sales.
As of December 31, 2024, the inventory reserve was approximately $642,000 and is reflected as a reduction of “Inventories, net” in the accompanying consolidated balance sheets. There was no reserve necessary for inventories as of December 31, 2023.
Property and Equipment, net
Property and equipment are recorded at cost, less accumulated depreciation and amortization. Assets over $5,000, which are expected to last over one year, are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is recognized in income or expense for the period. Maintenance and repairs are charged to expense as incurred, and expenditures for major renewals and betterments are capitalized.
Depreciation and amortization are calculated using the straight-line method over the estimated useful life of the various classes of assets as follows:
| Office furniture and fixtures | 7 years |
|---|---|
| Equipment | 5 years |
| Leasehold improvements | Shorter of useful life or lease term |
| Software | 3 years |
Long-Lived Assets
The Company reviews long-lived assets for possible impairment at least annually, and more frequently if circumstances indicate that the carrying amount of the asset may not be recoverable. Impairment is determined to exist when estimated amounts recoverable through future cash flows from operations on an undiscounted basis are less than the long-lived assets carrying values. If a long-lived asset is determined to be impaired, an impairment loss is recognized to reduce the asset to its fair value. Preparation of estimated future cash flows is inherently subjective and is based on management’s best estimate of assumptions concerning future conditions. There were no impairment losses for the years ended December 31, 2024 and 2023.
14
Drone Nerds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Goodwill
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the identifiable net tangible and intangible assets acquired. Goodwill is not amortized but is tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired.
The Company compares the fair value of its reporting unit, including goodwill, to its carrying amount. If the carrying amount exceeds fair value, an impairment loss is recognized in an amount equal to the excess, limited to the total amount of goodwill. Impairment losses, if any, are included in operating expenses in the Company’s consolidated statements of operations.
During the year ended December 31, 2024 and 2023, no events or circumstances indicated that goodwill may be impaired, and the annual impairment test did not result in any impairment charges (Note 5).
Leases
The Company enters into lease arrangements primarily for rental of office and operating facilities space, with various expiration dates. At its inception, the Company determines whether an arrangement is or contains a lease. A lease exists when a contract conveys to the customer the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (i) there is an identified asset in the contract that is land or a depreciable asset (i.e., property and equipment), and (ii) the customer has the right to control the use of the identified asset. The Company recognizes a right-of-use (ROU) asset and lease liability on the consolidated balance sheets for all leases with a term longer than 12 months, including renewals options reasonably certain to be exercised. ROU assets represent the Company’s right to use an underlying asset for the lease term. Lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and liabilities are classified and recognized at the commencement date.
ROU lease liabilities are measured based on the present value of fixed lease payments over the lease term, discounted at the appropriate rate. The Company has made an accounting policy to apply its incremental borrowing rate (IBR) as the discount rate used to measure lease liabilities and ROU assets at commencement of a lease. ROU assets consist of (i) initial measurement of the lease liability; (ii) lease payments made to the lessor at or before the commencement date less any lease incentives received; and (iii) initial direct costs incurred by the Company.
For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
15
Drone Nerds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Key estimates and judgments included in the initial measurement of ROU assets and liabilities include (i) the discount rate used to discount the unpaid lease payments to present value, (ii) lease term and (iii) lease payments.
| i. The Company uses its IBR at lease commencement to discount lease payments, as the rate implicit<br> in the lease is not readily determinable. The IBR is determined based on the rate of interest the Company would have to pay to<br> borrow, on a collateralized basis, an amount equal to the lease payments over a similar term in a similar economic environment. |
|---|
| ii. The lease term for all of our leases includes the noncancellable period of the lease plus any<br> additional periods covered by either a lessee option to extend (or not to terminate) the lease that the lessee is reasonably certain<br> to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. |
| --- |
| iii. Lease payments included in the measurement of the lease asset or liability comprise the<br> following: (i) fixed payments (including in-substance fixed payments), (ii) variable payments that depend on index or rate based on<br> the index or rate at lease commencement, (iii) the exercise price of a lessee option to purchase the underlying asset if the lessee<br> is reasonably certain to exercise, (iv) payments for penalties for terminating the lease if the lessee is reasonably certain to<br> exercise, and (v) amounts probable of being owed under residual value guarantees. |
| --- |
Variable lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate) are included in the measurement of ROU assets and lease liabilities using the index or rate at the commencement date. Variable lease payments that do not depend on an index or a rate are excluded from the measurement of ROU assets and lease liabilities and are recognized in the period in which the event, activity, or circumstance in the lease agreement on which those payments are assessed occur. Variable lease payments related to the Company’s operating leases include costs such as insurance and common area maintenance and are recognized in operating expenses in the consolidated statements of operations in the period in which the obligation for those payments is incurred.
The Company monitors events or changes in circumstances that require a reassessment of a lease. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in operating expenses in the consolidated statements of operations.
Revenue Recognition
The Company generates revenue primarily from the sale of high-end drones to wholesale and retail markets.
Revenue is recognized when customers obtain control of goods and services promised by the Company in accordance with Accounting Standards Codification (ASC) Topic 606, Revenuefrom Contracts with Customers (Topic 606). The amount of revenue recognized is based on the amount that reflects the consideration that is expected to be received in exchange for those respective goods and services. The transaction price for contracts may include forms of variable consideration, including reductions to the transaction price for volume discounts and rebates. Revenue is reported net of discounts and net of any estimated refund liability, which is determined based on historical experience. The estimated refund liability as of December 31, 2024 and 2023 was not material.
The Company records freight billed to customers in net sales. The corresponding costs incurred for shipping and handling related to these customers billed freight costs are recorded as costs to fulfill the contract and are included within cost of sales. All revenue is recognized at a point in time. For shipments with terms of Free-On-Board (FOB) Shipping Point, revenue is recognized upon shipment.
16
Drone Nerds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Deferred revenue represents cash received by the Company in advance of shipment for FOB Shipping Point terms. Upon shipment, the deferred revenue is recognized as revenue.
The Company’s contracts typically do not result in situations where there is a time period greater than one year between performance under the contract and collection of the related consideration. The Company elected the practical expedient under Topic 606 related to significant financing components, where the Company expects, at contract inception, that the period between the entity’s transfer of a promised good or service to a customer and the customer’s payment for that good or service will be one year or less.
The Company also applies the practical expedient in Topic 606 related to costs to obtain a contract and recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the incurred costs that the Company otherwise would have capitalized is one year or less. These costs are included in other selling, general and administrative expenses.
The Company’s main revenue generating activities include the following:
Wholesale
Revenue is comprised of sales of products through e-commerce channels and are primarily comprised of direct sales to wholesale resellers. Revenue is recognized when control of the product transfers to the customer which is generally upon shipment of the goods, at which time the Company has satisfied its performance obligation. Payment terms start from the date of satisfaction of the performance obligation and varies based on the customer contract.
Retail
Revenue is comprised of point-of-sale retail sales at the Company’s South Florida location. Revenue is recognized when control of the product transfers to the customer which is generally upon the point of sale of the goods, at which time the Company has satisfied its performance obligation. Payments are usually obtained from a mixture of cash and credit card.
A summary of all revenue earned is as follows:
| Year Ended December 31, | 2024 | 2023 | ||
|---|---|---|---|---|
| Wholesale | $ | 97,322,139 | $ | 108,364,991 |
| Retail | 13,878,972 | 15,251,414 | ||
| $ | 111,201,111 | $ | 123,616,405 |
It is the Company’s policy to accept returns as deemed necessary based on the Company’s return policy. The Company estimates sales returns and records a reserve for expected returns at each reporting date based on historical return pattern and current trends. Actual returns are charged against the reserve as they occur. As of December 31, 2024 and 2023 the Company recorded a reserve for sales returns and allowances of approximately $144,000, which is reflected as a reduction of accounts receivable, net on the accompanying consolidated balance sheets.
Cost of Sales
The Company’s cost of sales sold consist primarily of charges incurred for finished goods (drones and drone accessories), direct and indirect distribution costs, and other costs incurred in the sale of goods.
17
Drone Nerds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Shipping and Handling Costs
In some instances, the Company incurs shipping and handling costs relating to the sale of inventory. The Company recorded these costs as part of cost of sales in the accompanying consolidated statements of operations. Total shipping and handling costs incurred during the years ended December 31, 2024 and 2023 were approximately $1,046,000 and $957,000, respectively.
Vendor Programs
Consideration received from vendors for price protection, product rebates and marketing promotion are recorded as a reduction in cost of sales in accordance with ASC 705-20, Accounting for Consideration.
Advertising Costs
Advertising costs are charged to expense during the period in which they are incurred. Advertising costs were approximately $714,000 and $873,000 for the years ended December 31, 2024 and 2023, respectively.
Income Taxes
The Company recognizes and measures tax positions taken or expected to be taken in its tax return based on their technical merit and assesses the likelihood that the positions will be sustained upon examination based on the facts, circumstances and information available at the end of each period. Interest and penalties on tax liabilities, if any, would be recorded in interest expense and other non-interest expense, respectively.
The Company has analyzed the tax positions taken and has concluded that as of December 31, 2024 and 2023, there were no uncertain tax positions taken, or expected to be taken, that would require recognition of a liability or disclosure in the consolidated financial statements.
Management is required to analyze all open tax years as defined by the statute of limitations for all major jurisdictions, including federal and certain state taxing authorities. As of December 31, 2024, the Company did not have a liability for any unrecognized taxes. The Company has no examinations in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax liabilities will significantly change in the next 12 months.
The Company is treated as a Subchapter S Corporation for federal income tax purposes and accordingly, generally would not incur income taxes or have any unrecognized tax benefits. Instead, its earnings and losses are included in the personal tax returns of the stockholders and taxed depending on their personal tax situation. As a result, the consolidated financial statements do not reflect a provision for income taxes. The U.S. Federal jurisdiction and Florida are the major tax jurisdictions where the Company files income tax returns.
18
Drone Nerds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Tax Collected from Customers andRemitted to Governmental Authorities
The Company records taxes collected from customers, which are directly imposed on a transaction with that customer, on a net basis. That is, in instances in which the Company acts as a collection agent for a taxing authority by collecting taxes that are the responsibility of the customer, the Company records the amount collected as a liability and relieves such liability upon remittance to the taxing authority without impacting revenues and expenses. On June 21, 2018, the U.S. Supreme Court decided in South Dakota v. Wayfair, Inc., that state and local jurisdictions may, in certain circumstances, enforce sales and use tax collection on remote vendors that do not have physical presence in their jurisdiction. As states begin to interpret this ruling, some have begun, or have positioned themselves to begin, requiring sales and use tax collection by remote vendors. The details and effective dates of these collection requirements vary from state to state. The Company has internally evaluated the new requirements and based on management’s analysis for the year ended December 31, 2024 and 2023, an accrual of approximately $175,000 and $143,000, respectively, has been recorded and is reflected within accrued expenses and other liabilities on the accompanying consolidated balance sheets.
| 3. | Related Party Transactions |
|---|
Due from Stockholder
At December 31, 2024 and 2023, the Company had an outstanding amount due from a stockholder of approximately $113,000 and $111,000, respectively which bear interest of 2.0%, is unsecured and due on demand, included in the stockholders’ equity section on the consolidated balance sheets. Interest income from amount due from stockholder for the years ended December 31, 2024 and 2023 was approximately $2,000 and is included in interest expense, net on the consolidated statements of operations.
Notes Payable, Related Parties
The Company has a note payable due of $200,000 to a related party as reflected on the consolidated balance sheets as of December 31, 2024 and 2023, within the caption notes payable, related parties. The note bears interest at 10%, is unsecured. Interest expense was approximately $20,000 for each of the years ended December 31, 2024 and 2023.
Additionally, in October 2016, the Company borrowed additional funds from another related party. The Company has a balance due of $250,000 to this related party as reflected on the consolidated balance sheets as of December 31, 2024 and 2023, within the caption notes payable, related parties. The note bears interest at 10%, is unsecured. Interest expense was approximately $25,000 for each of the years ended December 31, 2024 and 2023.
19
Drone Nerds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
| 4. | Property and Equipment, net |
|---|
Property and equipment, net consists of the following:
| December 31, | 2024 | 2023 | ||||
|---|---|---|---|---|---|---|
| Office furniture and fixtures | $ | 133,860 | $ | 133,860 | ||
| Equipment | 90,537 | 90,537 | ||||
| Leasehold improvements | 271,535 | 271,535 | ||||
| Software | 356,007 | 142,032 | ||||
| 851,939 | 637,964 | |||||
| Less: accumulated depreciation and amortization | (575,693 | ) | (496,879 | ) | ||
| $ | 276,246 | $ | 141,085 |
Depreciation and amortization expense was approximately $79,000 and $85,000 for the years ended December 31, 2024 and 2023, respectively.
| 5. | Goodwill |
|---|
On July 1, 2018, the Company acquired all of the assets of VeryDrone, Inc. As of December 31, 2024 and 2023, the Company reported gross goodwill of $170,000 related to this acquisition. No impairment of goodwill was recorded for the years ended December 31, 2024 and 2023.
| 6. | Lines of Credit |
|---|
In December 2022, the Company entered into a revolving line of credit loan agreement with a financial institution for $19,500,000. The line of credit bore interest equal to the Secured Overnight Financing Rate (SOFR) plus a margin determined by the financial institution (8.12% at December 31, 2023) and interest payments were due monthly and was scheduled to mature on December 23, 2024.
In July 2024, the line of credit loan agreement was amended, increasing the borrowing amount to $25,000,000 and extending the maturity date to July 18, 2027. The renewed line of credit bears interest equal to the SOFR plus a margin determined by the financial institution (7.37% at December 31, 2024) and interest payments are due monthly. At December 31, 2024 and 2023, the outstanding balance was $15,240,950 and $14,000,551, respectively and total interest expense for the year ended December 31, 2024 and 2023 totaled approximately $1,090,000 and $960,000, respectively. At December 31, 2024 and 2023, the Company has a remaining balance available to be borrowed totaling $9,759,050 and $5,499,449, respectively. The line of credit is collateralized by all assets of the Company, including those held by the VIEs, and is personally guaranteed by the Company’s stockholders. The line of credit contains certain financial covenants whereby the Company is required to meet certain key financial ratios. The Company was not in compliance with the financial covenants as of December 31, 2024. The lender has been notified and, as of the date of these financial statements, has provided a waiver on the covenant violation and amendment to the agreement (Note 11).
In connection with the line of credit, the Company paid loan origination fees of approximately $269,000 and is included in prepaid expenses and other assets on the accompanying consolidated balance sheets. The loan origination fees are being amortized over the duration of the line of credit, which is 3 years. For each of the years ended December 31, 2024 and 2023, amortization expense was approximately $65,000 and $79,000, respectively, and reflected as operating expenses in the accompanying consolidated statements of operations.
20
Drone Nerds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
| 7. | Leases |
|---|
The Company leases offices and retail stores under noncancelable agreements. The Company assessed the lease classification of these leases at commencement date and concluded that the leases should be accounted for as operating leases. The operating leases expire at various dates through 2029, some with renewal options available to the Company. The lease agreements typically provide for base rental rates that increase at defined intervals during the term of the lease.
Consolidated balance sheet information related to the Company’s operating leases consisted of the following:
| December 31, | 2024 | 2023 | |||
|---|---|---|---|---|---|
| Assets | Operating lease right of use assets, net | $ | 2,251,539 | $ | 1,072,564 |
| Total Lease Assets | $ | 2,251,539 | $ | 1,072,564 | |
| Liabilities | |||||
| Current Operating | Current portion of lease liabilities | $ | 738,055 | $ | 560,988 |
| Long-term Operating | Operating lease liabilities, net of current portion | 1,605,282 | 640,887 | ||
| Total Lease Liabilities | $ | 2,343,337 | $ | 1,201,875 |
21
Drone Nerds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The components of total lease cost associated with the Company’s operating leases are as follows:
| Year Ended December 31, | 2024 | 2023 | ||
|---|---|---|---|---|
| Operating lease expense (a) | $ | 593,399 | $ | 528,782 |
| Variable lease expense (b) | 95,257 | 54,457 | ||
| Total Lease Cost | $ | 688,656 | $ | 583,239 |
| (a) | Expenses are classified within operating expenses in the consolidated<br>statement of operations | |||
| --- | --- | |||
| (b) | Variable lease costs consist primarily of taxes and common area<br>and is included within operating expenses in the consolidated statement of operations | |||
| --- | --- |
The following summarizes the cash flow information related to operating leases for the year ended:
| 2024 | 2023 | |||||
|---|---|---|---|---|---|---|
| Operating lease liabilities arising from obtaining right-of-use assets | $ | 1,757,659 | $ | - | ||
| Operating cash flows from operating leases | $ | 616,197 | $ | 551,221 | ||
| Weighted-average remaining lease term | 3.6 years | 3.1 years | ||||
| Weighted-average discount rate | 3.51 | % | 1.33 | % |
Maturities of lease liabilities as of December 31, 2024 are as follows:
| Years Ended December 31, | |||
|---|---|---|---|
| 2025 | $ | 774,693 | |
| 2026 | 737,421 | ||
| 2027 | 510,964 | ||
| 2028 | 424,678 | ||
| 2029 | 143,422 | ||
| Total minimum lease payments | 2,591,178 | ||
| Less: amount representing interest | (247,841 | ) | |
| Present value of future minimum lease payments | 2,343,337 | ||
| Less: current portion | (738,055 | ) | |
| Long Term Lease Liability | $ | 1,605,282 | |
| 8. | Commitments and Contingencies | ||
| --- | --- |
Litigation
The Company, from time to time, is involved in litigation arising during the ordinary course of business. Based on currently available information, management believes that the resolution of any potential claims will not have a material adverse effect on the Company’s consolidated operating results or financial position.
22
Drone Nerds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
| 9. | Benefit Plan |
|---|
The Company maintains a 401(k)-retirement plan for its eligible employees. The Company determines annually the amount of its matching and profit-sharing contributions. For the years ended December 31, 2024 and 2023, the Company did not make any matching or profit sharing contributions.
| 10. | Variable Interest Entities |
|---|
Surf Nerds, LLC and Anzu Robotics, LLC were formed to expand the Company’s operations into electric surfboards and commercial drone technology, respectively. Drone Nerds, Inc. is the primary beneficiary of both entities, as it has the power to direct the activities that most significantly impact their economic performance and is exposed to the majority of their expected losses or residual returns.
In accordance with U.S. GAAP, the economic substance of these relationships gives Drone Nerds, Inc. a controlling financial interest in Surf Nerds, LLC and Anzu Robotics, LLC. Accordingly, the Company is required to consolidate these entities. The non-controlling interest in Surf Nerds, LLC and Anzu Robotics, LLC was immaterial to the consolidated financial statements and is included within the consolidated stockholders’ equity as of December 31, 2024 and 2023.
Drone Nerds, Inc. is the primary obligor on a revolving line of credit agreement with an external lender (Note 6 and 11), which is collateralized by the assets of Drone Nerds, Inc., Surf Nerds, LLC, and Anzu Robotics, LLC. In the event of default, the external lender has recourse to both the general credit of Drone Nerds, Inc. and the assets of the VIEs. The outstanding balance on the line of credit was $15,240,950 and $14,000,551 as of December 31, 2024 and 2023, respectively (see Notes 6 and 11). Creditors of the consolidated VIEs also have recourse to the general credit of Drone Nerds, Inc.
Drone Nerds, Inc. has also provided financial support to both Surf Nerds, LLC and Anzu Robotics, LLC through intercompany loans necessary to fund their operations. As of December 31, 2024 and 2023, Surf Nerds, LLC had intercompany payables to Drone Nerds, Inc. totaling approximately $463,000 and $418,000, respectively. As of December 31, 2024, Anzu Robotics, LLC had intercompany payables to Drone Nerds, Inc. totaling approximately $5,100,000. In the event that Surf Nerds, LLC or Anzu Robotics, LLC are unable to repay their obligations, Drone Nerds, Inc. would remain liable to the external lenders and may be required to forgive the intercompany loans.
| 11. | Subsequent Events |
|---|
The Company has evaluated subsequent events through November 11, 2025, which is the date the consolidated financial statements were available to be issued.
In January 2025, the Company signed a one-year contract with its largest vendor to be the official non-exclusive dealer of its products in the United States. Subsequently, in September 2025, the Company entered into an additional one-year contract with the same vendor for the same purpose (Note 2).
In June 2025, the owners completed the dissolution of Surf Nerds, LLC. As a result of the dissolution, all assets and liabilities of Surf Nerds, LLC were transferred to Drone Nerds, Inc. The dissolution did not have a material impact on the Company’s consolidated financial statements (Note 1).
23
Drone Nerds, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
In June 2025, the Company entered into a waiver and amendment agreement related to the line of credit. The agreement waived a prior default related to the Fixed Charge Coverage Ratio for the year ended December 31, 2024, and amended the terms of the line of credit (Note 6). Under the amended agreement, the maximum loan amount was reduced from $25,000,000 to $10,000,000. The interest rate was revised to 1-Month Term SOFR plus 5.00% until June 30, 2025, after which it will vary based on the Company’s Fixed Charge Coverage Ratio performance. As part of the agreement, the Company was required to make an equity injection of approximately $1,000,000 and pay a $25,000 waiver fee, both of which were paid in June 2025 (Note 6).
In July 2025, the Company transitioned its line of credit to a different financial institution, entering into a new revolving line of credit agreement for $25,000,000. The new facility bears interest at the One-Month Term SOFR plus 2.50% (with a minimum rate of 6.00% per annum), with interest payments due monthly, and is scheduled to mature in July 2027 (Note 6).
On November 10, 2025, the Company was acquired by XTI Aerospace, Inc. in a transaction valued at approximately $40,000,000, for a combination of cash, equity, and notes payable. The consolidated financial statements do not reflect any adjustments related to this transaction. In connection with this transaction, the Company completed a reorganization (the “F-Reorganization”) intended to simplify its legal and tax structure in preparation for an equity sale transaction. As part of this F- Reorganization, the Company converted into Drone Nerds, LLC, a Florida limited liability company that is treated as a disregarded entity for U.S. federal income tax purposes. The transaction did not result in any changes to the underlying ownership, operations, or management of the Company and its consolidated subsidiaries.
On November 10, 2025, XTI Aerospace, Inc. deposited $10,500,000 with the new lender to fully collateralize the outstanding line of credit and fund working capital while the Company finalizes an amendment to the line of credit agreement as a result of the Transaction.
24
Exhibit 99.4
Drone Nerds, Inc. and Subsidiaries
Consolidated Financial Statements
As of June 30, 2025 and for the
Six-Month Period Ended June 30, 2025 and 2024
Drone Nerds, Inc. and Subsidiaries
Contents
| Independent Accountant’s Review Report | |
|---|---|
| Consolidated Financial Statements | 3 |
| Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024 | 4 |
| Consolidated Statements of Operations for the Six Month Period Ended June 30, 2025 and 2024 | 5 |
| Consolidated Statements of Changes in Stockholders’ Equity for the Six Month Period Ended June 30, 2025 and 2024 | 6 |
| Consolidated Statements of Cash Flows for the Six Month Period Ended June 30, 2025 and 2024 | 7 |
| Notes to Consolidated Financial Statements | 8 - 22 |
2
Consolidated Financial Statements
3
Drone Nerds, Inc. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
| December 31,<br> <br> 2024 | |||||
|---|---|---|---|---|---|
| Assets | |||||
| Current Assets | |||||
| Cash | 2,256,742 | $ | 1,838,454 | ||
| Accounts receivable, net | 7,726,141 | 10,882,066 | |||
| Inventories, net | 11,999,564 | 23,912,058 | |||
| Vendor deposits | 4,378,936 | 9,086,624 | |||
| Prepaid expenses and other assets | 1,161,295 | 806,451 | |||
| Total Current Assets | 27,522,678 | 46,525,653 | |||
| Property and equipment, net | 225,654 | 276,246 | |||
| Operating leases - right-of-use assets, net | 1,851,070 | 2,251,539 | |||
| Goodwill | 170,000 | 170,000 | |||
| Total Assets | 29,769,402 | $ | 49,223,438 | ||
| Liabilities and Stockholders’ Equity | |||||
| Current Liabilities | |||||
| Accounts<br> payable | 3,308,845 | $ | 5,135,940 | ||
| Accrued expenses and other liabilities | 1,625,108 | 10,516,952 | |||
| Line of credit | 2,624,524 | 15,240,950 | |||
| Operating lease liabilities | 657,834 | 738,055 | |||
| Total Current Liabilities | 8,216,311 | 31,631,897 | |||
| Notes payable, related parties | 450,000 | 450,000 | |||
| Operating lease liabilities, net of current portion | 1,326,581 | 1,605,282 | |||
| Total Liabilities | 9,992,892 | 33,687,179 | |||
| Commitments and Contingencies | |||||
| Stockholders’<br> Equity <br> Common stock; 1 par value; 400 shares authorized, issued and outstanding | 400 | 400 | |||
| Additional paid-in capital | 1,099,700 | 99,700 | |||
| Retained earnings | 18,789,805 | 15,549,554 | |||
| Due from stockholder | (113,395 | ) | (113,395 | ) | |
| Total Stockholders’ Equity | 19,776,510 | 15,536,259 | |||
| Total Liabilities and Stockholders’ Equity | 29,769,402 | $ | 49,223,438 |
All values are in US Dollars.
See accompanying notes to consolidated financial statements.
4
Drone Nerds, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
| Six months ended June 30, | 2025 | 2024 | ||||
|---|---|---|---|---|---|---|
| Sales | $ | 55,623,632 | $ | 55,787,030 | ||
| Cost of sales | 42,130,387 | 46,876,292 | ||||
| Gross profit | 13,493,245 | 8,910,738 | ||||
| Operating expenses | ||||||
| Salaries and benefits | 3,867,412 | 3,639,996 | ||||
| Other selling, general and administrative expenses | 2,210,985 | 2,089,516 | ||||
| Professional fees | 662,130 | 640,477 | ||||
| Income from operations | 6,752,718 | 2,540,749 | ||||
| Other income | 63,512 | 16,418 | ||||
| Interest expense, net | (392,555 | ) | (516,085 | ) | ||
| Net Income | $ | 6,423,675 | $ | 2,041,082 |
See accompanying notes to consolidated financial statements.
5
Drone Nerds, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity(Unaudited)
| Shares of<br><br> Common Stock | Common Stock | Additional<br><br> Paid-In<br><br> Capital | Retained<br><br> Earnings | Due from<br><br> Stockholder | Total<br><br> Stockholders’<br><br> Equity | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balances at January 1, 2025 | 400 | $ | 400 | $ | 99,700 | $ | 15,549,554 | $ | (113,395 | ) | $ | 15,536,259 | |||
| Net income | - | - | - | 6,423,675 | - | 6,423,675 | |||||||||
| Contributions from stockholders | - | - | 1,000,000 | - | - | 1,000,000 | |||||||||
| Distributions to stockholders | - | - | - | (3,183,424 | ) | - | (3,183,424 | ) | |||||||
| Balances at June 30, 2025 | **** | 400 | $ | 400 | $ | 1,099,700 | $ | 18,789,805 | **** | $ | (113,395 | ) | $ | 19,776,510 | **** |
| Shares of<br><br> Common Stock | Common Stock | Additional<br><br> Paid-In<br><br> Capital | Retained<br><br> Earnings | Due from<br><br> Stockholder | Total<br><br> Stockholders’<br><br> Equity | ||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Balances at January 1, 2024 | 400 | $ | 400 | $ | 99,700 | $ | 16,541,580 | $ | (111,171 | ) | $ | 16,530,509 | |||
| Net income | - | - | - | 2,041,082 | - | 2,041,082 | |||||||||
| Distributions to stockholders | - | - | - | (2,889,300 | ) | - | (2,889,300 | ) | |||||||
| Balances at June 30, 2024 | **** | 400 | $ | 400 | $ | 99,700 | $ | 15,693,362 | **** | $ | (111,171 | ) | $ | 15,682,291 | **** |
See accompanying notes to consolidated financial statements.
6
Drone Nerds, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
| Six months ended June 30, | 2025 | 2024 | ||||
|---|---|---|---|---|---|---|
| Cash Flows From Operating Activities | ||||||
| Net Income | $ | 6,423,675 | $ | 2,041,082 | ||
| Adjustments to reconcile net income to | ||||||
| net cash provided by operating activities: | ||||||
| Depreciation and amortization | 50,592 | 30,732 | ||||
| Amortization of deferred loan costs | 98,546 | 39,621 | ||||
| Non-cash lease expense | 400,469 | 262,773 | ||||
| Changes in operating assets and liabilities: | ||||||
| Decrease (Increase) in operating assets: | ||||||
| Accounts receivable | 3,155,925 | (340,653 | ) | |||
| Inventories | 11,912,494 | (2,741,790 | ) | |||
| Vendor deposits | 4,707,688 | (3,807,422 | ) | |||
| Prepaid expenses and other assets | (354,844 | ) | 150,585 | |||
| Increase (decrease) in operating liabilities: | ||||||
| Accounts payable | (1,827,095 | ) | (3,021,752 | ) | ||
| Accrued expenses and other liabilities | (8,891,844 | ) | 8,796,125 | |||
| Operating lease liabilities | (358,922 | ) | (244,076 | ) | ||
| Net Cash Provided By Operating Activities | 15,316,684 | 1,165,225 | ||||
| Cash Flows From Investing Activities | ||||||
| Purchases of property and equipment | - | (175,573 | ) | |||
| Net Cash Used In Investing Activities | - | (175,573 | ) | |||
| Cash Flows From Financing Activities | ||||||
| Contributions from stockholders | 1,000,000 | - | ||||
| Distributions to stockholders | (3,183,424 | ) | (2,889,300 | ) | ||
| Borrowings under lines of credit | 19,259,497 | 28,263,875 | ||||
| Repayments on lines of credit | (31,974,469 | ) | (26,557,508 | ) | ||
| Net Cash Used In Financing Activities | (14,898,396 | ) | (1,182,933 | ) | ||
| Net increase (decrease) in cash | 418,288 | (193,281 | ) | |||
| Cash - beginning of period | 1,838,454 | 1,657,345 | ||||
| Cash - end of period | $ | 2,256,742 | $ | 1,464,064 | ||
| Supplemental Disclosure of Cash Flow Information: | ||||||
| Cash paid for interest | $ | 401,697 | $ | 501,731 | ||
| Supplemental Schedule of Non-cash investing and financing activities: | ||||||
| Right of use assets recognized due to lease amendment | $ | - | $ | 1,645,143 |
See accompanying notes to consolidated financial statements.
7
Drone Nerds, Inc. andSubsidiaries
Notesto Consolidated Financial Statements (unaudited)
1. Description of Business
Business
Drone Nerds, Inc. was incorporated in 2014 as a Florida corporation and is headquartered in Dania Beach, Florida. Drone Nerds, Inc. specializes in wholesale and retail sales of high-end drones for a variety of commercial, private and recreational needs. Additionally, Drone Nerds, Inc. operates a retail store in South Florida.
Surf Nerds, LLC was incorporated in 2019 as a Florida Limited Liability Company and was headquartered in Dania Beach, Florida. Surf Nerds, LLC operated as an online retailer of electric surfboards until its dissolution in June 2025, at which time all assets and liabilities were transferred to Drone Nerds, Inc. The dissolution had no material impact on the consolidated financial statements, and no significant gains or losses were recognized.
Anzu Robotics, LLC was incorporated in 2023 as a Delaware Limited Liability Company and is headquartered in Austin, Texas. Anzu Robotics, LLC commenced its operations in 2024 and is engaged in the development and sale of commercial drone technology.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Drone Nerds, Inc., Surf Nerds, LLC, and Anzu Robotics, LLC (collectively referred to as the “Company”). All intercompany accounts and transactions have been eliminated in consolidation.
The Company evaluates its relationships with other entities to determine whether any such entities are variable interest entities (“VIEs”) and whether the Company is the primary beneficiary of any VIEs. A VIE is an entity in which the Company, through contractual or other arrangements, has an interest that will absorb portions of the entity’s expected losses or receive portions of the entity’s expected residual returns, or both. The Company consolidates a VIE if it is determined to be the primary beneficiary, which is defined as the entity that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
The Company has determined that Anzu Robotics, LLC meets the criteria to be considered a variable interest entity (“VIE”) under Accounting Standards Codification (ASC) 810, Consolidation, and that Drone Nerds, Inc. is the primary beneficiary. Accordingly, the financial results of Anzu Robotics, LLC are included in the accompanying consolidated financial statements. Surf Nerds, LLC was also considered a VIE, with Drone Nerds, Inc. as the primary beneficiary, until its dissolution in June 2025, at which time all assets and liabilities were transferred to Drone Nerds, Inc. and Surf Nerds, LLC ceased to be consolidated as a separate entity.
Basis of Presentation
The consolidated financial statements of the Company have been prepared on the accrual basis of accounting and in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).
8
Drone Nerds, Inc. andSubsidiaries
Notesto Consolidated Financial Statements (unaudited)
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Significant assumptions and estimates were used in determining the collectability of accounts receivable and the carrying value of inventory. Actual results could differ from those estimates and those differences may be material.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents. As of June 30, 2025 and December 31, 2024, the Company had no cash equivalents and all cash amounts consisted of cash on deposit.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash deposits in excess of the Federal Deposit Insurance Corporation insured limit of $250,000. At times, such balances exceed these insured limits. The Company generally limits its exposure by placing its deposits with quality financial institutions. The Company has not experienced losses in such accounts.
Concentrations
As of June 30, 2025, accounts receivable totaling approximately $2,806,000 from two customers represented approximately 43% of total accounts receivable, net. As of December 31, 2024, accounts receivable totaling approximately $5,493,000 from two customers represented approximately 53% of total accounts receivable, net. As of June 30, 2025 and December 31 2024, approximate information regarding major customers representing more than 10% of total accounts receivable from unrelated parties is as follows:
| June 30,<br> 2025 | December 31,<br> 2024 | |||||
|---|---|---|---|---|---|---|
| Customer A | 29 | % | 35 | % | ||
| Customer B | 14 | % | ** | |||
| Customer C | ** | 18 | % |
** - Concentration did not exceed 10% of total accounts receivable, net.
9
Drone Nerds, Inc. andSubsidiaries
Notesto Consolidated Financial Statements (unaudited)
As of June 30, 2025 and December 31, 2024, accounts payable totaling approximately $999,000 and $3,240,000 to one vendor, primarily located in China, represented approximately 37% and 71% of total accounts payable, respectively. As of June 30, 2025 and December 31, 2024, approximate information regarding major vendors representing more than 10% of total accounts payable to unrelated parties is as follows:
| June 30,<br> 2025 | December 31, <br> 2024 | |||||
|---|---|---|---|---|---|---|
| Vendor A | 37 | % | 71 | % | ||
| Vendor B | 28 | % | ** | |||
| Vendor C | 10 | % | 11 | % |
** - Concentration did not exceed 10% of total accounts payable.
Vendor purchases of inventory totaling approximately $24,960,000 and $35,797,000 from the same vendor represented approximately 57% and 76% of total vendor purchases of inventory for the six months ended June 30, 2025 and 2024, respectively. Approximate information regarding major vendors representing more than 10% of total purchases for the six months ended June 30, 2025 and 2024 is as follows:
| Six months ended June 30, | 2025 | 2024 | ||||
|---|---|---|---|---|---|---|
| Vendor A | 57 | % | 76 | % | ||
| Vendor B | 10 | % | ** |
** - Transactions with this vendor did not exceed 10% of total purchases.
In February 2018, the Company signed a 5-year contract extension with its largest vendor to be the official non-exclusive dealer of its products in the United States and Canada. The contract stipulates that it can be terminated by the vendor at any time. In September 2022, the Company executed an additional extension of this agreement through September 2025. In January 2025, the Company entered into a new one-year agreement with its largest vendor to continue as the official non-exclusive dealer of its products in the United States (see Note 11).
Risks and Uncertainties
Credit Risk
In the normal course of business, the Company encounters economic risk, mainly comprised of credit risk and market risk. Credit risk is the risk of default on the Company’s accounts receivable balances from the customers’ inability or unwillingness to make contractually required payments.
Market Risk
Market risk reflects the risk that conditions in which the Company sells its products could change such that a significant effect on the Company’s operations could occur. The Company derives most of its sales from the wholesale and online retail industry. The Company could experience declines in demand for products as a result of general economic conditions. Furthermore, the Company is dependent on borrowings provided by a line of credit to fund its current working capital needs.
Tariff Risk
The Company is currently subject to various international trade policies and regulations, which may impact the cost of inventory purchases. There remains uncertainty regarding the potential imposition of new tariffs or changes to existing tariffs on goods imported from certain countries where the Company sources its inventory.
10
Drone Nerds, Inc. andSubsidiaries
Notesto Consolidated Financial Statements (unaudited)
Management is actively monitoring the situation and assessing the potential impact on the Company’s financial position and results of operations. While it is not possible to predict the outcome of these developments, any significant increase in tariffs could result in higher costs of goods sold and may adversely affect the Company’s profitability.
Regulatory and Supply Chain Risk
The Company is subject to risks arising from ongoing regulatory discussions and potential legislative actions targeting its primary supplier. Under the 2025 National Defense Authorization Act (NDAA), a U.S. national-security agency is required to complete a security review of certain suppliers, including the Company’s primary supplier, by December 23, 2025. If no agency completes this review by the deadline, the law instructs the Federal Communications Commission (FCC) to automatically add these suppliers to the FCC “Covered List,” which would effectively block new FCC equipment authorizations for their technology and drones in the U.S. (i.e., new models could not be approved).
Management is actively monitoring these developments and evaluating their potential impact on the Company’s financial position and results of operations. As of the issuance of these financial statements, all products purchased from the primary supplier in the Company’s distribution channel possess valid FCC authorizations. Accordingly, management does not anticipate any material impact on the Company’s operations, as revenue is expected to continue to be generated from existing, approved product lines.
The ultimate outcome of these regulatory and legislative matters cannot be predicted. Any significant regulatory changes or supply chain disruptions could result in inventory shortages and materially impact the operations, which ultimately may adversely affect the Company’s future profitability.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist mainly of prepaid insurance. Premiums paid for receivable and cargo insurance during the year are amortized evenly over the term covered by the payment, generally twelve months.
Accounts Receivable, Net and Allowance for Credit Losses
Accounts receivable are recorded at the stated amount of the transactions with the Company’s customers. Credit is extended based upon evaluation of the customers’ financial condition. Payment terms vary and amounts due from customers are stated in the consolidated financial statements net of an allowance for credit losses.
In June 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326). The ASU introduces a new credit loss methodology, Current Expected Credit Losses (CECL), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. Since its original issuance in 2016, the FASB has issued several updates to the original ASU.
The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity securities and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The methodology replaces the multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized. For available-for-sale securities where fair value is less than cost, credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk. This update is effective on a modified retrospective basis for financial statements issued for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The Company adopted ASU 2016-13 on January 1, 2023.
11
Drone Nerds, Inc. andSubsidiaries
Notesto Consolidated Financial Statements (unaudited)
The Company recognizes an allowance for credit losses for accounts receivable based on its best estimate of the net amount expected to be collected. The Company determines the allowance based on a review of individual past due balances and potential collectability of these balances. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Accounts that are outstanding longer than the payment terms are considered past due. As of June 30, 2025 and December 31, 2024, the allowance for credit losses was approximately $100,000 and is reflected as a reduction of “Accounts receivable, net” on the accompanying consolidated balance sheets. Certain accounts receivable balances serve as collateral to the line of credit (Note 6).
Inventories
Inventories, consisting principally of drones and drone accessories, are stated at the lower of cost or net realizable value. Cost is determined using the specific identification method. Net realizable value is defined as the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. Inventories include the capitalization of certain costs related to purchasing, freight and handling costs associated with placing inventory in its location and condition for sale.
Selling expenses and general and administrative expenses are reported as period costs and are excluded from inventory cost. The Company reviews the components of its inventory on a regular basis for excess and obsolete inventory based on estimated future usage and sales.
As of June 30, 2025 and December 31, 2024, the inventory reserve was approximately $642,000 and is reflected as a reduction of “Inventories, net” in the accompanying consolidated balance sheets.
Property and Equipment, net
Property and equipment are recorded at cost, less accumulated depreciation and amortization. Assets over $5,000, which are expected to last over one year, are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is recognized in income or expense for the period. Maintenance and repairs are charged to expense as incurred, and expenditures for major renewals and betterments are capitalized.
Depreciation and amortization are calculated using the straight-line method over the estimated useful life of the various classes of assets as follows:
| Office furniture and fixtures | 7 years |
|---|---|
| Equipment | 5 years |
| Leasehold improvements | Shorter of useful life or lease term |
| Software | 3 years |
Long-Lived Assets
The Company reviews long-lived assets for possible impairment at least annually, and more frequently if circumstances indicate that the carrying amount of the asset may not be recoverable. Impairment is determined to exist when estimated amounts recoverable through future cash flows from operations on an undiscounted basis are less than the long-lived assets carrying values. If a long-lived asset is determined to be impaired, an impairment loss is recognized to reduce the asset to its fair value. Preparation of estimated future cash flows is inherently subjective and is based on management’s best estimate of assumptions concerning future conditions. There were no impairment losses for the six months ended June 30, 2025 and 2024.
12
Drone Nerds, Inc. andSubsidiaries
Notesto Consolidated Financial Statements (unaudited)
Goodwill
Goodwill represents the excess of the purchase price of an acquired business over the fair value of the identifiable net tangible and intangible assets acquired. Goodwill is not amortized but is tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired.
The Company compares the fair value of its reporting unit, including goodwill, to its carrying amount. If the carrying amount exceeds fair value, an impairment loss is recognized in an amount equal to the excess, limited to the total amount of goodwill. Impairment losses, if any, are included in operating expenses in the Company’s consolidated statements of operations.
During the six months ended June 30, 2025 and 2024, no events or circumstances indicated that goodwill may be impaired, and the annual impairment test did not result in any impairment charges (Note 5).
Leases
The Company enters into lease arrangements primarily for rental of office and operating facilities space, with various expiration dates. At its inception, the Company determines whether an arrangement is or contains a lease. A lease exists when a contract conveys to the customer the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (i) there is an identified asset in the contract that is land or a depreciable asset (i.e., property and equipment), and (ii) the customer has the right to control the use of the identified asset. The Company recognizes a right-of-use (ROU) asset and lease liability on the consolidated balance sheets for all leases with a term longer than 12 months, including renewals options reasonably certain to be exercised. ROU assets represent the Company’s right to use an underlying asset for the lease term. Lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and liabilities are classified and recognized at the commencement date.
ROU lease liabilities are measured based on the present value of fixed lease payments over the lease term, discounted at the appropriate rate. The Company has made an accounting policy to apply its incremental borrowing rate (IBR) as the discount rate used to measure lease liabilities and ROU assets at commencement of a lease. ROU assets consist of (i) initial measurement of the lease liability; (ii) lease payments made to the lessor at or before the commencement date less any lease incentives received; and (iii) initial direct costs incurred by the Company.
For operating leases, the ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Key estimates and judgments included in the initial measurement of ROU assets and liabilities include (i) the discount rate used to discount the unpaid lease payments to present value, (ii) lease term and (iii) lease payments.
13
Drone Nerds, Inc. andSubsidiaries
Notesto Consolidated Financial Statements (unaudited)
The Company uses its IBR at lease commencement to discount lease payments, as the rate implicit in the lease is not readily determinable. The IBR is determined based on the rate of interest the Company would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term in a similar economic environment.
i. The lease term for all of our leases includes the noncancellable period of the lease plus any additional periods covered by either a lessee option to extend (or not to terminate) the lease that the lessee is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.
ii. Lease payments included in the measurement of the lease asset or liability comprise the following: (i) fixed payments (including in-substance fixed payments), (ii) variable payments that depend on index or rate based on the index or rate at lease commencement, (iii) the exercise price of a lessee option to purchase the underlying asset if the lessee is reasonably certain to exercise, (iv) payments for penalties for terminating the lease if the lessee is reasonably certain to exercise, and (v) amounts probable of being owed under residual value guarantees.
Variable lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate) are included in the measurement of ROU assets and lease liabilities using the index or rate at the commencement date. Variable lease payments that do not depend on an index or a rate are excluded from the measurement of ROU assets and lease liabilities and are recognized in the period in which the event, activity, or circumstance in the lease agreement on which those payments are assessed occur. Variable lease payments related to the Company’s operating leases include costs such as insurance and common area maintenance and are recognized in operating expenses in the consolidated statements of operations in the period in which the obligation for those payments is incurred.
The Company monitors events or changes in circumstances that require a reassessment of a lease. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in operating expenses in the consolidated statements of operations.
Revenue Recognition
The Company generates revenue primarily from the sale of high-end drones to wholesale and retail markets.
Revenue is recognized when customers obtain control of goods and services promised by the Company in accordance with ASC Topic 606, Revenue from Contracts with Customers(Topic 606). The amount of revenue recognized is based on the amount that reflects the consideration that is expected to be received in exchange for those respective goods and services. The transaction price for contracts may include forms of variable consideration, including reductions to the transaction price for volume discounts and rebates. Revenue is reported net of discounts and net of any estimated refund liability, which is determined based on historical experience. The estimated refund liability as of June 30, 2025 and December 31, 2024 was not material.
The Company records freight billed to customers in net sales. The corresponding costs incurred for shipping and handling related to these customers billed freight costs are recorded as costs to fulfill the contract and are included within cost of sales. All revenue is recognized at a point in time. For shipments with terms of Free-On-Board (FOB) Shipping Point, revenue is recognized upon shipment. Deferred revenue represents cash received by the Company in advance of shipment for FOB Shipping Point terms. Upon shipment the deferred revenue is recognized as revenue.
14
Drone Nerds, Inc. andSubsidiaries
Notesto Consolidated Financial Statements (unaudited)
The Company’s contracts typically do not result in situations where there is a time period greater than one year between performance under the contract and collection of the related consideration. The Company elected the practical expedient under Topic 606 related to significant financing components, where the Company expects, at contract inception, that the period between the entity’s transfer of a promised good or service to a customer and the customer’s payment for that good or service will be one year or less.
The Company also applies the practical expedient in Topic 606 related to costs to obtain a contract and recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the incurred costs that the Company otherwise would have capitalized is one year or less. These costs are included in selling, general and administrative expenses.
The Company’s main revenue generating activities include the following:
Wholesale
Revenue is comprised of sales of products through e-commerce channels and are primarily comprised of direct sales to wholesale resellers. Revenue is recognized when control of the product transfers to the customer which is generally upon shipment of the goods, at which time the Company has satisfied its performance obligation. Payment terms start from the date of satisfaction of the performance obligation and varies based on the customer contract.
Retail
Revenue is comprised of point-of-sale retail sales at the Company’s South Florida location. Revenue is recognized when control of the product transfers to the customer which is generally upon the point of sale of the goods, at which time the Company has satisfied its performance obligation. Payments are usually obtained from a mixture of cash and credit card.
A summary of all revenue earned is as follows:
| Six months ended June 30, | 2025 | 2024 | ||
|---|---|---|---|---|
| Wholesale | $ | 46,366,000 | $ | 49,248,911 |
| Retail | **** | 9,257,632 | 6,538,119 | |
| $ | 55,623,632 | $ | 55,787,030 |
It is the Company’s policy to accept returns as deemed necessary based on the Company’s return policy. The Company estimates sales returns and records a reserve for expected returns at each reporting date based on historical return pattern and current trends. Actual returns are charged against the reserve as they occur. As of June 30, 2025 and December 31, 2024, the Company recorded a reserve for sales returns and allowances of approximately $144,000, which is reflected as a reduction of accounts receivable, net on the accompanying consolidated balance sheets.
15
Drone Nerds, Inc. andSubsidiaries
Notesto Consolidated Financial Statements (unaudited)
Cost of Sales
The Company’s cost of sales sold consists primarily of charges incurred for finished goods (drones and drone accessories), direct and indirect distribution costs, and other costs incurred in the sale of goods.
Shipping and Handling Costs
In some instances, the Company incurs shipping and handling costs relating to the sale of inventory. The Company recorded these costs as part of cost of sales in the accompanying consolidated statements of operations. Total shipping and handling costs incurred during the six months ended June 30, 2025 and 2024 were approximately $310,000 and $325,000, respectively.
Vendor Programs
Consideration received from vendors for price protection, product rebates and marketing promotion are recorded as a reduction in cost of sales in accordance with ASC 705-20, Accounting for Consideration.
Advertising Costs
Advertising costs are charged to expense during the period in which they are incurred. Advertising costs were approximately $229,000 and $370,000 for the six months ended June 30, 2025 and 2024, respectively.
Income Taxes
The Company recognizes and measures tax positions taken or expected to be taken in its tax return based on their technical merit and assesses the likelihood that the positions will be sustained upon examination based on the facts, circumstances and information available at the end of each period. Interest and penalties on tax liabilities, if any, would be recorded in interest expense and other non-interest expense, respectively.
The Company has analyzed the tax positions taken and has concluded that as of June 30, 2025 and December 31, 2024, there were no uncertain tax positions taken, or expected to be taken, that would require recognition of a liability or disclosure in the consolidated financial statements.
Management is required to analyze all open tax years as defined by the statute of limitations for all major jurisdictions, including federal and certain state taxing authorities. As of June 30, 2025, the Company did not have a liability for any unrecognized taxes. The Company has no examinations in progress and is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax liabilities will significantly change in the next 12 months.
The Company is treated as a Subchapter S Corporation for federal income tax purposes and accordingly, generally would not incur income taxes or have any unrecognized tax benefits. Instead, its earnings and losses are included in the personal tax returns of the stockholders and taxed depending on their personal tax situation. As a result, the consolidated financial statements do not reflect a provision for income taxes. The U.S. Federal jurisdiction and Florida are the major tax jurisdictions where the Company files income tax returns.
16
Drone Nerds, Inc. andSubsidiaries
Notesto Consolidated Financial Statements (unaudited)
Tax Collected from Customers and Remitted to Governmental Authorities
The Company records taxes collected from customers, which are directly imposed on a transaction with that customer, on a net basis. That is, in instances in which the Company acts as a collection agent for a taxing authority by collecting taxes that are the responsibility of the customer, the Company records the amount collected as a liability and relieves such liability upon remittance to the taxing authority without impacting revenues and expenses. On June 21, 2018, the U.S. Supreme Court decided in South Dakota v. Wayfair, Inc., that state and local jurisdictions may, in certain circumstances, enforce sales and use tax collection on remote vendors that do not have physical presence in their jurisdiction. As states begin to interpret this ruling, some have begun, or have positioned themselves to begin, requiring sales and use tax collection by remote vendors. The details and effective dates of these collection requirements vary from state to state. The Company has internally evaluated the new requirements and, based on management’s analysis as of June 30, 2025 and December 31, 2024, an accrual of approximately $349,000 and $175,000, respectively, has been recorded and is reflected within accrued expenses and other liabilities on the accompanying consolidated balance sheets.
3. Related Party Transactions
Due from Stockholder
At June 30, 2025 and December 31, 2024, the Company had an outstanding amount due from a stockholder of approximately $113,000 which bear interest of 2.0%, is unsecured and due on demand, included in the stockholders’ equity on the consolidated balance sheets. Interest income from amount due from stockholder for the six months ended June 30, 2025 and 2024 was approximately $1,000 and is included in interest expense, net on the consolidated statements of operations.
Notes Payable, Related Parties
The Company has a note payable due of $200,000 to a related party as reflected on the consolidated balance sheets as of June 30, 2025 and December 31, 2024, within the caption notes payable, related parties. The note bears interest at 10%, is unsecured. Interest expense was approximately $10,000 for each of the six months ended June 30, 2025 and 2024.
Additionally, in October 2016, the Company borrowed additional funds from another related party. The Company has a balance due of $250,000 to this related party as reflected on the consolidated balance sheets as of June 30, 2025 and December 31, 2024, within the caption notes payable, related parties. The note bears interest at 10%, is unsecured. Interest expense was approximately $12,500 for each of the six months ended June 30, 2025 and 2024.
17
Drone Nerds, Inc. andSubsidiaries
Notesto Consolidated Financial Statements (unaudited)
4. Property and Equipment, net
Property and equipment, net consists of the following:
| June 30,<br><br> 2025 | December 31,<br><br> 2024 | |||||
|---|---|---|---|---|---|---|
| Office furniture and fixtures | $ | 133,860 | $ | 133,860 | ||
| Equipment | 90,537 | 90,537 | ||||
| Leasehold improvements | 271,535 | 271,535 | ||||
| Software | 356,007 | 356,007 | ||||
| 851,939 | 851,939 | |||||
| Less: accumulated depreciation and amortization | (626,285 | ) | (575,693 | ) | ||
| $ | 225,654 | $ | 276,246 |
Depreciation and amortization expense was approximately $51,000 and $31,000 for the six months ended June 30, 2025 and 2024, respectively.
5. Goodwill
On July 1, 2018, the Company acquired all of the assets of VeryDrone, Inc. (VeryDrone). As of June 30, 2025 and December 31, 2024, the Company reported gross goodwill of $170,000 related to this acquisition. No impairment of goodwill was recorded for the six months ended June 30, 2025 and 2024.
6. Lines of Credit
In December 2022, the Company entered into a revolving line of credit loan agreement with a financial institution for $19,500,000. The line of credit bore interest equal to the Secured Overnight Financing Rate (SOFR) plus a margin determined by the financial institution and interest payments were due monthly and was scheduled to mature on December 23, 2024.
In July 2024, the line of credit loan agreement was amended, increasing the borrowing amount to $25,000,000 and extending the maturity date to July 18, 2027. The renewed line of credit bears interest equal to the SOFR plus a margin determined by the financial institution (7.37% at December 31, 2024) and interest payments are due monthly. The line of credit is collateralized by all assets of the Company, including those held by the VIEs, and is personally guaranteed by the Company’s stockholders.
In June 2025, the Company entered into a waiver and amendment agreement related to the line of credit. The agreement waived a default related to the Fixed Charge Coverage Ratio and amended the terms of the line of credit, reducing the maximum loan amount from $25,000,000 to $10,000,000. The interest rate was revised to 1-Month Term SOFR plus 5.00% until June 30, 2025 (7.33% at June 30, 2025), after which it will vary based on the Company’s Fixed Charge Coverage Ratio performance. As part of the amended agreement, the Company was required to make an equity injection of approximately $1,000,000 and pay a $25,000 waiver fee. The equity injection of $1,000,000 is included within the consolidated statement of stockholders’ equity.
18
Drone Nerds, Inc. andSubsidiaries
Notesto Consolidated Financial Statements (unaudited)
As of June 30, 2025 and December 31, 2024, the outstanding balance was $2,624,524 and $15,240,950, respectively, and total interest expense for the six months ended June 30, 2025 and 2024 totaled approximately $370,000 and $500,000, respectively. At June 30, 2025 and December 31, 2024, the Company had a remaining balance available to be borrowed totaling $7,375,476 and
$9,759,05, respectively.
In connection with the line of credit, the Company paid loan origination fees of approximately $347,000 and is included in prepaid expenses and other assets on the accompanying consolidated balance sheets. The loan origination fees are being amortized over the duration of the line of credit. For each of the six months ended June 30, 2025 and 2024, amortization expense was approximately $99,000 and $40,000, respectively, and reflected as operating expenses in the accompanying consolidated statements of operations.
In July 2025, the Company transitioned its line of credit to a different financial institution, entering into a new revolving line of credit agreement (Note 11).
7. Leases
The Company leases offices and retail stores under noncancelable agreements. The Company assessed the lease classification of these leases at commencement date and concluded that the leases should be accounted for as operating leases. The operating leases expire at various dates through 2029, some with renewal options available to the Company. The lease agreements typically provide for base rental rates that increase at defined intervals during the term of the lease.
Consolidated balance sheet information related to the Company’s operating leases consisted of the following:
| June 30, 2025 | December 31, <br><br>2024 | ||||
|---|---|---|---|---|---|
| Assets | |||||
| Operating lease right of use assets, net | $ | 1,851,070 | $ | 2,251,539 | |
| Total Lease Assets | $ | 1,851,070 | $ | 2,251,539 | |
| Liabilities | **** | **** | |||
| Current Operating | Current portion of lease liabilities | $ | 657,834 | $ | 738,055 |
| Long-term Operating | Operating lease liabilities, net of current portion | **** | 1,326,581 | 1,605,282 | |
| Total Lease Liabilities | $ | 1,984,415 | $ | 2,343,337 |
19
Drone Nerds, Inc. andSubsidiaries
Notesto Consolidated Financial Statements (unaudited)
The components of total lease cost associated with the Company’s operating leases are as follows:
| Six months ended June 30, | 2025 | 2024 | ||
|---|---|---|---|---|
| Operating lease expense (a) | $ | 373,427 | $ | 302,945 |
| Variable lease expense (b) | **** | 23,740 | 25,887 | |
| Total Lease Cost | $ | 397,167 | $ | 328,832 |
| (a) | Expenses are classified within operating expenses in the<br>consolidated statement of operations | |||
| --- | --- | |||
| (b) | Variable lease costs consist primarily of taxes and common<br>area and is included within operating expenses in the consolidated statement of operations | |||
| --- | --- |
The following summarizes the cash flow information related to operating leases for the year ended:
| 2025 | 2024 | |||||
|---|---|---|---|---|---|---|
| Operating lease liabilities arising from obtaining right-of-use assets | $ | - | $ | 1,645,143 | ||
| Operating cash flows from operating leases | $ | 358,922 | $ | 244,076 | ||
| Weighted-average remaining lease term | 3.2 years | 5.3 years | ||||
| Weighted-average discount rate | 6.43 | % | 8.18 | % |
Maturities of lease liabilities are as follows:
| Years Ended December 31, | |||
|---|---|---|---|
| 2025** | $ | 391,541 | |
| 2026 | 737,421 | ||
| 2027 | 510,964 | ||
| 2028 | 424,678 | ||
| 2029 | 143,421 | ||
| Total minimum lease payments | 2,208,025 | ||
| Less: amount representing interest | (223,610 | ) | |
| Present value of future minimum lease payments | 1,984,415 | ||
| Less: current portion | (657,834 | ) | |
| Long Term Lease Liability | $ | 1,326,581 | |
| ** | 2025 amount reflects only the six-month period from July<br>1, 2025 to December 31, 2025 | ||
| --- | --- |
8. Commitments and Contingencies
Litigation
The Company, from time to time, is involved in litigation arising during the ordinary course of business. Based on currently available information, management believes that the resolution of any potential claims will not have a material adverse effect on the Company’s consolidated operating results or financial position.
20
Drone Nerds, Inc. andSubsidiaries
Notesto Consolidated Financial Statements (unaudited)
9. Benefit Plan
The Company maintains a 401(k)-retirement plan for its eligible employees. The Company determines annually the amount of its matching and profit-sharing contributions. For the six months ended June 30, 2025 and 2024, the Company did not make any matching or profit sharing contributions.
10. Variable Interest Entities
Surf Nerds, LLC and Anzu Robotics, LLC were formed to expand the Company’s operations into electric surfboards and commercial drone technology, respectively. Drone Nerds, Inc. is the primary beneficiary of both entities, as it has the power to direct the activities that most significantly impact their economic performance and is exposed to the majority of their expected losses or residual returns.
In accordance with U.S. GAAP, the economic substance of these relationships gives Drone Nerds, Inc. a controlling financial interest in Surf Nerds, LLC and Anzu Robotics, LLC. Accordingly, the Company is required to consolidate these entities. The non-controlling interest in Surf Nerds, LLC and Anzu Robotics, LLC was immaterial to the consolidated financial statements and is included within the consolidated stockholders’ equity as of June 30, 2025 and December 31, 2024.
Drone Nerds, Inc. is the primary obligor on a revolving line of credit agreement with an external lender (Note 6 and 11), which was collateralized by the assets of Drone Nerds, Inc., Surf Nerds, LLC, and Anzu Robotics, LLC until the dissolution of Surf Nerds, LLC in June 2025, after which the collateral was limited to the assets of Drone Nerds, Inc. and Anzu Robotics, LLC. In the event of default, the external lender has recourse to both the general credit of Drone Nerds, Inc. and the assets of the VIEs. The outstanding balance on the line of credit was $2,624,524 and $15,240,950 as of June 30, 2025 and December 31, 2024, respectively. Creditors of the consolidated VIEs also have recourse to the general credit of Drone Nerds, Inc.
Drone Nerds, Inc. has also provided financial support to both Surf Nerds, LLC and Anzu Robotics, LLC through intercompany loans necessary to fund their operations. As of June 30, 2025 and December 31, 2024, Anzu Robotics, LLC had intercompany payables to Drone Nerds, Inc. totaling approximately $2,700,000 and $5,100,000, respectively. As of December 31, 2024, Surf Nerds, LLC had an intercompany payable to Drone Nerds, Inc. totaling $463,000. In the event that Surf Nerds, LLC or Anzu Robotics, LLC are unable to repay their obligations, Drone Nerds, Inc. would remain liable to the external lenders and may be required to forgive the intercompany loans.
11. Subsequent Events
The Company has evaluated subsequent events through November 11, 2025, which is the date the consolidated financial statements were available to be issued.
In September 2025, the Company signed an additional one-year contract with its largest vendor to be the official non-exclusive dealer of its products in the United States (Note 2).
21
Drone Nerds, Inc. andSubsidiaries
Notesto Consolidated Financial Statements (unaudited)
In July 2025, the Company transitioned its line of credit to a different financial institution, entering into a new revolving line of credit agreement for $25,000,000. The new facility bears interest at the One-Month Term SOFR plus 2.50% (with a minimum rate of 6.00% per annum), with interest payments due monthly, and is scheduled to mature on July 10, 2027 (Note 6).
Subsequent to June 30, 2025, the Company declared and paid cash distributions to stockholders totaling approximately $3,400,000. These distributions occurred after the consolidated balance sheet date and are not reflected in the consolidated financial statements.
On November 10, 2025, the Company was acquired by XTI Aerospace, Inc. in a transaction valued at approximately $40,000,000, for a combination of cash, equity, and notes payable. The consolidated financial statements do not reflect any adjustments related to this transaction. In connection with this transaction, the Company completed a reorganization (the “F-Reorganization”) intended to simplify its legal and tax structure in preparation for an equity sale transaction. As part of this F- Reorganization, the Company converted into Drone Nerds, LLC, a Florida limited liability company that is treated as a disregarded entity for U.S. federal income tax purposes. The transaction did not result in any changes to the underlying ownership, operations, or management of the Company and its consolidated subsidiaries.
On November 10, 2025, XTI Aerospace deposited $10,500,000 with the new lender to fully collateralize the outstanding line of credit and fund working capital while the Company finalizes an amendment to the line of credit agreement as a result of the Transaction.
22
Exhibit 99.5
UNAUDITED PRO FORMA CONDENSED COMBINEDFINANCIAL INFORMATION
On November 10, 2025, XTI Aerospace, Inc. (the “Company” or “XTI”) through a wholly-owned subsidiary acquired 100% of the issued and outstanding equity interests of two enterprise drone solutions providers, Drone Nerds, LLC, a Florida limited liability company, and Anzu Robotics, LLC, a Delaware limited liability company (collectively “Drone Nerds”) (the “Acquisition” or “Transaction”) for total purchase consideration of $40.0 million, which was comprised of $20.0 million in cash, $10.3 million in the form of two promissory notes (the “Promissory Notes”) and $9.7 million in the form of equity consideration. The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X. Defined terms included below have the same meaning as terms defined and included elsewhere in this Amended Form 8-K.
The historical financial information of XTI was derived from the audited statements of operations for the year ended December 31, 2024 and the unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2025, as previously filed with the Securities and Exchange Commission. The historical financial information of Drone Nerds was derived from the audited statements of operations for the year ended December 31, 2024 and the unaudited condensed consolidated financial statements as of and for the six months ended June 30, 2025, included elsewhere in the Amended Form 8-K. Such unaudited pro forma financial information has been prepared on a basis consistent with the financial statements of XTI and Drone Nerds and its subsidiaries, respectively. This information should be read together with the financial statements of XTI and related notes, included in its Form 10-K filed on April 15, 2025 and its Form 10-Q filed on August 14, 2025.
These unaudited pro forma condensed combined financial statements are for informational purposes only. They do not purport to indicate the results that would have been obtained had the Acquisition and related transactions actually been completed on the assumed date or for the periods presented, or which may be realized in the future. The pro forma adjustments are based on the information currently available and the assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes. Actual results may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information.
There were no material transactions between the Company and Drone Nerds during the periods presented in the unaudited pro forma condensed combined financial statements.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCESHEET
AS OF JUNE 30, 2025
(in thousands, except share and per share amounts)
| Pro<br> Forma Adjustments for Subsequent Equity Transactions (Note 1) | Pro<br> Forma <br> Adjustments<br> for Valkyrie <br> Investment <br> (Note 2) | XTI<br><br> Pro Forma<br> As Adjusted | Drone<br> Nerds<br> (Historical) | Transaction<br><br> Accounting<br> Adjustments | Other<br> <br> Transaction <br> Accounting<br> Adjustments | Pro<br> Forma<br> Combined | Post<br><br> Acquisition<br><br> Financing<br><br> Transactions | As<br><br> Adjusted<br><br> Pro Forma<br><br> Combined | ||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Assets | ||||||||||||||||||||||||||||||||
| Current<br> Assets | ||||||||||||||||||||||||||||||||
| Cash<br> and cash equivalents | 20,046 | $ | 20,945 | $ | (2,000 | ) | $ | 38,991 | $ | 2,257 | $ | (20,000 | ) | S | $ | - | A | $ | 21,248 | $ | 23,075 | AA | $ | 44,323 | ||||||||
| Accounts<br> receivable, net | 338 | - | - | 338 | 7,726 | - | - | 8,064 | - | 8,064 | ||||||||||||||||||||||
| Other<br> receivables | 48 | - | - | 48 | - | - | - | 48 | - | 48 | ||||||||||||||||||||||
| Inventories | 2,490 | - | - | 2,490 | 12,000 | 3,026 | (3,026 | ) | B | 14,490 | - | 14,490 | ||||||||||||||||||||
| Vendor<br> deposits | - | - | - | - | 4,379 | - | - | 4,379 | - | 4,379 | ||||||||||||||||||||||
| Prepaid<br> expenses and other current assets | 1,290 | - | - | 1,290 | 1,161 | - | - | 2,451 | - | 2,451 | ||||||||||||||||||||||
| Total<br> Current Assets | 24,212 | 20,945 | (2,000 | ) | 43,157 | 27,523 | (16,974 | ) | (3,026 | ) | 50,680 | 23,075 | 73,755 | |||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||
| Property<br> and equipment, net | 255 | - | - | 255 | 226 | - | - | 481 | - | 481 | ||||||||||||||||||||||
| Operating<br> lease right-of-use asset, net | 266 | - | - | 266 | 1,851 | 79 | - | C | 2,196 | - | 2,196 | |||||||||||||||||||||
| Intangible<br> assets, net | 1,223 | - | - | 1,223 | - | - | 1,223 | - | 1,223 | |||||||||||||||||||||||
| Goodwill | 9,143 | - | - | 9,143 | 170 | 16,614 | - | D | 25,927 | - | 25,927 | |||||||||||||||||||||
| Other<br> assets | 349 | - | 2,000 | 2,349 | - | - | 2,349 | - | 2,349 | |||||||||||||||||||||||
| Total<br> Assets | 35,448 | $ | 20,945 | $ | - | $ | 56,393 | $ | 29,770 | $ | (281 | ) | $ | (3,026 | ) | $ | 82,856 | $ | 23,075 | $ | 105,931 | |||||||||||
| Liabilities<br> and Stockholders’ Equity | ||||||||||||||||||||||||||||||||
| Current<br> Liabilities | ||||||||||||||||||||||||||||||||
| Accounts<br> payable | 2,685 | $ | - | $ | - | $ | 2,685 | $ | 3,309 | $ | - | $ | - | $ | 5,994 | $ | - | $ | 5,994 | |||||||||||||
| Accrued<br> expenses and other current liabilities | 1,822 | - | - | 1,822 | 1,625 | - | 2,000 | E | 5,447 | - | 5,447 | |||||||||||||||||||||
| Accrued<br> interest | 342 | - | - | 342 | - | - | - | 342 | - | 342 | ||||||||||||||||||||||
| Customer<br> deposits | 1,350 | - | - | 1,350 | - | - | - | 1,350 | - | 1,350 | ||||||||||||||||||||||
| Warrant<br> liability | 14,564 | 13,960 | - | 28,524 | - | - | - | 28,524 | - | 28,524 | ||||||||||||||||||||||
| Operating<br> lease obligation, current | 95 | - | - | 95 | 658 | (54 | ) | - | C | 699 | - | 699 | ||||||||||||||||||||
| Deferred<br> revenue | 979 | - | - | 979 | - | - | - | 979 | - | 979 | ||||||||||||||||||||||
| Short-term<br> debt | - | - | - | - | 2,625 | 10,265 | - | F | 12,890 | - | 12,890 | |||||||||||||||||||||
| Total<br> Current Liabilities | 21,837 | 13,960 | - | 35,797 | 8,217 | 10,211 | 2,000 | 56,225 | - | 56,225 | ||||||||||||||||||||||
| Long<br> Term Liabilities | - | |||||||||||||||||||||||||||||||
| Long-term<br> debt | 65 | - | - | 65 | 450 | - | - | F | 515 | - | 515 | |||||||||||||||||||||
| Operating<br> lease obligation, noncurrent | 181 | - | - | 181 | 1,326 | - | - | 1,507 | - | 1,507 | ||||||||||||||||||||||
| Total<br> Liabilities | 22,083 | 13,960 | - | 36,043 | 9,993 | 10,211 | 2,000 | 58,247 | - | 58.247 | ||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||
| Mezzanine<br> Equity | 960 | 783 | - | 1,743 | - | - | - | 1,743 | 982 | BB | 2,725 | |||||||||||||||||||||
| Stockholders’<br> Equity | - | |||||||||||||||||||||||||||||||
| Preferred<br> stock - 0.001 par value | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||
| Series<br> 4 Convertible preferred stock | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||
| Series<br> 5 Convertible preferred stock | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||
| Series<br> 10 Convertible preferred stock | - | - | - | - | - | - | - | - | 23,075 | AA | 23,075 | |||||||||||||||||||||
| Common<br> stock | 18 | 15 | - | 33 | - | 33 | - | 33 | ||||||||||||||||||||||||
| Additional<br> paid-in capital | 138,795 | 8,100 | - | 146,895 | 1,100 | 8,185 | 156,180 | (982 | ) | BB | 155,198 | |||||||||||||||||||||
| Accumulated<br> other comprehensive income | 884 | - | - | 884 | - | 884 | - | 884 | ||||||||||||||||||||||||
| Accumulated<br> deficit | (127,292 | ) | (1,913 | ) | - | (129,205 | ) | 18,790 | (18,790 | ) | (5,026 | ) | E | (134,231 | ) | - | (134,231 | ) | ||||||||||||||
| Due<br> from stockholder | - | - | - | - | (113 | ) | 113 | - | - | - | - | |||||||||||||||||||||
| Total<br> Stockholders’ Equity | 12,405 | 6,202 | - | 18,607 | 19,777 | (10,492 | ) | (5,026 | ) | 22,866 | 22,093 | 44,959 | ||||||||||||||||||||
| Total<br> Liabilities and Stockholders’ Equity | 35,448 | $ | 20,945 | $ | - | $ | 56,393 | $ | 29,770 | $ | (281 | ) | $ | (3,026 | ) | $ | 82,856 | $ | 23,075 | $ | 105,931 |
All values are in US Dollars.
2
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTOF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2025
(in thousands, except share and per share amounts)
| XTI<br><br> (Historical) | Pro<br> Forma <br> Adjustments<br> for Valkyrie <br> Investment <br> (Note 2) | XTI<br><br> Pro Forma<br> As Adjusted | Drone<br> Nerds<br> (Historical) | Other<br><br> Transaction<br> Accounting<br> Adjustments | Pro<br> Forma<br> Combined | Post<br><br> Acquisition<br><br> Financing<br><br> Transactions | As<br><br> Adjusted<br><br> Pro Forma<br><br> Combined | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | $ | 1,084 | $ | - | $ | 1,084 | $ | 55,624 | $ | - | $ | 56,708 | $ | - | $ | 56,708 | ||||||||
| Cost<br> of Revenues | 266 | - | 266 | 42,130 | - | 42,396 | - | 42,396 | ||||||||||||||||
| Gross<br> Profit | 818 | - | 818 | 13,494 | - | 14,312 | - | 14,312 | ||||||||||||||||
| Operating<br> Expenses: | ||||||||||||||||||||||||
| Research<br> and development | 3,664 | - | 3,664 | 69 | - | 3,733 | - | 3,733 | ||||||||||||||||
| Sales<br> and marketing | 2,526 | - | 2,526 | 2,192 | - | 4,718 | - | 4,718 | ||||||||||||||||
| General<br> and administrative | 11,328 | - | 11,328 | 4,480 | - | 15,808 | - | 15,808 | ||||||||||||||||
| Impairment<br> of goodwill | 4,049 | - | 4,049 | - | - | 4,049 | - | 4,049 | ||||||||||||||||
| Impairment<br> of intangible assets | 631 | - | 631 | - | - | 631 | - | 631 | ||||||||||||||||
| Amortization<br> of intangibles | 152 | - | 152 | - | - | 152 | - | 152 | ||||||||||||||||
| Total<br> Operating Expenses | 22,350 | - | 22,350 | 6,741 | - | 29,091 | - | 29,091 | ||||||||||||||||
| Income (Loss) from Operations | (21,532 | ) | - | (21,532 | ) | 6,753 | - | (14,779 | ) | - | (14,779 | ) | ||||||||||||
| Other<br> (Expense) Income | ||||||||||||||||||||||||
| Interest<br> expense, net | (218 | ) | - | (218 | ) | (393 | ) | - | (611 | ) | - | (611 | ) | |||||||||||
| Interest<br> income | - | 100 | H | 100 | - | 100 | - | 100 | ||||||||||||||||
| Loss<br> on extinguishment of debt | (421 | ) | - | (421 | ) | - | - | (421 | ) | - | (421 | ) | ||||||||||||
| Warrant<br> issuance expense | (5,795 | ) | - | (5,795 | ) | - | - | (5,795 | ) | - | (5,795 | ) | ||||||||||||
| Change<br> in fair value of warrant liability | (5,431 | ) | - | (5,431 | ) | - | - | (5,431 | ) | - | (5,431 | ) | ||||||||||||
| Other | (339 | ) | - | (339 | ) | 64 | - | (275 | ) | - | (275 | ) | ||||||||||||
| Total<br> Other (Expense) Income | (12,204 | ) | 100 | (12,104 | ) | (329 | ) | - | (12,433 | ) | - | (12,433 | ) | |||||||||||
| Net Income (Loss), before tax | (33,736 | ) | 100 | (33,636 | ) | 6,424 | - | (27,212 | ) | - | (27,212 | ) | ||||||||||||
| Income<br> tax benefit | 6 | 6 | - | 6 | 6 | |||||||||||||||||||
| Net<br> income (loss) | (33,730 | ) | 100 | (33,630 | ) | 6,424 | - | (27,206 | ) | - | (27,206 | ) | ||||||||||||
| Preferred<br> stock return | (29 | ) | (29 | ) | (29 | ) | (1,500 | ) | AA | (1,529 | ) | |||||||||||||
| Net Income (Loss) Attributable to Common Stockholders | $ | (33,759 | ) | $ | 100 | $ | (33,659 | ) | $ | 6,424 | $ | - | $ | (27,235 | ) | $ | (1,500 | ) | $ | (28,735 | ) |
3
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTOF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2024
(in thousands, except share and per share amounts)
| XTI<br><br> (Historical) | Pro<br> Forma <br> Adjustments<br> for Valkyrie <br> Investment <br> (Note 2) | XTI<br><br> Pro Forma<br> As Adjusted | Drone<br> Nerds<br> (Historical) | Transaction<br><br> Accounting<br> Adjustments | Other<br><br> Transaction<br> Accounting<br> Adjustments | Pro<br> Forma<br> Combined | Post<br> Acquisition Financing Transactions | As<br><br><br> Adjusted<br><br>Pro Forma<br><br>Combined | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | $ | 3,202 | $ | - | $ | 3,202 | $ | 111,201 | $ | - | $ | - | $ | 114,403 | $ | - | $ | 114,403 | |||||||||||
| Cost<br> of Revenues | 1,314 | 1,314 | 93,868 | - | 3,026 | B | 98,208 | - | 98,208 | ||||||||||||||||||||
| Gross<br> Profit | 1,888 | - | 1,888 | 17,333 | - | (3,026 | ) | 16,195 | 16,195 | ||||||||||||||||||||
| Operating<br> Expenses: | |||||||||||||||||||||||||||||
| Research<br> and development | 3,996 | - | 3,996 | 88 | - | - | 4,084 | - | 4,084 | ||||||||||||||||||||
| Sales<br> and marketing | 3,231 | - | 3,231 | 2,766 | - | - | 5,997 | - | 5,997 | ||||||||||||||||||||
| General<br> and administrative | 22,022 | - | 22,022 | 10,547 | - | - | 32,569 | - | 32,569 | ||||||||||||||||||||
| Merger<br> and transaction costs | 6,490 | - | 6,490 | - | 2,000 | - | 8,490 | - | 8,490 | ||||||||||||||||||||
| Impairment<br> of intangible assets | 2,507 | - | 2,507 | - | - | - | 2,507 | - | 2,507 | ||||||||||||||||||||
| Amortization<br> of intangible assets | 622 | - | 622 | - | - | - | 622 | - | 622 | ||||||||||||||||||||
| Total<br> Operating Expenses | 38,868 | - | 38,868 | 13,401 | 2,000 | - | 54,269 | - | 54,269 | ||||||||||||||||||||
| Income (Loss)<br> from Operations | (36,980 | ) | - | (36,980 | ) | 3,932 | (2,000 | ) | (3,026 | ) | (38,074 | ) | - | (38,074 | ) | ||||||||||||||
| Other<br> (Expense) Income | |||||||||||||||||||||||||||||
| Interest<br> expense, net | (1,146 | ) | - | (1,146 | ) | (1,106 | ) | - | (744 | ) | G | (2,996 | ) | - | (2,996 | ) | |||||||||||||
| Interest<br> income | 364 | 200 | H | 564 | - | - | - | 564 | - | 564 | |||||||||||||||||||
| Amortization<br> of deferred loan costs | (17 | ) | - | (17 | ) | - | - | - | (17 | ) | - | (17 | ) | ||||||||||||||||
| Loss<br>on conversion of note receivable to equity security | (2,630 | ) | - | (2,630 | ) | - | - | - | (2,630 | ) | - | (2,630 | ) | ||||||||||||||||
| Loss<br> on extinguishment of convertible notes payable | (6,732 | ) | - | (6,732 | ) | - | - | - | (6,732 | ) | - | (6,732 | ) | ||||||||||||||||
| Change<br> in fair value of convertible notes payable | 12,882 | - | 12,882 | - | - | - | 12,882 | - | 12,882 | ||||||||||||||||||||
| Change<br> in fair value of Damon investment and related warrants | (1,068 | ) | - | (1,068 | ) | - | - | - | (1,068 | ) | - | (1,068 | ) | ||||||||||||||||
| Change<br> in fair value of warrant liability | (281 | ) | - | (281 | ) | - | - | - | (281 | ) | - | (281 | ) | ||||||||||||||||
| Other | 21 | - | 21 | 154 | - | - | 175 | - | 175 | ||||||||||||||||||||
| Total<br> Other (Expense) Income | 1,393 | 200 | 1,593 | (952 | ) | - | (744 | ) | (103 | ) | - | (103 | ) | ||||||||||||||||
| Net Income (Loss), before tax | (35,587 | ) | 200 | (35,387 | ) | 2,980 | (2,000 | ) | (3,770 | ) | (38,177 | ) | - | (38,177 | ) | ||||||||||||||
| Income<br> tax provision | (16 | ) | - | (16 | ) | - | - | - | (16 | ) | - | (16 | ) | ||||||||||||||||
| Net<br> Income (Loss) | (35,603 | ) | 200 | (35,403 | ) | 2,980 | (2,000 | ) | (3,770 | ) | (38,193 | ) | - | (38,193 | ) | ||||||||||||||
| Preferred<br> stock return | (606 | ) | - | (606 | ) | - | - | - | (606 | ) | (3,000 | ) | AA | (3,606 | ) | ||||||||||||||
| Deemed<br> dividend | (772 | ) | - | (772 | ) | - | - | - | (772 | ) | - | (772 | ) | ||||||||||||||||
| Net<br> Income (Loss) Attributable to Common Stockholders | $ | (36,981 | ) | $ | 200 | $ | (36,781 | ) | $ | 2,980 | $ | (2,000 | ) | $ | (3,770 | ) | $ | (39,571 | ) | $ | (3,000 | ) | $ | (42,571 | ) |
4
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. Basis of Presentation
The unaudited pro forma condensed combined statements of operations have been prepared as if the Acquisition had been consummated on January 1, 2024, and the unaudited pro forma condensed combined balance sheet has been prepared as if the Acquisition had been consummated on June 30, 2025 and do not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Acquisition. The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations and financial position would have been had the Acquisition and related transactions taken place on the dates indicated, nor are they indicative of the future consolidated results of operations or financial position of the post-combination company. They should be read in conjunction with the historical financial statements and notes thereto of XTI.
The allocation of the purchase consideration for the Acquisition depends upon certain estimates and assumptions, all of which are preliminary. The allocation of the purchase consideration has been made for the purpose of developing the unaudited pro forma condensed combined financial information. The final determination of fair values of assets acquired and liabilities assumed relating to the Acquisition could differ materially from the preliminary allocation of purchase consideration. The final valuation will be based on the actual net tangible and intangible assets of Drone Nerds existing at the acquisition date.
2. Accounting Policies and Reclassifications
Management performed a comprehensive review of the three entities’ accounting policies. Based on its analysis, management reclassified certain operating expenses in the statement of operations of Drone Nerds to align with XTI’s presentation. Management did not identify any further differences in accounting policies.
3. Estimated Purchase Price Consideration
Estimated purchase price of approximately $40.0 million related to the Acquisition is comprised of the following components (in thousands):
| Fair Value of Class B Units | $ | 9,735 |
|---|---|---|
| Fair value of Promissory Notes | 10,265 | |
| Cash | 20,000 | |
| Total Consideration | $ | 40,000 |
The total equity consideration for the Acquisition included 6,524,576 Class B Units of our wholly-owned subsidiary that acquired Drone Nerds, which convert into common shares of XTI at the option of the holder at no additional consideration, which had an aggregate estimated fair value of approximately $9.7 million. The fair value was determined based on XTI’s five-day weighted average share price of $1.492 ending November 7, 2025. If the Class B Units have not been converted into shares of XTI common stock prior to the fifteen-month anniversary of the Acquisition closing date, they will automatically convert into common shares at that time for no additional consideration. The Class B Units issued at the closing are fixed in number, subject to stock splits or similar adjustments, and are not subject to forfeiture prior to conversion.
The Promissory Notes bear interest at an annual rate of 7.25% and mature at the one-year anniversary of the Acquisition closing date, subject to monthly principal repayments and acceleration clauses if XTI or any of its affiliates receives an aggregate amount of $40 million or more in future capital raises.
4. Adjustments to Unaudited Pro Forma Condensed Combined FinancialInformation
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 shares of common stock outstanding, assuming the Acquisition occurred on January 1, 2024.
5
Pro Forma Adjustments for Subsequent XTI Equity and InvestmentTransactions
The pro forma adjustments for subsequent XTI equity transactions represent significant transactions completed by the Company subsequent to June 30, 2025 and are as follows:
Note 1: XTI issued common stock, pre-funded warrants, common warrants, and placement agent warrants for net proceeds of $18.5 million as part of a best efforts public offering that closed during September 2025 (the “September Offering”). During September and October 2025, all pre-funded warrants from the September Offering were exercised into common stock. During July 2025, XTI closed multiple exercises of the over-allotment option granted to the underwriter of a public offering that closed during June 2025 resulting in the issuance of common shares for net proceeds of approximately $2.2 million. Additionally, there were multiple exercises of warrants issued in conjunction with previous public offerings resulting in net proceeds of approximately $0.2 million.
The financial statement impact of the aforementioned equity financing transactions in aggregate resulted in the recording of approximately (i) $20.9 million in cash and cash equivalents, (ii) $14.0 million in net warrant liabilities, (iii) $0.8 million in Mezzanine Equity, (iv) $8.1 million in Additional Paid-In Capital, and (v) $1.9 million in financing expenses (Accumulated Deficit) on the unaudited pro forma June 30, 2025 condensed combined balance sheet.
Note 2: On October 21, 2025, the Company invested in Valkyrie Sciences Holdings LLC (“Valkyrie”) in the form of a convertible promissory note of $2.0 million. The note bears simple interest at 10% per annum and matures on December 31, 2026. The Company may elect to convert the outstanding principal and accrued interest into (a) securities at the same price paid by new investors, (b) simple agreements for future equity in an affiliate of Valkyrie, or (c) equity of Valkyrie or its affiliate in the event of a sale of such entity as applicable, subject to a valuation cap of no greater than $65 million. The unaudited pro forma condensed combined balance sheet has been adjusted to account for this transaction.
Transaction Accounting Adjustments to UnauditedPro Forma Condensed Combined Financial Statements
Pro Forma Acquisition Accounting Adjustments
| A. | Represents the cash consideration portion of the purchase price | |
|---|---|---|
| B. | Represents the fair value adjustment of inventory acquired | |
| --- | --- | |
| C. | Represents adjustments to reflect the remeasurement the right-of-use assets and lease liabilities for<br>the acquired leases as of the date of the Acquisition. | |
| --- | --- | |
| D. | The Company has performed a preliminary valuation analysis of the fair market value of Drone Nerds’<br>assets to be acquired and liabilities to be assumed. Using the total consideration for the Acquisition, the Company has estimated the<br>allocations to such assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the<br>Transaction’s closing date, November 10, 2025 (in thousands): | |
| --- | --- | |
| Consideration(1) | $ | 40,000 |
| --- | --- | --- |
| Assets acquired: | ||
| Cash and cash equivalents | $ | 2,257 |
| Accounts receivable | 7,726 | |
| Inventories | 15,026 | |
| Vendor deposits | 4,379 | |
| Prepaid assets and other current assets | 1,161 | |
| Property and equipment | 226 | |
| Other assets | 1,930 | |
| Goodwill | 16,784 | |
| Total assets acquired | 49,489 | |
| Liabilities assumed: | ||
| Accounts payable | 3,309 | |
| Accrued liabilities | 1,625 | |
| Operating lease obligation | 1,930 | |
| Short-term debt | 2,625 | |
| Long-term debt | 450 | |
| Total liabilities assumed | 9,489 | |
| Estimated fair value of net assets acquired | $ | 40,000 |
| (1) | See components of consideration above in Note 3 above. | |
| --- | --- |
6
For the purposes of pro forma presentation, the Company has assumed the excess consideration over the net assets acquired is Goodwill. The Company will be performing a more comprehensive assessment of assets acquired that may result in other intangible assets being identified in that analysis.
Other Transaction Accounting Adjustments
| E. | To reflect the total transaction costs of XTI and Drone Nerds of approximately $2.0 million to be expensed<br>as if incurred on January 1, 2024, the date the Acquisition occurred for the purposes of the unaudited pro forma condensed combined statement<br>of operations. This is a non-recurring item and includes legal and accounting fees, investment banking, and other transaction-related<br>professional fees. |
|---|---|
| F. | As part of the purchase consideration, XTI will be issuing approximately $10.3 million in Promissory Notes.<br>In addition, XTI will be assuming approximately $2.6 million of existing short-term debt and approximately $0.5 million of existing long-term<br>debt of Drone Nerds. |
| --- | --- |
| G. | Represents the interest expense relating to the Promissory Notes issued as part of the purchase price<br>consideration. |
| --- | --- |
| H. | Represents interest income relating to the Valkyrie convertible note investment (see Note 2). |
| --- | --- |
Pro Forma Adjustments for Post Acquisition Financing Transactions
| AA. | On November 12, 2025, XTI Aerospace, Inc. (the “Company”)<br>entered into a Securities Purchase Agreement with Unusual Machines, Inc. (“UMAC”), pursuant to which the Company issued 25,000<br>shares of Series 10 Convertible Preferred Stock (the “Series 10 Preferred”) at a stated value of $1,000 per share, for aggregate<br>gross proceeds of $25 million. |
|---|
The Series 10 Preferred carries a 12% cumulative dividend, payable quarterly in cash, common stock, or in kind (PIK) through accretion to stated value. Each share will be convertible into common stock at a fixed conversion price of $1.492 per share upon receipt of required shareholder approval, at which time all shares will automatically convert. Conversions are subject to a beneficial ownership limitation of 4.99% (or 9.99% at holder election). If conversion would exceed such limit, the Company may issue pre-funded warrants in lieu of conversion shares. The Series 10 Preferred includes a Fundamental Transaction clause providing that holders receive equivalent consideration on the same basis as common shareholders. The preferred shares have no redemption rights and may be settled only through equity conversion.
The preliminary accounting for the Series 10 Convertible Preferred Stock and related placement agent’s warrants (see BB below) is based on management’s current interpretation of the relevant terms and application of U.S. GAAP, including ASC 480, ASC 815, and ASC 505. The classification and measurement of these instruments are subject to change as the Company completes its detailed analysis and obtains any required third-party valuations or technical accounting review.
Under ASC 480 and ASC 815, the Series 10 Preferred is classified as equity since it is not mandatorily redeemable and the conversion feature qualifies for the fixed-for-fixed exception. No embedded derivatives require bifurcation.
For pro forma presentation, the $25 million proceeds are reflected as an increase to equity, net of issuance costs of approximately $1.9 million.
For purposes of the as-adjusted pro forma earnings per share calculation (see Note 5), it is assumed that the Series 10 Preferred quarterly dividends are paid in common stock. The related adjustment impacts the unaudited pro forma condensed combined statement of operations by increasing the net loss attributable to common stockholders by $3.0 million and $1.5 million for the year ended December 31, 2024 and six months ended June 30, 2025, respectively.
| BB. | In connection with the Series 10 Preferred financing,<br>the Company issued to the placement agent warrants to purchase 837,801 shares of common stock at an exercise price of $1.492 per share,<br>equal to the Series 10 conversion price. The warrants are immediately exercisable upon closing and expire five years from the date of<br>issuance. The fair value of the Placement Agent’s Warrants is treated as a direct issuance cost of the offering and recorded as<br>a reduction to additional paid-in capital in the pro forma balance sheet, with no impact on the pro forma statement of operations or<br>earnings per share. |
|---|
7
5. Net Loss per Share
Net loss per share was calculated using the historical weighted average shares outstanding, and the issuance of additional shares in connection with the Acquisition, assuming the shares were outstanding since January 1, 2024. As the Acquisition transactions are being reflected as if they had occurred at the beginning of the earliest period presented, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes that the shares issuable relating to the Acquisition have been outstanding for the entirety of all periods presented.
The unaudited pro forma condensed combined financial information has been prepared for the six months ended June 30, 2025 and for the year ended December 31, 2024 (in thousands, except share and per share data):
| Six Months Ended June 30, 2025^(1)^ | Year Ended December 31, 2024^(2)^ | |||||
|---|---|---|---|---|---|---|
| Pro forma net loss attributable to common stockholders | $ | (28,735 | ) | $ | (42,571 | ) |
| Weighted average shares outstanding – basic and diluted**^(3)^** | 11,788,185 | 6,751,769 | ||||
| Pro forma net loss per share attributable to common stockholders – basic and diluted | $ | (2.44 | ) | $ | (6.31 | ) |
| As Adjusted Pro forma net loss attributable to common stockholders | $ | (28,735 | ) | $ | (42,571 | ) |
| Weighted average shares outstanding – basic and diluted**^(4)^** | 31,560,303 | 26,523,887 | ||||
| As Adjusted Pro forma net loss per share attributable to common stockholders – basic and diluted | $ | (0.91 | ) | $ | (1.61 | ) |
| (1) | Pro forma net loss per share includes the related pro forma adjustments as referred to within the section “Unaudited Pro Forma Condensed Combined Financial Information” for the six months ended June 30, 2025. |
|---|---|
| (2) | Pro forma net loss per share includes the related pro forma adjustments as referred to within the section “Unaudited Pro Forma Condensed Combined Financial Information” for the year ended December 31, 2024. |
| (3) | Includes 6,524,576 ClassB Units issued as part of the Acquisition’s purchase price consideration as they convert to common shares of XTI, at the optionof the holder or automatically fifteen months from the Acquisition’s closing date, and require no future additional consideration. |
| (4) | Includes (i) 6,524,576 Class B Unitsissued as part of the Acquisition’s purchase price consideration as they convert to common shares of XTI, at the option of theholder or automatically fifteen months from the Acquisition’s closing date, and require no future additional consideration, (ii)16,756,032 commons shares relating to the Series 10 Preferred transaction based on an “ if converted” method, and (iii) 3,016,086common shares assuming the Series 10 Preferred quarterly dividends are issued in common stock. |
| --- | --- |
8