References to the "Company," "our," "us" or "we" refer to Chavant Capital
Acquisition Corp. The following discussion and analysis of the Company's
financial condition and results of operations should be read in conjunction with
the financial statements and the notes thereto contained elsewhere in this
Annual Report on Form 10-K. Certain information contained in the discussion and
analysis set forth below includes forward-looking statements reflecting our
current expectations, estimates and assumptions concerning events and financial
trends that may affect our future operating results or financial position.
Actual results and the timing of events may differ materially from those
contained in these forward-looking statements due to a number of factors,
including those discussed in the sections
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entitled "Item 1A. Risk Factors" and "Cautionary Note Regarding Forward-Looking
Statements" appearing elsewhere in this Annual Report on Form 10-K.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company
on March 19, 2021 for the purpose of effecting a merger, share exchange, asset
acquisition, share purchase, reorganization or similar business combination. We
have neither engaged in any operations nor generated any revenue to date. Based
on our business activities, the Company is a "shell company" as defined under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), because we
have no operations and nominal assets consisting almost entirely of cash.
On July 22, 2021, we consummated our IPO of 8,000,000 Units. Each Unit consists
of one ordinary share and three-fourths of one redeemable Public Warrant. Each
whole Public Warrant entitles the holder thereof to purchase one ordinary share
at a price of $11.50 per share. The Units were sold at an offering price of
$10.00 per Unit, generating gross proceeds, before expenses, of $80,000,000.
Prior to the consummation of the IPO, on April 7, 2021, the Company issued
2,875,000 ordinary shares, par value $0.0001 (the "Founder Shares"), for which
the Sponsor paid $25,000. On June 25, 2021, the Sponsor sold an aggregate of
422,581 of such Founder Shares to the underwriters for a purchase price of
$3,675. On July 19, 2021, the Company reduced the offering size of the IPO and
575,000 Founder Shares were surrendered to the Company for cancellation for no
consideration, resulting in 2,300,000 Founder Shares outstanding. On September
5, 2021, the underwriters' over-allotment option expired unexercised, resulting
in the forfeiture of an additional 300,000 Founder Shares. As a result, a total
of 2,000,000 Founder Shares remain outstanding.
Simultaneously with the closing of the IPO, pursuant to the Private Placement
Warrants Purchase Agreement, dated July 19, 2021, by and between the Company and
the Sponsor, and the Representative Designees Private Placement Warrants
Purchase Agreement, dated July 19, 2021, by and between the Company and the
Representative Designees, the Company completed the private sale of 3,400,000
warrants (the "Private Warrants" and, together with the Public Warrants, the
"Warrants") to the Sponsor and the Representative Designees at a purchase price
of $1.00 per Private Warrant, generating gross proceeds to the Company of
$3,400,000 (the "Private Placement"). The Private Warrants are identical to the
Public Warrants included as part of the Units sold in the IPO, except that the
Private Warrants, so long as they are held by the initial purchasers or their
permitted transferees, (i) are not redeemable by the Company, (ii) may not
(including the ordinary shares issuable upon exercise of the Private Warrants),
subject to certain limited exceptions, be transferred, assigned or sold until 30
days after the completion of the Company's initial business combination, (iii)
may be exercised on a cashless basis and (iv) are entitled to registration
rights. No underwriting discounts and commissions were paid with respect to such
sale. The issuance of the Private Warrants was made pursuant to the exemption
from registration contained in Section 4(a)(2) of the Securities Act of 1933, as
amended.
After deducting the underwriting discounts and commissions and incurred offering
costs, a total of $80,000,000 of the proceeds from the IPO and the proceeds of
the sale of the Private Warrants was placed in the Trust Account at J.P. Morgan
Chase Bank, N.A. maintained by Continental Stock Transfer & Trust Company,
acting as trustee. Except with respect to interest earned on the funds held in
the Trust Account that may be released to the Company to pay its taxes and up to
$100,000 of interest to pay dissolution expenses, the funds held in the Trust
Account will not be released from the Trust Account until the earliest of (i)
the completion of the Company's initial business combination, (ii) the
redemption of any of the ordinary shares included in the Units sold in the IPO
(the "Public Shares") properly submitted in connection with a shareholder vote
to amend the Company's Amended and Restated Memorandum and Articles of
Association (A) to modify the substance or timing of the Company's obligation to
redeem 100% of the Public Shares if it does not complete its initial business
combination by July 22, 2023 (or within any extended period of time that we may
have to consummate an initial business combination as a result of an amendment
to our Amended and Restated Memorandum and Articles of Association) or (B) with
respect to any other material provisions relating to shareholders' rights or
pre-initial business combination activity or (iii) the redemption of the
Company's Public Shares if it is unable to complete its initial business
combination by July 22, 2023 (or by the end of any such extended period of
time), subject to applicable law. We have obtained shareholder approval to
extend the date by which we must consummate an initial business combination from
July 22, 2022 to July 22, 2023, and funds were released from the Trust Account
to redeem certain Public Shares in connection therewith and in connection with
an earlier extension. The proceeds deposited in the Trust Account could become
subject to the claims of our creditors, if any, which could have priority over
the claims of our Public Shareholders. The proceeds held in the Trust Account
will be invested only in U.S. government treasury obligations with a maturity of
185 days or less or in money market funds meeting certain conditions under Rule
2a-7 under the Investment Company Act that invest only in direct U.S. government
treasury obligations.
Our management has broad discretion with respect to the specific application of
the net proceeds of the IPO and the sale of Private Warrants, although
substantially all of the net proceeds are intended to be applied generally
toward consummating a business combination.
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After the payment of underwriting discounts and commissions and $458,249 in
expenses relating to the IPO, $1,693,616 of the net proceeds of the IPO and
Private Placement was not deposited into the Trust Account and was retained by
us for working capital purposes. In connection with the extensions of the date
by which the Company must consummate an initial business combination approved by
our shareholders on July 14, 2022 and January 6, 2023, amounts were withdrawn
from the Trust Account to redeem ordinary shares of our shareholders who
exercised their right to redeem them, as described in "-Liquidity and Capital
Resources" below. The remaining net proceeds deposited into the Trust Account
are on deposit in the Trust Account earning interest. As of December 31, 2022,
there was $9,835,409 in investments and cash held in the Trust Account and
$175,788 of cash held outside the Trust Account available for working capital
purposes. As of December 31, 2022, no funds had been withdrawn from the Trust
Account to pay the Company's income taxes.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to raise capital or to
complete the Proposed Mobix Labs Transaction (as defined below) or any other
initial business combination will be successful.
Recent Developments
Proposed Mobix Labs Transaction
On November 15, 2022, the Company and Mobix Labs, Inc. ("Mobix Labs") entered
into a business combination agreement, by and among the Company, Mobix Labs and
CLAY Merger Sub II, Inc., a Delaware corporation and newly formed, wholly-owned
direct subsidiary of the Company ("Merger Sub"), pursuant to which Merger Sub
will be merged with and into Mobix Labs, with Mobix Labs surviving the merger as
a wholly-owned direct subsidiary of the Company (the "Proposed Mobix Labs
Transaction"). Upon closing of the Proposed Mobix Labs Transaction, the combined
company will be named Mobix Labs, Inc., and its common stock and warrants are
expected to be listed on Nasdaq. The Proposed Mobix Labs Transaction includes a
subscription agreement with the PIPE Investor in respect of a private placement
of 3,000,000 shares of Class A Common Stock at a price of $10.00 per share for
an aggregate amount of $30,000,000, subject to, among other things, the approval
of the Proposed Mobix Labs Transaction by the Company's shareholders and the
satisfaction of the conditions set forth in the business combination agreement,
including a Form S-4 registration statement being declared effective by the SEC.
Second Extension
On January 6, 2023, the Company held a second extraordinary general meeting and
obtained shareholder approval of the extension of the date by which the Company
must consummate an initial business combination from January 22, 2023 to July
22, 2023 by amending the Company's Amended and Restated Memorandum and Articles
of Association. Certain of our shareholders holding 96,991 ordinary shares
exercised their right to redeem their shares for a pro rata portion of the funds
in the Trust Account. As a result, $1,004,600 (approximately $10.36 per share)
was deducted from the Trust Account to pay such holders. In connection with the
extension, we agreed to deposit $42,802 (at a rate of $0.05 per non-redeeming
Public Share) for each subsequent monthly period needed by the Company to
complete a business combination by July 22, 2023. Following the redemptions of
the Public Shares described above, the 2,000,000 Founder Shares that remain
outstanding represented 70% of the Company's issued and outstanding ordinary
shares.
Nasdaq Notice of Non-Compliance With a Continued Listing Rule
On March 23, 2023, the Company received a notice from the Listing Qualifications
staff of The Nasdaq Stock Market LLC that, for the previous 30 consecutive
business days, the minimum Market Value of Listed Securities ("MVLS") for the
Company's ordinary shares was below the $35 million minimum MVLS requirement for
continued listing on The Nasdaq Capital Market under Nasdaq Listing Rule
5550(b)(2) (the "MVLS Rule"). In accordance with the Nasdaq Listing Rules, the
Company will have 180 calendar days (i.e., until September 19, 2023) to regain
compliance with the MVLS Rule. To regain compliance with the MVLS Rule, the MVLS
for the Company's ordinary shares must be at least $35 million for a minimum of
10 consecutive business days at any time during this 180-day period. If the
Company does not regain compliance with the rule by September 19, 2023, The
Nasdaq Stock Market LLC will provide notice that the Company's ordinary shares
will be delisted from The Nasdaq Capital Market. In the event of such
notification, the Nasdaq rules permit the Company an opportunity to appeal The
Nasdaq Stock Market LLC's determination. The Company is monitoring the MVLS of
its ordinary shares and will consider options available to it to potentially
achieve compliance. The Company's securities are expected to continue to trade
on The Nasdaq Capital Market during the 180-day period.
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Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities from inception through December 31, 2022 were
organizational activities, those necessary to prepare for our IPO, and,
subsequent to the IPO, the process of evaluating and pursuing an initial
business combination. We have evaluated over 80 potential acquisition targets,
including targets that were identified by our management, advisory partners and
representatives. Over the course of such evaluations, we entered into 34
non-disclosure agreements and submitted eight non-binding indications of
interest or letters of intent in connection with certain of these acquisition
opportunities, including with Mobix Labs.
We do not expect to generate any operating revenues until after the completion
of our initial business combination. We expect to generate non-operating income
in the form of interest income on marketable securities held after the IPO. We
have incurred, and expect that we will continue to incur, increased expenses as
a result of being a public company (for legal, financial reporting, accounting
and auditing compliance), as well as for due diligence expenses in connection
with searching for, and completing, an initial business combination.
For the year ended December 31, 2022, we had a net loss of approximately
$776,000, which was driven by operating costs of approximately $1,260,000 and a
loss of approximately $1,109,000 from the initial recognition of the PIPE
Derivative Liability (as defined in Note 6 of the financial statements included
in this Annual Report on Form 10-K and as described further in "-Critical
Accounting Estimates-Derivative Financial Instruments"), partially offset by
income of approximately $43,000 from the change in fair value of the PIPE
Derivative Liability (see Note 6 of the financial statements), approximately
$1,332,000 from the adjustment of the fair value of the Private Warrant
liability and approximately $217,000 of interest earned on marketable securities
held in the Trust Account.
From March 19, 2021 (inception) through December 31, 2021, we had net income of
approximately $361,000, which consists of income of approximately $1,121,000
derived from the adjustment of the fair value of the Private Warrant liability
and interest earned on marketable securities held in our Trust Account of
approximately $3,000, partially offset by operating costs of approximately
$763,000.
Subsequent to December 31, 2022, (1) on January 6, 2023, we obtained shareholder
approval of the Second Extension. In connection with the Second Extension,
Public Shareholders holding 96,991 Public Shares elected to exercise their right
to redeem such shares and $1,004,600 was paid out of the Trust Account in
connection with the redemptions; and (2) we have drawn down additional Working
Capital Loans of $600,000 in fourth quarter of fiscal 2022 and January 2023. As
of March 30, 2023, the Company had drawn down $962,000 under the Working Capital
Loans. The Chairman of the board of directors of the Company or an entity
affiliated with him and another existing investor in the Sponsor and/or persons
affiliated with such investor provided the funds to the Sponsor for the
foregoing Working Capital Loans. As of March 30, 2023, there were 856,042
remaining Public Shares, and the Trust Account had a total balance of
$9,090,881.
Liquidity and Capital Resources
As of December 31, 2022, there were $9,835,409 in investments and cash held in
the Trust Account, $175,788 of cash held outside the Trust Account available for
working capital purposes and a working capital deficiency of $844,469. As of
December 31, 2022, no funds had been withdrawn from the Trust Account to pay the
Company's income taxes.
As of December 31, 2021, there was $80,002,777 in investments and cash held in
the Trust Account and $240,706 of cash held outside the Trust Account available
for working capital purposes. As of December 31, 2021, no funds had been
withdrawn from the Trust Account to pay the Company's income taxes.
We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account, which
interest will be net of taxes payable, to complete our business combination. We
may withdraw interest from the Trust Account to pay taxes, if any. To the extent
that our share capital or debt is used, in whole or in part, as consideration to
complete a business combination, the remaining proceeds held in the Trust
Account will be used as working capital to finance the operations of the target
business or businesses, make other acquisitions and pursue our growth
strategies.
However, if our estimate of the costs of identifying a target business,
undertaking in-depth due diligence and negotiating a business combination are
less than the actual amount necessary to do so, we may have insufficient funds
available to operate our business prior to our initial business combination.
Moreover, we may need to obtain additional financing either to complete our
business
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combination or because we become obligated to redeem a significant number of our
Public Shares upon completion of our business combination, in which case we may
issue additional securities or incur debt in connection with such business
combination.
The Company anticipates that the cash held outside of the Trust Account as of
December 31, 2022 will not be sufficient to allow the Company to operate for at
least the next 12 months from the issuance of the financial statements, assuming
that a business combination is not consummated during that time. The Company has
incurred, and expects to continue to incur, significant costs in pursuit of its
acquisition plans. These conditions raise substantial doubt about the Company's
ability to continue as a going concern for a period of time within one year
after the date that the financial statements are issued. Management plans to
address this uncertainty through the initial business combination as discussed
in this Annual Report on Form 10-K. In addition, the Company has borrowed
amounts under the Working Capital Loans described below to fund its working
capital requirements and may continue to do so. The Company's plans to
consummate an initial business combination may not be successful or may not be
successful before the required deadline. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Our liquidity needs to date have been satisfied through the $25,000 capital
contribution to purchase Founder Shares by our Sponsor, the net proceeds from
the consummation of the Private Placement not held in the Trust Account and
loans from our Sponsor. In order to finance transaction costs in connection with
a Transaction, our Sponsor or an affiliate of our Sponsor, or certain of our
officers and directors may, but are not obligated to, provide us with Working
Capital Loans, as defined and described below.
Until the consummation of the IPO, our only source of liquidity was our
Sponsor's purchase of Founder Shares and loans from our Sponsor. On July 22,
2021, we consummated the IPO of 8,000,000 Units, at a price of $10.00 per Unit,
generating gross proceeds of $80,000,000. Simultaneously with the closing of the
IPO, we consummated the sale of 3,400,000 Private Warrants to the Sponsor and
the underwriters at a price of $1.00 per Private Warrant generating gross
proceeds of $3,400,000. After the payment of underwriting discounts and
commissions and $458,249 in expenses relating to the IPO, $1,693,616 of the net
proceeds of the IPO and Private Placement was not deposited into the Trust
Account and was retained by us for working capital purposes. The net proceeds
deposited into the Trust Account remain on deposit in the Trust Account earning
interest.
On July 14, 2022, the Company held an extraordinary general meeting and obtained
shareholder approval of the extension of the date by which the Company must
consummate an initial business combination from July 22, 2022 to January 22,
2023 by amending the Company's Existing Charter (the "First Extension
Amendment"). The First Extension Amendment became effective upon approval of the
Company's shareholders. In connection with the First Extension Amendment,
shareholders holding 7,046,967 ordinary shares of the Company exercised their
right to redeem their ordinary shares for a pro rata portion of the funds in the
Trust Account. As a result, $70,573,278 was deducted from the Trust Account to
pay such holders. As a result of redemption payments and above-mentioned
extensions, the Company deposited $31,450 (at a rate of $0.033 per non-redeeming
Public Share) for each subsequent monthly period needed by the Company to
complete a business combination by January 22, 2023.
At another extraordinary general meeting on January 6, 2023, our shareholders
were asked to approve a further extension of the date by which we must
consummate an initial business combination from January 22, 2023 to July 22,
2023. The proposal was approved, and certain of our shareholders holding 96,991
ordinary shares exercised their right to redeem their shares for a pro rata
portion of the funds in the Trust Account. As a result, $1,004,600
(approximately $10.36 per share) was deducted from the Trust Account to pay such
holders. In connection with the Second Extension, we agreed to deposit $42,802
(at a rate of $0.05 per non-redeeming Public Share) for each subsequent monthly
period needed by the Company to complete a business combination by July 22,
2023.
As of March 30, 2023, the Company had deposited an aggregate of $317,107 in the
Trust Account in connection with the First Extension Amendment and the Second
Extension, and the Trust Account had a total balance of $9,090,881.
Working Capital Loans
In order to fund working capital deficiencies or finance transaction costs in
connection with a business combination, our Sponsor or an affiliate of our
Sponsor or certain of our officers and directors may, but are not obligated to,
loan us funds as may be required. If we complete a business combination, we may
repay such loaned amounts out of the proceeds of the Trust Account released to
us. In the event that a business combination does not close, we may use a
portion of the working capital held outside the Trust Account to repay such
loaned amounts, but no proceeds from our Trust Account would be used for such
repayment. Up to $1,500,000 of such loans may be convertible into warrants, at a
price of $1.00 per warrant, at the option of the lender. The warrants would be
identical to the Private Warrants. On June 20, 2022, the Sponsor provided the
Company with a Working Capital Loan of $360,000, and the Company issued an
unsecured convertible promissory note in the aggregate principal amount of
$360,000 to the Sponsor. On July 18, 2022, the Sponsor provided the Company with
a Working Capital Loan of $490,000, and the Company issued an unsecured
convertible promissory note in the aggregate principal amount of $490,000 to the
Sponsor. On January 6, 2023, the Sponsor provided the Company with a
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Working Capital Loan of $300,000, and the Company issued an unsecured
convertible promissory note in the aggregate principal amount of $300,000 to the
Sponsor. Any Working Capital Loans under the promissory notes issued on June 20,
2022 and July 18, 2022 are due on the earlier of five business days after the
Company's initial business combination and December 31, 2023. As of December 31,
2022, the Company had drawn down $662,000 under the Working Capital Loans.
Most recently on January 6, 2023, the Sponsor provided the Company with a
Working Capital Loan of $300,000, and the Company issued an unsecured
convertible promissory note in the aggregate principal amount of $300,000 to the
Sponsor. The Working Capital Loan under this promissory note is due on the
earlier of five business days after the Company's initial business combination
and July 31, 2024. As of March 30, 2023, the Company had drawn down $962,000
under the Working Capital Loans, with the ability to draw down an additional
$188,000 under those promissory notes.
Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities reflected on our consolidated balance
sheet, other than as described above under "-Working Capital Loans."
In addition, pursuant to the Business Combination Marketing Agreement among the
Company, Roth Capital Partners, LLC and Craig-Hallum Capital Group LLC, a
marketing fee equal to 3.5% of the gross proceeds of the Chavant IPO will become
payable to Roth Capital Partners, LLC and Craig-Hallum Capital Group LLC only if
the Company consummates a business combination. If a business combination does
not occur, the Company will not be required to pay these contingent fees. There
can be no assurances that the Company will complete a business combination.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the period reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting estimates:
Derivative Financial Instruments
We account for derivative instruments as either equity-classified or
liability-classified instruments based on an assessment of the derivative
instruments' specific terms and applicable authoritative guidance in Financial
Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC")
480, Distinguishing Liabilities from Equity ("ASC 480"), and ASC 815,
Derivatives and Hedging ("ASC 815"). The assessment considers whether the
derivative instruments are freestanding financial instruments pursuant to ASC
480, whether they meet the definition of a liability pursuant to ASC 480, and
whether the derivative instruments meet all of the requirements for equity
classification under ASC 815, including whether the derivative instruments are
indexed to our own common stock, among other conditions for equity
classification.
This assessment, which requires the use of professional judgment, is conducted
at the time of issuance and/or as of each subsequent quarterly period end date
while the financial instruments are outstanding. The PIPE Subscription Agreement
contains embedded Make-Whole Features (as defined in Note 6 of the financial
statements included in this Annual Report on Form 10-K). The PIPE Subscription
Agreement, as a freestanding financial instrument, does not meet the definition
of a liability pursuant to ASC 480 but is classified as a liability upon the
application of ASC 815-40. As a result, the Company is required to measure the
fair value of the PIPE Derivative Liability at the time the Company entered into
the PIPE Subscription Agreement and at the end of each reporting period and is
required to recognize the change in fair value in the Company's operating
results for the current period. In order to capture the market conditions
associated with the PIPE Derivative Liability, the Company used Level 3 inputs
and applied an approach that incorporated a Monte Carlo simulation methodology,
which involved future stock-price paths for the Adjustment Period VWAP (as
defined in Note 6). Based on assumptions regarding probability of the closing of
Business Combination and the terms for Make-Whole Features, the fair value of
the PIPE Derivative Liability was determined based on the estimated Adjustment
Period VWAP within each simulated path and by taking the average of the
estimated Adjustment Period VWAP. The key assumptions in the Monte Carlo model
utilized are assumptions related to expected share-price volatility, expected
term, risk-free interest rate and dividend yield. Please refer to Note 8 of the
financial statements for key inputs used in the Monte Carlo model.
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Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
financial statements.
JOBS Act
The JOBS Act contains provisions that, among other things, relax certain
reporting requirements provided by the JOBS Act for qualifying public companies.
We qualify as an "emerging growth company" under the JOBS Act and are allowed to
comply with new or revised accounting pronouncements based on the effective date
for private (not publicly traded) companies. We have elected to delay the
adoption of new or revised accounting standards, and as a result, we may not
comply with new or revised accounting standards on the relevant dates on which
adoption of such standards is required for non-emerging growth companies. As a
result, our financial statements may not be comparable to companies that comply
with new or revised accounting pronouncements as of public company effective
dates.
Additionally, the JOBS Act permits us to rely on other reduced reporting
requirements provided by the JOBS Act. Subject to certain conditions set forth
in the JOBS Act, if, as an "emerging growth company," we choose to rely on such
exemptions we may not be required to, among other things, (i) provide an
independent registered public accounting firm's attestation report on our system
of internal controls over financial reporting pursuant to Section 404, (ii)
provide all of the compensation disclosure that may be required of non-emerging
growth public companies under the Dodd-Frank Wall Street Reform and Consumer
Protection Act, (iii) comply with any requirement that may be adopted by the
Public Company Accounting Oversight Board (United States) ("PCAOB") regarding
mandatory audit firm rotation or a supplement to the independent registered
public accounting firm's report providing additional information about the audit
and the financial statements (auditor discussion and analysis), and (iv)
disclose certain executive compensation related items such as the correlation
between executive compensation and performance and comparisons of the CEO's
compensation to median employee compensation. These exemptions will apply for a
period of five years following the completion of the IPO or until we are no
longer an "emerging growth company," whichever is earlier.
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