AgileThought (AGILQ) Risk Analysis

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock would likely decline. If any analyst who may cover us were to cease their coverage or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

Our charter provides that, to the fullest extent permitted by law, and subject to the court's having personal jurisdiction over the indispensable parties named as defendants, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: - any derivative claim or cause of action brought on behalf of us;- any claim or cause of action for breach of a fiduciary duty owed by any current or former director, officer or other employee of the Company to us or our stockholders;- any claim or cause of action against us or any current or former director, officer or other employee of the Company arising out of or pursuant to any provision of the DGCL, our charter or our bylaws (as each may be amended from time to time);- any claim or cause of action seeking to interpret, apply, enforce or determine the validity of our charter or our bylaws (including any right, obligation or remedy thereunder);- any claim or cause of action as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware; or - any claim or cause of action asserting a claim against us, or any director, officer or other employee of the Company governed by the internal affairs doctrine. This choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims. However, stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder and this provision would not apply to suits brought to enforce a duty or liability created by the Securities Act or the Exchange Act. Our charter also provides that the federal district courts of the United States will be the exclusive forum for any complaint asserting a cause of action under the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, there is uncertainty as to whether a court would enforce this forum provision providing for exclusive jurisdiction of federal district courts with respect to suits brought to enforce any duty or liability created by the Securities Act. If a court were to find the choice of forum provisions contained in our charter to be inapplicable or unenforceable in an action, We may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.

Our charter and our bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors. These provisions include: - no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;- the exclusive right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director by stockholders, which prevents stockholders from being able to fill vacancies on the board of directors;- the ability of the board of directors to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;- a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;- the requirement that a special meeting of stockholders may be called only by the chairperson of the Board, the chief executive officer or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;- limiting the liability of, and providing indemnification to, our directors and officers;- controlling the procedures for the conduct and scheduling of stockholder meetings;- providing for a classified board, in which the members of the board of directors are divided into three classes to serve for a period of three years from the date of their respective appointment or election;- granting the ability to remove directors with cause by the affirmative vote of 66 2/3% in voting power of the then outstanding shares of capital stock of the Company entitled to vote at an election of directors;- requiring the affirmative vote of at least 66 2/3% of the voting power of the outstanding shares of our capital stock entitled to vote generally in the election of directors, voting together as a single class, to amend the bylaws or Articles V, VI, VII and VIII of the charter; and - advance notice procedures that stockholders must comply with in order to nominate candidates to the board of directors or to propose matters to be acted upon at a stockholders' meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer's own slate of directors or otherwise attempting to obtain control of us. These provisions, alone or together, could delay hostile takeovers and changes in control of us or changes in our board of directors and our management. As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the DGCL, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of the common stock. Any provision of the charter, bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of common stock and could also affect the price that some investors are willing to pay for common stock.

We have the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant; provided that the last reported sales price of our shares of common stock equals or exceeds $18.00 per share (as adjusted for share splits, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date we send the notice of redemption to the warrant holders. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force you to: (1) exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so; (2) sell your warrants at then-current market price when you might otherwise wish to hold your warrants; or (3) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants. None of the private warrants will be redeemable by us so long as they are held by the sponsor and its affiliates and its and their respective permitted transferees.

Our warrants were issued in registered form under the warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder for the purpose of curing any ambiguity or curing, correcting or supplementing any defective provision or adding or changing any other provisions with respect to matters or questions arising under the warrant agreement, but requires the approval by the holders of at least a majority of then outstanding public warrants to make any change that adversely affects the interests of the registered holders. Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder if holders of at least a majority of then outstanding public warrants approve of such amendment. Examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, shorten the exercise period or decrease the number of shares of common stock purchasable upon exercise of a warrant.

The exercise price for our warrants is $11.50 per share of common stock. There is no guarantee that the warrants will be in the money prior to their expiration, and as such, the warrants may expire worthless.

The Company has pursued several strategies with two nationally recognized financial advisors engaged in various roles. These strategies have included or may include, but are not limited to, seeking private equity financing, restructuring our debt, seeking for strategic merger and acquisition alternatives, and restructuring operations to increase revenues and decrease expenses. These financial advisors have, among other efforts, completed broad merger and acquisition searches, following which the Company is in continuing discussions with a few possible candidates. Yet another financial advisor is in the process of a broad search for new debt financing and is in early stages of discussions with prospective sources. However, given the Company's performance and circumstances, in addition to the impact of the economic downturn on the U.S. and global financial markets, the Company has not reached agreement with any merger and acquisition counterparty to date nor made significant progress with any new lenders and there can be no assurance that any such agreement with any counterparty or new loan agreement will be reached or that, if reached, will be on favorable terms or successfully concluded. As such, there can be no assurance that the Company will be able to obtain additional liquidity under acceptable terms, if at all. Our ability to continue as a going concern will require us to obtain such additional funding. Based on our current operating plans and existing working capital as of June 30, 2023, our current liquidity is not sufficient to fund operations in the near term. As a result, there is substantial doubt about our ability to continue as a going concern. Substantial additional financing is needed by us to fund our operations and to continue to explore strategic alternatives in the near term. It is very difficult to project our current monthly cash burn rate given the transitional status of the Company as we explore strategic alternatives. The perception of our ability to continue as a going concern may make it more difficult for us to obtain financing for the continuation of our operations and could result in the continuing loss of confidence by investors and employees. Obtaining additional financing contains risks, including that additional equity financing may not be available to us on satisfactory terms and that we may need to seek bankruptcy protection in the near term.

We may issue a substantial number of shares of common stock, including under the 2021 Equity Incentive Plan and the 2021 Employee Stock Purchase Plan, or preferred stock. Any such issuances of additional shares of common stock or preferred stock: - may significantly dilute the equity interests of our shareholders;- may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded our common stock;- could cause a change in control if a substantial number of shares of our common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; and - may adversely affect prevailing market prices for our common stock and/or warrants.

We have issued approximately 3.6 million shares of common stock to Monroe, AGS Group, and Exitus Capital who, subject to certain regulatory restrictions, may sell the shares and apply the proceeds to the outstanding balance of the respective obligations we owe to them. In addition, we are obligated to issue additional shares to Exitus Capital if the value of the shares held by them is less than two times the outstanding principal amount of the loan. As of February 28, 2023, the outstanding principal amount owed to Exitus Capital was $1.6 million and the shares held by Exitus Capital had a value of approximately $5.2 million, based on a share price of $4.30, which was the closing price of our common stock on February 28, 2023. In addition, we will issue warrants to Monroe to purchase $7.0 million worth of our common stock, which may be exercised for nominal consideration. The warrants will be issued on the earlier of full repayment of outstanding deferred fees and August 29, 2023 and will be exercisable immediately upon issuance. Furthermore, each Second Lien Lender under the Second Lien Facility (other than Nexxus Capital) has the right, but not the obligation, to convert all or any portion of its outstanding loans into our common stock. The loans, including interest and fees, held by Nexxus Capital will convert into our common stock on June 15, 2023. To the extent we are not able to pay the AN Extend parties in cash under the AN Extend purchase price obligation note payable on or prior to November 15, 2023, the total amount of principal and the interest will be converted within the following 30 calendar days into shares of our common stock, based on the Volume Weighted Moving Average Price of our common stock on Nasdaq. This earnout obligation totaled $2.4 million as of December 31, 2022 and accrued interest at 11% per annum. We have also entered into registration rights agreements with respect to the resale of all such shares, except with respect to shares issuable to the AN Extend parties. Such issuances have and will dilute the equity interests of our shareholders and may adversely affect prevailing market prices for our common stock and/or warrants.

We expect that significant additional capital will be needed in the near future to continue our planned operations. Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our common stock. As noted in the following risk factor, we have issued or will issue shares to certain of our lenders. Moreover, to the extent our warrants and the warrants to be issued to Monroe are exercised or the New Second Lien Lenders convert some or all of the Second Lien Facility into shares of common stock, additional shares of our common stock will be issued. The issuance of these shares will result in dilution to the holders of our common stock and increase the number of shares eligible for resale in the public market. We have also registered or agreed to register such sales for resale by the holders thereof.

Upon expiration of the lock-up extensions agreed to by the Nexxus Funds and CS Investors and certain of our management, they may sell their shares, in block trades or other large dispositions, the timing for which may be influenced for each of the Nexxus Funds and CS Investors by considerations particular to its specific fund, for example end of fund life considerations. Additionally, the subscription investors and LIV Fund IV with respect to its shares held as a pre-merger Legacy AT equity holder are not be restricted from selling any of their shares of our common stock, other than by applicable securities laws. As such, sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As such, sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As restrictions on resale end and registration statements are available for use, the sale or possibility of sale of these shares could have the effect of increasing the volatility in our share price or the market price of our common stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.

Manuel Senderos, our Chief Executive Officer and Chairman of the Board of Directors, has pledged certain of his shares of our common stock to lenders to obtain a loan in the amounts of $4.5 million, used by him to provide the Company with his portion of the Second Lien Facility. In addition, Mauricio Garduño, our Vice President, Business Development and a Director, has pledged certain of his shares of our common stock to a lender as security for indebtedness. We are not a party to these loans, which are full recourse against Messrs. Senderos and Garduño and are secured by pledges of a portion of our common stock currently beneficially owned by them. The terms of these loans were negotiated directly between Messrs. Senderos and Garduño and the lender. In order for Messrs. Senderos and Garduño to pledge their securities, our board of directors had to approve a waiver to our insider trading policy, which provides for a prohibition on pledging securities, restrictions on trading securities during blackout periods, and a requirement that all trades made by Messrs. Senderos and Garduño be pre-cleared in advance of trading. Because of these pledges made by Messrs. Senderos and Garduño, their interests may not align with the interests of other stockholders, and they may act in a manner that advances their interests and not necessarily those of our other stockholders. The occurrence of certain events under these loan agreements could result in the future sales of such shares and significantly reduce Messrs. Senderos's and Garduño's ownership in us. Such sales could occur while Messrs. Senderos and Garduño are in possession of material non-public information without prior permission from the Company. Such sales could expose Messrs. Senderos and Garduño to an investigation or litigation for insider trading, which could, among other things, distract our management and employees from our business. Such sales could also adversely affect the market and trading price of our common stock. In addition, if the value of our common stock declines, the lender may require additional collateral for the loans, which could cause Messrs. Senderos and Garduño to pledge additional shares of our common stock. We can give no assurances that Messrs. Senderos and Garduño will not pledge additional shares of our common stock in the future, as a result of lender calls requiring additional collateral.

As of December 31, 2022, the Legacy AT equity holders, including LIV Fund IV with respect to its shares held as a Legacy AT equity holder, held approximately 55.5% of our common stock. Furthermore, the Legacy AT equity holders, which include the second lien lenders, could increase their ownership percentage to the extent that they choose to convert all or a portion of the Second Lien Facility into common stock. In addition, our board of directors includes one representative from the sponsor, and two from each of the Nexxus Funds and CS Investors, each of which hold large amounts of common stock, for a total of four directors out of a total of 11 directors. Pursuant to the sponsor letter agreement, for so long as the sponsor and its affiliates and its and their respective permitted transferees continue to own, directly or indirectly, our securities representing more than 4% of the combined voting power of our then outstanding voting securities, the sponsor will be entitled to nominate one director designee to serve on our board of directors. As long as the Legacy AT equity holders (including the Nexxus Funds and CS Investors), LIV Fund IV and the sponsor own or control a significant percentage of outstanding voting power, they will have the ability to strongly influence all corporate actions requiring stockholder approval, including the election and removal of directors and the size of our board of directors, any amendment of our organizational documents, or the approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets. In addition, as long as the sponsor, the Nexxus Funds and CS Investors retain five of the 11 seats on our board of directors, they will have the ability to strongly influence all corporate action requiring approval of our board of directors, including calling special meetings of stockholders, any amendment of our organizational documents, or the approval of any merger or other significant corporate transaction, including financing transactions and a sale of substantially all of our assets. The interests of the Legacy AT equity holders, including the Nexxus Funds and CS Investors, LIV Fund IV and the sponsor and affiliates and their respective permitted transferees may not align with the interests of our other stockholders. Certain of the Legacy AT equity holders, including the Nexxus Funds and CS Investors, LIV Fund IV and the sponsor are in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with us. Certain of the Legacy AT equity holders, including the Nexxus Funds and CS Investors, LIV Fund IV and the sponsor may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

If we fail to satisfy the continued listing requirements of Nasdaq such as the corporate governance requirements or the minimum share price requirement, Nasdaq may take steps to delist our securities. Such a delisting would likely have a negative effect on the price of the securities and would impair your ability to sell or purchase the securities when you wish to do so. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our securities to become listed again, stabilize the market price or improve the liquidity of our securities, prevent our securities from dropping below the Nasdaq minimum share price requirement or prevent future non-compliance with Nasdaq's listing requirements. Additionally, if our securities are not listed on, or become delisted from, Nasdaq for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained.

Our common stock and public warrants are currently listed on Nasdaq. However, we cannot assure you that our securities will continue to be listed on Nasdaq in the future. It is possible that our common stock and public warrants will cease to meet the Nasdaq listing requirements in the future. If Nasdaq delists our securities from trading on its exchange and we are unable to list our securities on another national securities exchange, we expect that our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including: - a limited availability of market quotations for its securities;- reduced liquidity for its securities;- a determination that our common Stock is a "penny stock" which will require brokers trading in the common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;- a limited amount of news and analyst coverage; and - a decreased ability to issue additional securities or obtain additional financing in the future. The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as "covered securities." Because the common stock and public warrants are listed on Nasdaq, they are covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state, other than the State of Idaho, having used these powers to prohibit or restrict the sale of securities issued by blank check companies, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on Nasdaq, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities.