The merger agreement governing the LookingGlass Business Combination (the merger agreement) provides that the selling shareholders are entitled to receive shares of Company Common Stock as part of the purchase consideration. The purchase consideration shares include two components: the LookingGlass Earnout Shares and the LookingGlass Deferred Shares. The purchase consideration shares shall be issued in three or four installments on the six-month, twelve-month, and eighteen-month anniversaries of the transaction closing date (April 21, 2023) and potentially a further issuance on July 31, 2025.

The LookingGlass merger agreement provides that the selling shareholders are entitled to receive up to 2.0 million shares of Company Common Stock (the LookingGlass Earnout Shares). The earnout period begins on February 1, 2023. There are four triggers where, upon achievement of the trigger, the LookingGlass Earnout Shares will be earned. The triggers are:

Triggering event I - if LookingGlass generates $10.0 million in certain bookings (as defined in the merger agreement) or renews a specific contract for at least $12,680,840 (as defined in the merger agreement) on or before January 31, 2024, the LookingGlass Earnout Shares will be fully earned.

The Company performed a probability-weighted assessment to estimate the achievement of each of the triggering events and determined the fair value of the LookingGlass Earnout Shares. Management's estimate of the fair value of the LookingGlass Earnout Shares is $2.0 million as of July 31, 2023 and April 21, 2023.

The Company recorded the change in the fair market value of the LookingGlass Earnout Shares to change in fair market value of purchase consideration liability on the Condensed Consolidated Statement of Comprehensive Loss.

The remaining purchase consideration shares consist of 5,761,841 shares that will be issued based on the passage of time (in accordance with the merger agreement) as well as a variable amount of shares that will be issued subject to indemnity claims (collectively, the LookingGlass Deferred Shares). The merger agreement provides that a variable number of shares of Company Common Stock will be withheld for a period of twelve months and be subject to indemnity claims by the Company, an additional 500,000 shares will be withheld until July 31, 2025, and be subject to certain indemnity claims by the Company.

The Company performed probability-weighted assessments to estimate the amount of LookingGlass Earnout Shares and the variable portion of the LookingGlass Deferred Shares (related to indemnities) that will be issued pursuant to the merger agreement. The remaining portion of the purchase consideration shares is a fixed amount of 5,761,841 shares that will be issued pursuant to the merger agreement.

The purchase consideration shares are remeasured to fair value each reporting date based on the Company's re-assessment of probability weightings related to the LookingGlass Earnout Shares and the variable portion of the LookingGlass Deferred Shares, as well as the price of the Company's Common Stock as reported on Nasdaq. The purchase consideration shares will remain unregistered with Nasdaq for a period of six months beginning on the transaction closing date. The Company applied a discount to the price of the Company's Common Stock to account for the restriction resulting from the shares not being registered on a national securities exchange until six months following the transaction closing date.

The calculation of the fair value of the purchase consideration liability is included in the table below (in thousands, except per share data). There is no balance as of January 31, 2023, as the LookingGlass Business Combination occurred on April 21, 2023.


	July 31, 2023
Purchase consideration shares		8,589,548
Adjusted closing price per share of the Company's Common Stock (ZFOX)	$	1.05
Fair value of purchase consideration liability	$	9,026

The Company recorded the change in the fair market value of the purchase consideration liability to change in fair market value of purchase consideration liability on the Condensed Consolidated Statement of Comprehensive Loss.