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TABLE OF CONTENTS
TABLE OF CONTENTS 2
Amendment No. 3 to confidential draft submission
As submitted confidentially to the Securities and Exchange Commission on August 2, 2019 pursuant to the Jumpstart Our Business Startups Act of 2012. This draft registration statement has not
been publicly filed with the Securities and Exchange Commission and all information herein remains strictly confidential.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Roaring Fork Holding, Inc.*
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
7372 (Primary Standard Industrial Classification Code Number) |
81-2933383 (I.R.S. Employer Identification No.) |
1001 17th Street, Suite 100
Denver, Colorado 80202
Telephone: (303) 468-2900
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Andre Durand
Chief Executive Officer
1001 17th Street, Suite 100
Denver, Colorado 80202
Telephone: (303) 468-2900
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies of all communications, including communications sent to agent for service, should be sent to: | ||
Robert M. Hayward, P.C. Robert E. Goedert, P.C. Michael P. Keeley Kirkland & Ellis LLP 300 North LaSalle Chicago, Illinois 60654 (312) 862-2000 |
Eric C. Jensen Matthew P. Dubofsky Michael L. Platt Cooley LLP 380 Interlocken Crescent Suite 900 Broomfield, Colorado 80021 (720) 566-4000 |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: o
If this Form is filed to registered additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer ý |
Smaller reporting company o Emerging growth company ý |
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 7(a)(2)(B) of the Securities Act. o
Title of Each Class of Securities |
Proposed Maximum Aggregate Offering Price(1)(2) |
Amount of Registration Fee |
||
Common Stock, par value $0.001 per share |
$ | $ | ||
|
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion. Dated , 2019
Shares
Common Stock
This is an initial public offering of shares of common stock of Ping Identity Holding Corp.
Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $ and $ . We have applied to list our common stock on the NASDAQ Global Select Market under the symbol "PING".
We are an "emerging growth company" as defined under the federal securities laws, and as such, we have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings.
See "Risk Factors" beginning on page 15 to read about factors you should consider before buying shares of our common stock.
Immediately after this offering, assuming an offering size as set forth above, funds controlled by our equity sponsor, Vista Equity Partners, will own approximately % of our outstanding common stock (or % of our outstanding common stock if the underwriters' option to purchase additional shares is exercised in full). As a result, we expect to be a "controlled company" within the meaning of the corporate governance standards of the NASDAQ Global Select Market. See "Management Corporate Governance Controlled Company Status".
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
|
Per Share | Total |
|||
| | | | | |
Initial public offering price |
$ | $ | |||
Underwriting discount(1) |
$ | $ | |||
Proceeds, before expenses, to Ping Identity Holding Corp. |
$ | $ |
To the extent that the underwriters sell more than shares of common stock, the underwriters have the option to purchase up to an additional shares of our common stock at the initial public offering price less the underwriting discount.
The underwriters expect to deliver the shares of common stock against payment in New York, New York on , 2019.
Goldman Sachs & Co. LLC | BofA Merrill Lynch | RBC Capital Markets | Citigroup |
Barclays | Credit Suisse | Deutsche Bank Securities | Wells Fargo Securities |
Prospectus dated , 2019
You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the Securities and Exchange Commission, or SEC. Neither we nor any of the underwriters have authorized anyone to provide any information or make any representations other than those contained in this prospectus or in any free writing prospectus filed with the SEC. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. Our business, financial condition, results of operations, and prospects may have changed since such date.
For investors outside of the United States, neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about, and to observe any restrictions relating to, this offering and the distribution of this prospectus outside of the United States.
Through and including , 2019 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before investing in our common stock. For a more complete understanding of us and this offering, you should read and carefully consider the entire prospectus, including the more detailed information set forth under "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes. Some of the statements in this prospectus are forward-looking statements. See "Forward-Looking Statements".
Unless the context otherwise requires, the terms "Ping", the "Company", "our company", "we", "us" and "our" in this prospectus refer to Ping Identity Holding Corp. and, where appropriate, its consolidated subsidiaries. The term "Vista" or "our Sponsor" refers to Vista Equity Partners, our equity sponsor, and the term "Vista Funds" refers to Vista Equity Partners Fund VI, L.P., Vista Equity Partners Fund VI-A, L.P. and VEPF VI FAF, L.P.
Our mission is to secure the digital world through Intelligent Identity.
Ping is pioneering Intelligent Identity. We enable secure access to any service, application or API from any device. Our Intelligent Identity Platform can leverage artificial intelligence and machine learning to analyze device, network, application and user behavior data to make real-time authentication and security control decisions, enhancing the user experience. Our platform is designed to detect anomalies and automatically insert additional security measures, such as multi-factor authentication, only when necessary. We built our platform to meet the requirements of the most demanding enterprises. Our platform can be deployed across cloud, hybrid and on-premise infrastructures, offers a comprehensive suite of turnkey integrations and is able to scale to millions of identities and thousands of cloud and on-premise applications in a single deployment. As of June 30, 2019, our platform secures over two billion identities globally across our customer base.
Enterprises are undergoing digital transformation as they seek to create new revenue streams, transition business models and increase customer engagement. Concurrently, enterprises are becoming more distributed as the adoption of cloud, mobile and the Internet of Things, or IoT, moves data, applications and access requirements beyond the traditional network perimeter. These enterprises must contend with an evolving cyber-threat landscape, new privacy directives and stringent regulatory requirements. As a result, enterprises require Intelligent Identity solutions that proactively ensure the right user has authorized access to resources at the appropriate time.
Our Intelligent Identity Platform can secure all primary use cases, including customer, employee, partner and IoT. For example, enterprises can use our platform to enhance their customers' user experience by creating a single ID and login across web and mobile properties. For the year ended December 31, 2018, 44% of our subscription revenue was derived from the customer use case. Enterprises can also use our platform to provide their employees and commercial partners with secure, seamless access from any device to the applications, data and application programming interfaces, or APIs, they need to be productive. Enterprises are increasingly using our platform to manage and authenticate IoT devices, such as connected vehicles and consumer devices.
Our Intelligent Identity Platform is comprised of six solutions that can be purchased individually or as a set of integrated offerings for the customer, employee, partner or IoT use case:
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We have spent over a decade building a comprehensive suite of turnkey integrations designed to ensure that enterprises can use our platform to secure their applications wall-to-wall, facilitating easier deployment and rapid time-to-value.
We sell our solutions via a subscription model through a direct sales force, with increasing influence from our channel partners. Our SSO, Access Security and Directory solutions typically replace legacy and homegrown systems. We also have significant greenfield opportunities with our MFA, Data Governance and API Intelligence solutions and, increasingly, the IoT use case.
Our "land and expand" strategy targets enterprises with a specific solution and use case and then seeks to grow our footprint with additional solutions, use cases and identities. The success of our strategy is validated by our strong dollar-based net retention rates and our growing number of large customers. Our dollar-based net retention rates were 123%, 116% and 115% at December 31, 2017 and 2018 and June 30, 2019, respectively, and our dollar-based net retention rates have exceeded 115% for each of the past eight fiscal quarters. Our customers with annual recurring revenue, or ARR, over $250,000 increased from 144 at December 31, 2017 to 202 at December 31, 2018, representing a growth rate of 40%. Our total customers increased from 1,264 at December 31, 2017 to 1,284 at December 31, 2018. The gross increase in total customers for the 2018 fiscal year was partially offset by customer churn, primarily consisting of low contract value churn of customers with ARR below $25,000. The increase of 58 net customers with ARR greater than $250,000 for the 2018 fiscal year is comprised of 16 new customers and 42 existing customers that had ARR grow to exceed $250,000 in 2018. Additionally, at December 31, 2018, we had 25 customers with greater than $1,000,000 in ARR. An increasing number of our customers are deploying a combination of our solutions across multiple business units, functions and use cases in their initial purchase. For definitions of ARR and dollar-based net retention rate and descriptions of how we calculate these metrics, see "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Our customers include many of the world's largest enterprises, including over 50% of the Fortune 100. These customers are security-focused, and typically operate in regulated industries, have hybrid IT infrastructures, require turnkey integrations and have demanding scalability requirements. Our solutions secure 12 of the 12 largest U.S. banks (measured by assets), 8 of the 10 largest bio-pharmaceutical companies (measured by revenue), 4 of the 5 largest healthcare plans (measured by revenue) and 5 of the 7 largest U.S. retailers (measured by revenue).
Since our inception, we have been an innovator in identity. We pioneered the concept of Intelligent Identity, which leverages artificial intelligence, or AI, and machine learning, or ML, to analyze device, network, application and user behavior data to secure access and enhance the user experience. We contributed to or co-authored many of the open identity standards such as SAML, OAuth, SCIM and OpenID Connect, which form the foundation of our industry. We have consistently been recognized as a leader in the Identity and Access Management, or IAM, industry by Gartner and KuppingerCole.
We sell our solutions via a subscription model typically billed annually in advance. Our ARR was $147.0 million and $183.6 million at December 31, 2017 and 2018, respectively, representing year-over-year growth of 25%. Our ARR was $159.6 million and $198.0 million at June 30, 2018 and
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2019, respectively, representing period-over-period growth of 24%. We have grown revenue from $172.5 million for the year ended December 31, 2017 to $201.6 million for the year ended December 31, 2018, representing year-over-year growth of 17%. We have grown revenue from $99.5 million for the six months ended June 30, 2018 to $112.9 million for the six months ended June 30, 2019, representing period-over-period growth of 14%. Our net income was $19.0 million for the year ended December 31, 2017. Our net loss was $13.4 million for the year ended December 31, 2018. We had net losses of $5.8 million and $3.1 million for the six months ended June 30, 2018 and 2019, respectively. Our cash provided by operations was $3.4 million and $22.9 million for the years ended December 31, 2017 and 2018, respectively. Our cash provided by operations was $13.0 million and $8.1 million for the six months ended June 30, 2018 and 2019, respectively. Our Free Cash Flow was $(2.5) million and $13.1 million for the years ended December 31, 2017 and 2018, respectively. Our Free Cash Flow was $8.9 million and $1.2 million for the six months ended June 30, 2018 and 2019, respectively. Free Cash Flow is a supplemental measure that is not calculated and presented in accordance with generally accepted accounting principles in the United States, or GAAP. See "Selected Consolidated Financial DataNon-GAAP Financial Measures" for a definition of Free Cash Flow and a reconciliation to its most directly comparable GAAP financial measure.
IAM is the foundation for maximizing security and enhancing user experience in a distributed and highly-connected digital world, where the traditional network perimeter has dissolved and the attack surface has expanded. In this digital world, legacy IAM solutions are proving ill-suited to address cloud, mobile, IoT and API requirements. Similarly, cloud-only IAM vendors are unable to meet the requirements of large enterprises that have hybrid IT infrastructures.
Enterprises are Undergoing Digital Transformations and Embracing Technology Trends
Digital Transformation is Critical to Driving Competitive Differentiation. Enterprises are investing in technology to grow their digital presence, create new revenue streams, transition business models and increase customer engagement. In order to accomplish this, enterprises must engage with their customers across digital channels. As consumers have become accustomed to seamless access and high-quality experiences from companies such as Amazon, Google and Netflix, all enterprises are under pressure to meet rising expectations or risk being disrupted by competitors.
Enterprises are Embracing Cloud Computing, SaaS and Mobility. Enterprises are transitioning a portion of their IT budgets to invest in cloud computing to build new services, shorten time-to-value and drive cost efficiency. The adoption of Software-as-a-Service, or SaaS, applications and mobility is empowering business users and partners to increase productivity, facilitate collaboration, reengineer business processes and drive new opportunities for growth. The consumerization of IT and shift towards a distributed workforce has caused employees and partners to demand seamless access to cloud and on-premise applications from any device.
APIs and IoT Devices are Dramatically Expanding the Number of New Connections. APIs have become critical to software development and act as gateways to other digital services by facilitating the connection and data sharing between heterogeneous systems and applications. APIs have become the building blocks of the web and will help drive the future of software by powering new applications, enabling communications and automating business processes.
Enterprises are also deploying IoT devices embedded with software and sensors to connect with their customers, collect streaming data and analyze endpoint performance. According to IDC,
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the worldwide installed base of IoT devices is expected to grow from 23 billion in 2018 to more than 41 billion in 2025, representing a CAGR of 9%.
Digital Transformation Initiatives have Created Challenges and Complexity for Enterprises
Cloud, Mobile and IoT Have Expanded the Attack Surface. The rapid adoption of cloud-based offerings and the proliferation of mobile and IoT devices have expanded the attack surface for cyber threats, moving users, devices, applications and data outside the traditional network perimeter. As a result of this shift, identity has become the most common vulnerability that hackers seek to exploit. According to a 2017 Verizon report, 81% of hacking-related breaches leveraged stolen and/or weak passwords.
New Technology Adoption has Created Complex Hybrid and Multi-Cloud IT Challenges. Enterprises are increasingly reliant on both cloud and on-premise applications, which is creating complex hybrid IT infrastructures. According to IDC, public cloud spending is projected to grow from 33% of worldwide IT infrastructure spend in 2018 to 38% in 2023. A significant portion of IT budgets, however, will continue to be allocated to on-premise IT infrastructure. As a result, enterprises increasingly require solutions capable of spanning both cloud and on-premise infrastructures to support their hybrid realities. As the adoption of cloud matures, enterprises are focused on optimizing for performance, cost and security while also maintaining flexibility to operate across multiple clouds. IDC expects more than 90% of enterprise IT organizations will commit to multi-cloud architectures by 2020.
The Rise of APIs has Created New Security Vulnerabilities. The rapid proliferation of APIs has created new security vulnerabilities due to their connectivity with critical systems and access to data. Breaches associated with API gateways can remain undetected for extended periods of time because of a lack of visibility into API traffic and an inability to monitor anomalies or abuse.
The Identity Landscape is Large and Evolving
Identity is a vast landscape, comprised of three distinct established markets that each require different solutions. Our Intelligent Identity Platform focuses on the largest of these markets, IAM. We partner with leading companies in the adjacent markets, Privileged Access Management, or PAM, and Identity Governance and Administration, or IGA. The objectives, workflows and interfaces of these three markets remain distinct and have little overlap.
Within IAM, Customer Identity and Access Management, or CIAM, represents a large and growing opportunity and includes solutions that provide a consistent, modern, omni-channel customer experience through personalized access to all digital services.
Existing IAM Solutions are Limited
Legacy IAM solutions generally do not meet enterprises' evolving requirements because of these inherent limitations: not being designed for cloud environments, mobile and IoT devices or
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APIs; being cumbersome and expensive to deploy; having a tendency to experience stability problems; and being at or near end of life.
Cloud-only IAM solutions generally do not meet enterprises' evolving requirements because of these inherent limitations: lacking in-depth enterprise features and robust integrations across on-premise applications; primarily being focused on the employee use case; having an unproven ability to scale; and only meeting minimal security requirements.
Intelligent Identity is Needed Now More than Ever
Enterprises are under pressure to innovate faster, improve productivity and deliver exceptional user experiences through digitalization, all while maximizing security. The question "Who are you?" must be asked and satisfactorily answered as a precondition to every digital interaction. Intelligent Identity asks and answers the question by leveraging AI and ML to analyze device, network, application and user behavior data to make real-time authentication and security control decisions. Additional security measures, which impose friction on the user experience, are only utilized if anomalies in behavior or data are detected or in high-value transactions. This optimizes the balance between securing access and providing an enhanced user experience.
According to IDC, the worldwide market for IAM is expected to grow from $6.6 billion in 2018 to $9.0 billion in 2023, representing a CAGR of approximately 6%. Based on management's internal analysis, we estimate that our market opportunity is greater than $25 billion across our use cases. For a more detailed description of how we calculate our market opportunity, see "Business Our Market Opportunity". We believe our market opportunity has the potential to expand in the future as the proliferation of IoT and APIs increases connections, complexity and the number of identities in the enterprise.
Our market includes opportunities for both greenfield expansion and replacement of legacy and homegrown solutions. We believe security budgets are shifting from network-centric to identity-centric solutions because the adoption of cloud, mobile and IoT has led to a disappearing network perimeter. We believe the focus of cybersecurity will continue to shift to the user as targeted attacks against users and their credentials increase. As a result, we believe that IAM will represent a larger portion of future security budgets, which we are well positioned to capture.
The key elements of our growth strategy include:
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Our Intelligent Identity Platform
Our Intelligent Identity Platform is comprised of six solutions (SSO, MFA, Access Security, Directory, Data Governance and API Intelligence) and supports all primary use cases and deployment options. Our Intelligent Identity Platform provides the following key benefits:
Our Intelligent Identity Platform Supports All Primary Use Cases
Deployment Flexibility
We have designed our solutions for flexible deployment because every enterprise has different customization, control, security and privacy needs. Our deployment flexibility provides the optionality to adopt cloud-based offerings for rapid deployment, remain on-premise for maximum control or to comply with industry regulations or deploy in a hybrid manner. Our deployment options include:
6
Risks Associated with Our Business
There are a number of risks related to our business, this offering and our common stock that you should consider before you decide to participate in this offering. You should carefully consider all the information presented in the section entitled "Risk Factors" in this prospectus. Some of the principal risks related to our business include the following:
These and other risks are more fully described in the section entitled "Risk Factors" in this prospectus. If any of these risks actually occurs, our business, financial condition, results of operations, cash flows and prospects could be materially and adversely affected. As a result, you could lose all or part of your investment in our common stock.
We have a valuable relationship with our equity sponsor, Vista. In May 2016, Vista formed Roaring Fork Holding, Inc. as a Delaware corporation for the purpose of acquiring all of the capital stock of Ping Identity Corporation. We refer to this transaction as the "Vista Acquisition".
Vista is a U.S.-based investment firm with offices in Austin, San Francisco, Chicago, New York and Oakland with more than $44 billion in cumulative capital commitments. Vista exclusively invests in software, data and technology-enabled organizations led by world-class management teams. As a value-added investor with a long-term perspective, Vista contributes professional expertise and multi-level support towards companies to realize their potential. Vista's investment approach is anchored by a sizable long-term capital base, experience in structuring technology-oriented transactions and proven management techniques that yield flexibility and opportunity.
Our principal executive offices are located at 1001 17th Street, Suite 100, Denver, Colorado 80202. Our telephone number is (303) 468-2900. Our website address is www.pingidentity.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider any information
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contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock. We are a holding company and all of our business operations are conducted through our subsidiaries.
This prospectus includes our trademarks and service marks such as "Ping Identity," "Ping Intelligent Identity" "Ping Intelligent Identity Platform" and "Identiverse", which are protected under applicable intellectual property laws and are the property of us or our subsidiaries. This prospectus also contains trademarks, service marks, trade names and copyrights of other companies, such as "Amazon", "Google", and "Microsoft" which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names.
Implications of Being an Emerging Growth Company
We qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will remain an emerging growth company until the earliest of (1) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the date on which we are deemed to be a large accelerated filer (this means the market value of common that is held by non-affiliates exceeds $700.0 million as of the end of the second quarter of that fiscal year) or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
An emerging growth company may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
We have elected to take advantage of certain of the reduced disclosure obligations regarding financial statements (such as not being required to provide audited financial statements for the year ended December 31, 2016 or five years of Selected Consolidated Financial Data) in this prospectus and executive compensation in this prospectus and expect to elect to take advantage of other reduced burdens in future filings. As a result, the information that we provide to our shareholders may be different than you might receive from other public reporting companies in which you hold equity interests.
The JOBS Act also permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to "opt-in" to this extended transition period for complying with new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that comply with such new or revised accounting standards on a non-delayed basis.
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Common stock offered |
shares. | |
Option to purchase additional shares |
shares. |
|
Common stock to be outstanding after this offering |
shares (or shares if the underwriters' option to purchase additional shares is exercised in full). |
|
Use of proceeds |
We estimate that our net proceeds from this offering will be approximately $ million, or approximately $ million if the underwriters' option to purchase additional shares is exercised in full, assuming an initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting the underwriting discount and estimated offering expenses payable by us. |
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The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock and enable access to the public equity markets for us and our shareholders. We intend to use the net proceeds from this offering for general corporate purposes. See "Use of Proceeds" for additional information. |
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Controlled company |
After this offering, assuming an offering size as set forth in this section, the Vista Funds will own approximately % of our common stock (or % of our common stock if the underwriters' option to purchase additional shares is exercised in full). As a result, we expect to be a controlled company within the meaning of the corporate governance standards of the NASDAQ Global Select Market, or NASDAQ. See "Management Corporate Governance Controlled Company Status". |
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Risk factors |
Investing in our common stock involves a high degree of risk. See "Risk Factors" elsewhere in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock. |
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Proposed trading symbol |
"PING". |
The number of shares of common stock to be outstanding following this offering is based on shares of common stock outstanding as of June 30, 2019, and excludes:
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Unless otherwise indicated, all information in this prospectus assumes:
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Summary Consolidated Financial Data
The following tables summarize our consolidated financial data. The summary consolidated statements of operations data and summary consolidated statements of cash flows data for the years ended December 31, 2017 and 2018 and the summary consolidated balance sheets data as of December 31, 2017 and 2018 are derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The summary consolidated statements of operations data and the summary consolidated statements of cash flows data for the six months ended June 30, 2018 and 2019 and the summary consolidated balance sheet data as of June 30, 2019 are derived from our unaudited interim consolidated financial statements that are included elsewhere in this prospectus. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, that are necessary for the fair statement of our unaudited interim consolidated financial statements.
Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the summary historical financial data below in conjunction with the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes included elsewhere in this prospectus.
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|
Year Ended December 31, |
Six Months Ended June 30, |
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2017 | 2018 | 2018 | 2019 | |||||||||
| | | | | | | | | | | | | |
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(in thousands, except share and per share amounts) |
||||||||||||
Consolidated Statements of Operations Data: |
|||||||||||||
Revenue: |
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Subscription |
$ | 160,219 | $ | 184,991 | $ | 90,576 | $ | 103,892 | |||||
Professional services and other |
12,320 | 16,571 | 8,874 | 9,006 | |||||||||
| | | | | | | | | | | | | |
Total revenue |
172,539 | 201,562 | 99,450 | 112,898 | |||||||||
Cost of revenue: |
|||||||||||||
Subscription (exclusive of amortization shown below) |
14,054 | 17,512 | 8,259 | 10,833 | |||||||||
Professional service and other (exclusive of amortization shown below) |
9,155 | 12,703 | 5,837 | 6,916 | |||||||||
Amortization expense |
12,626 | 14,396 | 7,064 | 7,822 | |||||||||
| | | | | | | | | | | | | |
Total cost of revenue |
35,835 | 44,611 | 21,160 | 25,571 | |||||||||
| | | | | | | | | | | | | |
Gross profit |
136,704 | 156,951 | 78,290 | 87,327 | |||||||||
Operating Expenses: |
|||||||||||||
Sales and marketing(1) |
49,481 | 60,140 | 28,121 | 37,334 | |||||||||
Research and development(1) |
26,215 | 36,229 | 16,393 | 22,311 | |||||||||
General and administrative(1) |
20,202 | 28,355 | 13,079 | 15,748 | |||||||||
Depreciation and amortization |
16,526 | 16,341 | 8,356 | 8,274 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
112,424 | 141,065 | 65,949 | 83,667 | |||||||||
| | | | | | | | | | | | | |
Income from operations |
24,280 | 15,886 | 12,341 | 3,660 | |||||||||
Other Income (Expense): |
|||||||||||||
Interest expense |
(19,277 | ) | (15,837 | ) | (7,791 | ) | (8,249 | ) | |||||
Loss on extinguishment of debt |
| (9,785 | ) | (9,785 | ) | | |||||||
Other income (expense), net |
773 | (335 | ) | (912 | ) | 225 | |||||||
| | | | | | | | | | | | | |
Total other income (expense) |
(18,504 | ) | (25,957 | ) | (18,488 | ) | (8,024 | ) | |||||
| | | | | | | | | | | | | |
Income (loss) before income taxes |
5,776 | (10,071 | ) | (6,147 | ) | (4,364 | ) | ||||||
Benefit (provision) for income taxes |
13,185 | (3,375 | ) | 391 | 1,241 | ||||||||
| | | | | | | | | | | | | |
Net income (loss) |
$ | 18,961 | $ | (13,446 | ) | $ | (5,756 | ) | $ | (3,123 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Per Share Data(2): |
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Net income (loss) per share: |
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Basic |
$ | 49.60 | $ | (35.17 | ) | $ | (15.05 | ) | $ | (8.17 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Diluted |
$ | 49.60 | $ | (35.17 | ) | $ | (15.05 | ) | $ | (8.17 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted-average shares used in computing net income (loss) per share: |
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Basic |
382,258 | 382,365 | 382,364 | 382,425 | |||||||||
Diluted |
382,297 | 382,365 | 382,364 | 382,425 | |||||||||
Consolidated Statements of Cash Flows Data: |
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Net cash provided by operating activities |
$ | 3,423 | $ | 22,886 | $ | 13,015 | $ | 8,064 | |||||
Net cash used in investing activities |
$ | (5,961 | ) | $ | (26,661 | ) | $ | (21,566 | ) | $ | (6,822 | ) | |
Net cash provided by (used in) financing activities |
$ | 101 | $ | 67,102 | $ | 68,921 | $ | (1,951 | ) | ||||
Non-GAAP Financial Data (unaudited): |
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Free Cash Flow(3) |
$ | (2,538 | ) | $ | 13,139 | $ | 8,863 | $ | 1,242 | ||||
Non-GAAP Gross Profit(4) |
$ | 149,330 | $ | 171,347 | $ | 85,354 | $ | 95,149 | |||||
Adjusted EBITDA(5) |
$ | 55,956 | $ | 56,137 | $ | 32,216 | $ | 24,132 | |||||
Other Data: |
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ARR as of the period ended(6) |
$ | 146,969 | $ | 183,579 | $ | 159,563 | $ | 197,990 | |||||
Dollar-based net retention rate for the trailing twelve months ended(7) |
123% | 116% | 118% | 115% |
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|
Year Ended December 31, |
Six Months Ended June 30, |
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| | | | | | | | | | | | | |
|
2017 | 2018 | 2018 | 2019 | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Sales and marketing |
$ | 626 | $ | 726 | $ | 351 | $ | 410 | |||||
Research and development |
297 | 342 | 108 | 433 | |||||||||
General and administrative |
1,601 | 1,780 | 821 | 1,256 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 2,524 | $ | 2,848 | $ | 1,280 | $ | 2,099 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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|
June 30, 2019 | ||||||
| | | | | | | |
|
Actual | As Adjusted(1)(2) |
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| | | | | | | |
|
(in thousands) | ||||||
Consolidated Balance Sheets Data: |
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Cash and cash equivalents |
$ | 83,000 | |||||
Working capital(3) |
142,805 | ||||||
Total assets |
849,437 | ||||||
Deferred revenue, current and noncurrent |
35,490 | ||||||
Long-term debt, including current portion(4) |
242,725 | ||||||
Total stockholders' equity |
509,374 |
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This offering and an investment in our common stock involve a high degree of risk. You should carefully consider the risks described below, together with the financial and other information contained in this prospectus, before you decide to purchase shares of our common stock. If any of the following risks actually occurs, our business, financial condition, results of operations, cash flows and prospects could be materially and adversely affected. As a result, the trading price of our common stock could decline and you could lose all or part of your investment in our common stock.
Risks Relating to Our Business
If we fail to adapt to rapid technological change, evolving industry standards and changing customer needs, requirements or preferences, our ability to remain competitive could be impaired.
The IAM market is characterized by rapid technological change, evolving industry standards and changing regulations, as well as changing customer needs, requirements and preferences. The success of our business will depend, in part, on our ability to anticipate, adapt and respond effectively to these changes on a timely and cost-effective basis. In addition, as our customers' technologies and business plans grow more complex, we expect them to face new and increasing challenges. Our customers require that our platform effectively identify and respond to these challenges without disrupting the performance of our customers' IT systems or interrupting their business operations. As a result, we must continually modify and improve our offerings in response to changes in our customers' IT infrastructures and operational needs or end-user preferences. The success of any enhancement to our existing offerings or the deployment of new offerings depends on several factors, including the timely completion and market acceptance of our enhancements or new offerings. Any enhancement to our existing offerings or new offerings that we develop and introduce involves significant commitment of time and resources and is subject to a number of risks and challenges including:
If we are not successful in managing these risks and challenges, or if our new solutions, solution upgrades and services are not technologically competitive or do not achieve market acceptance, our business, results of operations and financial condition could be adversely affected.
If we are unable to enhance and deploy our cloud-based offerings while continuing to effectively offer our on-premise offerings, our business and operating results could be adversely affected.
Historically, our revenue has been driven predominately by our on-premise offerings. For the year ended December 31, 2017, $122.1 million, or 71%, of our total revenue was from subscription
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term-based licenses, whereas $38.1 million, or 22%, of our total revenue was from subscription SaaS and support and maintenance. For the year ended December 31, 2018, $133.7 million, or 66%, of our total revenue was from subscription term-based licenses whereas $51.3 million, or 25%, of our total revenue was from subscription SaaS and support and maintenance. For the six months ended June 30, 2019, $73.5 million, or 65%, of our total revenue was from subscription term-based licenses whereas $30.4 million, or 27%, of our total revenue was from subscription SaaS and support and maintenance. The remainder of our revenue, or $12.3 million, $16.6 million and $9.0 million for the years ended December 31, 2017 and 2018 and the six months ended June 30, 2019, respectively, was attributable to professional services and other. All of our revenue from support and maintenance and a portion of our revenue from professional services is associated with our on-premise offerings. As a result, for the periods presented, the percentage of our total revenue from all revenue sources associated with on-premise offerings was significantly higher than the percentage of our total revenue based solely on subscription term-based licenses and we expect this to remain true for the foreseeable future. We have responded to the increasing market shift toward cloud-based services by developing and introducing additional cloud-based IAM offerings to our customers. While our customers are increasingly adopting our cloud-based offerings, we expect our customers to continue to require substantial on-premise and hybrid offerings. To support hybrid deployment of our offerings, our developers and support team must be trained on and learn multiple environments in which our platform is deployed, which is more expensive than supporting a cloud-only offering. Moreover, we must engineer our software for on-premise, cloud and hybrid deployments, which we expect will cause us additional research and development expense that may impact our operating results. Furthermore, we cannot assure you that the market for cloud-based offerings will develop at a rate or in the manner we expect or that our cloud-based offerings will be competitive with those of more established cloud-based providers or other new market entrants. We are directing a significant portion of our financial and operating resources to implement a robust and secure cloud-based offering for our customers, but even if we continue to make these investments, we may be unsuccessful in growing or implementing our cloud-based offerings in a way that competes successfully against our current and future competitors and in such event our business, results of operations and financial condition could be harmed. Customers may require features and capabilities that our current solutions do not have and that we may be unable to develop. If we are unable to develop and deploy cloud-based offerings alongside on-premise offerings that satisfy customer preferences in a timely and cost-effective manner, it may harm our ability to renew subscriptions with existing customers and to create or increase demand for our solutions with new customers, and may adversely impact our financial condition and results of operations.
We face intense competition, especially from larger, well-established companies, and we may lack sufficient financial or other resources to maintain or improve our competitive position.
The IAM market is intensely competitive, and we expect competition to increase in the future from established competitors and new market entrants. We face competition from (1) legacy providers, (2) cloud-only providers and (3) homegrown solutions. Legacy providers include CA Technologies, IBM and Oracle, among others. We also compete with cloud-only providers, such as Okta and OneLogin that primarily focus on the employee use case. Microsoft also competes in our market and has tied its identity services to both its Azure and Office365 offerings. With the recent increase in large merger and acquisition transactions in the technology industry, particularly transactions involving cloud-based technologies, there is a greater likelihood that we will compete with other large technology companies in the future. For example, Amazon or Google could acquire or develop an IAM or identity security platform that competes directly with our solutions. These companies have significant name recognition, considerable resources and existing IT infrastructures and powerful economies of scale and scope, which allow them to rapidly develop and deploy new
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solutions. Many of our existing competitors have, and some of our potential competitors could have, substantial competitive advantages such as greater name recognition and longer operating histories, larger sales and marketing budgets and resources, broader distribution and established relationships with channel partners and customers, greater customer support resources, greater resources to make acquisitions, lower labor and development costs, larger and more mature intellectual property portfolios and substantially greater financial, technical and other resources.
In addition, some of our larger competitors have substantially broader product offerings and leverage their relationships based on other products they offer or incorporate functionality into existing products to gain business in a manner that discourages users from purchasing our solutions, including through selling at zero or negative margins, product bundling or closed technology platforms. Potential customers may also prefer to purchase from their existing suppliers rather than a new supplier regardless of product performance or features. Our larger competitors often have broader product lines and market focus and are less susceptible to downturns in a particular market. Our competitors may also seek to repurpose their existing offerings to provide identity solutions with subscription models. Additionally, start-up companies that innovate and large competitors that are making significant investments in research and development may invent similar or superior products and technologies that compete with our solutions.
Consolidation in the markets in which we compete may affect our competitive position. This is particularly true in circumstances where customers are seeking to obtain a broader set of solutions and services than we are currently able to provide. In addition, some of our competitors may enter into new alliances with each other or may establish or strengthen cooperative relationships with system integrators, third-party consulting firms or other parties. Any such consolidation, acquisition, alliance or cooperative relationship could lead to pricing pressure and loss of market share and could result in a competitor with greater financial, technical, marketing, service and other resources, all of which could harm our ability to compete. Furthermore, organizations may be more willing to incrementally add solutions to their existing infrastructure from competitors than to replace their existing infrastructure with our solutions. These competitive pressures in our market or our failure to compete effectively may result in fewer orders and reduced revenue and gross margins. Any failure to meet and address these factors could adversely affect our business, results of operations and financial condition.
A network or data security incident may allow unauthorized access to our network or data or our customers' data, harm our reputation, create additional liability and adversely impact our financial results.
Increasingly, companies are subject to a wide variety of attacks on their networks and systems. In addition to threats from traditional computer hackers, malicious code (such as malware, viruses, worms and ransomware), employee theft or misuse, password spraying, phishing and distributed denial-of-service, or DDOS, attacks, we now also face threats from sophisticated nation-state and nation-state supported actors who engage in attacks (including advanced persistent threat intrusions) that add to the risks to our internal networks, our platform, our third-party service providers and our customers' systems and the information that they store and process. Despite significant efforts to create security barriers to safeguard against such threats, it is virtually impossible for us to entirely mitigate these risks. As a well-known provider of IAM solutions, we pose an attractive target for such attacks. The security measures we have integrated into our internal networks and platform, which are designed to detect unauthorized activity and prevent or minimize security breaches, may not function as expected or may not be sufficient to protect our internal networks and platform against certain attacks. In addition, techniques used to sabotage or obtain unauthorized access to networks in which data is stored or through which data is transmitted change frequently and generally are not recognized until launched against a target. As a result, we
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may be unable to anticipate these techniques or implement adequate preventative measures to prevent an electronic intrusion into our networks.
If a breach of customer data security or unauthorized access to customer systems through our platform were to occur, as a result of third-party action, employee error, malfeasance or otherwise, and the confidentiality, integrity or availability of our customers' data or systems was disrupted, we could incur significant liability to our customers and to individuals or businesses whose information we process, and our platform may be perceived as less desirable, which could negatively affect our business and damage our reputation. Our ability to retain existing customers, expand solution and use case penetration with existing customers and acquire new customers is dependent upon our reputation as a trusted intelligent security provider. The importance of our reputation in retaining existing business and acquiring new business is heightened by our focus on enterprise customers. In addition, we have a number of customers that operate in highly-regulated industries where our customers' data is particularly sensitive, such as financial services and healthcare. A network or security breach could damage our relationships with customers, result in the loss of customers across one or more use case or solution and make it more challenging to acquire new customers and such damage would likely be heightened in the event a network or security breach occurred in the highly-regulated industries we serve. Because techniques used to obtain unauthorized access to, or sabotage, systems change frequently and may not be recognized until launched against a target, we and our customers may be unable to anticipate these techniques or implement adequate preventive measures.
In addition, security incidents impacting our platform or the systems of our third-party service providers could result in a risk of loss or unauthorized access to or disclosure of the information we process on behalf of our customers. This, in turn, could require notification under applicable data privacy regulations, and could lead to litigation, governmental audits and investigations and possible liability, damage our relationships with our existing customers, trigger indemnification and other contractual obligations, cause us to incur investigation, mitigation and remediation expenses, and have a negative impact on our ability to attract and retain new customers. Furthermore, any such incident, including a breach of our customers' systems, could compromise our networks or networks secured by our solutions, creating system disruptions or slowdowns and exploiting security vulnerabilities of our or our customers' networks, and the information stored on our or our customers' systems could be accessed or disclosed without authorization, altered, lost or stolen, which could subject us to liability and cause us financial harm. An actual or perceived breach of our networks, our customers' networks or other networks secured by our solutions, whether or not due to a vulnerability in our platform, may also undermine confidence in our platform or our industry and result in expenditure of significant resources in efforts to analyze, correct, eliminate or work around errors or defects, delayed or lost revenue, delay in the development or release of new solutions or services, an increase in collection cycles for accounts receivable, damage to our brand and reputation, negative publicity, loss of channel partners, customers and sales, increased costs to remedy any problem, increased insurance expense and costly litigation. In addition, if a high profile security incident occurs with respect to another IAM solution provider, our customers and potential customers may lose trust in the value of the IAM solution business model generally, including the security of our solutions, which could adversely impact our ability to retain existing customers or attract new ones, potentially causing a negative impact on our business. Any of these negative outcomes could adversely impact market acceptance of our solutions and could adversely affect our business, results of operations and financial condition.
Third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information or otherwise compromise the security of our internal networks, electronic systems and/or physical facilities or those of our third-party service providers, in order to gain access to our data or our customers' data, which
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could result in significant legal and financial exposure, a loss of confidence in the security of our platform, interruptions or malfunctions in our operations, and, ultimately, harm to our future business prospects and revenue. We may be required to expend significant capital and financial resources to protect against such threats or to alleviate problems caused by breaches in security.
Our future revenue and operating results will be harmed if we are unable to acquire new customers, if our customers do not renew their arrangements with us, or if we are unable to expand sales to our existing customers or develop new solutions that achieve market acceptance.
To continue to grow our business, it is important that we continue to acquire new customers. Our success in adding new customers depends on numerous factors, including our ability to (1) offer a compelling Intelligent Identity Platform and effective solutions, (2) execute our sales and marketing strategy, (3) attract, effectively train and retain new sales, marketing, professional services and support personnel in the markets we pursue, (4) develop or expand relationships with channel partners, system integrators and technology partners (5) expand into new geographies and vertical markets, (6) deploy our platform and solutions for new customers and (7) provide quality customer support once deployed.
It is important to our continued growth that our customers renew their arrangements when existing contract terms expire. Our customers have no obligation to renew their subscription agreements, and our customers may decide not to renew these agreements with a similar contract period, at the same prices and terms or with the same or a greater number of identities, or at all. Our customer retention and expansion rates may decline or fluctuate as a result of a number of factors, including our customers' satisfaction with our solutions, our customer support and professional services, our prices and pricing plans, the competitiveness of other IAM solutions and services, reductions in our customers' spending levels, user adoption of our solutions, deployment success, utilization rates by our customers, new releases and changes to our solutions. Additionally, new consolidations, acquisitions, alliances or cooperative relationships involving one or more of our customers may lead such customers not to renew their existing subscriptions with us.
Our ability to increase revenue also depends in part on our ability to increase the number of identities managed by our platform and sell more solutions and use cases to our existing and new customers. Our ability to increase sales to existing customers depends on several factors, including their experience with implementing our solutions and using our platform and the existing solutions they have implemented, their ability to integrate our solutions with existing technologies and our pricing model. As we expand our market reach, we may experience difficulties in gaining traction and raising awareness among potential customers regarding the critical role that our solutions play in securing their businesses and we may face more competitive pressure in such markets.
If our new solutions do not achieve adequate acceptance in the market or if we fail to effectively incorporate features and capabilities that our customers expect, our competitive position could be impaired, and our potential to generate new revenue or to retain existing revenue could be diminished. The adverse effect on our financial results may be particularly acute because of the significant research, development, marketing, sales and other expenses we will have incurred in connection with the new solutions and our ability to introduce compelling new solutions that address the requirements of our customers in light of the dynamic IAM market in which we operate.
If we are unable to successfully acquire new customers, retain our existing customers, expand sales to existing customers or introduce new solutions, our business, financial condition and operating results could be adversely affected.
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If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service and customer satisfaction or adequately address competitive challenges.
We have experienced, and may continue to experience, rapid growth and organizational change, which has placed, and may continue to place, significant demands on our management and our operational and financial resources. Additionally, our organizational structure may become more complex as we improve our operational, financial and management controls, as well as our reporting systems and procedures. We may require significant capital expenditures and the allocation of valuable management resources to grow and change in these areas. If we fail to effectively manage our anticipated growth and change, the quality of our platform may suffer, which could negatively affect our brand and reputation and harm our ability to retain and attract customers and employees.
We currently have international operations in the United Kingdom, Canada, Australia, France, Germany, India, Israel, Netherlands and Switzerland, and we may continue to expand our international operations in these jurisdictions and/or other countries in the future. Our expansion has placed, and our expected future growth will continue to place, a significant strain on our managerial, customer operations, research and development, sales and marketing, administrative, financial and other resources. If we are unable to manage our continued growth successfully, our business and results of operations could suffer.
In addition, as we expand our business, it is important that we continue to maintain a high level of customer service and satisfaction. As our customer base continues to grow, we will need to expand our account management, customer service and other personnel, and our network of channel partners and system integrators, to provide personalized account management and customer service. If we are not able to continue to provide high levels of customer service, our reputation, as well as our business, results of operations and financial condition, could be adversely affected.
We depend on our senior management team and other key employees, and the loss of one or more of these employees or an inability to attract and retain other highly skilled employees could harm our business.
Our success depends largely upon the continued services of our senior management team and other key employees. We rely on our leadership team in the areas of research and development, operations, security, marketing, sales, customer support, general and administrative functions and on individual contributors in our research and development and operations functions. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. We do not have employment agreements with our executive officers or other key personnel that require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. The loss of one or more the members of our senior management team, or other key employees could harm our business. In particular, the loss of services of our founder and Chief Executive Officer, Andre Durand, could significantly delay or prevent the achievement of our strategic objectives. Changes in our executive management team may also cause disruptions in, and harm to, our business.
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Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our solutions.
Our ability to increase our customer base and achieve broader market acceptance of our solutions will depend on our ability to expand our sales and marketing operations. Our business will be harmed if our business development efforts do not generate a corresponding increase in revenue. We may not achieve anticipated revenue growth from expanding our direct sales force if we are unable to hire and develop talented direct sales personnel, if our new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time, or if we are unable to retain our existing direct sales personnel. There is significant competition for sales personnel with the advanced sales skills and technical knowledge we need. Selling our solution to sophisticated enterprise customers requires particularly talented sales personnel with the ability to communicate the transformative potential of our platform.
We must attract and retain highly qualified personnel in order to execute our growth plan.
Competition for highly qualified personnel is intense, especially for engineers experienced in designing and developing software and SaaS offerings and experienced sales professionals. In recent years, recruiting, hiring and retaining employees with expertise in our industry has become increasingly difficult as the demand for cybersecurity and identity professionals has increased as a result of the recent cybersecurity attacks on global corporations and governments. We have, from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached certain legal obligations, resulting in a diversion of our time and resources. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be harmed.
If there are interruptions or performance problems associated with our technology or infrastructure, our existing customers may experience service outages, and our new customers may experience delays in the deployment of our platform.
Our continued growth depends on the ability of our existing and potential customers to access our platform 24 hours a day, seven days a week, without interruption or degradation of performance. We have in the past and may in the future experience disruptions, outages and other performance problems with our infrastructure due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints, DDOS attacks or other security-related incidents. In some instances, we may not be able to identify the cause or causes of these performance problems immediately or in short order. We may not be able to maintain the level of service uptime and performance required by our customers, especially during peak usage times and as our solutions become more complex and our user traffic increases. If our platform is unavailable or if our customers are unable to access our solutions or deploy them within a reasonable amount of time, or at all, our business would be harmed. The adverse effects of any service interruptions on our reputation and financial condition may be disproportionately heightened due to the nature of our business and the fact that our customers expect continuous and uninterrupted access to our solutions and have a low tolerance for interruptions of any duration. Since our customers rely on our solutions to provide and secure access to their IT infrastructures and to support customer-facing applications, any outage on our platform would impair the ability of our customers to operate their businesses, which would negatively impact our brand, reputation and customer satisfaction.
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Moreover, we depend on services from various third parties to maintain our cloud infrastructure and deploy our solutions, such as Amazon Web Services, or AWS, cloud infrastructure services, which hosts our platform. If a service provider fails to provide sufficient capacity to support our platform or otherwise experiences service outages, such failure could interrupt our customers' access to our services, which could adversely affect their perception of our platform's reliability and our revenue. Any disruptions in these services, including as a result of actions outside of our control, would significantly impact the continued performance of our solutions. In the future, these services may not be available to us on commercially reasonable terms, or at all. Any loss of the right to use any of these services could result in decreased functionality of our solutions until equivalent technology is either developed by us or, if available from another provider, is identified, obtained and integrated into our infrastructure. If we do not accurately predict our infrastructure capacity requirements, our customers could experience service shortfalls. We may also be unable to effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology.
Our platform is accessed by a large number of customers, often at the same time. As we continue to expand the number of our customers and solutions available to our customers, we may not be able to scale our technology to accommodate the increased capacity requirements, which may result in interruptions or delays in service. In addition, the failure of third-party cloud infrastructure providers, third-party internet service providers or other third-party service providers whose services are integrated with our platform to meet our capacity requirements could result in interruptions or delays in access to our platform or impede our ability to scale our operations. In the event that our service agreements are terminated with our cloud infrastructure providers, or there is a lapse of service, interruption of internet service provider connectivity or damage to such providers' facilities, we could experience interruptions in access to our platform as well as delays and additional expense in arranging new facilities and services.
Any of the above circumstances or events may harm our reputation, cause customers to terminate their agreements with us, impair our ability to obtain subscription renewals from existing customers, impair our ability to grow our customer base, result in the expenditure of significant financial, technical and engineering resources, subject us to financial penalties and liabilities under our service level agreements, and otherwise could adversely affect our business, results of operations and financial condition.
The delivery of our platform depends on AWS cloud infrastructure services.
Our SaaS offerings are hosted solely in AWS and our other offerings utilize the cloud infrastructure offered by AWS. Our operations depend on maintaining the configuration, architecture and interconnection specifications required by AWS. Although we have disaster recovery plans that utilize multiple AWS infrastructure locations, any incident affecting this infrastructure that may be caused by fire, flood, severe storm, earthquake, power loss, telecommunications failures, unauthorized intrusion, computer viruses and disabling devices, natural disasters, war, criminal act, military actions, terrorist attacks and other similar events beyond our control could negatively affect our platform. A prolonged AWS service disruption affecting our platform for any of the foregoing reasons could damage our reputation with current and potential customers, expose us to liability, cause us to lose customers or otherwise harm our business. In addition, since all of our cloud-based offerings utilize AWS cloud infrastructure services, in the event of a prolonged AWS services disruption we may not be able to find an alternative provider on commercially reasonable terms or in a timely manner, if at all. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the AWS services we use.
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AWS enables us to order and reserve server capacity in varying amounts and sizes distributed across multiple regions. AWS provides us with computing and storage capacity pursuant to an agreement that continues until terminated by either party. AWS may terminate the agreement by providing 30 days prior written notice and may, in some cases, terminate the agreement immediately for cause upon notice. If AWS terminates its agreement with us, we may be unable to deploy certain of our solutions and our business, results of operations and financial condition may be adversely affected.
In addition, since all of our cloud-based offerings utilize AWS cloud infrastructure resources, our customers' satisfaction with our cloud-based offerings is dependent in part upon their perceptions and satisfaction with AWS cloud infrastructure services. Dissatisfaction with AWS cloud infrastructure services could damage our relationships with customers and/or result in the loss of customers across one or more use case or solution.
Data privacy concerns, evolving regulations of cloud computing, cross-border data transfer restrictions and other domestic and foreign laws and regulations may limit the use and adoption of, or require modification of, our solutions and services, which could adversely affect our business.
Laws and regulations related to the provision of services on the Internet are increasing, as federal, state and foreign governments continue to adopt new laws and regulations addressing data privacy and the collection, processing, storage and use of personal information. Internationally, many of the jurisdictions in which we operate have established their own data security and privacy legal frameworks with which we, or our customers, must comply. We have implemented various features and processes intended to enable our customers to better comply with applicable privacy and security requirements, but these features and processes do not guarantee compliance and may not guard against all potential privacy concerns.
For example, the European Union, or the EU, adopted the General Data Protection Regime, or the GDPR, which became effective and enforceable across all 28 EU member states on May 25, 2018. The GDPR applies to any company established in the EU as well as to those outside the EU if they collect and use personal data in connection with the offering of goods or services to individuals in the EU or the monitoring of their behavior. The GDPR enhances data protection obligations for processors and controllers of personal data, including requiring additional disclosures about how personal information is to be used, and imposing limitations on retention of information, mandatory data breach notification requirements and onerous new obligations on services providers. Under the GDPR, fines of up to €20 million or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, may be imposed. Given the breadth and depth of changes in data protection obligations, complying with its requirements has caused us to expend significant resources and such expenditures are likely to continue into the near future as we respond to new interpretations, additional guidance and potential enforcement actions, and as we continue to negotiate data processing agreements with our customers and business partners.
In the United States, California enacted the California Consumer Privacy Act, or the CCPA, on June 28, 2018, which takes effect on January 1, 2020. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability. Some observers have noted that the CCPA could mark the
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beginning of a trend toward more stringent privacy legislation in the U.S., which could increase our potential liability and adversely affect our business.
Privacy and data protections laws and regulations are subject to new and differing interpretations and there may be significant inconsistency in laws and regulations among the jurisdictions in which we operate or provide our SaaS offerings. Legal and other regulatory requirements could restrict our ability to store and process data as part of our SaaS offerings, or, in some cases, impact our ability to provide our SaaS offerings in certain jurisdictions. Our inability to provide our offerings in certain jurisdictions, particularly China and Russia, as a result of their local data privacy frameworks may result in the loss of business opportunities from customers operating in, or seeking to expand into, those jurisdictions. In addition, we may seek to engage third party support providers in certain jurisdictions in order to comply with our customers' data privacy concerns and such engagements may be costly.
Privacy and data protection laws and regulations may also impact our customers' ability to deploy certain of our solutions globally, to the extent they utilize our solutions for storing personal information that they process. Additionally, if third parties that we work with violate applicable laws or our policies, such violations may also put our customers' information at risk and could in turn have an adverse effect on our business. The costs of compliance with, and other burdens imposed by, data privacy laws, regulations and standards may require resources to create new solutions or modify existing solutions, could lead to us being subject to significant fines, penalties or liabilities for noncompliance, could lead to complex and protracted contract negotiations with respect to privacy and data protection terms, and may slow the pace at which we close sales transactions, any of which could harm our business.
The data protection landscape is rapidly evolving, and we expect that there will continue to be new proposed laws, regulations and industry standards concerning privacy, data protection and information security. We cannot yet determine the impact that such future laws, regulations and standards may have on our business. Such laws and regulations are often subject to differing interpretations and may be inconsistent among jurisdictions. Any failure or perceived failure by us to comply with federal, state or foreign laws or regulations, industry standards, contractual obligations or other legal obligations, with respect to any security incident, whether or not resulting in unauthorized access to, or acquisition, release or transfer of personal data or other data, may result in governmental enforcement actions and prosecutions, private litigation, fines and penalties, friction in our customer relationships or adverse publicity, and could cause our customers to lose trust in us, which could have an adverse effect on our reputation and business.
Around the world, there are numerous lawsuits in process against various technology companies that process personal data. If those lawsuits are successful, it could increase the likelihood that we may be exposed to liability for our own policies and practices concerning the processing of personal data and could hurt our business. Furthermore, the costs of compliance with, and other burdens imposed by, laws, regulations and policies concerning privacy and data security that are applicable to the businesses of our customers may limit the use and adoption of our platform and reduce overall demand for it.
In addition, if our platform is perceived to cause, or is otherwise unfavorably associated with, violations of privacy or data security requirements, it may subject us or our customers to public criticism and potential legal liability. Existing and potential laws and regulations concerning privacy and data security and increasing sensitivity of consumers to unauthorized processing of personal data may create negative public reactions to technologies, solutions and services such as ours. Public concerns regarding personal data processing, privacy and security may cause some of our customers' end users to be less likely to visit their websites or otherwise interact with them. If enough end users choose not to visit our customers' websites or otherwise interact with them, our customers could stop using our platform. This, in turn, may reduce the value of our service and slow or eliminate the growth of our business.
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Our quarterly operating results and other metrics are likely to vary significantly and be unpredictable, which could cause the trading price of our stock to decline.
Our operating results and other metrics have historically varied from period to period, and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including:
Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our financial and other operating results, including fluctuations in our key metrics. This variability and unpredictability could result in our failing to meet the expectations of securities analysts or investors for any period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our shares could fall substantially and we could face costly lawsuits, including securities class action suits. In addition, a significant percentage of our operating expenses are fixed in nature and based on forecasted revenue and
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cash flow trends. Accordingly, in the event of revenue shortfalls, we are generally unable to mitigate the negative impact on margins or other operating results in the short term.
We may fail to meet or exceed the expectations of securities analysts and investors, and the market price for our common stock could decline. If one or more of the securities analysts who cover us change their recommendation regarding our stock adversely, the market price for our common stock could decline. Additionally, our stock price may be based on expectations, estimates or forecasts of our future performance that may be unrealistic or may not be achieved. Further, our stock price may be affected by financial media, including press reports and blogs.
Our revenue recognition policy and other factors may distort our financial results in any given period and make them difficult to predict.
Under accounting standards update No. 2014-09 (Topic 606), Revenue from Contracts with Customers, or ASC 606, we recognize revenue when our customer obtains control of goods or services in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. Our subscription revenue includes subscription term-based license revenue, which is recognized when we transfer control of the term-based license to the customer, and subscription SaaS and support and maintenance revenue, which is recognized ratably over the contract period. Because subscription term-based license revenue is recognized upfront, a single, large license in a given period may distort our operating results for that period. In contrast, the impact of agreements that are recognized ratably may take years to be fully reflected in our financial statements. Consequently, a significant increase or decline in our subscription SaaS and support and maintenance contracts in any one quarter will not be fully reflected in the results for that quarter, but will affect our revenue in future quarters. This also makes it challenging to forecast our revenue for future periods, as both the mix of solutions and services we will sell in a given period, as well as the size of contracts, is difficult to predict.
Furthermore, the presentation of our financial results requires us to make estimates and assumptions that may affect revenue recognition. In some instances, we could reasonably use different estimates and assumptions, and changes in estimates are likely to occur from period to period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies Revenue Recognition".
Given the foregoing factors, our actual results could differ significantly from our estimates, comparing our revenue and operating results on a period-to-period basis may not be meaningful, and our past results may not be indicative of our future performance.
If we fail to enhance our brand cost-effectively, our ability to expand our customer base will be impaired and our business, results of operations and financial condition may be adversely affected.
We believe that developing and maintaining awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of our existing and future solutions and is an important element in attracting new customers. We believe that the importance of brand recognition will increase as competition in our market increases. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts and on our ability to develop and deploy high-quality, reliable and differentiated solutions to customers. In the past, our efforts to build our brand have involved significant expense. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expense we incur in building our brand. If we fail to successfully promote and maintain our brand, or incur substantial expense in an unsuccessful attempt to promote and maintain our brand, we may fail to attract new customers or retain our existing customers to the extent necessary to realize a sufficient return on
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our brand-building efforts, and our business, results of operations and financial condition could be adversely affected.
We are subject to anti-corruption, anti-bribery and similar laws, and non-compliance with such laws can subject us to criminal penalties or significant fines and harm our business and reputation.
We are subject to anti-corruption and anti-bribery and similar laws, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, the U.K. Bribery Act 2010 and other anti-corruption, anti-bribery and anti-money laundering laws in countries in which we conduct activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly and prohibit companies and their employees and agents from promising, authorizing, making, offering, soliciting, or accepting, directly or indirectly, improper payments or other improper benefits to or from any person whether in the public or private sector. As we increase our international sales and business, our risks under these laws may increase. Noncompliance with these laws could subject us to investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, adverse media coverage and other consequences. Any investigations, actions or sanctions could adversely affect our business, results of operations and financial condition.
We are subject to governmental export and import controls and economic sanctions laws that could impair our ability to compete in international markets and subject us to liability if we are not in full compliance with applicable laws.
Our business activities are subject to various restrictions under U.S. export and import controls and trade and economic sanctions laws, including the U.S. Commerce Department's Export Administration Regulations, U.S. Customs regulations and various economic and trade sanctions regulations maintained by the U.S. Treasury Department's Office of Foreign Assets Control. U.S. export control laws and U.S. economic sanctions laws include prohibitions on the sale or supply of certain products and services to U.S. embargoed or sanctioned countries, governments, persons and entities. Changes in our solutions or services or changes in applicable export or import regulations may create delays in the introduction and sale of our solutions in international markets, prevent our customers with international operations from deploying our solutions or, in some cases, prevent the export or import of our solutions to certain countries, governments, or persons altogether. Any decreased use of our solutions or limitation on our ability to export or sell our solutions would likely adversely affect our business.
Furthermore, we incorporate encryption technology into certain of our solutions. U.S. export control laws require authorization for the export of encryption items. In addition, various countries regulate the import of certain encryption technology, including through import permitting and licensing requirements, and have enacted laws that could limit our ability to deploy our solutions and services or could limit our customers' ability to implement our offerings and services in those countries. Obtaining the necessary authorizations, including any required license, for a particular transaction may be time-consuming, is not guaranteed, and may result in the delay or loss of sales opportunities.
Although we take precautions to prevent our solutions from being provided in violation of U.S. export control and economic sanctions laws, our solutions may have been in the past, and could in the future be, provided inadvertently in violation of such laws. If we fail to comply with U.S. export control and economic sanctions laws and regulations, we and certain of our employees could be subject to civil or criminal penalties, including the possible loss of export privileges and
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monetary penalties. In addition, violations of such laws could result in negative consequences to us, including government investigations, penalties and harm to our reputation.
We function as a HIPAA "business associate" for certain of our customers and, as such, are subject to strict privacy and data security requirements. If we fail to comply with any of these requirements, we could be subject to significant liability, all of which can adversely affect our business as well as our ability to attract and retain new customers.
The Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their respective implementing regulations, or HIPAA, imposes specified requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA's security standards directly applicable to "business associates". We function as a business associate for certain of our customers that are HIPAA covered entities and service providers, and in that context we are regulated as a business associate for the purposes of HIPAA. If we are unable to comply with our obligations as a HIPAA business associate, we could face substantial civil and even criminal liability. HITECH imposes four tiers of civil monetary penalties and gives state attorneys general authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys' fees and costs associated with pursuing federal civil actions. In addition, many state laws govern the privacy and security of health information in certain circumstances, many of which differ from HIPAA and each other in significant ways and may not have the same effect.
As a business associate, we are required by HIPAA to maintain HIPAA-compliant business associate agreements with our customers that are HIPAA covered entities and service providers, as well as our subcontractors that access, maintain, create or transmit individually identifiable health information on our behalf for the rendering of services to our HIPAA covered entity and service provider customers. These agreements impose stringent data security and other obligations on us. If we or our subcontractors are unable to meet the requirements of any of these business associate agreements, we could face contractual liability under the applicable business associate agreement as well as possible civil and criminal liability under HIPAA, all of which can have an adverse impact on our business and generate negative publicity, which, in turn, can have an adverse impact on our ability to attract and retain customers.
We may be the subject of various legal proceedings which could have a material adverse effect on our business, financial condition or results of operations.
In the ordinary course of business, we may be involved in various litigation matters, including but not limited to commercial disputes, employee claims and class actions, and from time to time may be involved in governmental or regulatory investigations or similar matters arising out of our current or future business. Any claims asserted against us, regardless of merit or eventual outcome, could harm our reputation and have an adverse impact on our relationship with our customers and other third parties and could lead to additional related claims. Certain claims may seek injunctive relief, which could disrupt the ordinary conduct of our business and operations or increase our cost of doing business. Our insurance or indemnities may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation and cause us to expend resources in our defense. Furthermore, there is no guarantee that we will be successful in defending ourselves in future litigation or similar matters under various laws. Should the ultimate judgments or settlements in any future litigation or investigation significantly exceed our insurance coverage, they could adversely affect our business, results of operations and financial condition.
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Our sales cycle is frequently long and unpredictable, and our sales efforts require considerable time and expense.
Since we primarily focus on selling our solutions to enterprises, the timing of our sales can be difficult to predict. We and our channel partners are often required to spend significant time and resources to better educate and familiarize potential customers with the value proposition of our platform and solutions. Customers often view the purchase of our solutions as a strategic decision and significant investment and, as a result, frequently require considerable time to evaluate, test and qualify our platform and solutions prior to purchasing our solutions. In particular, for customers in highly-regulated industries, the selection of a security solution provider is a critical business decision due to the sensitive nature of these customers' data, which results in particularly extensive evaluation prior to the selection of information security vendors. During the sales cycle, we expend significant time and money on sales and marketing and contract negotiation activities, which may not result in a sale. Additional factors that may influence the length and variability of our sales cycle include:
If our efforts in pursuing sales and customers are unsuccessful, or if our sales cycles lengthen, our revenue could be lower than expected, which would adversely affect our business, results of operations or financial condition.
Our growth strategy includes the acquisition of other businesses or technologies, and we may not be able to identify suitable acquisition targets or otherwise successfully implement our growth strategy.
In order to expand our business, we have made several acquisitions of businesses, products and technologies and expect to continue making similar acquisitions and possibly larger acquisitions as part of our growth strategy. The success of our future growth strategy will depend in part on our ability to identify, negotiate, complete and integrate the acquisition of businesses or technologies and, if necessary, to obtain satisfactory debt or equity financing to fund those acquisitions. We expect to continue evaluating potential strategic acquisitions of businesses, assets and technologies. However, we may not be able to identify suitable candidates, negotiate appropriate or favorable acquisition terms, obtain financing that may be needed to consummate such transactions or complete proposed acquisitions. Further, there is significant competition for acquisition and expansion opportunities in the IAM industry.
Acquisitions are inherently risky, and any acquisitions we complete may not be successful. Our past acquisitions and any acquisitions that we may undertake in the future involve numerous risks, including, but not limited to, the following:
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We regularly evaluate potential acquisition candidates and engage in discussions and negotiations regarding potential acquisitions; however, even if we execute a definitive agreement for an acquisition, there can be no assurance that we will consummate the transaction within the anticipated closing timeframe, or at all. Further, acquisitions typically involve the payment of a premium over book- and market-values and, therefore, some dilution of our tangible book value and earnings per common share may occur in connection with any future transaction.
Inherent in any future acquisition is the risk of transitioning company cultures and facilities. The failure to efficiently and effectively achieve such transitions could increase our costs and
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decrease our profitability. Although we expect that the realization of efficiencies related to the integration of any acquired businesses will offset incremental transaction and acquisition-related costs over time, anticipated financial benefits may not be achieved in the near term, or at all.
Additionally, acquisitions or asset purchases made entirely or partially for cash may reduce our cash reserves or require us to incur additional debt under our credit agreements or otherwise. We may seek to obtain additional cash to fund an acquisition by selling equity or debt securities. We may be unable to secure the equity or debt funding necessary to finance future acquisitions on terms that are acceptable to us. If we finance acquisitions by issuing equity or convertible debt securities, our existing shareholders will experience ownership dilution.
The occurrence of any of these risks could have a material adverse effect on our business, results of operations or financial condition.
We may need to change our pricing models to compete successfully.
The intense competition we face in the sales of our solutions and services and general economic and business conditions can put pressure on us to change our prices. If our competitors offer deep discounts on certain solutions or services or develop solutions that the marketplace considers more valuable than ours, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect operating results. Additionally, the increasing prevalence of cloud and SaaS delivery models offered by us and our competitors may unfavorably impact pricing for both our on-premise and cloud-based offerings, as well as overall demand for our on-premise software and service offerings, which could reduce our revenues and profitability. Our competitors may offer lower pricing on their support offerings, which could put pressure on us to further discount our offering or support pricing. We also must determine the appropriate price of our offerings and services to enable us to compete effectively internationally.
Any broad-based change to our prices and pricing policies could cause our revenue to decline or be delayed as our sales force implements and our customers adjust to new pricing policies. We or our competitors may bundle solutions for promotional purposes or as a long-term go-to-market or pricing strategy or provide guarantees of prices and solution implementations. These practices could, over time, significantly constrain the prices that we can charge for certain of our solutions. If we do not adapt our pricing models to reflect changes in customer use of our solutions or changes in customer demand, our revenue could decrease.
Our failure to meet certain of our service level commitments could harm our business, results of operations and financial condition.
Our customer agreements contain service level commitments, under which we guarantee specified availability and error resolution times with respect to our solutions. Any failure of or disruption to our infrastructure could make our solutions unavailable to our customers. If we are unable to meet the stated service level commitments to our customers or suffer extended periods of unavailability of our SaaS offerings, we may be contractually obligated to provide affected customers with service credits, or customers could elect to terminate and receive refunds for prepaid amounts related to unused subscriptions. Our revenue, other results of operations and financial condition could be harmed if we suffer unscheduled downtime that exceeds the service level commitments under our agreements with our customers, and any extended service outages could adversely affect our business and reputation as customers may elect not to renew.
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If we fail to offer high-quality customer support, our business and reputation will suffer.
Once our solutions are deployed, our customers rely on our support services to resolve any issues that may arise. High-quality customer education and customer support is important for the successful marketing and sale of our solutions and for the renewal of existing customers. We must successfully assist our customers in deploying our solutions, resolving performance issues and addressing interoperability challenges with a customer's existing network and security infrastructure. Many enterprises, particularly large enterprises, have complex networks and require high levels of focused support, including premium support offerings, to fully realize the benefits of our solutions. Any failure by us to maintain the expected level of support could reduce customer satisfaction and hurt our customer retention, particularly with respect to our large enterprise customers. To the extent that we are unsuccessful in hiring, training and retaining adequate support resources, our ability to provide adequate and timely support to our customers will be negatively impacted, and our customers' satisfaction with our solutions could be adversely affected. Given our growth, we may in the future engage third parties to provide support services to our customers. Any failure to properly train or oversee such contractors could result in a poor customer experience, which could have an adverse impact on our reputation and ability to renew subscriptions or engage new customers. In addition, most of our contracts with our larger customers require consent in the event we subcontract the services we provide thereunder. The process of obtaining consent to subcontract support services with these customers could be lengthy and there can be no assurance such consent would be provided.
Furthermore, as we sell our solutions internationally, our support organization faces additional challenges, including those associated with delivering support, training and documentation in languages other than English. Any failure to maintain high-quality customer support, or a market perception that we do not maintain high-quality support, could materially harm our reputation, business, financial condition and results of operations, and adversely affect our ability to sell our solutions to existing and prospective customers. The importance of high-quality customer support will increase as we expand our business and pursue new customers.
Our growth is substantially dependent on the success of our strategic relationships with channel partners and other third parties.
As part of our business development efforts, we anticipate that we will continue to depend on relationships with third parties, such as our channel partners and system integrators, to sell, market and deploy our solutions. Identifying partners, and negotiating and documenting relationships with them, requires significant time and resources. Our competitors may be effective in providing incentives to channel partners and other third parties to favor their solutions or services over subscriptions to our platform and a substantial number of our agreements with channel partners are non-exclusive such that those channel partners may offer customers the solutions of several different companies, including solutions that compete with ours. Our channel partners may cease marketing or reselling our platform with limited or no notice and without penalty. If our channel partners do not effectively sell, market or deploy our solutions, choose to promote our competitors' solutions or otherwise fail to meet the needs of our customers, our ability to grow our business and sell our solutions may be adversely affected. In addition, acquisitions of such partners by our competitors could result in a decrease in the number of our current and potential customers, as these partners may no longer facilitate the adoption of our applications by potential customers. Further, some of our partners are or may become competitive with certain of our solutions and may elect to no longer integrate with our platform. If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenue could be impaired, and our results of operations may suffer. Even if we are successful, we cannot
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assure you that these relationships will result in increased customer usage of our solutions or increased revenue.
Adverse general and industry-specific economic and market conditions and reductions in IT and identity spending may reduce demand for our solutions, which could harm our results of operations.
Our revenue, results of operations and cash flows depend on the overall demand for our solutions. Concerns about the systemic impact of a potential widespread recession (in the United States or internationally), geopolitical issues or the availability and cost of credit could lead to increased market volatility, decreased consumer confidence and diminished growth expectations in the U.S. economy and abroad, which in turn could result in reductions in IT, IAM and identity security spending by our existing and prospective customers. For the six months ended June 30, 2019, 30% of our revenue was derived from the financial services industry, including banking. Negative economic conditions, including in the financial services industry, may cause customers to reduce their IT spending. Prolonged economic slowdowns may result in customers delaying or canceling IT projects, choosing to focus on in-house development efforts or seeking to lower their costs by requesting us to renegotiate existing contracts on less advantageous terms or defaulting on payments due on existing contracts or not renewing at the end of the contract term.
Our customers may merge with other entities who use alternative IAM solutions and, during weak economic times, there is an increased risk that one or more of our customers will file for bankruptcy protection, either of which may harm our revenue, profitability and results of operations. We also face risk from international customers that file for bankruptcy protection in foreign jurisdictions, particularly given that the application of foreign bankruptcy laws may be more difficult to predict. In addition, we may determine that the cost of pursuing any claim may outweigh the recovery potential of such claim. As a result, broadening or protracted extension of an economic downturn could harm our business, revenue, results of operations and cash flows.
If our platform and solutions do not effectively interoperate with our customers' existing or future IT infrastructures, our business would be harmed.
Our success depends on the interoperability of our platform and solutions with our customers' IT infrastructures, including third-party operating systems, applications, data and devices that we have not developed and do not control. Any changes in such infrastructure, operating systems, applications, data or devices that degrade the functionality of our platform or solutions or give preferential treatment to competitive solutions could adversely affect the adoption and usage of our platform. We may not be successful in quickly or cost effectively adapting our platform or solutions to operate effectively with these operating systems, applications, data or devices. If it is difficult for our customers to access and use our platform or solutions, or if our platform or solutions cannot connect a broadening range of applications, data and devices, then our customer growth and retention may be harmed, and our business, results of operations and financial condition could be adversely affected. We rely on open standards for many integrations between our solutions and third-party applications that our customers utilize, and in other instances on such third parties making available the necessary tools for us to create interoperability with their applications. If application providers were to move away from open standards, or if a critical, widely-utilized application provider were to adopt proprietary integration standards and not make them available for the purposes of facilitating interoperability with our platform, the utility of our solutions for our customers would be decreased.
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Our ability to introduce new solutions and features is dependent on adequate research and development resources and our ability to successfully complete acquisitions. If we do not adequately fund our research and development efforts or complete acquisitions successfully, we may not be able to compete effectively and our business and results of operations may be harmed.
To remain competitive, we must continue to offer new solutions and enhancements to our platform. This is particularly true as we further expand and diversify our capabilities. Maintaining adequate research and development resources, such as the appropriate personnel and development technology, to meet the demands of the market is essential. If we elect not to or are unable to develop solutions internally due to certain constraints, such as high employee turnover, lack of management ability or a lack of other research and development resources, we may choose to expand into a certain market or strategy via an acquisition for which we could potentially pay too much or fail to successfully integrate into our operations. Further, many of our competitors expend a considerably greater amount of funds on their respective research and development programs, and those that do not may be acquired by larger companies that would allocate greater resources to our competitors' research and development programs. Our failure to maintain adequate research and development resources or to compete effectively with the research and development programs of our competitors would give an advantage to such competitors and our business, results of operations and financial condition could be adversely affected. Moreover, there is no assurance that our research and development or acquisition efforts will successfully anticipate market needs and result in significant new marketable solutions or enhancements to our solutions, design improvements, cost savings, revenues or other expected benefits. If we are unable to generate an adequate return on such investments, we may not be able to compete effectively and our business and results of operations may be materially and adversely affected.
Our success depends, in part, on the integrity and scalability of our systems and infrastructures. System interruption and the lack of integration, redundancy and scalability in these systems and infrastructures may result in our business, results of operations and financial condition being adversely affected.
Our success depends, in part, on our ability to maintain the integrity of our systems and infrastructure, including websites, information and related systems. System interruption and a lack of integration and redundancy in our information systems and infrastructure may adversely affect our ability to operate websites, process and fulfill transactions, respond to customer inquiries and generally maintain cost-efficient operations. We may experience occasional system interruptions that make some or all systems or data unavailable or prevent us from efficiently providing access to our platform. Fire, flood, power loss, telecommunications failure, hurricanes, tornadoes, earthquakes, other natural disasters, acts of war or terrorism and similar events or disruptions may damage or interrupt computer, broadband or other communications systems and infrastructure at any time. Any of these events could cause system interruption, delays and loss of critical data, and could prevent us from providing access to our platform.
While we have backup systems for certain aspects of our operations, disaster recovery planning by its nature cannot be sufficient for all eventualities. In addition, we may not have adequate insurance coverage to compensate for losses from a major interruption. If any of these events were to occur, our business, results of operations and financial condition could be adversely affected.
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We rely on software and services from other parties. Defects in or the loss of access to software or services from third parties could increase our costs and adversely affect the quality of our solutions.
We rely on third-party computer systems, broadband and other communications systems and service providers in providing access to our platform. Any interruptions, outages or delays in our systems and infrastructure, our business and/or third parties, or deterioration in the performance of these systems and infrastructure, could impair our ability to provide access to our platform. Our business would be disrupted if any of the third-party software or services we utilize, particularly with respect to third-party software or services embedded in our solutions, or functional equivalents thereof, were unavailable due to extended outages or interruptions or because they are no longer available on commercially reasonable terms or prices or at all.
In each case, we would be required to either seek licenses to software or services from other parties and redesign our solutions to function with such software or services or develop these components ourselves, which would result in increased costs and could result in delays in our solution launches and the release of new solution offerings until equivalent technology can be identified, licensed or developed, and integrated into our solutions. Furthermore, we might be forced to limit the features available in our current or future solutions. If these delays and feature limitations occur, our business, results of operations and financial condition could be adversely affected.
Real or perceived errors, failures, vulnerabilities or bugs in our solutions, including deployment complexity, could harm our business and results of operations.
Errors, failures, vulnerabilities or bugs may occur in our solutions, especially when updates are deployed or new solutions are rolled out. Our platform is often used in connection with large-scale computing environments with different operating systems, system management software, equipment and networking configurations, which may cause errors or failures of solutions. In addition, deployment of our solutions into complicated, large-scale computing environments may expose errors, failures, vulnerabilities or bugs in our solutions. Any such errors, failures, vulnerabilities or bugs may not be found until after they are deployed to our customers. Real or perceived errors, failures, vulnerabilities or bugs in our solutions could result in negative publicity, loss of customer data, loss of or delay in market acceptance of our solutions, loss of competitive position, or claims by customers for losses sustained by them, all of which could adversely affect our business, results of operations and financial condition.
If we fail to adequately protect our proprietary rights, our competitive position could be impaired and we may lose valuable assets, generate less revenue and incur costly litigation to protect our rights.
Our success is dependent, in part, upon protecting our proprietary information and technology. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret laws and contractual restrictions to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. Despite our precautions, it may be possible for unauthorized third parties to copy our solutions and use information that we regard as proprietary to create solutions that compete with ours. Some license provisions protecting against unauthorized use, copying, transfer and disclosure of our solutions may be unenforceable under the laws of certain jurisdictions and foreign countries. Further, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States, and mechanisms for enforcement of intellectual property rights in some foreign countries may be inadequate. To the extent we expand our
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international activities, our exposure to unauthorized copying and use of our solutions and proprietary information may increase. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our technology and intellectual property.
We rely in part on trade secrets, proprietary know-how and other confidential information to maintain our competitive position. Although we enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with the parties with whom we have strategic relationships and business alliances, no assurance can be given that these agreements will be effective in controlling access to and distribution of our solutions and proprietary information. Further, these agreements do not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our solutions.
To protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Such litigation could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management's attention and resources, could delay further sales or the implementation of our solutions, impair the functionality of our solutions, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our solutions, or injure our reputation. In addition, we may be required to license additional technology from third parties to develop and market new solutions, and we cannot assure you that we could license that technology on commercially reasonable terms or at all, and our inability to license this technology could harm our ability to compete.
Our results of operations may be harmed if we are subject to an infringement claim or a claim that results in a significant damage award.
Other companies have claimed in the past, and may claim in the future, that we infringe upon their intellectual property rights. A claim may also be made relating to technology that we acquire or license from third parties. Because of constant technological change in the segments in which we compete, the extensive patent coverage of existing technologies, and the rapid rate of issuance of new patents, it is possible that the number of these claims may grow. If we were subject to a claim of infringement, regardless of the merit of the claim or our defenses, the claim could:
Any one or more of the above could adversely affect our business, results of operations and financial condition.
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Our use of open source software in our offerings could negatively affect our ability to sell our solutions and subject us to possible litigation.
We use software modules licensed to us by third-party authors under "open source" licenses in our offerings. Some open source licenses require that users of the applicable software make available source code for modifications or derivative works created using that open source software. If we were to combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release or otherwise make available the source code of our proprietary software to the public. This would allow our competitors to create similar products with lower development effort and time and ultimately could result in a loss of sales for us.
Although we monitor our compliance with open source licenses and attempt to protect our proprietary source code from the effects stated above, we may inadvertently use open source software in a manner we do not intend and that could expose us to claims for breach of contract and intellectual property infringement. In addition, the terms of many open source licenses have not been interpreted by United States courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions. If we are held to have breached the terms of an open source software license, we could be required to seek licenses from third parties to continue providing our offerings on terms that are not economically feasible, to re-engineer our offerings, to discontinue the sale of our offerings if re-engineering cannot be accomplished on a timely basis, or to make generally available, in source code form, a portion of our proprietary code, any of which could adversely affect our business, results of operations and financial condition. In addition to the risks described above, usage of open source software typically exposes us to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or assurance of title or controls on the functionality or origin of the software. Many of the risks associated with usage of open source software, such as the lack of warranties or assurances of title, cannot be eliminated, and could, if not properly addressed, negatively affect our business. We have established processes to help alleviate these risks, including a review process for screening requests from our development organizations for the use of open source software, but we cannot be sure that our processes for controlling our use of open source software in our offerings will be effective. Use of open source software may also present additional security risks because the public availability of such software may make it easier for hackers and other third parties to determine how to compromise our offerings.
We rely on SaaS vendors to operate certain functions of our business and any failure of such vendors to provide services to us could adversely impact our business and operations.
We rely on third-party SaaS vendors to operate certain critical functions of our business, including financial management, human resource management and customer relationship management. If these services become unavailable due to extended outages or interruptions or because they are no longer available on commercially reasonable terms or prices, our expenses could increase, our ability to manage our finances could be interrupted and our processes for managing sales of our solutions and supporting our customers could be impaired until equivalent services, if available, are identified, obtained and integrated, all of which could harm our business.
Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses.
Our agreements with customers and other third parties may include indemnification or other provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement, damage caused by us to property or persons, or other
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liabilities relating to or arising from the use of our platform or other acts or omissions. The term of these contractual provisions often survives termination or expiration of the applicable agreement. As we continue to grow, the possibility of infringement claims and other intellectual property rights claims against us may increase. For any intellectual property rights indemnification claim against us or our customers, we may incur significant legal expenses and may have to pay damages, settlement fees, license fees and/or stop using technology found to be in violation of the third-party's rights. Large indemnity payments could harm our business, results of operations and financial condition. We may also have to seek a license for the infringing or allegedly infringing technology. Such license may not be available on reasonable terms, if at all, and may significantly increase our operating expenses or may require us to restrict our business activities and limit our ability to deploy certain offerings. As a result, we may also be required to develop alternative non-infringing technology, which could require significant effort and expense and/or cause us to alter our platform or solutions, which could negatively affect our business. In addition, we may be subject to increased risk of infringement claims as a result of our use of open source software given that our agreements with our customers generally do not exclude open source software from the intellectual property indemnity we contractually agree to provide for our offerings.
From time to time, customers require us to indemnify them for breach of confidentiality, violation of applicable law or failure to implement adequate security measures with respect to their data stored, transmitted, or accessed using our platform. Although we normally contractually limit our liability with respect to such obligations, the existence of such a dispute may have adverse effects on our customer relationship and reputation and we may still incur substantial liability related to them.
Any assertions by a third party, whether or not successful, with respect to such indemnification obligations could subject us to costly and time-consuming litigation, expensive remediation and licenses, divert management attention and financial resources, harm our relationship with that customer and other current and prospective customers, reduce demand for our platform and result in our brand, business, results of operations and financial condition being adversely affected.
We may be subject to liability claims if we breach our contracts and our insurance may be inadequate to cover our losses.
We are subject to numerous obligations in our contracts with our customers and strategic partners. Despite the procedures, systems and internal controls we have implemented to comply with our contracts, we may breach these commitments, whether through a weakness in these procedures, systems and internal controls, negligence or the willful act of an employee or contractor.
Our insurance policies, including our errors and omissions insurance, may be inadequate to compensate us for the potentially significant losses that may result from claims arising from breaches of our contracts, disruptions in our services, including those caused by cybersecurity incidents, failures or disruptions to our infrastructure, catastrophic events and disasters or otherwise. In addition, such insurance may not be available to us in the future on economically reasonable terms, or at all. Further, our insurance may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert management's attention.
Our customers may fail to pay us in accordance with the terms of their agreements, necessitating action by us to compel payment.
If customers fail to pay us under the terms of our agreements, we may be adversely affected both from the inability to collect amounts due and the cost of enforcing the terms of our contracts, including related litigation. Furthermore, some of our customers may seek bankruptcy protection or
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other similar relief and fail to pay amounts due to us, or pay those amounts more slowly, either of which could adversely affect our business, results of operations and financial condition.
Because our long-term success depends, in part, on our ability to expand the sales of our solutions to customers located outside of the United States, our business will be susceptible to risks associated with international operations.
We currently have international operations in the United Kingdom, Canada, Australia, France, Germany, India, Israel, Netherlands and Switzerland. In 2018, our international revenue was 23% of our total revenue. Any efforts that we may undertake to increase our international revenue may not be successful. In addition, continuing to expand our international footprint with our solutions subjects us to new risks, some of which we have not generally faced in the United States. These risks include, among other things:
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Additionally, operating in international markets also requires significant management attention and financial resources. We cannot be certain that the investment and additional resources required in establishing operations in other countries will produce desired levels of revenue or profitability.
In addition, some of our business functions, such as research and development, may be siloed geographically, which may adversely affect the integration of our operations on a global scale.
We have limited experience in marketing, selling and supporting our platform abroad. Our limited experience in operating our business internationally increases the risk that any potential future expansion efforts that we may undertake will not be successful. If we invest substantial time and resources to increase our international revenue and are unable to do so successfully and in a timely manner, our business and results of operations will suffer.
We may face exposure to foreign currency exchange rate fluctuations.
Today, our international contracts are usually denominated in local currencies and the majority of our international costs are denominated in local currencies. Over time, an increasing portion of our international contracts may be denominated in local currencies. Therefore, fluctuations in the value of the U.S. dollar and foreign currencies may affect our results of operations when translated into U.S. dollars. We do not currently engage in currency hedging activities to limit the risk of exchange rate fluctuations. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.
Exposure to political developments in the United Kingdom, including the outcome of the U.K. referendum on membership in the EU, could harm us.
In June 2016, a referendum was held on the United Kingdom's membership in the EU, the outcome of which was a vote in favor of leaving the EU. The United Kingdom's vote to leave the EU creates an uncertain political and economic environment in the United Kingdom and potentially across other EU member states, which may last for a number of months or years.
The result of the referendum means that the long-term nature of the United Kingdom's relationship with the EU is unclear and that there is considerable uncertainty as to when any such relationship will be agreed and implemented. The political and economic instability created by the United Kingdom's vote to leave the EU has caused and may continue to cause significant volatility in global financial markets and the value of the British Pound or other currencies, including the Euro. Depending on the terms reached regarding any exit from the EU, it is possible that there may be adverse practical or operational implications on our business.
Our international operations may give rise to potentially adverse tax consequences.
Our corporate structure and associated transfer pricing policies anticipate future growth into the international markets. The amount of taxes we pay in different jurisdictions may depend on the application of the tax laws of the various jurisdictions, including the United States, to our international business activities, changes in tax rates, new or revised tax laws or interpretations of existing tax laws and policies and our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for pricing intercompany transactions, which are generally required to be computed on an arm's-length basis pursuant to intercompany arrangements or disagree with our determinations as to the income and expenses attributable to
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specific jurisdictions. If such a challenge or disagreement were to occur, and our position was not sustained, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations. Our financial statements could fail to reflect adequate reserves to cover such a contingency.
Changes in tax laws or regulations in the various tax jurisdictions we are subject to that are applied adversely to us or our customers could increase the costs of our solutions and harm our business.
New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time. Those enactments could harm our domestic and international business operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us. These events could require us or our customers to pay additional tax amounts on a prospective or retroactive basis, as well as require us or our customers to pay fines and/or penalties and interest for past amounts deemed to be due. If we raise our prices to offset the costs of these changes, existing and potential future customers may elect not to purchase our solutions in the future. Additionally, new, changed, modified or newly interpreted or applied tax laws could increase our customers' and our compliance, operating and other costs, as well as the costs of our solutions. Further, these events could decrease the capital we have available to operate our business. Any or all of these events could harm our business and financial performance.
Comprehensive tax reform legislation could adversely affect our business and financial condition.
On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017, or the Tax Act, that significantly reforms the Internal Revenue Code of 1986, as amended, or the Code. The Tax Act, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest and net operating loss carryforwards, allows for the expensing of capital expenditures, and puts into effect the migration from a "worldwide" system of taxation to a territorial system. While we have reflected the expected impact of the Tax Act in our financial statements in accordance with our understanding of the Tax Act and available guidance, the ultimate effects of the Tax Act remain uncertain. The U.S. Department of Treasury may issue regulations and guidance that may significantly impact how the Tax Act applies to us and resulting changes may have an adverse impact on our results of operations, cash flows and financial condition.
If we cannot maintain our corporate culture as we grow, our business may be harmed.
We believe that our corporate culture has been a critical component to our success and that our culture creates an environment that drives and perpetuates our overall business strategy. We have invested substantial time and resources in building our team and we expect to continue to hire aggressively as we expand, including with respect to our international operations. As we grow and mature as a public company and grow internationally, we may find it difficult to maintain our corporate culture. Any failure to preserve our culture could negatively affect our future success, including our ability to recruit and retain personnel and effectively focus on and pursue our business strategy.
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We have identified a material weakness in our internal control over financial reporting and, if we are unable to remediate this material weakness, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis. During the course of preparing for this offering, we identified a material weakness in our internal control over financial reporting as we did not design and maintain effective controls related to the quarterly accounting for income taxes. Specifically, we did not design and maintain effective controls related to the preparation, analysis and review of the interim income tax provision and significant income tax balance sheet accounts required to assess the accuracy and completeness of the income tax amounts reported within the consolidated financial statements at period end. This material weakness resulted in the restatement of the interim financial statements as of and for the nine months ended September 30, 2018, as well as the financial information for each of the quarters within 2018.
The control deficiency could result in a misstatement of these accounts or disclosures that would result in a material misstatement of our interim consolidated financial statements that would not be prevented or detected, and accordingly, we determined that the control deficiency constitutes a material weakness.
We are working to remediate this material weakness through the development and implementation of processes and controls over the preparation of the interim tax provision and related tax assets and liabilities. Specifically:
While new controls have been designed and implemented, they have not operated for a sufficient period of time to demonstrate the material weakness has been remediated. We cannot assure you that the measures we have taken to date will be sufficient to remediate the material weakness we identified or avoid the identification of additional material weaknesses in the future. Although we plan to complete this remediation process soon, if the steps we take do not remediate the material weakness in a timely manner, there could continue to be a reasonable possibility that this control deficiency or others could result in a material misstatement of our annual or interim financial statements that would not be prevented or detected on a timely basis.
As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal control over financial reporting in order to comply with Section 404 of the Sarbanes-Oxley Act. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 of the Sarbanes-Oxley Act. We may not be able to
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complete our evaluation, testing and any required remediation prior to becoming a public company or in a timely manner thereafter. See " We have identified a material weakness in our internal control over financial reporting and, if we are unable to remediate this material weakness, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock." If we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC.
We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting as of the end of the fiscal year that coincides with the filing of our second annual report on Form 10-K. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. We will also be required to disclose changes made in our internal control and procedures on a quarterly basis. However, our independent registered public accounting firm will not be required to report on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act until the later of the year following our first annual report required to be filed with the SEC, or the date we are no longer an "emerging growth company" as defined in the JOBS Act if we take advantage of the exemptions contained in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.
Additionally, the existence of any material weakness, including our existing material weakness regarding accounting for quarterly income taxes, or significant deficiency would require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations and cause shareholders to lose confidence in our reported financial information, all of which could materially and adversely affect our business and stock price. To comply with the requirements of being a public company, we may need to undertake various costly and time-consuming actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff, which may adversely affect our business, financial condition and results of operations.
Our management team has limited experience managing a public company.
Most members of our management team have limited experience managing a publicly-traded company, interacting with public company investors, and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage us as a public company that is subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, results of operations and financial condition.
We face risks associated with having operations and employees located in Israel.
We have an office and employees located in Israel. As a result, political, economic, and military conditions in Israel directly affect our operations. The future of peace efforts between Israel
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and its Arab neighbors remains uncertain. There has been a significant increase in hostilities and political unrest between Hamas and Israel in the past few years. The effects of these hostilities and violence on the Israeli economy and our operations in Israel are unclear, and we cannot predict the effect on us of further increases in these hostilities or future armed conflict, political instability or violence in the region. Current or future tensions and conflicts in the Middle East could adversely affect our business, operating results, financial condition and cash flows.
In addition, many of our employees in Israel are obligated to perform annual reserve duty in the Israeli military and are subject to being called for active duty under emergency circumstances. We cannot predict the full impact of these conditions on us in the future, particularly if emergency circumstances or an escalation in the political situation occurs. If many of our employees in Israel are called for active duty for a significant period of time, our operations and our business could be disrupted and may not be able to function at full capacity. Any disruption in our operations in Israel could adversely affect our business.
A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks, such as increased competitive pressures, administrative delays and additional approval requirements.
A portion of our revenue is generated by sales to U.S. and foreign federal, state and local governmental agency customers, and we may in the future increase sales to government entities. Selling to government entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that we will complete a sale or imposing terms of sale which are less favorable than the prevailing market terms. Government demand and payment for our solutions and services may be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our solutions. Governments routinely investigate and audit government contractors' administrative processes and any unfavorable audit could result in fines, civil or criminal liability, further investigations, damage to our reputation and debarment from further government business.
Catastrophic events may disrupt our business.
Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could harm our business. In the event of a major earthquake, hurricane or catastrophic event such as fire, power loss, telecommunications failure, cyberattack, war or terrorist attack, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our application development, lengthy interruptions in our solutions, breaches of data security and loss of critical data, all of which could adversely affect our business, results of operations and financial condition. In addition, the insurance we maintain may not be adequate to cover our losses resulting from disasters or other business interruptions.
Certain estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate.
This prospectus includes our internal estimates of the addressable market for identity solutions. Market opportunity estimates and growth forecasts, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The estimates and forecasts in this prospectus relating to the size and expected growth of our target market, market demand and adoption, capacity to address this demand and pricing may prove to be inaccurate. In particular, our estimates regarding our current and projected market opportunity is difficult to predict. In
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addition, our internal estimates of the addressable market for IAM solutions reflects the opportunity available from all participants and potential participants in the market. The addressable market we estimate may not materialize for many years, if ever, and even if the markets in which we compete meet the size estimates and growth forecasted in this prospectus, our business could fail to grow at similar rates, if at all.
Risks Relating to Our Indebtedness
Our existing indebtedness could adversely affect our business and growth prospects.
As of June 30, 2019, we had total current and long-term indebtedness outstanding of $248.2 million, including (i) $247.5 million outstanding under our term loan facility, or our Term Loan Facility, (ii) no borrowings outstanding under our revolving credit facility, or our Revolving Credit Facility, and together with the Term Loan Facility, our Credit Facilities and (iii) $0.7 million of outstanding letters of credit. In addition, as of June 30, 2019, we had $25.0 million of additional borrowing capacity under our Revolving Credit Facility. All obligations under the Credit Agreement are secured by first-priority perfected security interests in substantially all of our assets and the assets of our subsidiaries, subject to permitted liens and other exceptions. Our indebtedness, or any additional indebtedness we may incur, could require us to divert funds identified for other purposes for debt service and impair our liquidity position. If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds. We do not know whether we will be able to take any of these actions on a timely basis, on terms satisfactory to us or at all.
Our indebtedness, the cash flow needed to satisfy our debt and the covenants contained in our Credit Facilities have important consequences, including:
Our level of indebtedness may place us at a competitive disadvantage to our competitors that are not as highly leveraged. Fluctuations in interest rates can increase borrowing costs. Increases in interest rates may directly impact the amount of interest we are required to pay and reduce earnings accordingly. In addition, developments in tax policy, such as the disallowance of tax deductions for interest paid on outstanding indebtedness, could have an adverse effect on our liquidity and our business, financial conditions and results of operations. Further, our Credit Facilities contain customary affirmative and negative covenants and certain restrictions on operations that could impose operating and financial limitations and restrictions on us, including restrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or necessary for our business. Our Term Loan Facility is also subject to mandatory prepayments in certain circumstances and requires a prepayment of a certain percentage of our excess cash flow. This excess cash flow payment, and future required prepayments, will reduce our cash available for investment in our business.
We expect to use cash flow from operations to meet current and future financial obligations, including funding our operations, debt service requirements and capital expenditures. The ability to make these payments depends on our financial and operating performance, which is subject to
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prevailing economic, industry and competitive conditions and to certain financial, business, economic and other factors beyond our control.
Despite current indebtedness levels and restrictive covenants, we may still be able to incur substantially more indebtedness or make certain restricted payments, which could further exacerbate the risks associated with our substantial indebtedness.
We may be able to incur significant additional indebtedness in the future. Although the financing documents governing our Credit Facilities contain restrictions on the incurrence of additional indebtedness and liens, these restrictions are subject to a number of important qualifications and exceptions, and the additional indebtedness and liens incurred in compliance with these restrictions could be substantial.
The financing documents governing our Credit Facilities permit us to incur certain additional indebtedness, including liabilities that do not constitute indebtedness as defined in the financing documents. We may also consider investments in joint ventures or acquisitions, which may increase our indebtedness. In addition, financing documents governing our Credit Facilities do not restrict our Sponsor from creating new holding companies that may be able to incur indebtedness without regard to the restrictions set forth in the financing documents governing our Credit Facilities. If new debt is added to our currently anticipated indebtedness levels, the related risks that we face could intensify.
We may not be able to generate sufficient cash flow to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under such indebtedness, which may not be successful.
Our ability to make scheduled payments or to refinance outstanding debt obligations depends on our financial and operating performance, which will be affected by prevailing economic, industry and competitive conditions and by financial, business and other factors beyond our control. We may not be able to maintain a sufficient level of cash flow from operating activities to permit us to pay the principal, premium, if any, and interest on the our indebtedness. Any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which would also harm our ability to incur additional indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or seek to restructure or refinance our indebtedness. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such cash flows and resources, we could face substantial liquidity problems and might be required to sell material assets or operations to attempt to meet our debt service obligations. The financing documents governing our Credit Facilities restrict our ability to conduct asset sales and/or use the proceeds from asset sales. We may not be able to consummate these asset sales to raise capital or sell assets at prices and on terms that we believe are fair and any proceeds that we do receive may not be adequate to meet any debt service obligations then due. If we cannot meet our debt service obligations, the holders of our indebtedness may accelerate such indebtedness and, to the extent such indebtedness is secured, foreclose on our assets. In such an event, we may not have sufficient assets to repay all of our indebtedness.
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The terms of the financing documents governing our Credit Facilities restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.
The financing documents governing our Credit Facilities contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including restrictions on our ability to:
You should read the discussion under the heading "Description of Certain Indebtedness" for further information about these covenants.
The restrictive covenants in the financing documents governing our Credit Facilities require us to maintain specified financial ratios and satisfy other financial condition tests to the extent applicable. Our ability to meet those financial ratios and tests can be affected by events beyond our control.
A breach of the covenants or restrictions under the financing documents governing our Credit Facilities could result in an event of default under such documents. Such a default may allow the creditors to accelerate the related debt, which may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In the event the holders of our indebtedness accelerate the repayment, we may not have sufficient assets to repay that indebtedness or be able to borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms or on terms acceptable to us. As a result of these restrictions, we may be:
These restrictions, along with restrictions that may be contained in agreements evidencing or governing other future indebtedness, may affect our ability to grow in accordance with our growth strategy.
We may be unable to refinance our indebtedness.
We may need to refinance all or a portion of our indebtedness before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on commercially reasonable terms, or at all.
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A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital.
Our debt currently has a non-investment grade rating, and any rating assigned could be lowered or withdrawn entirely by a rating agency if, in that rating agency's judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. Any future lowering of our ratings likely would make it more difficult or more expensive for us to obtain additional debt financing
Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies in the future could reduce our ability to compete successfully and harm our results of operations.
We may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms or at all. If we raise additional equity financing, our security holders may experience significant dilution of their ownership interests. If we engage in additional debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness, force us to maintain specified liquidity or other ratios or restrict our ability to pay dividends or make acquisitions. If we need additional capital and cannot raise it on acceptable terms, or at all, we may not be able to, among other things:
In addition, our Credit Facilities also limit our ability to incur additional debt and therefore we likely would have to amend our Credit Facilities or issue additional equity to raise capital. If we issue additional equity, your interest in us will be diluted.
Risks Relating to Our Common Stock and This Offering
Vista controls us, and its interests may conflict with ours or yours in the future.
Immediately following this offering, Vista will beneficially own approximately % of our common stock, or % if the underwriters exercise in full their option to purchase additional shares, which means that, based on its percentage voting power held after the offering, Vista will control the vote of all matters submitted to a vote of our board of directors, or our Board, or shareholders, which will enable it to control the election of the members of the Board and all other corporate decisions. Even when Vista ceases to own shares of our stock representing a majority of the total voting power, for so long as Vista continues to own a significant percentage of our stock, Vista will still be able to significantly influence the composition of our Board and the approval of actions requiring shareholder approval. Accordingly, for such period of time, Vista will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers, decisions on whether to raise future capital and amending our charter and bylaws, which govern the rights attached to our common stock. In particular, for so long as Vista continues to own a significant percentage of our stock, Vista will be able to cause or prevent a change of control of us or a change in the composition of our Board and could preclude any unsolicited acquisition of us. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of us and ultimately might affect the market price of our common stock.
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In addition, in connection with this offering, we will enter into a Director Nomination Agreement with Vista that provides Vista the right to designate: (i) all of the nominees for election to our Board for so long as Vista beneficially owns 40% or more of the total number of shares of our common stock it owns as of the date of this offering; (ii) a number of directors (rounded up to the nearest whole number) equal to 40% of the total directors for so long as Vista beneficially owns at least 30% and less than 40% of the total number of shares of our common stock it owns as of the date of this offering; (iii) a number of directors (rounded up to the nearest whole number) equal to 30% of the total directors for so long as Vista beneficially owns at least 20% and less than 30% of the total number of shares of our common stock it owns as of the date of this offering; (iv) a number of directors (rounded up to the nearest whole number) equal to 20% of the total directors for so long as Vista beneficially owns at least 10% and less than 20% of the total number of shares of our common stock it owns as of the date of this offering; and (v) one director for so long as Vista beneficially owns at least 5% and less than 10% of the total number of shares of our common stock it owns as of the date of this offering. The Director Nomination Agreement will also provide that Vista may assign such right to a Vista affiliate. The Director Nomination Agreement will prohibit us from increasing or decreasing the size of our Board without the prior written consent of Vista. See "Certain Relationships and Related Party Transactions Related Party Transactions Director Nomination Agreement" for more details with respect to the Director Nomination Agreement.
Vista and its affiliates engage in a broad spectrum of activities, including investments in the information and business services industry generally. In the ordinary course of their business activities, Vista and its affiliates may engage in activities where their interests conflict with our interests or those of our other shareholders, such as investing in or advising businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. Our certificate of incorporation to be effective in connection with the closing of this offering will provide that none of Vista, any of its affiliates or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his director and officer capacities) or its affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. Vista also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, Vista may have an interest in pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to you.
Upon listing of our shares on NASDAQ, we will be a "controlled company" within the meaning of the rules of NASDAQ and, as a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections as those afforded to stockholders of companies that are subject to such governance requirements.
After completion of this offering, the Vista Funds will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a "controlled company" within the meaning of the corporate governance standards of NASDAQ. Under these rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance requirements, including:
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Following this offering, we intend to utilize these exemptions. As a result, we may not have a majority of independent directors on our Board, our Compensation and Nominating Committee may not consist entirely of independent directors and our Compensation and Nominating Committee may not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of NASDAQ.
We are an "emerging growth company" and we expect to elect to comply with reduced public company reporting requirements, which could make our common stock less attractive to investors.
We are an "emerging growth company", as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we are eligible for certain exemptions from various public company reporting requirements. These exemptions include, but are not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley, (ii) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements, (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved and (iv) not being required to provide audited financial statements for the year ended December 31, 2016, or five years of Selected Consolidated Financial Data, in this prospectus. We could be an emerging growth company for up to five years after the first sale of our common stock pursuant to an effective registration statement under the Securities Act, which fifth anniversary will occur in 2024. However, if certain events occur prior to the end of such five-year period, including if we become a "large accelerated filer", our annual gross revenue exceeds $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we would cease to be an emerging growth company prior to the end of such five-year period. We have made certain elections with regard to the reduced disclosure obligations regarding executive compensation in this prospectus and may elect to take advantage of other reduced disclosure obligations in future filings. As a result, the information that we provide to holders of our common stock may be different than you might receive from other public reporting companies in which you hold equity interests. We cannot predict if investors will find our common stock less attractive as a result of our reliance on these exemptions. If some investors find our common stock less attractive as a result of any choice we make to reduce disclosure, there may be a less active trading market for our common stock and the market price for our common stock may be more volatile.
Under the JOBS Act, emerging growth companies may also elect to delay adoption of new or revised accounting standards until such time as those standards apply to private companies. We have elected to "opt-in" to this extended transition period for complying with new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that comply with such new or revised accounting standards on a non-delayed basis.
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The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we are no longer an "emerging growth company".
As a public company, we will incur legal, accounting and other expenses that we did not previously incur. We will become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Sarbanes-Oxley Act, the listing requirements of NASDAQ and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an "emerging growth company". The Exchange Act requires that we file annual, quarterly and current reports with respect to our business, financial condition and results of operations. The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures for financial reporting. Furthermore, the need to establish the corporate infrastructure demanded of a public company may divert our management's attention from implementing our growth strategy, which could prevent us from improving our business, financial condition and results of operations. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. In addition, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These additional obligations could have a material adverse effect on our business, financial condition and results of operations.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of our management's time and attention from sales-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and could have a material adversely effect on our business, financial condition and results of operations.
Provisions of our corporate governance documents could make an acquisition of us more difficult and may prevent attempts by our shareholders to replace or remove our current management, even if beneficial to our shareholders.
In addition to Vista's beneficial ownership of % of our common stock after this offering (or %, if the underwriters exercise in full their option to purchase additional shares), our certificate of incorporation and bylaws to be effective in connection with the closing of this offering and the Delaware General Corporation Law, or the DGCL, contain provisions that could make it more
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difficult for a third party to acquire us, even if doing so might be beneficial to our shareholders. Among other things:
Our certificate of incorporation to be effective in connection with the closing of this offering will contain a provision that provides us with protections similar to Section 203 of the DGCL, and will prevent us from engaging in a business combination with a person (excluding Vista and any of its direct or indirect transferees and any group as to which such persons are a party) who acquires at least 15% of our common stock for a period of three years from the date such person acquired such common stock, unless board or shareholder approval is obtained prior to the acquisition. See "Description of Capital Stock Anti-Takeover Effects of Our Certificate of Incorporation and Our Bylaws". These provisions could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors of your choosing and cause us to take other corporate actions you desire, including actions that you may deem advantageous, or negatively affect the trading price of our common stock. In addition, because our Board is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our shareholders to replace current members of our management team.
These and other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for shareholders or potential acquirers to obtain control of our Board or initiate actions that are opposed by our then-current Board, including delay or impede a merger, tender
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offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction.
For information regarding these and other provisions, see "Description of Capital Stock".
Our certificate of incorporation will designate the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our shareholders, which could limit our shareholders' ability to obtain a favorable judicial forum for disputes with us.
Pursuant to our certificate of incorporation to be effective in connection with the closing of this offering, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our shareholders, (3) any action asserting a claim against us arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws or (4) any other action asserting a claim against us that is governed by the internal affairs doctrine; provided that for the avoidance of doubt, the forum selection provision that identifies the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation, including any "derivative action", will not apply to suits to enforce a duty or liability created by Securities Act, the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Our certificate of incorporation will further provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the provisions of our certificate of incorporation described above. See "Description of Capital Stock Exclusive Forum". The forum selection clause in our certificate of incorporation may have the effect of discouraging lawsuits against us or our directors and officers and may limit our shareholders' ability to obtain a favorable judicial forum for disputes with us.
If you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of your investment.
The initial public offering price of our common stock is substantially higher than the as adjusted net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our as adjusted net tangible book value per share after this offering. Based on an assumed initial public offering price of $ per share, the mid-point of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of $ per share, representing the difference between our as adjusted net tangible book value per share after giving effect to this offering and the initial public offering price. In addition, purchasers of common stock in this offering will have contributed % of the aggregate price paid by all purchasers of our common stock but will own only approximately % of our common stock outstanding after this offering. See "Dilution" for more detail.
An active, liquid trading market for our common stock may not develop, which may limit your ability to sell your shares.
Prior to this offering, there was no public market for our common stock. Although we have applied to list our common stock on NASDAQ under the symbol "PING", an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price will be determined by negotiations between us and the underwriters and may not be indicative of market prices of our common stock that will prevail in the open market after the offering. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, such
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existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control. The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of our common stock. The market price of our common stock may decline below the initial public offering price, and you may not be able to sell your shares of our common stock at or above the price you paid in this offering, or at all. An inactive market may also impair our ability to raise capital to continue to fund operations by issuing shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.
Our operating results and stock price may be volatile, and the market price of our common stock after this offering may drop below the price you pay.
Our quarterly operating results are likely to fluctuate in the future. In addition, securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could subject the market price of our shares to wide price fluctuations regardless of our operating performance. Our operating results and the trading price of our shares may fluctuate in response to various factors, including:
These and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for our shares to fluctuate substantially. Fluctuations in our quarterly operating results could limit or prevent investors from readily selling their shares and may otherwise negatively affect the market price and liquidity of our shares. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.
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A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
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. After this offering, we will have outstanding shares of common stock based on the number of shares outstanding as of June 30, 2019. This includes shares that we are selling in this offering, which may be resold in the public market immediately. Following the consummation of this offering, shares that are not being sold in this offering will be subject to a 180-day lock-up period provided under lock-up agreements executed in connection with this offering described in "Underwriting" and restricted from immediate resale under the federal securities laws as described in "Shares Eligible for Future Sale". All of these shares will, however, be able to be resold after the expiration of the lock-up period, as well as pursuant to customary exceptions thereto or upon the waiver of the lock-up agreement by Goldman Sachs & Co. LLC on behalf of the underwriters. We also intend to register shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements. As restrictions on resale end, the market price of our stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
Because we have no current plans to pay regular cash dividends on our common stock following this offering, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.
We do not anticipate paying any regular cash dividends on our common stock following this offering. Any decision to declare and pay dividends in the future will be made at the discretion of our Board and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our Board may deem relevant. In addition, our ability to pay dividends is, and may be, limited by covenants of existing and any future outstanding indebtedness we or our subsidiaries incur, including under our Credit Facilities. Therefore, any return on investment in our common stock is solely dependent upon the appreciation of the price of our common stock on the open market, which may not occur. See "Dividend Policy" for more detail.
If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our shares or if our results of operations do not meet their expectations, our stock price and trading volume could decline.
The trading market for our shares will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could decline.
We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.
Our certificate of incorporation will authorize us to issue one or more series of preferred stock. Our Board will have the authority to determine the preferences, limitations and relative rights of the
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shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our shareholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium to the market price, and materially adversely affect the market price and the voting and other rights of the holders of our common stock.
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This prospectus contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this prospectus are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate", "estimate", "expect", "project", "plan", "intend", "believe", "may", "will", "should", "can have", "likely" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected costs, expenditures, cash flows, growth rates and financial results or our plans and objectives for future operations, growth initiatives, or strategies are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:
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We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this prospectus. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other SEC filings and public communications. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.
We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
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Unless otherwise indicated, information in this prospectus concerning economic conditions, our industry, our markets and our competitive position is based on a variety of sources, including information from independent industry analysts and publications, as well as our own estimates and research. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we believe the information presented in this prospectus is generally reliable, forecasts, assumptions, expectations, beliefs, estimates and projects involve risk and uncertainties and are subject to change based on various factors, including those described under "Forward-Looking Statements" and "Risk Factors".
Certain information in the text of this prospectus is contained in independent industry publications. The sources of these independent industry publications are provided below:
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We estimate that our net proceeds from this offering will be approximately $ million (or approximately $ million if the underwriters' option to purchase additional shares is exercised in full), assuming an initial public offering price of $ per share, which is the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting the underwriting discount and estimated offering expenses payable by us.
The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock and enable access to the public equity markets for us and our shareholders. We intend to use our net proceeds from this offering for general corporate purposes. At this time, we have not specifically identified a large single use for which we intend to use the net proceeds, and, accordingly, we are not able to allocate the net proceeds among any potential uses in light of the variety of factors that will impact how such net proceeds are ultimately utilized by us. Pending use of the proceeds from this offering, we intend to invest the proceeds in a variety of capital preservation investments, including short-term, investment-grade and interest-bearing instruments.
We may also use a portion of our net proceeds to acquire or invest in complementary businesses, products, services or technologies. However, we do not have agreements or commitments for any acquisitions or investments at this time.
Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, would increase or decrease the net proceeds to us from this offering by approximately $ million, assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discount and estimated offering expenses payable by us.
Each 1,000,000 increase or decrease in the number of shares offered would increase or decrease the net proceeds to us from this offering by approximately $ million, assuming that the assumed initial public offering price per share for the offering remains at $ , which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, and after deducting the underwriting discount and estimated offering expenses payable by us.
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We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness and, therefore, we do not anticipate paying any cash dividends in the foreseeable future. Additionally, our ability to pay dividends on our common stock is limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions to us. Any future determination to pay dividends will be at the discretion of our Board, subject to compliance with covenants in current and future agreements governing our and our subsidiaries' indebtedness, and will depend on our results of operations, financial condition, capital requirements and other factors that our Board may deem relevant.
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The following table describes our cash and cash equivalents and capitalization as of June 30, 2019, as follows:
The as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table in conjunction with our consolidated financial statements and the related notes, "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
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As of June 30, 2019 |
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| | | | | | | |
|
Actual | As Adjusted for the Offering |
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(dollars in thousands) | ||||||
Cash and cash equivalents |
$ | 83,000 | $ | ||||
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| | | | | | | |
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Long term Debt, Including Current Portions: |
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Senior credit facilities: |
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Revolving Credit Facility |
$ | | $ | ||||
Term Loan Facility |
242,725 | ||||||
| | | | | | | |
Total long-term debt(1) |
242,725 | ||||||
Equity: |
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Preferred stock, $0.001 par value, 200,000 shares authorized and no shares issued and outstanding, actual; shares authorized, no shares issued and outstanding, as adjusted |
| | |||||
Common stock, $0.001 par value, 500,000 shares authorized, 383,185 shares issued and outstanding, actual, shares authorized, shares issued and outstanding, as adjusted |
| ||||||
Additional paid-in capital |
519,121 | ||||||
Accumulated other comprehensive income (loss) |
(472 | ) | |||||
Retained earnings (accumulated deficit) |
(9,275 | ) | |||||
| | | | | | | |
Total stockholders' equity |
509,374 | ||||||
| | | | | | | |
Total capitalization |
$ | 752,099 | $ | ||||
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| | | | | | | |
| | | | | | | |
A $1.00 increase or decrease in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease each of cash and cash equivalents, additional paid-in capital, total stockholders' equity and total capitalization on an as adjusted basis by approximately
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$ million, assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discount and estimated offering expenses payable by us.
Each 1,000,000 increase or decrease in the number of shares of common stock offered in this offering would increase or decrease each of cash and cash equivalents, additional paid-in capital, total stockholders' equity (deficit) and total capitalization on an as adjusted basis by approximately $ million, based on an assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting the underwriting discount and estimated offering expenses payable by us.
Except as otherwise indicated, the above discussion and table are based on shares of our common stock outstanding as of June 30, 2019 and excludes:
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If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock in this offering and the as adjusted net tangible book value per share of our common stock immediately after this offering.
As of June 30, 2019, we had a net tangible book value of $ million, or $ per share of common stock. Net tangible book value per share is equal to our total tangible assets, less total liabilities, divided by the number of outstanding shares of our common stock.
After giving effect to the sale of shares of common stock in this offering, after deducting the underwriting discount and estimated offering expenses payable by us, at an assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover of this prospectus, our as adjusted net tangible book value as of June 30, 2019 would have been $ million, or $ per share of common stock. This represents an immediate increase in net tangible book value of $ per share to our existing shareholders and an immediate dilution in net tangible book value of $ per share to investors participating in this offering at the assumed initial public offering price. The following table illustrates this per share dilution:
Assumed initial public offering price per share |
$ | ||||||
Historical net tangible book value per share as of June 30, 2019 |
$ | ||||||
Increase in net tangible book value per share attributable to the investors in this offering |
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| | | | | | | |
As adjusted net tangible book value per share after giving effect to this offering |
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Dilution in net tangible book value per share to the investors in this offering |
$ | ||||||
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| | | | | | | |
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A $1.00 increase or decrease in the assumed initial public offering price of $ per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, would increase or decrease our as adjusted net tangible book value per share after this offering by $ , and would increase or decrease the dilution per share to the investors in this offering by $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discount and estimated offering expenses payable by us. Similarly, each increase or decrease of one million shares in the number of shares of common stock offered by us would increase or decrease our as adjusted net tangible book value per share after this offering by $ and would increase or decrease dilution per share to investors in this offering by $ , assuming the assumed initial public offering price, which is the midpoint of the price range set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us.
If the underwriters exercise their option to purchase additional shares in full, the as adjusted net tangible book value per share after this offering would be $ , and the dilution in as adjusted net tangible book value per share to new investors in this offering would be $ .
The following table presents, on an as adjusted basis as described above, as of June 30, 2019, the differences between our existing shareholders and the investors purchasing shares of our common stock in this offering, with respect to the number of shares purchased, the total consideration paid to us, and the average price per share paid by our existing shareholders or to be paid to us by investors purchasing shares in this offering at an assumed offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this
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prospectus, before deducting the underwriting discount and estimated offering expenses payable by us.
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Average | ||||||||||||||
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Shares Purchased | Total Consideration | Price per |
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Number | Percentage | Amount | Percentage | Share |
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Existing shareholders |
% | $ | % | $ | |||||||||||
New investors |
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Total |
100 | % | $ | 100 | % | ||||||||||
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A $1.00 increase or in the assumed initial public offering price of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease the total consideration paid by new investors by $ million and increase or decrease the percent of total consideration paid by new investors by %, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and before deducting the underwriting discount and estimated offering expenses payable by us.
Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters' option to purchase additional shares. After giving effect to sales of shares in this offering, assuming the underwriters' option to purchase additional shares is exercised in full, our existing shareholders would own % and our new investors would own % of the total number of shares of our common stock outstanding after this offering.
In addition, to the extent we issue any additional stock options or any stock options are exercised, or we issue any other securities or convertible debt in the future, investors participating in this offering may experience further dilution.
Except as otherwise indicated, the above discussion and tables are based on shares of our common stock outstanding as of June 30, 2019 and exclude:
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SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present our selected consolidated financial data. The selected consolidated statements of operations data for the years ended December 31, 2017 and 2018 and the selected consolidated balance sheets data as of December 31, 2017 and 2018 are derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The selected consolidated statements of operations data for the six months ended June 30, 2018 and 2019 and the selected consolidated balance sheet data as of June 30, 2019 are derived from our unaudited interim consolidated financial statements that are included elsewhere in this prospectus. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, that are necessary for the fair statement of our unaudited interim consolidated financial statements.
Our historical results are not necessarily indicative of the results that may be expected in the future. You should read the selected historical financial data below in conjunction with the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes included elsewhere in this prospectus.
|
Year Ended December 31, |
Six Months Ended June 30, |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2018 | 2018 | 2019 | |||||||||
|
(in thousands, except share and per share amounts) |
||||||||||||
Consolidated Statements of Operations Data: |
|||||||||||||
Revenue: |
|||||||||||||
Subscription |
$ | 160,219 | $ | 184,991 | $ | 90,576 | $ | 103,892 | |||||
Professional services and other |
12,320 | 16,571 | 8,874 | 9,006 | |||||||||
| | | | | | | | | | | | | |
Total revenue |
172,539 | 201,562 | 99,450 | 112,898 | |||||||||
Cost of revenue: |
|||||||||||||
Subscription (exclusive of amortization shown below) |
14,054 | 17,512 | 8,259 | 10,833 | |||||||||
Professional service and other (exclusive of amortization shown below) |
9,155 | 12,703 | 5,837 | 6,916 | |||||||||
Amortization expense |
12,626 | 14,396 | 7,064 | 7,822 | |||||||||
| | | | | | | | | | | | | |
Total cost of revenue |
35,835 | 44,611 | 21,160 | 25,571 | |||||||||
| | | | | | | | | | | | | |
Gross profit |
136,704 | 156,951 | 78,290 | 87,327 | |||||||||
Operating Expenses: |
|||||||||||||
Sales and marketing(1) |
49,481 | 60,140 | 28,121 | 37,334 | |||||||||
Research and development(1) |
26,215 | 36,229 | 16,393 | 22,311 | |||||||||
General and administrative(1) |
20,202 | 28,355 | 13,079 | 15,748 | |||||||||
Depreciation and amortization |
16,526 | 16,341 | 8,356 | 8,274 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
112,424 | 141,065 | 65,949 | 83,667 | |||||||||
| | | | | | | | | | | | | |
Income from operations |
24,280 | 15,886 | 12,341 | 3,660 | |||||||||
Other Income (Expense): |
|||||||||||||
Interest expense |
(19,277 | ) | (15,837 | ) | (7,791 | ) | (8,249 | ) | |||||
Loss on extinguishment of debt |
| (9,785 | ) | (9,785 | ) | | |||||||
Other income (expense), net |
773 | (335 | ) | (912 | ) | 225 | |||||||
| | | | | | | | | | | | | |
Total other income (expense) |
(18,504 | ) | (25,957 | ) | (18,488 | ) | (8,024 | ) | |||||
| | | | | | | | | | | | | |
Income (loss) before income taxes |
5,776 | (10,071 | ) | (6,147 | ) | (4,364 | ) | ||||||
Benefit (provision) for income taxes |
13,185 | (3,375 | ) | 391 | 1,241 | ||||||||
| | | | | | | | | | | | | |
Net income (loss) |
$ | 18,961 | $ | (13,446 | ) | $ | (5,756 | ) | $ | (3,123 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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|
Year Ended December 31, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2018 | 2018 | 2019 | |||||||||
|
(in thousands, except share and per share amounts) |
||||||||||||
Per Share Data(2): |
|||||||||||||
Net income (loss) per share: |
|||||||||||||
Basic |
$ | 49.60 | $ | (35.17 | ) | $ | (15.05 | ) | $ | (8.17 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Diluted |
$ | 49.60 | $ | (35.17 | ) | $ | (15.05 | ) | $ | (8.17 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted-average shares used in computing net income (loss) per share: |
|||||||||||||
Basic |
382,258 | 382,365 | 382,364 | 382,425 | |||||||||
Diluted |
382,297 | 382,365 | 382,364 | 382,425 |
|
Year Ended December 31, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2018 | 2018 | 2019 | |||||||||
|
(in thousands) |
||||||||||||
Sales and marketing |
$ | 626 | $ | 726 | $ | 351 | $ | 410 | |||||
Research and development |
297 | 342 | 108 | 433 | |||||||||
General and administrative |
1,601 | 1,780 | 821 | 1,256 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 2,524 | $ | 2,848 | $ | 1,280 | $ | 2,099 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
December 31, | |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
June 30, 2019 |
|||||||||
|
2017 | 2018 | ||||||||
|
(in thousands) |
|||||||||
Consolidated Balance Sheets Data: |
||||||||||
Cash and cash equivalents |
$ | 20,969 | $ | 83,499 | $ | 83,000 | ||||
Working capital(1) |
$ | 69,487 | $ | 139,373 | 142,805 | |||||
Total assets |
$ | 776,223 | $ | 857,023 | 849,437 | |||||
Deferred revenue, current and noncurrent |
$ | 33,810 | $ | 35,367 | 35,490 | |||||
Long-term debt, including current portion(2) |
$ | 165,206 | $ | 243,551 | 242,725 | |||||
Total stockholders' equity |
$ | 520,680 | $ | 509,105 | 509,374 |
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides
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consistency and comparability with past financial performance and assists in comparisons with other companies, some of which use similar non-GAAP financial information to supplement their GAAP results. The non-GAAP financial information is presented for supplemental informational purposes only, and should not be considered a substitute for financial information presented in accordance with GAAP, and may be different from similarly-titled non-GAAP measures used by other companies. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures.
Free Cash Flow
Free Cash Flow is a supplemental measure of liquidity that is not made under GAAP and that does not represent, and should not be considered as, an alternative to cash flow from operations, as determined by GAAP. We define Free Cash Flow as net cash provided by (used in) operating activities less cash used for purchases of property and equipment and capitalized software development costs.
We use Free Cash Flow as one measure of the liquidity of our business. We believe that Free Cash Flow is a useful indicator of liquidity that provides information to management and investors about the amount of cash generated from our core operations that, after the purchases of property and equipment and capitalized software development costs, can be used for strategic initiatives, including investing in our business and selectively pursuing acquisitions and strategic investments. We further believe that historical and future trends in Free Cash Flow, even if negative, provide useful information about the amount of cash generated (or consumed) by our operating activities that is available (or is not available) to be used for strategic initiatives. For example, if Free Cash Flow is negative, we may need to access cash reserves or other sources of capital to invest in strategic initiatives. We also believe that the use of Free Cash Flow enables us to more effectively evaluate our liquidity period-over-period and relative to our competitors.
A reconciliation of Free Cash Flow to net cash flow provided by (used in) operations, the most directly comparable GAAP measure, is as follows:
|
Year Ended December 31, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2018 | 2018 | 2019 | |||||||||
|
(in thousands) |
||||||||||||
Net cash provided by operating activities |
$ | 3,423 | $ | 22,886 | $ | 13,015 | $ | 8,064 | |||||
Less: |
|||||||||||||
Purchases of property and equipment |
(2,519 | ) | (3,437 | ) | (1,362 | ) | (2,330 | ) | |||||
Capitalized software development costs |
(3,442 | ) | (6,310 | ) | (2,790 | ) | (4,492 | ) | |||||
| | | | | | | | | | | | | |
Free Cash Flow |
$ | (2,538 | ) | $ | 13,139 | $ | 8,863 | $ | 1,242 | ||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net cash used in investing activities |
$ |
(5,961 |
) |
$ |
(26,661 |
) |
$ |
(21,566 |
) |
$ |
(6,822 |
) |
|
Net cash provided by (used in) financing activities |
$ | 101 | $ | 67,102 | $ | 68,921 | $ | (1,951 | ) | ||||
Cash paid for interest |
$ | 20,758 | $ | 13,598 | $ | 5,960 | $ | 7,739 |
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Free Cash Flow has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. For example, Free Cash Flow does not represent the total increase or decrease in our cash balance for a given period. Because of these limitations, Free Cash Flow should not be considered as a replacement for cash flow from operations, as determined by GAAP, or as a measure of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.
Non-GAAP Gross Profit
Non-GAAP Gross Profit is a supplemental measure of operating performance that is not made under GAAP and that does not represent, and should not be considered as, an alternative to gross profit, as determined by GAAP. We define Non-GAAP Gross Profit as gross profit, adjusted for certain amortization expense of acquired intangible assets and software developed for internal use.
We use Non-GAAP Gross Profit to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short-term and long-term operating plans. We believe that Non-GAAP Gross Profit is a useful measure to us and to our investors because it provides consistency and comparability with our past financial performance and between fiscal periods, as the metric generally eliminates the effects of the variability of amortization of acquired intangibles and internal-use software from period to period, which may fluctuate for reasons unrelated to overall operating performance. We believe that the use of this measure enables us to more effectively evaluate our performance period-over-period and relative to our competitors.
A reconciliation of Non-GAAP Gross Profit to gross profit, the most directly comparable GAAP measure, is as follows:
|
Year Ended December 31, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2018 | 2018 | 2019 | |||||||||
|
(in thousands) |
||||||||||||
Gross profit |
$ | 136,704 | $ | 156,951 | $ | 78,290 | $ | 87,327 | |||||
Amortization expense |
12,626 | 14,396 | 7,064 | 7,822 | |||||||||
| | | | | | | | | | | | | |
Non-GAAP Gross Profit |
$ | 149,330 | $ | 171,347 | $ | 85,354 | $ | 95,149 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Non-GAAP Gross Profit has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, non-GAAP Gross Profit should not be considered as a replacement for gross profit, as determined by GAAP, or as a measure of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.
Adjusted EBITDA
Adjusted EBITDA is a supplemental measure of operating performance that is not made under GAAP and that does not represent, and should not be considered as, an alternative to net income (loss), as determined by GAAP. We define Adjusted EBITDA as net income (loss), adjusted for interest expense, loss on extinguishment of debt, benefit for income taxes, depreciation and amortization, stock-based compensation expense, acquisition related expense and other (income) expense.
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We use Adjusted EBITDA to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget, and to develop short-term and long-term operating plans. We believe that Adjusted EBITDA facilitates comparison of our operating performance on a consistent basis between periods, and when viewed in combination with our results prepared in accordance with GAAP, helps provide a broader picture of factors and trends affecting our results of operations.
A reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, is as follows:
|
Year Ended December 31, |
Six Months Ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2018 | 2018 | 2019 | |||||||||
|
(in thousands) |
||||||||||||
Net income (loss) |
$ | 18,961 | $ | (13,446 | ) | $ | (5,756 | ) | $ | (3,123 | ) | ||
Interest expense(1) |
19,277 | 15,837 | 7,791 | 8,249 | |||||||||
Loss on extinguishment of debt |
| 9,785 | 9,785 | | |||||||||
(Benefit) provision for income taxes |
(13,185 | ) | 3,375 | (391 | ) | (1,241 | ) | ||||||
Depreciation and amortization |
29,152 | 30,737 | 15,420 | 16,096 | |||||||||
Stock-based compensation expense |
2,524 | 2,848 | 1,280 | 2,099 | |||||||||
Acquisition related expense(2) |
| 6,666 | 3,175 | 2,277 | |||||||||
Other (income) expense, net(3) |
(773 | ) | 335 | 912 | (225 | ) | |||||||
| | | | | | | | | | | | | |
Adjusted EBITDA |
$ | 55,956 | $ | 56,137 | $ | 32,216 | $ | 24,132 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, Adjusted EBITDA should not be considered as a replacement for net income (loss), as determined by GAAP, or as a measure of our profitability. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only for supplemental purposes.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this prospectus. The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly in the sections entitled "Risk Factors" and "Forward-Looking Statements".
Ping is pioneering Intelligent Identity. We enable secure access to any service, application or API from any device. Our Intelligent Identity Platform can leverage AI and ML to analyze device, network, application and user behavior data to make real-time authentication and security control decisions, enhancing the user experience. Our platform is designed to detect anomalies and automatically insert additional security measures, such as multi-factor authentication, only when necessary. We built our platform to meet the requirements of the most demanding enterprises. Our platform can be deployed across cloud, hybrid and on-premise infrastructures, and offers a comprehensive suite of turnkey integrations and is able to scale to millions of identities and thousands of cloud and on-premise applications. As of June 30, 2019, our platform secures over two billion identities globally across our customer base.
Our Intelligent Identify Platform can secure all primary use cases, including customer, employee, partner and IoT. For example, enterprises can use our platform to enhance their customers' user experience by creating a single ID and login across web and mobile properties. For the year ended December 31, 2018, 44% of our subscription revenue was derived from the customer use case. Enterprises can also use our platform to provide their employees and commercial partners with secure, seamless access from any device to the applications, data and APIs they need to be productive. Enterprises are increasingly using our platform to manage and authenticate identities in a variety of IoT devices, such as connected vehicles and consumer devices.
We were born in the enterprise when we launched our SSO solution in 2003 with our first customer, a Fortune 100 financial services firm, to help it address its customer identity use case by delivering a unified, personalized and consistent log-in experience. Since then, we built our platform to meet the most demanding enterprise requirements, expanded our solutions and pioneered Intelligent Identity, as evidenced by the following key milestones.
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As of December 31, 2018, we had over 1,275 customers, including over 50% of the Fortune 100. Because our solutions were designed for enterprises, we primarily target customers with annual revenues in excess of $500 million. We define a customer as a separate legal entity with an individual subscription agreement and include in our customer count entities to which we have sold directly and entities that purchased one or more of our solutions from a reseller.
Our platform is comprised of six solutions (SSO, MFA, Access Security, Directory, Data Governance and API Intelligence) that can be purchased individually or as a set of integrated offerings. Our platform can be deployed across cloud, hybrid and on-premise infrastructures. Our offerings are predominately priced based on the number of identities, solutions and use cases.
We sell our platform through subscription-based contracts, primarily with either a 1-year or 3-year term, making the average contract term approximately 2 years. Substantially all of our customers pay annually in advance. We sell our solutions primarily through direct sales, which are enhanced by collaboration with our channel partners, resellers, system integrators and technology partners. Sixty percent of our new business for the year ended December 31, 2018 was channel-influenced, which includes sourcing new leads, aiding in pre-sale processes such as proof of concepts, demos or requests for proposals and reselling our solutions to customers. We also leverage a number of our channel partners and system integrators to provide the implementation services for some of our larger and more complex deployments, significantly increasing the time-to-value for our customers and maximizing the efficiency of our go-to-market efforts.
We focus our selling efforts on executives such as CIOs and CISOs who are often making strategic top-down decisions to purchase our platform. CIOs purchase our solutions as part of their digitalization initiatives to provide their customers with a more secure, unified, personalized and seamless end user experience across their digital services. CISOs purchase our solutions for an identity-centric security strategy as more applications, data, devices and users reside outside of the traditional network perimeter due to the adoption of cloud, mobile and IoT. We recently extended our cloud-based offering to target developers who represent a new addressable customer base for us.
The success of our strategy is validated by our strong dollar based net retention rates and our growing number of large customers. Our dollar-based net retention rates were 123%, 116% and 115% at December 31, 2017 and 2018 and June 30, 2019, respectively, and our dollar-based net retention rates have exceeded 115% for each of the past eight fiscal quarters. Our customers with ARR over $250,000 increased from 144 at December 31, 2017 to 202 at December 31, 2018, representing a growth rate of 40%. Our total customers increased from 1,264 at December 31, 2017 to 1,284 at December 31, 2018. The gross increase in total customers for the 2018 fiscal year was partially offset by customer churn, primarily consisting of low contract value churn of customers with ARR below $25,000. The increase of 58 net customers with ARR greater than $250,000 for the 2018 fiscal year is comprised of 16 new customers and 42 existing customers that had ARR grow to exceed $250,000 in 2018. Additionally, at December 31, 2018, we had 25 customers with greater than $1,000,000 in ARR. For definitions of dollar-based net retention rate and ARR and a description of how we calculate these metrics, see " Key Business Metrics".
At June 30, 2019, our top 15 customers accounted for 15% of total ARR, while our top 10 customers accounted for 11% of total ARR. Our customers come from a variety of industries, with customers in financial services accounting for 30% of our revenue for the six months ended
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June 30, 2019. Our customer base is diversified, with no one customer or reseller accounting for more than 5% of our total revenue for the six months ended June 30, 2019.
Our ARR was $147.0 million and $183.6 million at December 31, 2017 and 2018, respectively, representing year-over-year growth of 25%. Our ARR was $159.6 million and $198.0 million at June 30, 2018 and 2019, respectively, representing period-over-period growth of 24%. We have grown revenue from $172.5 million for the year ended December 31, 2017 to $201.6 million for the year ended December 31, 2018, representing year-over-year growth of 17%. We have grown revenue from $99.5 million for the six months ended June 30, 2018 to $112.9 million for the six months ended June 30, 2019, representing period-over-period growth of 14%. Our net income was $19.0 million for the year ended December 31, 2017. Our net loss was $13.4 million for the year ended December 31 2018. We had net losses of $5.8 million and $3.1 million for the six months ended June 30, 2018 and 2019, respectively. Our cash provided by operations was $3.4 million and $22.9 million for the year ended December 31, 2017 and 2018, respectively. Our cash provided by operations was $13.0 million and $8.1 million for the six months ended June 30, 2018 and 2019, respectively. Our Free Cash Flow was $(2.5) million and $13.1 million, for the year ended December 31, 2017 and 2018, respectively. Our Free Cash Flow was $8.9 million and $1.2 million for the six months ended June 30, 2018 and 2019, respectively. Free Cash Flow is a supplemental measure that is not calculated and presented in accordance with GAAP. See "Selected Consolidated Financial Data Non-GAAP Financial Measures" for a definition Free Cash Flow and a reconciliation to its most directly comparable GAAP financial measure.
Key Factors Affecting Our Performance
We believe that our future performance will depend on many factors, including the following:
Generate Additional Sales to Existing Customers
As part of our land and expand strategy, a customer journey often begins with the purchase of one of our solutions for one use case. Once customers realize the value of that solution, their spend with us expands by (i) adopting another identity use case, (ii) deploying additional solutions and/or (iii) adding more identities over time. As of June 30, 2019, our top 25 customers by ARR have increased their ARR on average by more than 25 times following their initial purchase.
As of December 31, 2018, only 13% of our customers had purchased three or more of our six solutions, providing a significant opportunity to drive incremental sales to our existing customers. Our future revenue growth is dependent upon our ability to continue to expand our customers' use of our platform. Our ability to increase sales to existing customers will depend on a number of factors, including satisfaction or dissatisfaction with our solutions, competition, pricing, economic conditions and spending by customers on our solutions. We have adopted a customer success strategy and implemented processes across our customer base to drive revenue retention and expansion.
Increase the Size of our Customer Base
We believe there is significant opportunity to increase market adoption of our platform by new customers. Our SSO, Access Security and Directory solutions often replace legacy and homegrown systems. We also have significant greenfield opportunities with our MFA, Data Governance and API Intelligence solutions and, increasingly, the IoT use case. To increase our customer base, we plan to expand our sales force and channel partner network, both domestically and internationally, enhance our marketing efforts and target new buyers. For example, we have extended our cloud-based offering to target developers, who represent a new potential buyer for us. Over time, we believe sales to developers could increase the size of our customer base.
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Maintain our Technology Differentiation and Product Leadership
Our Intelligent Identity Platform is designed for large enterprises with complex, hybrid IT requirements. We have spent over a decade building a standards-based platform with turnkey integrations designed to ensure that large enterprises can easily and rapidly deploy our platform within their complex infrastructures. We intend to continue making investments in research and development to extend our platform and technology capabilities while also expanding our solutions to address new use cases. For example, we recently released our API Intelligence solution that is designed to dynamically discover APIs that are inadvertently exposed and automatically detect and block attacks.
Invest for Growth
We believe that our market opportunity is large, and we plan to invest in order to continue to support further growth. This includes investing in our sales force and expanding our network of channel partners, resellers, system integrators and technology partners with which we partner to sell our Intelligent Identity Platform, both domestically and internationally. We have a large and growing international presence and intend to grow our customer base in various international regions by making investments in our sales team globally. In 2018, our international revenue was 23% of our total revenue. We expect international sales to be a meaningful revenue contributor in future periods.
Seasonality
Given the purchasing patterns of our enterprise customers, we typically experience seasonality in terms of when we receive orders from our customers. Our customers often time their purchases and renewals of our solutions to coincide with their fiscal year end, which is typically June 30 or December 31. Because of these purchasing patterns, a greater percentage of our annual subscription revenue from term-based licenses, the revenue from which is recognized up front at the later of delivery or commencement of the license term, has come from our second and fourth quarters than from other quarters. For the year ended December 31, 2018, 25% and 30% of our annual revenue was in our second and fourth quarter, respectively. We believe this seasonality will continue to affect our quarterly results and may become more pronounced.
In addition to our GAAP financial information, we review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
Annual Recurring Revenue
ARR represents the annualized value of all subscription contracts as of the end of the period. ARR mitigates fluctuations due to seasonality, contract term and the sales mix of subscriptions for term-based licenses and SaaS. ARR only includes the annualized value of subscription contracts. ARR does not have any standardized meaning and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of revenue and deferred revenue and is not intended to be combined with or to replace either of those items. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.
Our ARR was $147.0 million and $183.6 million at December 31, 2017 and 2018, respectively, representing year-over-year growth of 25%. Our ARR was $159.6 million and $198.0 million at June 30, 2018 and 2019, respectively, representing period-over-period growth of 24%.
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The table below sets forth our ARR as of the end of our last ten fiscal quarters.
|
As of | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
March 31, 2017 |
June 30, 2017 |
September 30, 2017 |
December 31, 2017 |
March 31, 2018 |
June 30, 2018 |
September 30, 2018 |
December 31, 2018 |
March 31, 2019 |
June 30, 2019 |
|||||||||||||||||||||
|
(in thousands) | ||||||||||||||||||||||||||||||
ARR |
$ | 115,320 | $ | 124,558 | $ | 132,439 | $ | 146,969 | $ | 151,729 | $ | 159,563 | $ | 167,659 | $ | 183,579 | $ | 190,476 | $ | 197,990 |
Dollar-Based Net Retention Rate
To further illustrate the land and expand economics of our customer relationships, we examine the rate at which our customers increase their subscriptions for our solutions. Our dollar-based net retention rate measures our ability to increase revenue across our existing customer base through expanded use of our platform, offset by customers whose subscription contracts with us are not renewed or renew at a lower amount.
We calculate our dollar-based net retention rate as of the end of a reporting period as follows:
The quotient obtained from this calculation is our dollar-based net retention rate. Our dollar-based net retention rates were 123%, 116% and 115% at December 31, 2017 and 2018 and June 30, 2019, respectively.
Large Customers
We believe that our ability to increase the number of customers on our platform, particularly the number of customers with greater than ARR of $250,000, demonstrates our focus on the large enterprise market and our penetration within those enterprises. Increasing awareness of our platform, further developing our sales and marketing expertise and channel partner ecosystem, and continuing to build solutions that address the unique identity needs of large enterprises have increased our number of large customers across industries. We believe there are significant upsell and cross-sell opportunities within our customer base by expanding the number of use cases, adding additional identities and selling new solutions.
Our customers with ARR over $250,000 increased from 144 at December 31, 2017 to 202 at December 31, 2018, representing a growth rate of 40%. Our total customers increased from 1,264 at December 31, 2017 to 1,284 at December 31, 2018. The gross increase in total customers for the 2018 fiscal year was partially offset by customer churn, primarily consisting of low contract value churn of customers with ARR below $25,000. Additionally, at December 31, 2018, we had 25 customers with greater than $1,000,000 in ARR.
Components of Results of Operations
Revenue
We recognize revenue under ASC 606. Under ASC 606, we recognize revenue when our customer obtains control of goods or services in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. See "Critical Accounting Policies Revenue Recognition".
We derive revenue primarily from sales of subscriptions for our solutions to new and existing customers and, to a lesser extent, sales of professional services.
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Subscription. Subscription revenue includes subscription term-based license revenue for solutions deployed on-premise within the customer's IT infrastructure, subscription support and maintenance revenue from our on-premise deployments, and SaaS subscriptions, which give customers the right to access our cloud-hosted software solutions. We typically invoice subscription fees annually in advance, though certain contracts require invoicing for the entire subscription in advance. Subscription term-based license revenue is recognized upon transfer of control of the software, which occurs at delivery or when the license term commences, if later. All of our support and maintenance revenue and revenue from SaaS subscriptions is recognized ratably over the term of the applicable agreement.
For the years ended December 31, 2017 and 2018, 71% and 66%, respectively, of our revenue was from subscription term-based licenses. For the six months ended June 30, 2018 and 2019, 66% and 65%, respectively, of our revenue was from subscription term-based licenses. We expect that a majority of our revenue will be from subscription term-based licenses for the foreseeable future. Changes in period-over-period subscription revenue growth are primarily impacted by the following factors:
While the number of new and increased subscriptions during a period impacts our subscription revenue growth, the type and duration of those subscriptions has a significantly greater impact on the amount and timing of revenue recognized in a period. Subscription revenue from term-based licenses is recognized at the beginning of the subscription term, while subscription revenue from SaaS and support and maintenance is recognized ratably over the subscription term. As a result, our revenue may fluctuate due to the timing of term-based licensing transactions. In addition, keeping other factors constant, when the percentage of subscription term-based licenses to total subscriptions sold or renewed in a period increases relative to the prior period, revenue growth will increase. Conversely, when the percentage of subscription SaaS and support and maintenance to total subscriptions sold or renewed in a period increases, revenue growth will generally decrease. A multi-year subscription term-based license will generally result in greater revenue recognition up-front relative to a one-year subscription term-based license. Therefore, keeping other factors constant, revenue growth will also trend higher in a period where the percentage of multi-year subscription term-based licenses to total subscription term-based licenses increases.
Professional Services and Other. Professional services and other revenue consists primarily of fees from professional services provided to our customers and partners to configure and optimize the use of our solutions, as well as training services related to the configuration and operation of our solutions. Our professional services are generally priced on a time and materials basis, which is generally invoiced monthly and for which revenue is recognized as the services are performed. Revenue from our training services and sponsorship fees is recognized on the date the services are complete. Over time, we expect our professional services revenue to remain relatively stable as a percentage of total revenue.
Cost of Revenue
Subscription. Subscription cost of revenue consists primarily of employee compensation costs for employees associated with supporting our subscription arrangements and certain third-party expenses. Employee compensation and related costs include cash compensation and benefits to employees, costs of third-party contractors and associated overhead costs. Third-party expenses consist of cloud infrastructure costs and other expenses directly associated with our
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customer support. We expect our subscription cost of revenue to increase in absolute dollars to the extent our subscription revenue increases.
Professional Services and Other. Professional services and other cost of revenue consists primarily of employee compensation costs directly associated with delivery of professional services and training, costs of third-party contractors and facility rental charges and other associated overhead costs. We expect our professional services and other cost of revenue to increase in absolute dollars relative to the growth of our business.
Amortization Expense. Amortization expense consists of amortization of developed technology and internal-use software.
Gross Profit and Gross Margin
Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, have been and will continue to be affected by various factors, including the timing of our acquisition of new customers and our renewal of and follow-on sales to existing customers, the mix of subscriptions for term-based licenses and SaaS subscriptions that we sell, the costs associated with operating our platform, the extent to which we expand our customer support team and the extent to which we can increase the efficiency of our technology and infrastructure through technological improvements. We expect our gross profit to increase in absolute dollars but our gross margin to remain consistent because we expect cost of subscription revenue to increase consistently with the growth in our subscription revenue, although our gross margin could fluctuate from period to period depending on the interplay of all of these factors.
Operating Expenses
Our operating expenses consist of sales and marketing, research and development and general and administrative expenses as well as depreciation and amortization. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, bonuses, payroll taxes and stock-based compensation expense.
Sales and Marketing. Sales and marketing expenses consist primarily of employee compensation costs, sales commissions, costs of general marketing and promotional activities, travel-related expenses and allocated overhead. Certain sales commissions earned by our sales force on subscription contracts are deferred and amortized over the period of benefit, which is generally four years. We expect to continue to invest in our sales force domestically and internationally, as well as in our channel relationships. We expect our sales and marketing expenses to increase on an absolute dollar basis and continue to be our largest operating expense category for the foreseeable future.
Research and Development. Research and development expenses consist primarily of employee compensation costs, allocated overhead and software and maintenance expenses. We will continue to invest in innovation and offer our customers new solutions to enhance our existing platform. See the section "Business Research and Development" for more information. We expect such investment to increase on an absolute dollar basis as our business grows.
General and Administrative. General and administrative expenses consist primarily of employee compensation costs for corporate personnel, such as those in our executive, human resource, legal, facilities, accounting and finance, information security and information technology departments. In addition, general and administrative expenses include third-party professional fees, as well as all other supporting corporate expenses not allocated to other departments. General and administrative expense also includes acquisition related expenses, which primarily consist of third-party expenses related to business acquisitions, such as professional services and legal fees.
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We expect our general and administrative expenses to increase on an absolute dollar basis as our business grows. Also, following the completion of this offering, we expect to incur additional general and administrative expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, and increased expenses for insurance, investor relations and professional services.
Depreciation and Amortization. Depreciation and amortization expense consists primarily of depreciation of our fixed assets and amortization of definite lived acquired intangible assets such as customer relationships, trade names and non-compete agreements.
Other Income (Expense)
Interest Expense. Interest expense consists primarily of interest payments on our outstanding borrowings under our Credit Facilities as well as the amortization of associated deferred financing costs. See " Liquidity and Capital Resources Senior Secured Credit Facility".
Other Income (Expense), Net. Other income (expense), net primarily consists of gains and losses from transactions denominated in a currency other than the functional currency, interest income and other income (expense). As we have expanded our international operations, our exposure to fluctuations in foreign currencies has increased, and we expect this to continue.
Provision for Income Taxes
Provision for income taxes consists primarily of income taxes related to U.S. federal and state income taxes and income taxes in foreign jurisdictions in which we conduct business.
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The following table sets forth our consolidated statements of operations data for the periods indicated:
|
Year Ended | Six Months Ended | |||||||||||
|
December 31, | June 30, | |||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | 2018 | 2019 | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Revenue: |
|||||||||||||
Subscription |
$ | 160,219 | $ | 184,991 | $ | 90,576 | $ | 103,892 | |||||
Professional services and other |
12,320 | 16,571 | 8,874 | 9,006 | |||||||||
| | | | | | | | | | | | | |
Total revenue |
172,539 | 201,562 | 99,450 | 112,898 | |||||||||
Cost of revenue: |
|||||||||||||
Subscription (exclusive of amortization shown below) |
14,054 | 17,512 | 8,259 | 10,833 | |||||||||
Professional service and other (exclusive of amortization shown below) |
9,155 | 12,703 | 5,837 | 6,916 | |||||||||
Amortization expense |
12,626 | 14,396 | 7,064 | 7,822 | |||||||||
| | | | | | | | | | | | | |
Total cost of revenue |
35,835 | 44,611 | 21,160 | 25,571 | |||||||||
| | | | | | | | | | | | | |
Gross profit |
136,704 | 156,951 | 78,290 | 87,327 | |||||||||
Operating Expenses: |
|||||||||||||
Sales and marketing(1) |
49,481 | 60,140 | 28,121 | 37,334 | |||||||||
Research and development(1) |
26,215 | 36,229 | 16,393 | 22,311 | |||||||||
General and administrative(1) |
20,202 | 28,355 | 13,079 | 15,748 | |||||||||
Depreciation and amortization |
16,526 | 16,341 | 8,356 | 8,274 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
112,424 | 141,065 | 65,949 | 83,667 | |||||||||
| | | | | | | | | | | | | |
Income from operations |
24,280 | 15,886 | 12,341 | 3,660 | |||||||||
Other Income (Expense): |
|||||||||||||
Interest expense |
(19,277 | ) | (15,837 | ) | (7,791 | ) | (8,249 | ) | |||||
Loss on extinguishment of debt |
| (9,785 | ) | (9,785 | ) | | |||||||
Other income (expense), net |
773 | (335 | ) | (912 | ) | 225 | |||||||
| | | | | | | | | | | | | |
Total other income (expense) |
(18,504 | ) | (25,957 | ) | (18,488 | ) | (8,024 | ) | |||||
| | | | | | | | | | | | | |
Income (loss) before income taxes |
5,776 | (10,071 | ) | (6,147 | ) | (4,364 | ) | ||||||
Benefit (provision) for income taxes |
13,185 | (3,375 | ) | 391 | 1,241 | ||||||||
| | | | | | | | | | | | | |
Net income (loss) |
$ | 18,961 | $ | (13,446 | ) | $ | (5,756 | ) | $ | (3,123 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
Year Ended | Six Months Ended |
|||||||||||
|
December 31, | June 30, | |||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | 2018 | 2019 | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Sales and marketing |
$ | 626 | $ | 726 | $ | 351 | $ | 410 | |||||
Research and development |
297 | 342 | 108 | 433 | |||||||||
General and administrative |
1,601 | 1,780 | 821 | 1,256 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 2,524 | $ | 2,848 | $ | 1,280 | $ | 2,099 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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The following table sets forth our consolidated statements of operations data expressed as a percentage of total revenue for the periods indicated:
|
Year Ended | Six Months Ended |
|||||||||||
|
December 31, | June 30, | |||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | 2018 | 2019 | |||||||||
| | | | | | | | | | | | | |
Revenue: |
|||||||||||||
Subscription |
93 | % | 92 | % | 91 | % | 92 | % | |||||
Professional services and other |
7 | 8 | 9 | 8 | |||||||||
| | | | | | | | | | | | | |
Total revenue |
100 | 100 | 100 | 100 | |||||||||
Cost of Revenue: |
|||||||||||||
Subscription (exclusive of amortization shown below) |
8 | 9 | 8 | 10 | |||||||||
Professional services and other (exclusive of amortization shown below) |
5 | 6 | 6 | 6 | |||||||||
Amortization expense |
7 | 7 | 7 | 7 | |||||||||
| | | | | | | | | | | | | |
Total cost of revenue |
20 | 22 | 21 | 23 | |||||||||
| | | | | | | | | | | | | |
Gross profit |
80 | 78 | 79 | 77 | |||||||||
Operating Expenses: |
|||||||||||||
Sales and marketing |
29 | 30 | 28 | 33 | |||||||||
Research and development |
15 | 18 | 16 | 20 | |||||||||
General and administrative |
12 | 14 | 13 | 14 | |||||||||
Depreciation and amortization |
10 | 8 | 8 | 7 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
66 | 70 | 65 | 74 | |||||||||
| | | | | | | | | | | | | |
Income from operations |
14 | 8 | 14 | 3 | |||||||||
Other Income (Expense): |
|||||||||||||
Interest expense |
(11 | ) | (8 | ) | (8 | ) | (7 | ) | |||||
Loss on extinguishment of debt |
| (5 | ) | (10 | ) | | |||||||
Other income (expense), net |
| | (1 | ) | | ||||||||
| | | | | | | | | | | | | |
Total other income (expense) |
(11 | ) | (13 | ) | (19 | ) | (7 | ) | |||||
| | | | | | | | | | | | | |
Income (loss) before income taxes |
3 | (5 | ) | (5 | ) | (4 | ) | ||||||
Benefit (provision) for income taxes |
8 | (2 | ) | | 1 | ||||||||
| | | | | | | | | | | | | |
Net income (loss) |
11 | % | (7 | )% | (5 | )% | (3 | )% | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Comparison of the Six Months Ended June 30, 2018 and 2019
Revenue
|
Six Months Ended June 30, |
||||||||||||
| | | | | | | | | | | | | |
|
2018 | 2019 | $ Change | % Change | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Revenue: |
|||||||||||||
Subscription |
$ | 90,576 | $ | 103,892 | $ | 13,316 | 15 | % | |||||
Professional services and other |
8,874 | 9,006 | 132 | 1 | % | ||||||||
| | | | | | | | | | | | | |
Total revenue |
$ | 99,450 | $ | 112,898 | $ | 13,448 | 14 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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Total revenue increased by $13.4 million, or 14%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. 99% of the increase in total revenue was due to an increase in subscription revenue of $13.3 million.
The table below sets forth the components of subscription revenue for the six months ended June 30, 2018 and 2019.
|
Six Months Ended June 30, |
||||||||||||
| | | | | | | | | | | | | |
|
2018 | 2019 | $ Change | % Change | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Subscription term-based licenses: |
|||||||||||||
Multi-year subscription term-based licenses |
$ | 44,510 | $ | 52,425 | $ | 7,915 | |||||||
1-year subscription term-based licenses |
21,445 | 21,082 | (363 | ) | |||||||||
| | | | | | | | | | | | | |
Total subscription term-based licenses |
65,955 | 73,507 | 7,552 | ||||||||||
Subscription SaaS and support and maintenance |
24,621 | 30,385 | 5,764 | ||||||||||
| | | | | | | | | | | | | |
Total subscription revenue |
$ | 90,576 | $ | 103,892 | $ | 13,316 | 15 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Subscription revenue increased 15%, or $13.3 million, in the six months ended June 30, 2019 compared to the six months ended June 30, 2018.
The change in subscription revenue was primarily due to the following:
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Cost of Revenue and Gross Margin
|
Six Months Ended June 30, |
||||||||||||
| | | | | | | | | | | | | |
|
2018 | 2019 | $ Change | % Change | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Cost of revenue: |
|||||||||||||
Subscription (exclusive of amortization shown below) |
$ | 8,259 | $ | 10,833 | $ | 2,574 | 31 | % | |||||
Professional services and other (exclusive of amortization shown below) |
5,837 | 6,916 | 1,079 | 18 | |||||||||
Amortization expense |
7,064 | 7,822 | 758 | 11 | |||||||||
| | | | | | | | | | | | | |
Total cost of revenue |
$ | 21,160 | $ | 25,571 | $ | 4,411 | 21 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Gross margin: |
|||||||||||||
Subscription (exclusive of amortization) |
91 | % | 90 | % | |||||||||
Professional services and other (exclusive of amortization) |
34 | % | 22 | % | |||||||||
Total gross margin |
79 | % | 77 | % |
Subscription cost of revenue increased by $2.6 million, or 31%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. $1.3 million of the increase was compensation-related and primarily attributable to an increase in headcount to support the growth of our subscription SaaS offerings and ongoing maintenance for our expanding customer base. $0.8 million of the increase was attributable to our increased cloud-based hosting costs largely associated with the increased adoption of our solutions. Substantially all of the remaining increase in subscription cost of revenue was due to an increase in allocated overhead.
Professional services and other cost of revenue increased by $1.1 million, or 18%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. $1.9 million of the increase was compensation related and primarily attributable to an increase in headcount to support growth of our business. This was partially offset by a decrease in consulting costs of $0.9 million. The remaining portion of the increase was primarily attributable to travel costs as well as allocated overhead.
Amortization expense increased by $0.8 million, or 11%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase was attributable primarily to an increase in the amortization of our capitalized software.
Gross Margin. Subscription gross margin was 91% and 90% for the six months ended June 30, 2018 and 2019, respectively as our cost of subscription revenue increased relatively consistently with the growth in our subscription revenue.
Professional services and other gross margin decreased to 22% for the six months ended June 30, 2019 compared to 34% for the six months ended June 30, 2018. The decrease was attributable primarily to an increase in headcount as we continue to grow our professional services team.
Total gross margin was 79% and 77% for the six months ended June 30, 2018 and 2019, respectively as our total costs of revenue increased at a greater rate year-over-year as compared to our total revenue due to our increased headcount.
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Operating Expenses
|
Six Months Ended June 30, |
||||||||||||
| | | | | | | | | | | | | |
|
2018 | 2019 | $ Change | % Change | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Sales and marketing |
$ | 28,121 | $ | 37,334 | $ | 9,213 | 33 | % | |||||
Research and development |
16,393 | 22,311 | 5,918 | 36 | |||||||||
General and administrative |
13,079 | 15,748 | 2,669 | 20 | |||||||||
Depreciation and amortization |
8,356 | 8,274 | (82 | ) | (1 | ) | |||||||
| | | | | | | | | | | | | |
Total operating expenses |
$ | 65,949 | $ | 83,667 | $ | 17,718 | 27 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Sales and Marketing. Sales and marketing expenses increased by $9.2 million, or 33%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. $6.5 million of the increase was the result of increased commissions related to the increase in revenue, the increase in our sales force domestically and internationally and continued investment in our channel relationships. As our headcount increased, we also experienced a related increase in travel costs of $0.4 million as well as increased promotional expenses of $1.1 million primarily related to tradeshows and event sponsorships for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. Substantially all of the remaining increase in sales and marketing expenses was the result of increased partner commissions and consulting costs, as well as allocated overhead.
Research and Development. Research and development expenses increased by $5.9 million, or 36%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. $4.4 million of the increase was compensation-related and primarily the result of an increase in headcount to enhance and expand our solutions. Additionally, $0.5 million of the increase related to contingent compensation and retention expense for Elastic Beam, which we acquired in April 2018 (as further discussed in Note 5 of our consolidated financial statements appearing elsewhere in this prospectus). An additional $0.7 million was related to an increase in consulting costs. Substantially all of the remaining increase in research and development expenses was the result of increased software and maintenance expenses, primarily cloud-based hosting costs to support our development efforts for our SaaS offerings, and allocated overhead.
General and Administrative. General and administrative expenses increased by $2.7 million, or 20%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. $4.1 million of the increase was the result of an increase in corporate headcount to support the growth and scale of the business. This was partially offset by a decrease in acquisition costs of $1.4 million, $0.6 million of which related to our acquisition of Elastic Beam in April 2018. The remaining increase in general and administrative expenses related to increased accounting and legal fees driven by our preparation for becoming a public company.
Depreciation and Amortization. Depreciation and amortization expense remained substantially the same for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 as no major changes were made to our property and equipment or to certain acquired intangible assets from June 30, 2018 to June 30, 2019.
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Other Income (Expense)
|
Six Months Ended June 30, |
||||||||||||
| | | | | | | | | | | | | |
|
2018 | 2019 | $ Change | % Change | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Interest expense |
$ | (7,791 | ) | $ | (8,249 | ) | $ | (458 | ) | 6 | % | ||
Loss on extinguishment of debt |
(9,785 | ) | | 9,785 | (100 | ) | |||||||
Other income (expense), net |
(912 | ) | 225 | 1,137 | (125 | ) | |||||||
| | | | | | | | | | | | | |
Total other income (expense) |
$ | (18,488 | ) | $ | (8,024 | ) | $ | 10,464 | (57 | )% | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Interest Expense. Interest expense increased by $0.5 million, or 6%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase was attributable primarily to an increase in interest rates, from a weighted average interest rate of 5.5% for the six months ended June 30, 2018 to 6.2% for the six months ended June 30, 2019, resulting in increased interest expense for the six months ended June 30, 2019.
Loss on Extinguishment of Debt. In conjunction with the refinancing of our debt in January 2018, we recorded a loss on extinguishment of debt for the six months ended June 30, 2018 of $9.8 million. There was no similar loss during the six months ended June 30, 2019.
Other Income (Expense), Net. Other income (expense), net increased by $1.1 million, from other expense of $0.9 million for the six months ended June 30, 2018 to other income of $0.2 million for the six months ended June 30, 2019. The change was attributable primarily to a change in the amount of foreign currency gains and losses, from a loss of $1.2 million in the six months ended June 30, 2018 compared to a loss of $0.5 million in the six months ended June 30, 2019. The foreign currency losses in each period were partially offset by interest income of $0.3 million and $0.7 million for the six months ended June 30, 2018 and 2019, respectively.
Benefit (Provision) for Income Taxes
|
Six Months Ended June 30, |
||||||||||||
| | | | | | | | | | | | | |
|
2018 | 2019 | $ Change | % Change | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Benefit (provision) for income taxes |
$ | 391 | $ | 1,241 | $ | 850 | 217 | % |
For the six months ended June 30, 2018 and 2019, we recorded a benefit for income taxes of $0.4 million and $1.2 million, respectively. Our quarterly tax benefit (provision), and estimate of our annual effective tax rate, is subject to variation due to several factors, including variability in pretax income (or loss), the mix of jurisdictions to which such income relates, changes in how we do business, and tax law developments. Our tax benefit (provision) for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that arise during the period. Each quarter, we update our estimate of the annual effective tax rate, and if the estimated annual effective tax rate changes, we make a cumulative adjustment in such period. Our effective tax rates for the six months ended June 30, 2018 and 2019 were (6)% and (28)%, respectively. The difference in the effective tax rates is primarily due to larger non-deductible items in the six months ended June 30, 2018 as compared to the six months ended June 30, 2019.
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Comparison of the Year Ended December 31, 2017 and 2018
Revenue
|
Year Ended December 31, |
||||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | $ Change | % Change |
|||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Revenue: |
|||||||||||||
Subscription |
$ | 160,219 | $ | 184,991 | $ | 24,772 | 15 | % | |||||
Professional services and other |
12,320 | 16,571 | 4,251 | 35 | % | ||||||||
| | | | | | | | | | | | | |
Total revenue |
$ | 172,539 | $ | 201,562 | $ | 29,023 | 17 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Total revenue increased by $29.0 million, or 17%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. 85% of the increase in total revenue was due to an increase in subscription revenue of $24.8 million. The remaining $4.3 million of revenue growth was attributable to an increase in professional services and other revenue.
The table below sets forth the components of subscription revenue for the years ended December 31, 2017 and 2018.
|
Year Ended December 31, |
||||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | $ Change | % Change |
|||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Subscription term-based licenses: |
|||||||||||||
Multi-year subscription term-based licenses |
$ | 86,421 | $ | 88,925 | $ | 2,504 | |||||||
1-year subscription term-based licenses |
35,678 | 44,743 | 9,065 | ||||||||||
| | | | | | | | | | | | | |
Total subscription term-based licenses |
122,099 | 133,668 | 11,569 | ||||||||||
Subscription SaaS and support and maintenance |
38,120 | 51,323 | 13,203 | ||||||||||
| | | | | | | | | | | | | |
Total subscription revenue |
$ | 160,219 | $ | 184,991 | $ | 24,772 | 15 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Subscription revenue increased 15%, or $24.8 million, in the year ended December 31, 2018 compared to the year ended December 31, 2017.
The change in subscription revenue was primarily due to the following:
86
Cost of Revenue and Gross Margin
|
Year Ended December 31, |
||||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | $ Change | % Change |
|||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Cost of revenue: |
|||||||||||||
Subscription (exclusive of amortization shown below) |
$ | 14,054 | $ | 17,512 | $ | 3,458 | 25 | % | |||||
Professional services and other (exclusive of amortization shown below) |
9,155 | 12,703 | 3,548 | 39 | |||||||||
Amortization expense |
12,626 | 14,396 | 1,770 | 14 | |||||||||
| | | | | | | | | | | | | |
Total cost of revenue |
$ | 35,835 | $ | 44,611 | $ | 8,776 | 24 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Gross margin: |
|||||||||||||
Subscription (exclusive of amortization) |
91 | % | 91 | % | |||||||||
Professional services and other (exclusive of amortization) |
26 | % | 23 | % | |||||||||
Total gross margin |
79 | % | 78 | % |
Subscription cost of revenue increased by $3.5 million, or 25%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. $1.8 million of the increase was compensation-related and primarily attributable to an increase in headcount to support the growth of our subscription SaaS offerings and ongoing maintenance for our expanding customer base. $1.0 million of the increase was attributable to our increased cloud-based hosting costs largely associated with the increased adoption of our solutions. Substantially all of the remaining increase in subscription cost of revenue was due to an increase in travel costs and allocated overhead.
Professional services and other cost of revenue increased by $3.5 million, or 39%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. $2.8 million of the increase was compensation related and primarily attributable to an increase in headcount to support growth of our business. $0.5 million of the increase related to consulting costs. The remaining portion of the increase was primarily attributable to travel costs as well as allocated overhead.
Amortization expense increased by $1.8 million, or 14%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. The increase was attributable primarily to an increase in the amortization of our capitalized software.
Gross Margin. Subscription gross margin was 91% for the years ended December 31, 2017 and 2018 as our cost of subscription revenue increased consistently with the growth in our subscription revenue.
Professional services and other gross margin decreased to 23% for the year ended December 31, 2018 compared to 26% for the year ended December 31, 2017. The decrease was attributable primarily to an increase in headcount as we continue to grow our professional services team.
Total gross margin was 79% and 78% for the years ended December 31, 2017 and 2018, respectively, as our total costs of revenue marginally increased year-over-year as compared to our total revenue due to our increased headcount.
87
Operating Expenses
|
Year Ended December 31, |
||||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | $ Change | % Change |
|||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Sales and marketing |
$ | 49,481 | $ | 60,140 | $ | 10,659 | 22 | % | |||||
Research and development |
26,215 | 36,229 | 10,014 | 38 | |||||||||
General and administrative |
20,202 | 28,355 | 8,153 | 40 | |||||||||
Depreciation and amortization |
16,526 | 16,341 | (185 | ) | (1 | ) | |||||||
| | | | | | | | | | | | | |
Total operating expenses |
$ | 112,424 | $ | 141,065 | $ | 28,641 | 25 | % | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Sales and Marketing. Sales and marketing expenses increased by $10.7 million, or 22%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. $6.0 million of the increase was the result of increased commissions related to the increase in revenue, the increase in our sales force domestically and internationally and continued investment in our channel relationships. As our headcount increased, we also experienced a related increase in travel costs of $1.2 million and increased promotional expenses of $1.5 million primarily related to tradeshows and event sponsorships for the year ended December 31, 2018 compared to the year ended December 31, 2017. Substantially all of the remaining increase in sales and marketing expenses was the result of increased partner commissions and consulting costs, as well as allocated overhead.
Research and Development. Research and development expenses increased by $10.0 million, or 38%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. $4.0 million of the increase was compensation-related and primarily the result of an increase in headcount to enhance and expand our solutions. Additionally, $5.2 million of the increase related to contingent compensation and retention expense that was payable on the first anniversary of our acquisition of Elastic Beam, which we acquired in April 2018 (as further discussed in Note 5 of our consolidated financial statements appearing elsewhere in this prospectus). Substantially all of the remaining increase in research and development expenses was the result of increased software and maintenance expenses, primarily cloud-based hosting costs to support our development efforts for our SaaS offerings, consulting costs and allocated overhead.
General and Administrative. General and administrative expenses increased by $8.2 million, or 40%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. $3.9 million of the increase was the result of an increase in corporate headcount to support the growth and scale of the business. An additional $1.3 million of the increase resulted from an increase in consulting costs, driven primarily by the implementation of new accounting standards and our preparation for becoming a public company. General and administrative expenses for the year ended December 31, 2018 also included $0.6 million of acquisition-related expenses related to our acquisition of Elastic Beam. Substantially all of the remaining increase in general and administrative expenses related to increased accounting and legal fees driven by our preparation for becoming a public company.
Depreciation and Amortization. Depreciation and amortization expense remained substantially the same for the year ended December 31, 2018 compared to the year ended December 31, 2017 as no major changes were made to our property and equipment or to certain acquired intangible assets from December 31, 2017 to December 31, 2018.
88
Other Income (Expense)
|
Year Ended December 31, |
||||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | $ Change | % Change |
|||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Interest expense |
$ | (19,277 | ) | $ | (15,837 | ) | $ | 3,440 | (18 | )% | |||
Loss on extinguishment of debt |
| (9,785 | ) | (9,785 | ) | NM | |||||||
Other income (expense), net |
773 | (335 | ) | (1,108 | ) | (143 | ) | ||||||
| | | | | | | | | | | | | |
Total other income (expense) |
$ | (18,504 | ) | $ | (25,957 | ) | $ | (7,453 | ) | 40 | % | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Interest Expense. Interest expense decreased by $3.4 million, or 18%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. The decrease was attributable primarily to the refinancing of our debt in January 2018, through which we increased our borrowings of long-term debt from a principal amount of $170.0 million to $250.0 million but were able to obtain more favorable interest rates, from a weighted average interest rate of 10.4% for the year ended December 31, 2017 to 5.8% for the year ended December 31, 2018, resulting in reduced interest expense for the year ended December 31, 2018.
Loss on Extinguishment of Debt. In conjunction with the refinancing of our debt in January 2018, we recorded a loss on extinguishment of debt for the year ended December 31, 2018 of $9.8 million. There was no similar loss during the year ended December 31, 2017.
Other Income (Expense), Net. Other income (expense), net decreased by $1.1 million, or 143%, for the year ended December 31, 2018 compared to the year ended December 31, 2017. The decrease was attributable primarily to a change in the amount of foreign currency gains and losses, from a gain of $0.7 million in the year ended December 31, 2017 compared to a loss of $2.0 million in the year ended December 31, 2018.
Benefit (Provision) for Income Taxes
|
Year Ended December 31, |
||||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | $ Change | % Change |
|||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Benefit (provision) for income taxes |
$ | 13,185 | $ | (3,375 | ) | $ | (16,560 | ) | (126 | )% |
For the year ended December 31, 2017, we recorded a benefit for income taxes of $13.2 million. For the year ended December 31, 2018, we recorded a provision for income taxes of $3.4 million. Our effective tax rates for the years ended December 31, 2017 and 2018 were (228.2)% and (33.5)%, respectively. The increase in our effective tax rate for 2018 compared to 2017 was primarily driven by the enactment of the Tax Act in 2017. As a result of the Tax Act, we remeasured our deferred tax assets and liabilities at the lower U.S. federal tax rate, which resulted in a one-time tax benefit during the year ended December 31, 2017 of $17.0 million. This one-time tax benefit was partially offset by the one-time transition tax expense on certain unremitted earnings of our foreign subsidiaries during the year ended December 31, 2017 of $1.2 million. Additionally, there were changes to our state tax rates which resulted in tax expense of $1.9 million and $4.2 million during the years ended December 31, 2017 and December 31, 2018, respectively. During the year ended December 31, 2018, we recorded tax expense of $1.0 million for contingent deal consideration related to the Elastic Beam acquisition (as further discussed in Note 5 of our consolidated financial statements included elsewhere in this prospectus).
89
Quarterly Results of Operations and Other Data
The following tables set forth selected unaudited consolidated quarterly statements of operations data for each of the ten fiscal quarters ended June 30, 2019, as well as the percentage of revenue that each line item represents for each quarter. The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which consist only of normal recurring adjustments, necessary for the fair statement of the results of operations for these periods. This data should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly results are not necessarily indicative of our results of operations to be expected for any future period.
|
Three Months Ended |
||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
March 31, 2017 |
June 30, 2017 |
September 30, 2017 |
December 31, 2017 |
March 31, 2018 (As Restated)(1) |
June 30, 2018 (As Restated)(1) |
September 30, 2018 (As Restated)(1) |
December 31, 2018 (As Restated)(1) |
March 31, 2019 |
June 30, 2019 |
|||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||||||||||||||||||||
Revenue: |
|||||||||||||||||||||||||||||||
Subscription |
$ | 30,706 | $ | 39,404 | $ | 31,089 | $ | 59,020 | $ | 46,173 | $ | 44,403 | $ | 38,481 | $ | 55,934 | $ | 47,620 | $ | 56,272 | |||||||||||
Professional services and other |
3,406 | 3,671 | 2,337 | 2,906 | 3,774 | 5,100 | 4,138 | 3,559 | 2,818 | 6,188 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenue |
34,112 | 43,075 | 33,426 | 61,926 | 49,947 | 49,503 | 42,619 | 59,493 | 50,438 | 62,460 | |||||||||||||||||||||
Cost of Revenue: |
|||||||||||||||||||||||||||||||
Subscription (exclusive of amortization shown below) |
3,177 | 3,236 | 3,567 | 4,074 | 3,918 | 4,341 | 4,526 | 4,727 | 5,181 | 5,652 | |||||||||||||||||||||
Professional services and other (exclusive of amortization shown below) |
1,682 | 2,099 | 2,580 | 2,794 | 3,151 | 2,686 | 3,347 | 3,519 | 3,241 | 3,675 | |||||||||||||||||||||
Amortization expense |
2,969 | 3,106 | 3,199 | 3,352 | 3,478 | 3,586 | 3,549 | 3,783 | 3,866 | 3,956 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total cost of revenue |
7,828 | 8,441 | 9,346 | 10,220 | 10,547 | 10,613 | 11,422 | 12,029 | 12,288 | 13,283 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit |
26,284 | 34,634 | 24,080 | 51,706 | 39,400 | 38,890 | 31,197 | 47,464 | 38,150 | 49,177 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating Expenses: |
|||||||||||||||||||||||||||||||
Sales and marketing(2) |
11,055 | 13,011 | 11,287 | 14,128 | 12,623 | 15,498 | 13,690 | 18,329 | 17,308 | 20,026 | |||||||||||||||||||||
Research and development(2) |
6,143 | 6,148 | 6,588 | 7,336 | 7,026 | 9,367 | 9,634 | 10,202 | 11,454 | 10,857 | |||||||||||||||||||||
General and administrative(2) |
5,121 | 4,821 | 4,864 | 5,396 | 7,380 | 5,699 | 6,411 | 8,865 | 7,084 | 8,664 | |||||||||||||||||||||
Depreciation and amortization |
4,136 | 4,115 | 4,129 | 4,146 | 4,174 | 4,182 | 3,976 | 4,009 | 4,121 | 4,153 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses |
26,455 | 28,095 | 26,868 | 31,006 | 31,203 | 34,746 | 33,711 | 41,405 | 39,967 | 43,700 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations |
(171 | ) | 6,539 | (2,788 | ) | 20,700 | 8,197 | 4,144 | (2,514 | ) | 6,059 | (1,817 | ) | 5,477 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other Income (Expense): |
|||||||||||||||||||||||||||||||
Interest expense |
(4,694 | ) | (4,754 | ) | (4,909 | ) | (4,920 | ) | (3,956 | ) | (3,835 | ) | (3,959 | ) | (4,087 | ) | (4,116 | ) | (4,133 | ) | |||||||||||
Loss on extinguishment of debt |
| | | | (9,785 | ) | | | | | | ||||||||||||||||||||
Other income (expense), net |
41 | 403 | 282 | 47 | 396 | (1,308 | ) | (131 | ) | 708 | (9 | ) | 234 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other income (expense) |
(4,653 | ) | (4,351 | ) | (4,627 | ) | (4,873 | ) | (13,345 | ) | (5,143 | ) | (4,090 | ) | (3,379 | ) | (4,125 | ) | (3,899 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes |
(4,824 | ) | 2,188 | (7,415 | ) | 15,827 | (5,148 | ) | (999 | ) | (6,604 | ) | 2,680 | (5,942 | ) | 1,578 | |||||||||||||||
Benefit (provision) for income taxes |
1,522 | (691 | ) | 2,216 | 10,138 | 1,086 | (695 | ) | 983 | (4,749 | ) | 1,063 | 178 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) |
$ | (3,302 | ) | $ | 1,497 | $ | (5,199 | ) | $ | 25,965 | $ | (4,062 | ) | $ | (1,694 | ) | $ | (5,621 | ) | $ | (2,069 | ) | $ | (4,879 | ) | $ | 1,756 | ||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
90
|
Three Months Ended |
||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
March 31, 2017 |
June 30, 2017 |
September 30, 2017 |
December 31, 2017 |
March 31, 2018 |
June 30, 2018 |
September 30, 2018 |
December 31, 2018 |
March 31, 2019 |
June 30, 2019 |
|||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||||||||||||||||||||
Sales and marketing |
$ | 125 | $ | 171 | $ | 150 | $ | 180 | $ | 169 | $ | 182 | $ | 184 | $ | 191 | $ | 222 | $ | 188 | |||||||||||
Research and development |
65 | 72 | 88 | 72 | 71 | 37 | 76 | 158 | 215 | 218 | |||||||||||||||||||||
General and administrative |
327 | 435 | 393 | 446 | 386 | 435 | 444 | 515 | 622 | 634 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
$ | 517 | $ | 678 | $ | 631 | $ | 698 | $ | 626 | $ | 654 | $ | 704 | $ | 864 | $ | 1,059 | $ | 1,040 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Three Months Ended |
||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
March 31, 2017 |
June 30, 2017 |
September 30, 2017 |
December 31, 2017 |
March 31, 2018 (As Restated) |
June 30, 2018 (As Restated) |
September 30, 2018 (As Restated) |
December 31, 2018 (As Restated) |
March 31, 2019 |
June 30, 2019 |
|||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenue: |
|||||||||||||||||||||||||||||||
Subscription |
90 | % | 91 | % | 93 | % | 95 | % | 92 | % | 90 | % | 90 | % | 94 | % | 94 | % | 90 | % | |||||||||||
Professional services and other |
10 | 9 | 7 | 5 | 8 | 10 | 10 | 6 | 6 | 10 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total revenue |
100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | 100 | |||||||||||||||||||||
Cost of Revenue: |
|||||||||||||||||||||||||||||||
Subscription (exclusive of amortization shown below) |
9 | 8 | 11 | 7 | 8 | 9 | 11 | 8 | 10 | 9 | |||||||||||||||||||||
Professional services and other (exclusive of amortization shown below) |
5 | 5 | 8 | 5 | 6 | 5 | 8 | 6 | 6 | 6 | |||||||||||||||||||||
Amortization expense |
9 | 7 | 10 | 5 | 7 | 7 | 8 | 6 | 8 | 6 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total cost of revenue |
23 | 20 | 29 | 17 | 21 | 21 | 27 | 20 | 24 | 21 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Gross profit |
77 | 80 | 71 | 83 | 79 | 79 | 73 | 80 | 76 | 79 | |||||||||||||||||||||
Operating Expenses: |
|||||||||||||||||||||||||||||||
Sales and marketing |
32 | 30 | 34 | 23 | 25 | 31 | 32 | 31 | 34 | 32 | |||||||||||||||||||||
Research and development |
18 | 14 | 20 | 12 | 14 | 19 | 23 | 17 | 23 | 17 | |||||||||||||||||||||
General and administrative |
15 | 11 | 15 | 9 | 15 | 12 | 15 | 15 | 14 | 14 | |||||||||||||||||||||
Depreciation and amortization |
12 | 10 | 12 | 7 | 8 | 8 | 9 | 7 | 8 | 7 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses |
77 | 65 | 81 | 51 | 62 | 70 | 79 | 70 | 79 | 70 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) from operations |
| 15 | (10 | ) | 32 | 17 | 9 | (6 | ) | 10 | (3 | ) | 9 | ||||||||||||||||||
Other Income (Expense): |
|||||||||||||||||||||||||||||||
Interest expense |
(14 | ) | (11 | ) | (15 | ) | (8 | ) | (8 | ) | (8 | ) | (9 | ) | (7 | ) | (8 | ) | (7 | ) | |||||||||||
Loss on extinguishment of debt |
| | | | (20 | ) | | | | | | ||||||||||||||||||||
Other income (expense), net |
| 1 | 1 | | 1 | (3 | ) | | 1 | | 0 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total other income (expense) |
(14 | ) | (10 | ) | (14 | ) | (8 | ) | (27 | ) | (11 | ) | (9 | ) | (6 | ) | (8 | ) | (6 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income (loss) before income taxes |
(14 | ) | 5 | (24 | ) | 24 | (10 | ) | (2 | ) | (15 | ) | 5 | (11 | ) | 3 | |||||||||||||||
Benefit (provision) for income taxes |
4 | (2 | ) | 7 | 16 | 2 | (1 | ) | 2 | (8 | ) | 2 | 0 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) |
(10 | )% | 3 | % | (17 | )% | 40 | % | (8 | )% | (3 | )% | (13 | )% | (3 | )% | (9 | )% | 3 | % | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Quarterly Revenue Trends
Except for the three months ended December 31, 2018, our quarterly revenue increased in each of the periods presented when compared to the results of the same quarter in the prior year due primarily to increases in the number of new customers as well as retention within existing customers and sales of new products year-over-year. Revenue decreased in the three months ended December 31, 2018 compared to the three months ended December 31, 2017 because multi-year subscription term-based license revenue as a percentage of total subscription term-based license revenue decreased to 70% from 81%, respectively. We typically experience seasonality in terms of when we receive orders from our customers. We generally receive a greater number of orders from new customers, as well as renewal or upsell orders from existing customers, in our second and fourth quarter because of purchasing patterns of our enterprise customers. Our customers often time their purchases and renewals of our solutions to coincide with their fiscal year end, which is typically June 30 or December 31. Our subscription term-based license revenue is recognized up front at the later of delivery or commencement of the license term, thus creating fluctuations in subscription revenue quarter-over-quarter depending on the number and size of term-based licenses sold each quarter. Conversely, our subscription SaaS and support and maintenance revenue is recognized on a straight-line basis over the contract term. For our subscription SaaS and support and maintenance revenue, a portion of the revenue that we report in each period may be attributable to the recognition of deferred revenue recorded in prior periods. As such, increases or decreases in new sales or renewals in any one period may not be immediately reflected in our revenue for that period and may instead affect future periods.
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Quarterly Operating Expense Trends
Our operating expenses have generally increased sequentially due to our growth and are primarily related to increases in personnel-related costs and related overhead in order to support our expanding operations and our continued investments in our solutions and service capabilities.
Liquidity and Capital Resources
General
As of June 30, 2019, our principal sources of liquidity were cash and cash equivalents totaling $83.0 million, which was held for working capital purposes, as well as the available balance of our Term Loan Facility and Revolving Credit Facility, described further below. As of June 30, 2019, our cash equivalents were comprised of money market funds. During the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019, our positive cash flows from operations have enabled us to make continued investments in supporting the growth of our business. Following the completion of this offering, we expect that our operating cash flows, in addition to our cash and cash equivalents, will enable us to continue to make such investments in the future. We expect our operating cash flows to further improve as we increase our operational efficiency and experience economies of scale.
We have financed our operations primarily through cash received from operations and debt financing. We believe our existing cash and cash equivalents, our Term Loan Facility and Revolving Credit Facility and cash provided by sales of our solutions and services will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements will depend on several factors, including but not limited to our subscription growth rate, subscription renewal activity, billing frequency, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced solutions and the continuing market adoption of our platform. In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, including intellectual property rights.
We may be required to seek additional equity or debt financing. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations and invest in new technologies, this could reduce our ability to compete successfully and harm our results of operations.
A majority of our customers pay in advance for annual subscriptions, a portion of which is recorded as deferred revenue. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is later recognized as revenue in accordance with our revenue recognition policy. As of June 30, 2019, we had deferred revenue of $35.5 million, of which $33.3 million was recorded as a current liability and is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.
Senior Secured Credit Facilities
On January 25, 2018, we entered into our $275.0 million Credit Agreement with a syndicate of lenders, comprised of the $25.0 million Revolving Credit Facility and the $250.0 million Term Loan Facility. A portion of the proceeds from borrowing under the Credit Agreement were used to repay our then existing credit facilities, together with accrued interest and related prepayment penalties and expenses. As of June 30, 2019, we had $247.5 million and no borrowings outstanding under our Term Loan Facility and Revolving Credit Facility, respectively. As of June 30, 2019, the interest rate on our Term Loan Facility and Revolving Credit Facility was approximately 6.19% and 0.25%, respectively.
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Borrowings under the Credit Agreement bear interest at a rate per annum, at our option, equal to an applicable margin, plus, (a) for alternative base rate borrowings, the highest of (i) the prime rate as determined by the administrative agent in effect on such day, (ii) the Federal Funds Rate in effect on such day plus 1/2 of 1.00% and (iii) the Adjusted LIBO Rate (for a one-month interest period and taking into account a 1.00% floor with respect to term loans) plus 1.00% and (b) for eurocurrency borrowings, the Adjusted LIBO Rate determined by the greater of (i) the LIBO rate for the relevant interest period divided by 1 minus the statutory reserves (if any) and (ii) with respect to term loans only, 1.00%.
The applicable margin for borrowings under the Credit Agreement is (a) with respect to term loan borrowings, 2.75% for alternate base rate borrowings and 3.75% for eurocurrency borrowings, and (b) with respect to both revolving and swingline loan borrowings, 2.75% for alternate base rate borrowings and 3.75% for eurocurrency borrowings when our first lien leverage ratio is greater than 5.00 to 1.00, with step downs to (i) 2.50% for alternate base rate borrowings and 3.50% for eurocurrency borrowings when our first lien leverage ratio is less than or equal to 5.00 to 1.00 but greater than 4.50 to 1.00 and (ii) 2.25% for alternate base rate borrowings and 3.25% for eurocurrency when our first lien leverage ratio is less than or equal to 4.50 to 1.00. Our first lien leverage ratio is determined in accordance with the terms of the Credit Agreement.
The Credit Agreement contains customary representations and warranties, affirmative covenants, reporting obligations, negative covenants and events of default. See "Description of Certain Indebtedness".
Cash Flows
The following table presents a summary of our consolidated cash flows from operating, investing and financing activities for the periods indicated.
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Year Ended December 31, |
Six Months Ended June 30, |
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| | | | | | | | | | | | | |
|
2017 | 2018 | 2018 | 2019 | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Net cash provided by operating activities |
$ | 3,423 | $ | 22,886 | $ | 13,015 | $ | 8,064 | |||||
Net cash used in investing activities |
(5,961 | ) | (26,661 | ) | (21,566 | ) | (6,822 | ) | |||||
Net cash provided by (used in) financing activities |
101 | 67,102 | 68,921 | (1,951 | ) | ||||||||
Effect of exchange rates on cash and cash equivalents and restricted cash |
274 | (653 | ) | (408 | ) | 220 | |||||||
| | | | | | | | | | | | | |
Net (decrease) increase in cash and cash equivalents and restricted cash |
$ | (2,163 | ) | $ | 62,674 | $ | 59,962 | $ | (489 | ) | |||
Cash and cash equivalents and restricted cash at beginning of period |
23,632 | 21,469 | 21,469 | 84,143 | |||||||||
| | | | | | | | | | | | | |
Cash and cash equivalents and restricted cash at end of period |
$ | 21,469 | $ | 84,143 | $ | 81,431 | $ | 83,654 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Operating Activities
Our largest source of operating cash is cash collections from our customers for subscriptions and professional services. Our primary uses of cash from operating activities are for employee-related expenditures, marketing expenses and third-party hosting costs.
For the six months ended June 30, 2018, net cash provided by operating activities was $13.0 million, reflecting our net loss of $5.8 million, adjusted for non-cash charges of $28.1 million
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and net cash outflows of $9.3 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, amortization of deferred commissions, depreciation and amortization of property and equipment and intangible assets, loss on extinguishment of debt and deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to a $3.8 million increase in contract assets and a $2.7 million increase in deferred commissions, as well as a $2.8 million decrease in deferred revenue and a $2.3 million decrease in accrued expenses and other due to the timing of cash disbursements, partially offset by a $2.5 million decrease in accounts receivable due to the timing of receipt of payment from our customers and a $1.0 million increase in accounts payable.
During the six months ended June 30, 2019, net cash provided by operating activities was $8.1 million due to our net loss of $3.1 million that was adjusted for non-cash charges of $20.0 million and net cash outflows of $8.8 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, amortization of deferred commissions, depreciation and amortization of property and equipment and intangible assets and deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to an $8.2 million increase in contract assets, a $3.6 million increase in deferred commissions, a $4.6 million decrease in accrued compensation and a $1.5 million decrease in accrued expenses and other due to the timing of payments, partially offset by a $6.0 million decrease in accounts receivable due to the timing of receipt of payment from our customers and a $3.1 million decrease in prepaid expenses and other current assets due to the timing of cash disbursements.
For the year ended December 31, 2017, net cash provided by operating activities was $3.4 million, reflecting our net income of $19.0 million, adjusted for non-cash charges of $23.3 million and net cash outflows of $38.8 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, amortization of deferred commissions, depreciation and amortization of property and equipment and intangible assets and deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to a $22.2 million increase in contract assets, a $7.7 million increase in deferred commissions and a $6.2 million increase in deferred revenue, primarily driven by the increase in subscription sales in the fourth quarter of 2017 and the associated recognition of revenue, as well as a $10.0 million increase in accounts receivable due to the timing of receipt of payment from our customers and a $3.8 million decrease in accrued compensation due to the timing of cash disbursements.
During the year ended December 31, 2018, net cash provided by operating activities was $22.9 million due to our net loss of $13.4 million that was adjusted for non-cash charges of $52.2 million and net cash outflows of $15.9 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of stock-based compensation, amortization of deferred commissions, depreciation and amortization of property and equipment and intangible assets, loss on extinguishment of debt and deferred income taxes. The primary drivers of the changes in operating assets and liabilities related to a $6.8 million increase in contract assets, a $10.0 million increase in deferred commissions and a $5.8 million increase in prepaid expenses and other current assets due to the timing of payments, and a $1.5 million increase in accounts receivable due to the timing of receipt of payment from our customers, offset by a $1.4 million increase in deferred revenue resulting from the timing of when we recognize revenue, as well as a $6.1 million increase in accrued compensation and a $1.1 million increase in accrued expenses and other due to the timing of payments.
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Investing Activities
Net cash used in investing activities was $21.6 million and $6.8 million during the six months ended June 30, 2018 and 2019, respectively, a decrease of $14.8 million. The net decrease is primarily attributable to the acquisition of Elastic Beam for $17.4 million in cash during the six months ended June 30, 2018, partially offset by an increase in the capitalization of internal-use software costs of $1.7 million associated with the development of additional features and functionality of our hosted platform.
Net cash used in investing activities was $6.0 million and $26.7 million during the years ended December 31, 2017 and 2018, respectively, an increase of $20.7 million. The net increase is primarily attributable to the acquisition of Elastic Beam for $17.4 million in cash as well as an increase in the capitalization of internal-use software costs of $2.9 million associated with the development of additional features and functionality of our hosted platform.
Financing Activities
Net cash provided by financing activities was $68.9 million during the six months ended June 30, 2018. Net cash used in financing activities was $2.0 million during the six months ended June 30, 2019. The net change primarily relates to the receipt of proceeds from our new term loan of $250.0 million, partially offset by issuance costs of $6.0 million and the repayment of our previous term loan and revolving credit facility and payment of the associated debt extinguishment costs of $170.0 million and $5.1 million, respectively, all of which occurred during the six months ended June 30, 2018. This is partially offset by $1.3 million related to quarterly principal payments on our Term Loan Facility as well as payment of Elastic Beam consideration and holdbacks of $1.1 million, payment of deferred offering costs of $0.5 million and receipt of $1.0 million from stock options exercises, all of which occurred during the six months ended June 30, 2019.
Net cash provided by financing activities was $0.1 million and $67.1 million during the years ended December 31, 2017 and 2018, respectively, an increase of $67.0 million. The net increase primarily relates to the receipt of proceeds from our new term loan of $250.0 million, partially offset by issuance costs of $6.0 million and the repayment of our previous term loan and revolving credit facility and payment of the associated debt extinguishment costs of $170.0 million and $5.1 million, respectively. This is offset by an additional $1.3 million related to quarterly principal payments on our Term Loan Facility that began in September 2018.
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Contractual Obligations and Commitments
Our principal commitments consist of obligations under operating leases for office space and repayments of long-term debt.
The following table summarizes our contractual obligations as of December 31, 2018:
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Payments Due by Period |
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Total | Less than 1 Year |
1 - 3 years | 3 - 5 Years | More than 5 years |
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(in thousands) | |||||||||||||||
Operating lease obligations |
$ | 17,480 | $ | 2,515 | $ | 5,370 | $ | 4,653 | $ | 4,942 | ||||||
Long-term debt principal |
248,750 | 2,500 | 5,000 | 5,000 | 236,250 | |||||||||||
Long-term debt interest(1) |
90,630 | 15,313 | 30,204 | 29,544 | 15,569 | |||||||||||
Other obligations(2) |
2,810 | 2,810 | | | | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
$ | 359,670 | $ | 23,138 | $ | 40,574 | $ | 39,197 | $ | 256,761 | ||||||
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| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations under contracts that we can cancel without a significant penalty are not included in the table above. Purchase orders issued in the ordinary course of business are not included in the table above, as our purchase orders represent authorizations to purchase rather than binding agreements.
In the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify customers, vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, services to be provided by us or from intellectual property infringement claims made by third parties. In addition, in connection with the completion of this offering we intend to enter into indemnification agreements with our directors and certain officers and employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon us to provide indemnification under such agreements and there are no claims that we are aware of that could have a material effect on our consolidated balance sheets, consolidated statements of operations and comprehensive loss, or consolidated statements of cash flows.
Off-Balance Sheet Arrangements
As of June 30, 2019, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structure finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or for other contractually narrow or limited purposes.
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We qualify as an emerging growth company pursuant to the provisions of the JOBS Act. For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding advisory "say-on-pay" votes on executive compensation and shareholder advisory votes on golden parachute compensation.
The JOBS Act also permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to use the extended transition period until we are no longer an emerging growth company or until we choose to affirmatively and irrevocably opt out of the extended transition period. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements applicable to public companies. See "Risk Factors Risks Relating to Our Common Stock and This Offering We are an 'emerging growth company' and we expect to elect to comply with reduced public company reporting requirements, which could make our common stock less attractive to investors".
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.
Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of assets and liabilities and the recognition of income and expenses. Management considers these accounting policies to be critical accounting policies. The estimates and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described below. Refer to "Note 2 Summary of Significant Accounting Policies" to the consolidated financial statements included elsewhere in this prospectus for more detailed information regarding our critical accounting policies.
Revenue Recognition
We recognize revenue under ASC 606. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration that we expected to be entitled to receive in exchange for those goods or services. To adhere to the requirements of the new standard, we determine revenue recognition through the following steps:
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and intent to pay, and (v) we conclude that the contract has commercial substance. We are required to use judgment to determine whether the customer has the ability and intent to pay, which is based on a variety of factors including the customer's historical payment experience or, when the contract is with a new customer, the credit, reputation and financial information of that customer. At contract inception we evaluate whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation.
We sell our software using a subscription model. Our subscriptions for solutions deployed on-premise within the customer's IT infrastructure are comprised of a term-based license and an obligation to provide support and maintenance, where the term-based license and the support and maintenance constitute separate performance obligations. Our SaaS subscriptions provide customers the right to access cloud-hosted software and support for the SaaS service, which we consider to be a single performance obligation. Additionally, we renew subscriptions for support and maintenance, which we consider to be a single performance obligation.
We have also identified services-related performance obligations that relate to the provision of consulting and training services. These services are distinct from subscriptions and do not result in significant customization of the software.
In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts generally do not contain a significant financing component. The primary purpose of our invoicing terms is to provide our customers with simple and predictable ways to purchase our subscriptions and not to provide them with financing.
We determine SSP based on an observable standalone selling price when it is available. In situations where SSP is not available, for example where software licenses are not sold separately, we determine SSP using information such as market conditions and other observable inputs that may require significant judgment. There is typically a range
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of standalone selling prices for individual products and services due to a stratification of those products and services by quantity and other circumstances. If a performance obligation is outside the SSP range, we determine the SSP to be the nearest endpoint of the range.
Our subscription term-based license revenue is recognized upfront at the later of delivery or commencement of the license term. Support and maintenance revenue is recognized ratably over the contract period based on the stand-ready nature of those subscription elements. Our SaaS subscription revenue is recognized ratably over the contract period as we satisfy the performance obligation.
Professional services revenue is recognized on a time and materials basis as the services are performed. Revenue from training services and sponsorship fees is recognized on the date the services are complete.
Channel Partner Sales. We generate sales directly through our sales team as well as through our channel partners. Where channel partners are involved, we have determined that we are generally the principal in these arrangements. Sales to channel partners are generally made at a discount, and revenues are recorded at the discounted price once the revenue recognition criteria above have been met. In certain instances, we pay referral fees to our partners, which we have determined to be commensurate with our internal sales commissions, so we record these payments as sales commissions. Channel partners generally receive an order from an end customer prior to placing an order with us, and payment from channel partners is not contingent on the partner's collection from end customers.
Deferred Revenue
Deferred revenue consists of customer billings in advance of revenue being recognized. We primarily invoice customers for subscription arrangements annually in advance, though certain contracts require invoicing for the entire subscription in advance. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue, current; the remaining portion is recorded as deferred revenue, noncurrent in the consolidated balance sheets.
Deferred Commissions
Sales commissions earned by our internal and external sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for new revenue contracts and additional sales to existing customers are deferred and recorded in deferred commissions, current and noncurrent in the consolidated balance sheets. Deferred commissions are amortized over the period of benefit, which we have determined to be generally four years. We determined the period of benefit by taking into consideration our customer contracts, technology, and other factors. Deferred commissions are amortized consistent with the pattern of revenue recognition for each performance obligation for contracts for which the commissions paid were earned. We include amortization of deferred commissions in sales and marketing expense in the consolidated statements of operations. We periodically review the carrying amount of deferred commissions to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred costs.
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Accounts Receivable and Allowance for Doubtful Accounts
Our accounts receivable represents amounts owed to us by our customers that are recorded at the invoiced amount. We report accounts receivable net of allowance for doubtful accounts. Management makes judgments and estimates of the probable loss related to uncollectible accounts receivable considering a number of factors including collection trends, prevailing and anticipated economic conditions and specific customer credit risk. Unanticipated events and circumstances may occur that could affect the accuracy of management's estimates, which may result in changes to our estimates. Probable losses are recorded in general and administrative expense in the accompanying consolidated statements of operations and comprehensive loss included elsewhere in this prospectus. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Capitalized Software Costs
For software products sold to customers, we expense costs for the development of new software products and substantial enhancements to existing software products as incurred until technological feasibility has been established. Once technological feasibility has been established, we capitalize certain costs during the application development stage as part of intangible assets. Maintenance and training costs, however, are expensed as incurred.
For software used internally, we capitalize qualifying costs during the application development stage and amortize those costs on a straight-line basis over the software's estimated useful life, which is generally three to four years. Costs related to preliminary project activities and post implementation activities, however, are expensed as incurred.
Acquisitions, Goodwill and Identifiable Intangible Assets
We account for acquired businesses using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The fair value of identifiable intangible assets is based on significant judgments and estimates made by management. We typically engage third-party valuation appraisal firms to assist in determining the fair values and useful lives of the assets acquired. Such valuations and useful life determinations require us to make significant estimates and assumptions. These estimates and assumptions are based on historical experience and information obtained from the management of the acquired companies, and also include, but are not limited to, future expected cash flows earned from the product-related technology and discount rates applied in determining the present value of those cash flows. Unanticipated events and circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual results.
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. We evaluate goodwill for impairment at least annually in the fourth quarter of each year, and as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Our test for goodwill impairment starts with a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. If qualitative factors indicate that the fair value of the reporting unit is more likely than not less than its carrying amount, then a quantitative goodwill impairment test is performed. Under the quantitative impairment test, if the carrying amount of the reporting unit exceeds its fair value, then an impairment loss is recognized in an amount equal to that excess, not to exceed the total amount of goodwill.
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We record acquired in-process research and development as indefinite-lived intangible assets. Purchased intangible assets with indefinite lives are not amortized but assessed for potential impairment annually and when events or circumstances indicate that their carrying amounts might be impaired.
We review long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Such events and changes may include significant changes in performance relative to expected operating results, significant changes in asset use, significant negative industry or economic trends and changes in our business strategy. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.
Stock-Based Compensation
We recognize stock-based compensation expense in accordance with the provisions of Accounting Standards Codification 718, Compensation Stock Compensation, or ASC 718. ASC 718 requires compensation expense for all stock-based compensation awards made to employees and directors to be measured and recognized based on the grant date fair value of the awards. Stock-based compensation expense for time-based awards is determined based on the grant-date fair value and is recognized on a straight-line basis over the requisite service period of the award, which is typically the vesting term of the award. Stock-based compensation expense for awards subject to market and performance conditions is determined based on the grant-date fair value and is recognized on a graded vesting basis over the term of the award once it is probable that the performance conditions will be met.
Stock-based compensation expense is recognized net of forfeitures. On January 1, 2018, we elected to adopt Accounting Standards Codification No. 2016 09, Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09. Prior to the adoption of ASU 2016-08, we estimated forfeiture rates annually using our historical experience of forfeited awards and subsequently adjusted for actual forfeitures at each vesting date. After the adoption of ASU 2016-09, we recognize forfeitures as they occur. Adoption of this provision on January 1, 2018 resulted in a cumulative-effect adjustment to retained earnings of $38 thousand.
To estimate the grant date fair value of our time-based awards, we utilize the Black-Scholes option pricing model. For awards subject to performance and market conditions, we use a Monte Carlo simulation model, which utilizes multiple inputs to estimate the probability that market conditions will be achieved. Both models involve inherent uncertainties and require the following highly subjective assumptions as inputs:
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The following assumptions were used for the time-based options that we granted during the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019:
|
Year Ended December 31, |
Six Months Ended June 30, |
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| | | | | | | | |
|
2017 | 2018 | 2018 | 2019 | ||||
| | | | | | | | |
Risk-free rate |
2.0% - 2.2% | 2.6% - 3.0% | 2.7% | % | ||||
Expected life |
6.1 years | 6.1 years | 6.1 years | years | ||||
Dividend yield |
% | % | % | % | ||||
Volatility |
38% - 42% | 38% - 42% | 39% | % | ||||
Weighted-average granted date fair value of options granted during period |
$583.36 | $822.02 | $614.08 | $ |
The following assumptions were used for the awards subject to performance and market conditions that we granted during the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019:
|
Year Ended December 31, |
Six Months Ended June 30, |
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| | | | | | | | |
|
2017 | 2018 | 2018 | 2019 | ||||
| | | | | | | | |
Risk-free rate |
1.5% - 1.9% | 2.5% - 2.8% | 2.5% | % | ||||
Expected life |
3.8 - 4.5 years | 1.7 - 3.3 years | 3.3 years | years | ||||
Dividend yield |
| | % | % | ||||
Volatility |
57% - 62% | 45% - 55% | 55% | % | ||||
Weighted-average granted date fair value of options granted during period |
$388.74 | $388.63 | $478.03 | $ |
For our RSUs we calculate the fair value of each unit based on the estimated fair value of our common stock (as discussed below in "Common Stock Valuation") on the date of grant and subsequently record compensation expense over the vesting period using a straight-line method. Prior to the adoption of ASU 2016-09, we factored an estimated forfeiture rate in calculating compensation expense on RSUs and adjusted for actual forfeitures upon the vesting of each tranche of RSUs. After the adoption of ASU 2016-09, we account for forfeitures as they occur.
Common Stock Valuation
Because our common stock is not yet publicly traded, our Board establishes the fair value of the shares of common stock underlying our stock options. These estimates are based in part upon valuations provided by third-party valuation firms.
As there is no public market for our common stock, our Board exercises reasonable judgment and considers numerous objective and subjective factors to determine the best estimate of the fair
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value of our common stock in accordance with the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation, or the AICPA Guide. The factors considered by our Board in estimating the fair value of our common stock include the following:
In valuing our common stock, our Board determines the value using both the income and the market approach valuation methods. The income approach estimates value based on the expectation of future cash flows that a company will generate. These future cash flows are discounted to their present values using a discount rate based on our weighted average cost of capital, or WACC. To derive our WAAC, a cost of equity was developed using the Capital Asset Pricing Model and comparable company betas, and a cost of debt was determined based on our estimated cost of borrowing. The costs of debt and equity were then weighted based on our actual capital structure. The market approach estimates value based on a comparison of our company to comparable public companies in a similar line of business. From the comparable companies, a representative market multiple is determined and subsequently applied to our financial results to estimate our enterprise value.
Application of these approaches involves the use of estimates, judgment and assumptions that are highly complex and subjective, including those regarding our future expected revenue, expenses, cash flows, discount rates, market multiples, the selection of comparable public companies and the probability of future events. Changes in any or all of these estimates and assumptions impact our valuations at each valuation date and may have a material impact on the valuation of our common stock.
Following this offering, it will not be necessary to determine the fair value of our common stock, as the shares will be traded in the public market.
Based on the assumed initial public offering price per share of $ , which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, the aggregate intrinsic value of our outstanding stock options as of June 30, 2019 was $ million, with $ million related to vested stock options.
Income Taxes
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for temporary differences between the financial statement basis and the income tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. Our temporary differences result primarily from net operating losses, stock-based compensation, deferred revenue, intangible assets and accrued expenses.
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Deferred income tax asset and liability computations are based on enacted tax laws and rates anticipated to be in effect when these differences reverse. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that it is more likely than not that all or a portion of the deferred tax assets will not be realized, we establish a valuation allowance to reduce deferred income tax assets to the amounts expected to be realized.
We evaluate our tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are more likely than not of being sustained by the applicable tax authority. Tax positions not deemed to meet the more likely than not threshold would not be recorded as a tax benefit or expense in the current period. We include interest and penalties related to income tax liabilities in our benefit (provision) for income taxes.
Recent Accounting Pronouncements
For a description of our recently adopted accounting pronouncements and recently issued accounting standards not yet adopted, see Note 2 to our consolidated financial statements: "Summary of Significant Accounting Policies Recent Accounting Pronouncements" appearing elsewhere in this prospectus.
Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. As we have operations in the United States and internationally, our market risk exposure is primarily a result of exposure due to potential changes in inflation or interest rates. We do not hold financial instruments for trading purposes.
Foreign Currency Exchange Risk
Our revenues and expenses are primarily denominated in U.S. dollars. For the years ended December 31, 2017 and 2018, we recorded a gain of $0.7 million and a loss of $2.0 million on foreign exchange transactions, respectively. For the six months ended June 30, 2018 and 2019, we recorded losses of $1.2 million and $0.5 million, respectively, on foreign exchange transactions. To date, we have not entered into any hedging arrangements with respect to foreign currency risk or other derivative financial instruments, but we may do so in the future if our exposure to foreign currency should become more significant. For business conducted outside of the United States, we may have both revenue and costs incurred in the local currency of the subsidiary, creating a partial natural hedge. Changes to exchange rates therefore have not had a significant impact on the business to date. However, we will continue to reassess our foreign exchange exposure as we continue to grow our business globally. During the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019, a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our consolidated financial statements.
Interest Rate Risk
Our primary market risk exposure is changing LIBO-based interest rates. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. Our Term Loan Facility bears interest at a floating rate equal to our option of a rate per annum equal to (a) an Adjusted LIBO Rate (with a floor of 1.0% per annum) plus an applicable margin of 3.75%, or (b) the Alternate Base Rate (with a floor of 2.0% per annum) plus an applicable margin of 2.75%. At June 30, 2019, we had total outstanding debt of $247.5 million and $0 million under our Term Loan Facility and
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Revolving Credit Facility, respectively. Based on the amounts outstanding, a 100-basis point increase or decrease in market interest rates over a twelve-month period would result in a change to interest expense of $2.5 million.
Inflation Risk
Based on our analysis of the periods presented, we believe that inflation has not had a material effect on our operating results. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.
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Our Mission
Our mission is to secure the digital world through Intelligent Identity.
Ping is pioneering Intelligent Identity. We enable secure access to any service, application or API from any device. Our Intelligent Identity Platform can leverage AI and ML to analyze device, network, application and user behavior data to make real-time authentication and security control decisions, enhancing the user experience. Our platform is designed to detect anomalies and automatically insert additional security measures, such as multi-factor authentication, only when necessary. We built our platform to meet the requirements of the most demanding enterprises. Our platform can be deployed across cloud, hybrid and on-premise infrastructures, offers a comprehensive suite of turnkey integrations and is able to scale to millions of identities and thousands of cloud and on-premise applications in a single deployment. As of June 30, 2019, our platform secures over two billion identities globally across our customer base.
Enterprises are undergoing digital transformation as they seek to create new revenue streams, transition business models and increase customer engagement. Concurrently, enterprises are becoming more distributed as the adoption of cloud, mobile and IoT, moves data, applications and access requirements beyond the traditional network perimeter. These enterprises must contend with an evolving cyber-threat landscape, new privacy directives and stringent regulatory requirements. As a result, enterprises require Intelligent Identity solutions that proactively ensure the right user has authorized access to resources at the appropriate time.
Our Intelligent Identify Platform can secure all primary use cases, including customer, employee, partner and IoT. For example, enterprises can use our platform to enhance their customers' user experience by creating a single ID and login across web and mobile properties. For the year ended December 31, 2018, 44% of our subscription revenue was derived from the customer use case. Enterprises can also use our platform to provide their employees and commercial partners with secure, seamless access from any device to the applications, data and APIs they need to be productive. Enterprises are increasingly using our platform to manage and authenticate IoT devices, such as connected vehicles and consumer devices.
Our Intelligent Identity Platform is comprised of six solutions that can be purchased individually or as a set of integrated offerings for the customer, employee, partner or IoT use case:
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We have spent over a decade building a comprehensive suite of turnkey integrations designed to ensure that enterprises can use our platform to secure their applications wall-to-wall, facilitating easier deployment and rapid time-to-value.
We sell our solutions via a subscription model through a direct sales force, with increasing influence from our channel partners. We also utilize channel partners and system integrators to assist our customers in the implementation process. Our SSO, Access Security and Directory solutions typically replace legacy and homegrown systems. We also have significant greenfield opportunities with our MFA, Data Governance and API Intelligence solutions and, increasingly, the IoT use case.
Our land and expand strategy targets enterprises with a specific solution and use case and then seeks to grow our footprint with additional solutions, use cases and identities. The success of our strategy is validated by our strong dollar-based net retention rates and our growing number of large customers. Our dollar-based net retention rates were 123%, 116% and 115% at December 31, 2017 and 2018 and June 30, 2019, respectively, and our dollar-based net retention rates have exceeded 115% for each of the past eight fiscal quarters. Our customers with ARR over $250,000 increased from 144 at December 31, 2017 to 202 at December 31, 2018, representing a growth rate of 40%. Our total customers increased from 1,264 at December 31, 2017 to 1,284 at December 31, 2018. The gross increase in total customers for the 2018 fiscal year was partially offset by customer churn, primarily consisting of low contract value churn of customers with ARR below $25,000. The increase of 58 net customers with ARR greater than $250,000 for the 2018 fiscal year is comprised of 16 new customers and 42 existing customers that had ARR grow to exceed $250,000 in 2018. Additionally, at December 31, 2018, we had 25 customers with greater than $1,000,000 in ARR. An
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increasing number of our customers are deploying a combination of our solutions across multiple business units, functions and use cases in their initial purchase. For definitions of ARR and dollar-based net retention rate and descriptions of how we calculate these metrics, see "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Our customers include many of the world's largest enterprises, including over 50% of the Fortune 100. These customers are security-focused, and typically operate in regulated industries, have hybrid IT infrastructures, require turnkey integrations and have demanding scalability requirements. Our solutions secure 12 of the 12 largest U.S. banks (measured by assets), 8 of the 10 largest bio-pharmaceutical companies (measured by revenue), 4 of the 5 largest healthcare plans (measured by revenue) and 5 of the 7 largest U.S. retailers (measured by revenue). Our customer base is diversified, with no one customer or reseller accounting for more than 5% of our total revenue for the six months ended June 30, 2019.
Since our inception, we have been an innovator in identity. We pioneered the concept of Intelligent Identity, which leverages AI and ML to analyze device, network, application and user behavior data to secure access and enhance the user experience. We founded Ping with the vision of enabling enterprise security in a highly-connected world, replacing legacy security controls such as web gateways, virtual private networks, or VPNs, and firewalls. We contributed to or co-authored many of the open identity standards such as SAML, OAuth, SCIM and OpenID Connect, which form the foundation of our industry. We have consistently been recognized as a leader in the IAM industry by Gartner and KuppingerCole. We founded Identiverse, the leading identity industry conference, which brought together more than 1,500 thought leaders in 2018.
We sell our solutions via a subscription model typically billed annually in advance. We have grown revenue from $172.5 million for the year ended December 31, 2017 to $201.6 million for the year ended December 31, 2018, representing year-over-year growth of 17%. Our ARR was $147.0 million and $183.6 million at December 31, 2017 and 2018, respectively, representing year-over-year growth of 25%. Our ARR was $159.6 million and $198.0 million at June 30, 2018 and 2019, respectively, representing period-over-period growth of 24%. We have grown revenue from $99.5 million for the six months ended June 30, 2018 to $112.9 million for the six months ended June 30, 2019, representing period-over-period growth of 14%. Our net income was $19.0 million for the year ended December 31, 2017. Our net loss was $13.4 million for the year ended December 31, 2018. We had net losses of $5.8 million and $3.1 million for the six months ended June 30, 2018 and 2019, respectively. Our cash provided by operations was $3.4 million and $22.9 million for the years ended December 31, 2017 and 2018, respectively. Our cash provided by operations was $13.0 million and $8.1 million for the six months ended June 30, 2018 and 2019, respectively. Our Free Cash Flow was $(2.5) million and $13.1 million for the years ended December 31, 2017 and 2018, respectively. Our Free Cash Flow was $8.9 million and $1.2 million for the six months ended June 30, 2018 and 2019, respectively. Free Cash Flow is a supplemental measures that is not calculated and presented in accordance with GAAP. See "Selected Consolidated Financial DataNon-GAAP Financial Measures" for a definition of Free Cash Flow and a reconciliation to its most directly comparable GAAP financial measure.
IAM is the foundation for maximizing security and enhancing user experience in a distributed and highly-connected digital world, where the traditional network perimeter has dissolved and the attack surface has expanded. In this digital world, legacy IAM solutions are proving ill-suited to address cloud, mobile, IoT and API requirements. Similarly, cloud-only IAM vendors are unable to meet the requirements of large enterprises that have hybrid IT infrastructures.
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Enterprises are Undergoing Digital Transformations and Embracing Technology Trends
Digital Transformation is Critical to Driving Competitive Differentiation. Enterprises are investing in technology to grow their digital presence, create new revenue streams, transition business models and increase customer engagement. In order to accomplish this, enterprises must engage with their customers across digital channels. As consumers have become accustomed to seamless access and high-quality experiences from companies such as Amazon, Google and Netflix, all enterprises are under pressure to meet rising expectations or risk being disrupted by competitors.
Enterprises are Embracing Cloud Computing, SaaS and Mobility. Enterprises are transitioning a portion of their IT budgets to invest in cloud computing to build new services, shorten time-to-value and drive cost efficiency. The adoption of SaaS applications and mobility is empowering business users and partners to increase productivity, facilitate collaboration, reengineer business processes and drive new opportunities for growth. The consumerization of IT and shift towards a distributed workforce has caused employees and partners to demand seamless access to cloud and on-premise applications from any device.
APIs and IoT Devices are Dramatically Expanding the Number of New Connections. APIs have become critical to software development and act as gateways to other digital services by facilitating the connection and data sharing between heterogeneous systems and applications. APIs have become the building blocks of the web and will help drive the future of software by powering new applications, enabling communications and automating business processes.
Enterprises are also deploying IoT devices embedded with software and sensors to connect with their customers, collect streaming data and analyze endpoint performance. According to IDC, the worldwide installed base of IoT devices will grow from 23 billion in 2018 to more than 41 billion in 2025, representing a CAGR of 9%. APIs and IoT will continue drive innovation for enterprises, creating a myriad of new digital channels, connections and identities.
Digital Transformation Initiatives have Created Challenges and Complexity for Enterprises
Cloud, Mobile and IoT Have Expanded the Attack Surface. The rapid adoption of cloud-based offerings and the proliferation of mobile and IoT devices have expanded the attack surface for cyber threats, moving users, devices, applications and data outside the traditional network perimeter. As a result of this shift, identity has become the most common vulnerability that hackers seek to exploit. According to a 2017 Verizon report, 81% of hacking-related breaches leveraged stolen and/or weak passwords. Once cyber attackers have gained access to an enterprise's systems they have the ability to move laterally for months, even years, escalating access privileges, performing recognizance and stealing sensitive data while going undetected.
New Technology Adoption has Created Complex Hybrid and Multi-Cloud IT Challenges. Enterprises are increasingly reliant on both cloud and on-premise applications, which is creating complex hybrid IT infrastructures. According to IDC, public cloud spending is projected to grow from 33% of worldwide IT infrastructure spend in 2018 to 38% in 2023. A significant portion of IT budgets, however, will continue to be allocated to on-premise IT infrastructure. As a result, enterprises increasingly require solutions capable of spanning both cloud and on-premise infrastructures to support their hybrid realities.
As the adoption of cloud matures, enterprises are focused on optimizing for performance, cost and security while also maintaining flexibility to operate across multiple clouds. IDC expects more than 90% of enterprise IT organizations will commit to multi-cloud architectures by 2020. Enterprises facing this complexity and fragmentation need independent and vendor-agnostic solutions capable of scaling across multi-cloud environments.
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The Rise of APIs has Created New Security Vulnerabilities. The rapid proliferation of APIs has created new security vulnerabilities due to their connectivity with critical systems and access to data. Breaches associated with API gateways can remain undetected for extended periods of time because of a lack of visibility into API traffic and an inability to monitor anomalies or abuse.
The Identity Landscape is Large and Evolving
Identity is a vast landscape, comprised of three distinct established markets that each require different solutions. Our Intelligent Identity Platform focuses on the largest of these markets, IAM. We partner with leading companies in the adjacent markets, PAM and IGA. The objectives, workflows and interfaces of these three markets remain distinct and have little overlap.
Within IAM, CIAM represents a large and growing opportunity and includes solutions that provide a consistent, modern, omni-channel customer experience through personalized access to all digital services. Historically, large corporations often managed customer identities in silos using homegrown solutions. However, the landscape has changed dramatically for this use case as enterprises now recognize the value of centralized CIAM.
Existing IAM Solutions are Limited
Legacy Providers. Legacy IAM solutions generally do not meet enterprises' evolving requirements because of these inherent limitations:
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Cloud-Only Vendors. Cloud-only IAM solutions generally do not meet enterprises' evolving requirements because of these inherent limitations:
Intelligent Identity is Needed Now More than Ever
Enterprises are under pressure to innovate faster, improve productivity and deliver exceptional user experiences through digitalization, all while maximizing security. The question "Who are you?" must be asked and satisfactorily answered as a precondition to every digital interaction. Intelligent Identity asks and answers the question by leveraging AI and ML to analyze device, network, application and user behavior data to make real-time authentication and security control decisions. Additional security measures, which impose friction on the user experience, are only utilized if anomalies in behavior or data are detected or in high-value transactions. This optimizes the balance between securing access and providing an enhanced user experience.
According to IDC, the worldwide market for IAM is expected to grow from $6.6 billion in 2018 to $9.0 billion in 2023, representing a CAGR of approximately 6%. Based on management's internal analysis, we estimate that our market opportunity is greater than $25 billion across our use cases. We quantify this opportunity by identifying the total number of global companies above $500 million in annual revenue as identified by D&B Hoovers as of June 30, 2019, which was 19,900 companies, and segmenting these companies into four revenue bands. We then multiply the number of companies within each revenue band by our internal ARR data for that revenue band, assuming deployment of all our solutions and use cases.
We believe our market opportunity has the potential to expand in the future as the proliferation of IoT and APIs increases connections, complexity and the number of identities, in the enterprise. According to IDC, the worldwide installed base of IoT devices will grow from 23 billion in 2018 to more than 41 billion in 2025, representing a CAGR of 9%. Our Intelligent Identity Platform is built to address the scale and complexity that will arise from IoT and API proliferation.
Our market includes opportunities for both greenfield expansion and replacement of legacy and homegrown solutions. We believe security budgets are shifting from network-centric to identity-centric solutions because the adoption of cloud, mobile and IoT has led to a disappearing network perimeter. We believe the focus of cybersecurity will continue to shift to the user as targeted attacks against users and their credentials increase. As a result, we believe that IAM will represent a larger portion of future security budgets, which we are well positioned to capture.
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The key elements of our growth strategy include:
Our Intelligent Identity Platform
We enable secure access to any service, application or API from any device. Our Intelligent Identity Platform can leverage AI and ML to analyze device, network, and user behavior data to make real-time authentication and security control decisions, enhancing the user experience. Our platform is designed to detect anomalies and automatically insert additional security measures, such as MFA, only when necessary. Our Intelligent Identity Platform provides the following key benefits:
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Our Intelligent Identity Platform Supports All Primary Use Cases
Deployment Flexibility
We have designed our solutions for flexible deployment because every enterprise has different customization, control, security and privacy needs. Our deployment flexibility provides the optionality to adopt cloud-based offerings for rapid deployment, remain on-premise for maximum control or to comply with industry regulations, or deploy in a hybrid manner. Our deployment options include:
Our Intelligent Identity Platform is comprised of six solutions (SSO, MFA, Access Security, Directory, Data Governance and API Intelligence) that can be purchased individually or as a set of integrated offerings for the customer, employee, partner or IoT use case. Our modular design allows customers to easily integrate with existing applications and infrastructures and does not require an all-or-nothing rip and replace. All of our solutions use open standards for maximum interoperability and extensibility.
Single Sign-On. Our SSO solution allows users to sign on using one set of secure credentials, giving them one-click access to their applications and resources regardless of location. Our SSO solution provides turnkey integrations for a wide range of applications, cloud services, IT infrastructures and directory solutions, including third party directories, as well as our Directory solution. Within our SSO solution, our adaptive authentication policies enable organizations to predictively authenticate users in real-time based on device, network, application and user behavior data. Our advanced SSO features include:
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Multi-Factor Authentication. Our adaptive MFA solution helps optimize the balance between security and user experience by enforcing additional authentication factors as necessary when accessing sensitive resources, conducting high-value transactions and engaging in other elevated risk scenarios. Adaptive MFA allows users to conduct low-value transactions from trusted devices without interruption, while prompting MFA during high-value transactions, activity from untrusted devices and networks or in response to anomalous behavior. Our MFA solution works across use cases with personal or corporate-owned mobile devices and integrates with enterprise mobility management and mobile device management solutions. Our advanced MFA features include:
Access Security. Our Access Security solution allows enterprises to apply a greater depth of security control over their web applications and APIs in any domain for users on any device. We offer a comprehensive policy engine down to the URL level that is designed to ensure only an authorized user can access resources. Our solution evaluates access decisions in real-time based on network, browser and authentication attributes, while continuously validating the risk profile of the user or device. Our advanced Access Security features include:
Directory. Our Directory solution securely stores and manages sensitive identity and device data at scale. It includes real-time, bidirectional synchronization capabilities to migrate or sync data
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from multiple sources into a secure, scalable and unified profile. This single source of data is designed to provide a consistent experience across digital business interactions, no matter where the applications and services are deployed. Our advanced Directory features include:
Data Governance. Our Data Governance solution provides centralized, fine-grained control over access to sensitive identity and device data across use cases. This enables organizations to restrict internal and external applications from accessing specific identity attributes such as social security numbers, credit card numbers, billing addresses or the entire user profile. Data access policies can evaluate attributes and preferences of the profile being requested, data from other repositories and information about the application and user making the request. Our Data Governance solution enables enterprises to comply with a broad range of regulatory requirements, such as GDPR, by restricting data that a user has not consented to share and denying access to personal information that applications and users do not need to perform their tasks. Our advanced Data Governance features include:
API Intelligence. Our API Intelligence solution can apply AI and ML to continuously inspect, report and act on all API activity. Our solution is purpose-built to recognize and respond to attacks that are designed to exploit the unique vulnerabilities of individual APIs. These attacks often go undetected by traditional security tools, such as application firewalls and API gateways. Our advanced API Intelligence features include:
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Our technology has been developed to the highest standards for security, performance, scale and interoperability. Our platform is built on the following core tenets:
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Sales
We sell our solutions primarily through direct sales, which are enhanced by collaboration with our channel partners, system integrators and technology partners. For the year ended December 31, 2018, 60% of our new business was influenced by our channel partners, which includes sourcing new leads, aiding in pre-sale processes such as proof of concepts, demos or requests for proposals and reselling our solutions to customers. For the year ended December 31, 2018, our channel partners included more than 50 resellers, 35 systems integrators and ten managed service providers. We also leverage a number of our channel partners and system integrators to provide the implementation services for some of our larger and more complex deployments, significantly increasing the time-to-value for our customers and maximizing the efficiency of our go-to-market efforts.
Marketing
We focus our marketing strategy on building brand recognition through thought leadership and differentiated messaging that communicates the business value of our platform. Our efforts include content marketing, social media, SEO, events and public and analyst relations. We convert this brand awareness into our pipeline through campaigns that integrate digital, social, web and field marketing tactics aimed at adding new customers and cross-marketing our solutions into our existing customer base. We host user conferences in select cities around the globe to tap into the power of our passionate customer base and our broader ecosystem. We also founded and host the leading identity industry conference called Identiverse. Identiverse is held annually and attendees include architects, IAM professionals, IT administrators, developers, security professionals and CISOs, as well as technology vendors, system integrators, industry analysts and thought leaders.
Operational Efficiency
Since 2016, we have enacted a series of strategic transformation projects through our "Ping Next" initiative focused on operational improvements to accelerate revenue generation and improve profitability. Ping Next capitalizes on key efficiency opportunities in nearly all areas of the business, including sales, marketing, customer success, technical support, professional services and general and administrative functions. The adoption of several key best practices by our sales and marketing organizations is contributing to revenue acceleration. Examples of these best practices include:
Customer and Prospect Database. Our implementation of algorithm-based customer and prospect targeting has delivered improved win-rates and larger average deal sizes and has allowed us to prioritize deployment of our sales and marketing resources where we believe they have the highest likelihood of success.
Marketing Optimization. We track the return on investment of our marketing tactics, which allows us to allocate marketing resources to the highest yielding activities.
Customer Success Best Practices. We employ a stratified customer success strategy across our customer base to drive revenue retention while minimizing the requirement for additional investment. Our customer success platform allows us to tier and standardize customer retention activities while maximizing upsell opportunities.
As of December 31, 2018, we had over 1,275 customers. Our customer base is comprised of over 50% of the Fortune 100. As of June 30, 2019, our customer base included 12 of the 12 largest
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U.S. banks (measured by assets), 8 of the 10 largest bio-pharmaceutical companies (measured by revenue), 4 of the 5 largest healthcare plans (measured by revenue) and 5 of the 7 largest U.S. retailers (measured by revenue). Our customer base is diversified, with no one customer or reseller accounting for more than 5% of our total revenue for the six months ended June 30, 2019. We have a highly satisfied customer base, as evidenced by our Net Promoter Score of 62 in 2018.
The following case studies are representative examples of how our customers have benefited from, and expanded their use of, our platform.
A Leading European Financial Institution
The Challenge. A leading European financial institution had IAM capabilities that were isolated, proprietary, offered limited extensibility, or were out of support. The bank needed a secure IAM solution that could be deployed across all of its use cases and provide a streamlined user experience. At the same time, the bank needed to enable access to its APIs and implement strong customer authentication to prepare for the digital business regulatory requirements of the PSD2 and Open Banking directives.
The Solution. The institution chose the Ping Intelligent Identity Platform because of Ping's commitment to open standards and its ability to bridge on-premise and cloud environments. In Ping, the institution found the single solution it needed for secure identity and access management so it could move away from proprietary systems and custom-written solutions. Ping's solutions provided the technology platform required to support both internal employees and external customers. Ping's SSO solution allows the institution to give its users convenient SSO, while Ping's Access Security solution helps ensure secure access to all applications and APIs in any domain or location. Ping's Directory and Data Governance solutions enable the institution to securely store user identity data and maintain fine-grained control and governance over access to that data. These capabilities, combined with open standards support, provide the institution with financial-grade security and access for 10 million customers and 100,000 employees.
HP, Inc.
The Challenge. HP, Inc., or HP, one of the world's largest printer and personal computer manufacturers, had a fragmented user base with more than a dozen separate legacy IAM systems. Siloed data created a disjointed customer experience, and systems integration complexity increased management burden and costs. Additionally, HP had regional requirements in different countries that restricted how data could be stored or how it could be moved in and out of systems around the world. To address these complexities, HP undertook its largest identity initiative to date, in which over 100 applications, including HP Shopping, HP Partner First Portal, Instant Ink and more needed to be migrated to new IAM solutions. Because of the large number of concurrent work streams and dependencies, any delay or misstep in implementation of the new solutions could have adverse consequences across HP.
The Solution. The HP and Ping teams worked in close partnership to implement Ping's Directory and Data Governance solutions with fully automated, multi-region deployment in AWS. The new solutions provide applications with easy access to user data when they need it and offer the necessary infrastructure to provide segregation of data by country or regional requirements. Before HP's Ping deployment, more than a dozen legacy IAM systems were in use across the enterprise. Today, HP has a single IAM platform deployed across the entire organizationproviding a unified experience for millions of customers while reducing complexity, optimizing spend and enabling new business as HP evolves.
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BlueCross BlueShield of Tennessee
The Challenge. BlueCross BlueShield of Tennessee, or BCBST, Tennessee's largest health benefits plan serving more than 3.5 million individuals, sought to improve its online member experience. Achieving this goal required an IAM solution that accommodated BCBST's members' unique qualities, while also providing a member data directory that synchronized data across systems and appropriately governed access to data.
The Solution. Ping has improved BCBST's member experience by providing members with a secure authentication through Ping's SSO, Access Security and MFA solutions. These technologies help ensure a consistent and user-friendly experience for members across BCBST's digital properties. BCBST also uses Ping's Directory solution for a centralized source of member data with improved flexibility, administration, security and data integrity and accuracy. BCBST also leveraged Ping's Data Governance solution to provide fine-grained control over member identity attributes. BCBST's information security leadership has commended Ping on the quick and simple installation of its technology and the technology's ability to quicken BCBST's reactions to business needs and requirements. Through Ping, BCBST has been able to cut the complexity and cost of multi-vendor identity management by leveraging these solutions to support BCBST's business needs.
A Leading Global Airline
The Challenge. One of the world's largest global airlines helps more than 180 million travelers get to the places they want to go to each year. The airline's internal authentication experience was too cumbersome, with security issues ranging from inconsistent user names, ineffective security questions, and an excessive amount of sign-in prompts. In addition, user access to key applications was slow, with inefficient manual steps and over-reliance on internal IT support. The airline was in need of an access solution to establish a secure authentication framework for its business.
The Solution. Ping addressed these needs with Ping's SSO and Access Security solutions. The airline ultimately chose Ping based on its open standards, broad protocol suite, and responsiveness around both support and enhancements. As part of the transformation, the airline migrated over 350 applications to Ping's SSO solution. In addition, the airline federated IBM's mainframe access tool with Ping's SSO solution. This allowed the airline to utilize Ping's SSO solution to create a seamless single sign-on experience from the airline's distributed system to the critical mainframe-based crew bidding and crew scheduling applications. Ultimately this reduced the number of sign-in attempts for the airline's indispensable frontline employeespilots and flight attendantsenabling them to better serve the customer expeditiously.
Partnerships and Strategic Relationships
The PingPartner Network is comprised of key partnerships across our solution provider and technology alliance programs. This global network delivers expertise, value-added services and technology that are critical to the success of our customers.
Solution Provider Program
We have built strong relationships with channel partners, system integrators and technology partners that have allowed us to generate new business opportunities and enhance existing practices such as strategic planning, program management, architecture, design, implementation, ongoing change management and support.
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Technology Alliance
We have built a broad ecosystem of over 100 technology partners. Our Technology Alliance Partner ecosystem spans the landscape of IAM and related technologies, giving our customers access to comprehensive, cross-application, integrated solutions. Our technology partners expand and extend the value of their solutions, and our solutions, by integrating their technology with our Intelligent Identity Platform. Additionally, our partners provide us with complementary technology and sales and marketing collateral that help us to more effectively sell together.
We partner with Microsoft, and this partnership has led to key product integrations. Through our collaboration, customers can leverage our platform to connect to the Microsoft Azure or Office365 services and enjoy rapid deployments via our integrations. We also enable non-Microsoft applications and environments to be easily integrated into the Microsoft ecosystem. Lastly, our MFA solution works directly with Microsoft ADFS and AzureAD to provide enterprise-grade adaptive authentication to Microsoft's cloud-based offerings.
We also partner with AWS to provide provisioning and deployment of our solutions to our customers through this collaboration. We offer AWS single sign-on integration for a leading enterprise cloud experience. We also offer a hybrid deployment that can scale across AWS for enterprise applications.
Professional Services and Customer Support
Professional Services
Our professional services organization helps customers architect, deploy, configure, extend and integrate our platform into their IT environments. We offer a variety of packaged and configured offerings and expert guidance that leverage our best practices and experience, all of which are available for our robust partner community to use or resell. We complement our professional services with formal instructor-led and web-based on-demand training courses.
Customer Support
We offer three tiers of support, each building on the previous tier to most closely align with a customer's requirements. Support is included for our cloud and on-premise offerings during the term of a customer's subscription. All support tiers offer maintenance releases, patches and access to our support services and portal. Our support portal offers customers documentation, how-to guides, videos and a community where they can ask questions and find answers. Our customer support organization includes experienced, trained personnel and engineering resources located around the world to provide 24x7x365 support for critical issues.
Innovation is at the core of what we do. Approximately one-third of our employees are devoted to research and development. Our research and development efforts are focused on building industry leading solutions, addressing all primary use cases, enhancing deployment flexibility and providing seamless integration across cloud and on-premise applications. We believe that the ongoing and timely development of new solutions and features is imperative to maintaining our competitive position. We continue to invest in our solutions across our development centers in: Denver, Colorado; Austin, Texas; Tel Aviv, Israel; Vancouver, Canada; and Bangalore, India.
Our success depends in part on our ability to protect our intellectual property. We rely on copyrights and trade secret laws, confidentiality procedures, employment agreements and
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proprietary information and invention assignment agreements, trademarks and patents to protect our intellectual property rights.
We control access to, and use of, our solutions and other confidential information through the use of internal and external controls, including contractual protections with employees, contractors, customers and partners, and our software is protected by U.S. and international copyright and trade secret laws. Despite our efforts to protect our trade secrets and proprietary rights through intellectual property rights, licenses and confidentiality agreements, unauthorized parties may still copy or otherwise obtain and use our software and technology.
As of June 30, 2019, we have 15 issued patents and 9 patent applications pending in the United States relating to certain aspects of our technology. Our issued patents expire between December 14, 2031 and May 4, 2035. We cannot assure you whether any of our patent applications will result in the issuance of a patent or whether the examination process will require us to narrow our claims. Any of our existing patents and any that are issued in the future may be contested, circumvented, found unenforceable or invalidated, and we may not be able to prevent third parties from infringing them. In addition, we have international operations and intend to continue to expand these operations, and effective patent, copyright, trademark and trade secret protection may not be available or may be limited in foreign countries.
We face competition from (1) legacy providers, (2) cloud-only providers and (3) homegrown solutions.
Legacy providers include CA Technologies, IBM and Oracle, among others. These providers generally designed their solutions when enterprise applications were monolithic and on-premise. Their solutions utilize proprietary architectures, which require customized features and integrations to scale. Today, these solutions have the reputation of being complex, costly and increasingly fragile. Thus, legacy providers often struggle to offer a single comprehensive solution that spans all IT environments, including cloud and on-premise.
We also compete with cloud-only providers, such as Okta and OneLogin that primarily focus on the employee use case. These providers have solutions that are generally geared towards small and medium-sized businesses that have IT infrastructures hosted entirely in the cloud. Large enterprises typically do not have cloud-only infrastructures, and while many are moving components of their IT environments to the cloud, we believe the majority of applications and workloads will continue to reside on-premise. Thus, a cloud-only IAM solution cannot deliver a single comprehensive solution to enterprises that provides wall-to-wall coverage across their complex hybrid IT environments.
Microsoft also competes in our market and has tied its identity services to both Azure and its Office365 offerings. However, we partner with Microsoft to provide SSO, security control and adaptive MFA where non-Microsoft environments require integration or independence is preferred. Microsoft's integration and interoperability with our solutions benefits enterprises while providing optionality and choice.
We believe the principal competitive factors in the IAM market include: (1) the ability to address all primary use cases from one platform; (2) the ability to deploy in large, complex hybrid IT environments; (3) the ability to integrate easily with all applications (cloud and on-premise); (4) technology uptime, reliability, scalability and performance; (5) the ability to support open standards; and (6) customer, technology and platform support. We believe we compete favorably on these factors.
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As of June 30, 2019, we had a total of 897 full time employees, of which approximately one-third were in research and development. We have a strong corporate culture, high employee engagement and are consistently ranked by third parties as one of the best places to work.
Our corporate headquarters are in Denver, Colorado, where we lease 108,761 square feet of office space as of June 30, 2019. We also have domestic offices in Boston, Massachusetts, Austin, Texas and San Francisco, California and international offices in the United Kingdom, Australia, Canada, India, Israel, France and Switzerland.
We lease all of our facilities. We believe that our facilities are adequate for our current needs and anticipate that suitable additional space will be readily available to accommodate any foreseeable expansion of our operations.
We are not currently a party to any material legal proceedings.
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MANAGEMENT
Our Executive Officers and Directors
Below is a list of the names, ages as of June 30, 2019, positions and a brief account of the business experience of the individuals who serve as our executive officers and directors.
Name
|
Age | Position | |||
Andre Durand |
51 | Chief Executive Officer and Director | |||
Raj Dani |
49 | Chief Financial Officer | |||
B. Kristian Nagel |
52 | Chief Operating Officer | |||
Lauren Romer |
42 | Chief Legal Officer and Secretary | |||
Bernard Harguindeguy |
61 | Chief Technology Officer | |||
Rod Aliabadi |
34 | Director | |||
David A. Breach |
52 | Director | |||
Clifford K. Chiu |
60 | Director | |||
Michael Fosnaugh |
40 | Director | |||
John McCormack |
60 | Director | |||
Brian N. Sheth |
43 | Director | |||
Yancey L. Spruill |
52 | Director |
Andre Durand has served as our Chief Executive Officer since founding Ping Identity Corporation in 2001. Prior to founding Ping Identity Corporation, Mr. Durand founded Jabber, Inc., an instant messaging open source platform used by businesses globally, in 2000. Mr. Durand earned a bachelor's degree in biology and economics from the University of California at Santa Barbara. We believe Mr. Durand is qualified to serve on our Board because of his extensive knowledge of our business and strategy, as well as his experience in the technology industry and leadership role with us as our Chief Executive Officer.
Raj Dani has served as our Chief Financial Officer since 2016. Before joining Ping Identity Corporation, Mr. Dani served as chief financial officer of AVI-SPL, Inc., a systems integration firm from 2014 to 2016. Prior to that, Mr. Dani held senior positions within technology services companies and began his career with PricewaterhouseCoopers LLP, serving in its audit and transaction advisory practices. Mr. Dani earned a master's degree in accounting from the University of Florida and a bachelor's degree in business administration from Emory University. Mr. Dani is an actively licensed certified public accountant.
B. Kristian Nagel has served as our Chief Operating Officer since December 2018. Before serving in this role, Mr. Nagel was chief executive officer for Vindicia, Inc. from 2016 to 2018 and was responsible for all of its strategic and daily operations. Prior to that, Mr. Nagel was special vice president field operations for Vindicia, Inc. from 2008 to 2016. Prior to that, Mr. Nagel held a number of senior leadership positions in both venture-backed and public companies. Mr. Nagel began his career with Apple Inc. after earning a master's of business administration from San Jose State University and a bachelor's degree in Management Information Systems at Pennsylvania State University.
Lauren Romer has served as our Chief Legal Officer since 2018, after initially joining Ping Identity Corporation as our Director of Legal Affairs in 2010. Before joining Ping Identity Corporation, Ms. Romer served as corporate counsel at Collective Intellect, Inc. from 2009 to 2010. Prior to that, Ms. Romer also worked as a corporate associate at Cooley LLP from 2005 to 2009. Ms. Romer earned a bachelor's degree in public policy studies from Duke University, a master's degree in higher education administration from Florida State University and a juris doctorate from the University of Denver's Sturm College of Law.
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Bernard Harguindeguy has served as our Chief Technology Officer since 2018, by way of our acquisition of Elastic Beam, where Mr. Harguindeguy served as chief executive officer after founding it in 2014. Prior to that, Mr. Harguindeguy served as chairman, president and chief executive officer at Atlantis Computing from 2009 to 2014. Prior to that, Mr. Harguindeguy served as the chairman of a number of technology companies. Mr. Harguindeguy earned a bachelor's degree in electrical engineering from the University of California Irvine, where he was inducted into the Engineering Hall of Fame, and a master's degree in engineering management from Stanford University.
Rod Aliabadi has served on our Board since June 2016. Mr. Aliabadi is a Senior Vice President at Vista. Prior to joining Vista in 2008, Mr. Aliabadi worked at the Stanford Genome Technology Center, focusing on the development of nanotechnology-driven diagnostics. Mr. Aliabadi currently serves on the board of several of Vista's private portfolio companies, including EAB Global Inc., Integral Ad Science Inc. and Market Track, LLC. Mr. Aliabadi received a bachelor of engineering in biomedical engineering from Vanderbilt University. Mr. Aliabadi's extensive experience in the areas of corporate strategy, technology, finance and engineering, as well as his experience on the boards of other technology and software companies, make him a valuable member of our Board.
David Breach has served on our Board since March 2019. Mr. Breach is the Chief Operating Officer and Chief Legal Officer at Vista. Prior to joining Vista in 2014, Mr. Breach worked as a Senior Corporate Partner at Kirkland & Ellis LLP, where his practice focused on representation of private equity funds in all aspects of their business. Mr. Breach was a founding partner of Kirkland & Ellis's San Francisco office, and received numerous professional accolades while at Kirkland & Ellis. Mr. Breach is also a Principal of Vista and sits on Vista's Private Equity Funds' Investment Committees. Mr. Breach also sits on the boards of Vista portfolio companies Solera Holdings Inc., Mediaocean LLC, and Vertafore, Inc. Mr. Breach received a bachelor of business administration in marketing from Eastern Michigan University and received a juris doctorate from the University of Michigan, magna cum laude, Order of the Coif. Mr. Breach is currently a member of the State Bars of California, Illinois and Michigan. Mr. Breach's extensive experience in the areas of corporate strategy, private equity and firm governance, as well as his experience on the boards of other companies, make him a valuable member of our Board.
Clifford K. Chiu has served on our Board since January 2017. Mr. Chiu is a corporate director and private investment firm senior advisor, as well as a board or committee appointee to government bodies and non-governmental organizations in the financial services, enterprise software, data and technology-enabled solutions, healthcare, education, social welfare and the arts sectors located in the United States and Hong Kong. Prior to that, Mr. Chiu was a partner at Kohlberg Kravis Roberts & Co., an investment firm that specializes in alternative assets, until his retirement in 2014. Over his 39-year career in the financial services industry, Mr. Chiu has held a number of public and private leadership positions. Mr. Chiu is currently a director of Finastra plc, TIBCO Software, Inc., Infoblox, Inc., Regulatory DataCorp., Inc., and was previously on the board of Cambium Learning Group, a formerly publicly-traded education company, and Hsin Chong Construction Group. Mr. Chiu received a master's of business administration from the University of Chicago and a bachelor's degree in economics from the University of Pennsylvania. Mr. Chiu's board experience, coupled with his extensive experience in the financial services industry and with technology companies, make him a valuable member of our Board.
Michael Fosnaugh has served on our Board since June 2016. Mr. Fosnaugh is a principal at Vista. Mr. Fosnaugh is co-head of the Chicago office and sits on the Vista Flagship Funds' Investment Committee. Prior to joining Vista in 2005, Mr. Fosnaugh worked in the Technology, Media & Telecommunications group at SG Cowen & Co., where he focused on the software, services and financial technology sectors. While at SG Cowen, Mr. Fosnaugh advised clients on buy-side and sell-side transactions, public and private equity financings and other strategic advisory
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initiatives. Mr. Fosnaugh currently serves on the board of several of Vista's private portfolio companies, including Advicent Solutions Inc., Alegeus Technologies Holdings Corp., EAB Global Inc., Greenway Health, LLC, Integral Ad Science Inc, Jamf Software LLC and Mediaocean LLC. Mr. Fosnaugh received a bachelor's degree in economics from Harvard College. Mr. Fosnaugh's extensive experience in the areas of corporate strategy, technology, finance, marketing, business transactions and software investments, as well as his experience working with other technology and software companies, make him a valuable member of our Board.
John McCormack has served on our Board since June 2016. Mr. McCormack is an operating executive at Marlin Equity Partners, a global investment firm, and was the chairman and interim chief executive officer of Fidelis CyberSecurity, a cybersecurity firm that specializes in threat detection, from January 2017 to July 2018. Mr. McCormack also was an advisor to the board of Forcepoint LLC (formerly Raytheon -- Websense), a cyber security firm, from April 2016 to December 2016. From 2013 to 2016, Mr. McCormack was the chief executive officer of Forcepoint LLC and was the president prior to that. Mr. McCormack currently is chairman of the Board of AppRiver, a company that specializes in cloud-based cybersecurity, a position he has held since October 2017. Mr. McCormack received a master's degree in information management from The George Washington University and a bachelor's degree in computer science from the University of New Hampshire. Mr. McCormack's board and advisory experience, coupled with his senior management experience at technology companies, and his extensive experience and leadership at technology companies, make him a valuable member of our Board.
Brian N. Sheth has served on our board since June 2016. Mr. Sheth co-founded Vista Equity Partners in 2000. Mr. Sheth is currently the president of Vista Equity Partners and the vice-chairman of the Vista Private Equity Funds' investment committees. Prior to founding Vista in 2000, Mr. Sheth worked at Bain Capital, where he focused on leveraged buyouts of technology companies, and also worked at Goldman, Sachs & Co. and Deutsche Morgan & Grenfell Group, where he advised clients in a variety of industries, including software, hardware, semiconductors and online media. Mr. Sheth currently serves on the board of several of Vista's private portfolio companies, including Infoblox, Tibco, Forcepoint and Datto. Mr. Sheth received a bachelor's degree in economics from the University of Pennsylvania. Mr. Sheth's board and advisory experience, coupled with his senior management experience as the President of Vista and his extensive experience in the areas of technology, finance, marketing, business transactions and mergers and acquisitions, make him a valuable member of our Board.
Yancey L. Spruill has served on our board since March 2019. Mr. Spruill is currently the Chief Executive Officer of DigitalOcean, Inc. Mr. Spruill was the Chief Operating Officer and Chief Financial Officer of SendGrid, Inc., a formerly publicly-traded provider of e-mail marketing services, where he served from June 2015 until its February 2019 sale to publicly-traded Twilio, Inc. Prior to joining SendGrid, Mr. Spruill served as Chief Financial Officer at TwentyEighty, Inc., a provider of training and performance improvement solutions, from September 2014 to June 2015. From August 2004 to September 2014, Mr. Spruill served as Executive Vice President and Chief Financial Officer at DigitalGlobe, Inc., a formerly publicly-traded provider of geospatial information products and services. Mr. Spruill also served on the board of directors for Rally Software Development Corp., a formerly publicly-traded provider of agile development software, from 2014 until its acquisition by CA, Inc. in 2015, and currently serves on the boards of Allscripts Healthcare Solutions, Inc., a publicly-traded electronic healthcare records technology company, since May 2016 and Zayo Group Holdings, a publicly-traded provider of telecommunications infrastructure services, since November 2018. Mr. Spruill holds a bachelor of electrical engineering from the Georgia Institute of Technology and a master's of business administration from the Amos Tuck School of Business at Dartmouth College. Mr. Spruill's extensive financial expertise, leadership experience, experience with serving on
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boards of other technology companies and significant experience in the technology industry and at other technology companies, make him a valuable member of our Board.
There are no family relationships between any of our executive officers or directors.
Board Composition and Director Independence
Our business and affairs are managed under the direction of our Board. Following completion of this offering, our Board will be composed of directors. Our certificate of incorporation will provide that the authorized number of directors may be changed only by resolution of our Board. Our certificate of incorporation will also provide that our Board will be divided into three classes of directors, with the classes as nearly equal in number as possible. Subject to any earlier resignation or removal in accordance with the terms of our certificate of incorporation and bylaws, our Class I directors will be and and will serve until the first annual meeting of shareholders following the completion of this offering, our Class II directors will be and and will serve until the second annual meeting of shareholders following the completion of this offering and our Class III directors will be and and will serve until the third annual meeting of shareholders following the completion of this offering. Upon completion of this offering, we expect that each of our directors will serve in the classes as indicated above. In addition, our certificate of incorporation will provide that our directors may be removed with or without cause by the affirmative vote of at least a majority of the voting power of our outstanding shares of stock entitled to vote thereon, voting together as a single class for so long as Vista beneficially owns % or more of the total number of shares of our common stock then outstanding. If Vista's beneficial ownership falls below % of the total number of shares of our common stock outstanding, then our directors may be removed only for cause upon the affirmative vote of at least 662/3% of the voting power of our outstanding shares of stock entitled to vote thereon.
The listing standards of NASDAQ require that, subject to specified exceptions, each member of a listed company's audit, compensation and nominating and governance committees be independent and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act.
Our Board has also determined that , and meet the NASDAQ requirements to be independent directors. In making this determination, our Board considered the relationships that each such non-employee director has with the Company and all other facts and circumstances that our Board deemed relevant in determining their independence, including beneficial ownership of our common stock.
Controlled Company Status
After completion of this offering, Vista Funds will continue to control a majority of our outstanding common stock. As a result, we will be a "controlled company". Under NASDAQ rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain NASDAQ corporate governance requirements, including the requirements that, within one year of the date of the listing of our common stock:
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Following this offering, we intend to rely on this exemption. As a result, we may not have a majority of independent directors on our Board. In addition, our Compensation and Nominating Committee may not consist entirely of independent directors or be subject to annual performance evaluations. Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to all of the NASDAQ corporate governance requirements.
Board Committees
Upon completion of this offering, our Board will have an Audit Committee and a Compensation and Nominating Committee. The composition, duties and responsibilities of these committees are as set forth below. In the future, our Board may establish other committees, as it deems appropriate, to assist it with its responsibilities.
Board Member | Audit Committee | Compensation and Nominating Committee |
|||||
| | | | | | | |
Following this offering, our Audit Committee will be composed of and , with serving as chairman of the committee. We intend to comply with the audit committee requirements of the SEC and NASDAQ, which require that the Audit Committee be composed of at least one independent director at the closing of this offering, a majority of independent directors within 90 days following this offering and all independent directors within one year following this offering. We anticipate that, prior to the completion of this offering, our Board will determine that and meet the independence requirements of Rule 10A-3 under the Exchange Act and the applicable listing standards of NASDAQ. Our Board has determined that is an "audit committee financial expert" within the meaning of SEC regulations and applicable listing standards of NASDAQ. The Audit Committee's responsibilities upon completion of this offering will include:
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Compensation and Nominating Committee
Following this offering, our Compensation and Nominating Committee will be composed of and , with serving as chairman of the committee. The Compensation and Nominating Committee's responsibilities upon completion of this offering will include:
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Compensation Committee Interlocks and Insider Participation
None of our executive officers currently serves, or in the past fiscal year has served, as a member of the Board or compensation committee of any entity that has one or more executive officers serving on our Board or Compensation and Nominating Committee.
Code of Business Conduct and Ethics
Prior to completion of this offering, we intend to adopt a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. Upon the closing of this offering, our code of business conduct and ethics will be available on our website. We intend to disclose any amendments to the code, or any waivers of its requirements, on our website.
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Unless we state otherwise or the context otherwise requires, in this Executive Compensation section the terms "Ping Identity Corporation", "we", "us", "our" and the "Company" refer to Ping Identity Corporation, a wholly-owned subsidiary of Roaring Fork Holding, Inc., for the period up to this offering, and for all periods following this offering, to Roaring Fork Holding, Inc.
This section discusses the material components of the executive compensation program for our Chief Executive Officer and our two other most highly compensated officers who we refer to as our "Named Executive Officers". As of the year ended December 31, 2018, our Named Executive Officers were as follows:
This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt in the future may differ materially from the currently planned programs summarized in this discussion.
Name and principal position |
Year | Salary | Option awards(1) |
Nonequity incentive plan compensation(2) |
Total |
|||||||||||
| | | | | | | | | | | | | | | | |
Andre Durand, Chief Executive Officer(3) |
2018 | $ | 400,000 | | $ | 309,653 | $ | 709,653 | ||||||||
B. Kristian Nagel, Chief Operating Officer |
2018 |
$ |
21,875 |
$ |
2,051,397 |
$ |
17,500 |
$ |
2,090,722 |
|||||||
Bernard Harguindeguy, Chief Technology Officer |
2018 |
$ |
194,916 |
$ |
939,807 |
$ |
89,856 |
$ |
1,224,579 |
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The following table summarizes, for each of the Named Executive Officers, the number of shares of our common stock underlying outstanding stock options held as of December 31, 2018.
Outstanding Equity Awards at Fiscal Year End
|
Option Awards(1) |
|||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Name |
Grant Date | Vesting Commencement Date |
Number of securities underlying unexercised options (#) exercisable(2) |
Number of securities underlying unexercised options (#) unexercisable |
Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)(3) |
Option exercise price ($) |
Option expiration date |
|||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Andre Durand |
6/30/2016 | 6/30/2016 | 5,333 | | 2,667 | 1,333.33 | 6/29/2026 | |||||||||||||||
|
9/25/2017 | 9/30/2017 | 650 | | 325 | 1,440.25 | 9/24/2027 | |||||||||||||||
B. Kristian Nagel |
12/28/2018 | 12/10/2018 | 1,871 | | 935 | 2,283.18 | 12/27/2028 | |||||||||||||||
Bernard Harguindeguy |
9/26/2018 | 9/26/2018 | 1,000 | | 500 | 2,003.71 | 9/25/2028 |
Emerging Growth Company Status
As an emerging growth company we will be exempt from certain requirements related to executive compensation, including the requirements to hold a nonbinding advisory vote on executive compensation and to provide information relating to the ratio of total compensation of our Chief Executive Officer to the median of the annual total compensation of all of our employees, each as required by the Investor Protection and Securities Reform Act of 2010, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Employment, Severance and Change in Control Arrangements
Letter Agreements
We have letter agreements with each of our Named Executive Officers that provide for at-will employment and set forth each executive's annual base salary, target and maximum bonus opportunity and eligibility to participate in our benefit plans generally. Each Named Executive Officer is subject to our standard confidentiality, invention assignment, non-solicit, non-compete and arbitration agreement.
Mr. Durand's current annual base salary is $435,000 and his target and maximum performance-based cash incentive annual bonus is equal to 65.0% and 84.5% of his base salary, respectively. Mr. Nagel's current annual base salary is $350,000 and his target and maximum performance-based cash incentive annual bonus is equal to 80.0% and 100.0% of his base salary, respectively. Mr. Harguindeguy's current annual base salary is $300,000 and his target and maximum performance-based cash incentive annual bonus is equal to 50.0% and 60.0% of his base salary, respectively. The performance-based cash incentive bonus for each of our Named Executive Officers provides incentive payments correlated to individual management by objectives and the attainment of pre-established objective financial goals.
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The letter agreements provide that upon a termination by us for any reason other than for "cause" or resignation for "good reason", each as defined therein, subject to the execution and delivery of a fully effective release of claims in favor of the Company, Mr. Durand and Mr. Nagel will receive a lump sum cash payment equal to 12 months and six months of base salary, respectively, and Mr. Harguindeguy will receive a cash payment equal to one month of base salary per full year of service completed with the Company at the time of termination, up to a maximum of three months. Mr. Durand is also entitled to a monthly cash payments equal to our contribution toward health insurance for up to 12 months.
Non-Equity Incentive Compensation
For 2018, our Named Executive Officers were eligible to receive an annual performance-based cash incentive award. Performance was assessed against goals and targets that were established for the fiscal year by our Board in the first quarter of 2018. Each performance goal was assigned a "target" level of performance and certain of the performance goals for 2018 included a "stretch" level at which the award opportunity was capped. Achievement of the target performance level would earn the target award, and achievement at or above the stretch performance level (where applicable) would earn a multiple of the target opportunity. Achievements falling below the target or between the target and stretch levels would result in a pro-rated payout. The performance goals used to determine cash incentive awards for 2018 were based on new ARR, Adjusted EBITDA, and customer churn rate, as well as the successful completion of various operational objectives.
Equity Incentives 2016 Stock Option Plan
Our 2016 Stock Option Plan, or the 2016 Plan, was originally adopted by our Board and approved by our shareholders in connection with the Vista Acquisition. Under the 2016 Plan, we have reserved for issuance an aggregate of 40,000 shares of our common stock. The number of shares of common stock reserved for issuance is subject to automatic adjustment in the event of a stock split, stock dividend or other change in our capitalization.
The 2016 Plan permits the granting of (i) options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and (ii) options that do not so qualify. The option exercise price of each option is determined by the administrator but may not be less than 100% of the fair market value of our common stock on the date of grant. The term of each option will be fixed by the administrator and may not exceed ten years from the date of grant.
Our Board is the administrator of the 2016 Plan. The administrator has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, and to determine the specific terms and conditions of each award. The administrator is authorized to exercise its discretion to reduce the exercise price of outstanding stock options or effect the repricing of such awards through cancellation and re-grants without shareholder approval. Persons eligible to participate in the plan are those officers, employees, directors, consultants and other advisors (including prospective employees, but conditioned upon their employment) of the company and its subsidiaries as selected from time to time by the administrator in its discretion.
The 2016 Plan provides that upon a change of control of the Company the shares underlying the service-based options will fully vest and will be fully exercised through a cashless net exercise automatically upon such change of control.
Our Board has determined not to make any further awards under the 2016 Plan following the completion of this offering.
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Equity and Cash Incentives Summary of the 2019 Omnibus Incentive Plan
Prior to the consummation of this offering, we anticipate that our Board will adopt, and our shareholders will approve, the 2019 Plan, pursuant to which employees, consultants and directors of our company and its affiliates performing services for us, including our executive officers, will be eligible to receive awards. We anticipate that the 2019 Plan will provide for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, bonus stock, dividend equivalents, other stock-based awards, substitute awards, annual incentive awards and performance awards intended to align the interests of participants with those of our shareholders. The following description of the 2019 Plan is based on the form we anticipate will be adopted, but since the 2019 Plan has not yet been adopted, the provisions remain subject to change. As a result, the following description is qualified in its entirety by reference to the final 2019 Plan once adopted, a copy of which in substantially final form has been filed as an exhibit to the registration statement of which this prospectus is a part.
Share Reserve
In connection with its approval by the board and adoption by our shareholders, we will reserve shares of our common stock for issuance under the 2019 Plan. In addition, the following shares of our common stock will again be available for grant or issuance under the 2019 Plan:
Administration
The 2019 Plan will be administered by our Compensation and Nominating Committee. The Compensation and Nominating Committee has the authority to construe and interpret the 2019 Plan, grant awards and make all other determinations necessary or advisable for the administration of the plan. Awards under the 2019 Plan may be made subject to "performance conditions" and other terms.
Eligibility
Our employees, consultants and directors, and employees, consultants and directors of our affiliates, will be eligible to receive awards under the 2019 Plan. The Compensation and Nominating Committee will determine who will receive awards, and the terms and conditions associated with such award.
Term
The 2019 Plan will terminate ten years from the date our Board approves the plan, unless it is terminated earlier by our Board.
Award Forms and Limitations
The 2019 Plan authorizes the award of stock awards, performance awards and other cash-based awards. An aggregate of shares will be available for issuance under awards granted pursuant to the 2019 Plan. For stock options that are intended to qualify as incentive stock options, or ISOs, under Section 422 of the Code, the maximum number of shares subject to ISO awards shall be .
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Stock Options
The 2019 Plan provides for the grant of ISOs only to our employees. All options other than ISOs may be granted to our employees, directors and consultants. The exercise price of each option to purchase stock must be at least equal to the fair market value of our common stock on the date of grant. The exercise price of ISOs granted to 10% or more shareholders must be at least equal to 110% of that value. Options granted under the 2019 Plan may be exercisable at such times and subject to such terms and conditions as the Compensation and Nominating Committee determines. The maximum term of options granted under the 2019 Plan is 10 years (five years in the case of ISOs granted to 10% or more shareholders).
Stock Appreciation Rights
Stock appreciation rights provide for a payment, or payments, in cash or common stock, to the holder based upon the difference between the fair market value of our common stock on the date of exercise and the stated exercise price of the stock appreciation right. The exercise price must be at least equal to the fair market value of our common stock on the date the stock appreciation right is granted. Stock appreciation rights may vest based on time or achievement of performance conditions, as determined by the Compensation and Nominating Committee in its discretion.
Restricted Stock
The Compensation and Nominating Committee may grant awards consisting of shares of our common stock subject to restrictions on sale and transfer. The price (if any) paid by a participant for a restricted stock award will be determined by the Compensation and Nominating Committee. Unless otherwise determined by the Compensation and Nominating Committee at the time of award, vesting will cease on the date the participant no longer provides services to us and unvested shares will be forfeited to or repurchased by us. The Compensation and Nominating Committee may condition the grant or vesting of shares of restricted stock on the achievement of performance conditions and/or the satisfaction of a time-based vesting schedule.
Performance Awards
A performance award is an award that becomes payable upon the attainment of specific performance goals. A performance award may become payable in cash or in shares of our common stock. These awards are subject to forfeiture prior to settlement due to termination of a participant's employment or failure to achieve the performance conditions.
Other Cash-Based Awards
The Compensation and Nominating Committee may grant other cash-based awards to participants in amounts and on terms and conditions determined by them in their discretion. Cash-based awards may be granted subject to vesting conditions or awarded without being subject to conditions or restrictions.
Additional Provisions
Awards granted under the 2019 Plan may not be transferred in any manner other than by will or by the laws of descent and distribution, or as determined by the Compensation and Nominating Committee. Unless otherwise restricted by our Committee, awards that are non-ISOs or SARs may be exercised during the lifetime of the optionee only by the optionee, the optionee's guardian or legal representative or a family member of the optionee who has acquired the non-ISOs or SARs by
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a permitted transfer. Awards that are ISOs may be exercised during the lifetime of the optionee only by the optionee or the optionee's guardian or legal representative.
In the event of a change of control (as defined in the 2019 Plan), the Compensation and Nominating Committee may, in its discretion, provide for any or all of the following actions: (i) awards may be continued, assumed or substituted with new rights, (ii) awards may be purchased for cash equal to the excess (if any) of the highest price per share of common stock paid in the change in control transaction over the aggregate exercise price of such awards, (iii) outstanding and unexercised stock options and stock appreciation rights may be terminated prior to the change in control (in which case holders of such unvested awards would be given notice and the opportunity to exercise such awards), or (iv) vesting or lapse of restrictions may be accelerated. All awards will be equitably adjusted in the case of the division of stock and similar transactions.
We maintain a tax-qualified retirement plan that provides all regular U.S. employees with an opportunity to save for retirement on a tax-advantaged basis. Under our 401(k) plan, participants may elect to defer a portion of their compensation on a pre-tax basis and have it contributed to the plan subject to applicable annual limits under the Code. Pre-tax contributions are allocated to each participant's individual account and are then invested in selected investment alternatives according to the participants' directions. Employee elective deferrals are 100% vested at all times. As a U.S. tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan and all contributions are deductible by us when made.
Non-Employee Director Compensation
The following table presents the total compensation for each person who served as a non-employee member of our Board during 2018. Other than as set forth in the table and described more fully below, we did not pay any compensation, reimburse any expense of, make any equity awards or non-equity awards to, or pay any other compensation to, any of the other non-employee members of our Board or representatives of Vista in 2018. Mr. Durand, our Chief Executive Officer, and representatives of Vista receive no compensation for service as directors and, consequently, are not included in this table. The compensation received by Mr. Durand as an employee of the Company is presented in " Summary Compensation Table".
Name |
Fees earned or paid in cash ($) |
Stock awards ($)(1) |
Total ($) |
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| | | | | | | | | | |
Clifford Chiu |
100,000 | | 100,000 | |||||||
John McCormack |
100,000 | | 100,000 |
Non-Employee Director Compensation Policy
We do not currently have a formal policy with respect to compensating our non-employee directors for service as directors. Following the completion of this offering, we will implement a formal policy pursuant to which our non-employee directors will be eligible to receive compensation for service on our board of directors and committees of our board of directors.
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The following table sets forth information about the beneficial ownership of our common stock as of , 2019 and as adjusted to reflect the sale of the common stock in this offering, for
Each shareholder's percentage ownership before the offering is based on common stock outstanding as of , 2019. Each shareholder's percentage ownership after the offering is based on common stock outstanding immediately after the completion of this offering. We have granted the underwriters an option to purchase up to additional shares of common stock.
Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof or has the right to acquire such powers within 60 days. Common stock subject to options or RSUs that are currently exercisable or exercisable within 60 days of , 2019 are deemed to be outstanding and beneficially owned by the person holding the options or RSUs. These shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as disclosed in the footnotes to this table and subject to applicable community property laws, we believe that each shareholder identified in the table possesses sole voting and investment power over all common stock shown as beneficially owned by the shareholder.
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Unless otherwise noted below, the address of each beneficial owner listed on the table is c/o Ping Identity Corporation, 1001 17th St, Suite 100, Denver, CO 80202. Beneficial ownership representing less than 1% is denoted with an asterisk (*).
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Shares Beneficially | Shares Beneficially Owned After this Offering |
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| | | | | | | | | | | | | | | | |
|
Owned Prior to this Offering |
No Exercise of Underwriters' |
Full Exercise of Underwriters' |
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|
Number of | Number of | Option | Option |
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| | | | | | | | | | | | | | | | |
Name of Beneficial Owner |
shares | Percentage | shares | Percentage | Percentage |
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| | | | | | | | | | | | | | | | |
5% Stockholders: |
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Vista Funds(1) |
% | % | % | |||||||||||||
Directors and Named Executive Officers: |
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Andre Durand(2) |
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B. Kristian Nagel(3) |
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Bernard Harguindeguy(4) |
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Rod Aliabadi |
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David A. Breach |
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Clifford K. Chiu(5) |
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Michael Fosnaugh |
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John McCormack(6) |
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Brian N. Sheth |
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Yancey L. Spruill |
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Directors and executive officers as a group (12 individuals) |
% | % | % |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Policies for Approval of Related Party Transactions
Prior to completion of this offering, we intend to adopt a policy with respect to the review, approval and ratification of related party transactions. Under the policy, our Audit Committee is responsible for reviewing and approving related person transactions. In the course of its review and approval of related party transactions, our Audit Committee will consider the relevant facts and circumstances to decide whether to approve such transactions. In particular, our policy requires our Audit Committee to consider, among other factors it deems appropriate:
The Audit Committee may only approve those transactions that are in, or are not inconsistent with, our best interests and those of our shareholders, as the Audit Committee determines in good faith.
In addition, under our code of business conduct and ethics, which will be adopted prior to the consummation of this offering, our employees and directors will have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict of interest.
All of the transactions described below were entered into prior to the adoption of the Company's written related party transactions policy (which policy will be adopted prior to the consummation of this offering), but all were approved by our Board considering similar factors to those described above.
Other than compensation arrangements for our directors and named executive officers, which are described in the section entitled "Executive Compensation", below we describe transactions since January 1, 2016 to which we were a participant or will be a participant, in which:
Director Nomination Agreement
In connection with this offering, we will enter into a Director Nomination Agreement with Vista that provides Vista the right to designate nominees for election to our Board for so long as Vista beneficially owns 5% or more of the total number of shares of our common stock that it owns as of
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the completion of this offering. Vista may also assign its designation rights under the Director Nomination Agreement to an affiliate.
The Director Nomination Agreement will provide Vista the right to designate: (i) all of the nominees for election to our Board for so long as Vista beneficially owns 40% or more of the total number of shares of our common stock beneficially owned by Vista upon completion of this offering, as adjusted for any reorganization, recapitalization, stock dividend, stock split, reverse stock split or similar changes in the Company's capitalization, or such amount of shares, as adjusted, the Original Amount; (ii) a number of directors (rounded up to the nearest whole number) equal to 40% of the total directors for so long as Vista beneficially owns at least 30% and less than 40% of the Original Amount; (iii) a number of directors (rounded up to the nearest whole number) equal to 30% of the total directors for so long as Vista beneficially owns at least 20% and less than 30% of the Original Amount; (iv) a number of directors (rounded up to the nearest whole number) equal to 20% of the total directors for so long as Vista beneficially owns at least 10% and less than 20% of the Original Amount; and (v) one director for so long as Vista beneficially owns at least 5% and less than 10% of the Original Amount. In each case, Vista's nominees must comply with applicable law and stock exchange rules. In addition, Vista shall be entitled to designate the replacement for any of its board designees whose board service terminates prior to the end of the director's term regardless of Vista's beneficial ownership at such time. Vista shall also have the right to have its designees participate on committees of our Board proportionate to its stock ownership, subject to compliance with applicable law and stock exchange rules. The Director Nomination Agreement will also prohibit us from increasing or decreasing the size of our Board without the prior written consent of Vista. This agreement will terminate at such time as Vista owns less than 5% of the Original Amount.
Registration Rights Agreement
In connection with this offering, we intend to enter into a registration rights agreement with Vista. Vista will be entitled to request that we register Vista's shares on a long-form or short-form registration statement on one or more occasions in the future, which registrations may be "shelf registrations". Vista will also be entitled to participate in certain of our registered offerings, subject to the restrictions in the registration rights agreement. We will pay Vista's expenses in connection with Vista's exercise of these rights. The registration rights described in this paragraph apply to (i) shares of our common stock held by Vista and its affiliates and (ii) any of our capital stock (or that of our subsidiaries) issued or issuable with respect to the common stock described in clause (i) with respect to any dividend, distribution, recapitalization, reorganization, or certain other corporate transactions, or Registrable Securities. These registration rights are also for the benefit of any subsequent holder of Registrable Securities; provided that any particular securities will cease to be Registrable Securities when they have been sold in a registered public offering, sold in compliance with Rule 144 of the Securities Act of 1933, as amended, or the Securities Act, or repurchased by us or our subsidiaries. In addition, with the consent of the company and holders of a majority of Registrable Securities, any Registrable Securities held by a person other than Vista and its affiliates will cease to be Registrable Securities if they can be sold without limitation under Rule 144 of the Securities Act.
Indemnification of Officers and Directors
Upon completion of this offering, we intend to enter into indemnification agreements with each of our executive officers and directors. The indemnification agreements will provide the executive officers and directors with contractual rights to indemnification, expense advancement and reimbursement, to the fullest extent permitted under the DGCL. Additionally, we may enter into
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indemnification agreements with any new directors or officers that may be broader in scope than the specific indemnification provisions contained in Delaware law.
Management Agreement
In connection with the Vista Acquisition, as amended and restated January in 2018, we entered into a management agreement with VEPM, pursuant to which VEPM was retained to provide us with certain management and consulting services. We agreed to indemnify VEPM against liabilities that may arise by reason of their service. We reimburse VEPM for any out-of-pocket costs and expenses, and have recorded expenses under the management agreement of $0.1 million, zero ($0) and $0.1 million for the years ended December 31, 2016, 2017 and 2018, respectively. The management agreement will terminate at no additional cost to us in connection with the completion of this offering.
Relationship with VCG
Following the Vista Acquisition, we have utilized Vista Consulting Group, LLC, or VCG, the operating and consulting arm of Vista, for consulting services and executive recruitment, and have also reimbursed VCG for expenses related to participation by Ping employees in VCG sponsored events and for certain enterprise software licenses utilized by Ping, and also paid to VCG related fees and expenses. We recorded expenses to VCG of $0.6 million, $0.4 million, $0.9 million and $0.3 million for the years ended December 31, 2016, 2017 and 2018 and the six months ended June 30, 2019, respectively. Following this offering, we may continue to engage VCG from time to time, subject to compliance with our related party transactions policy.
Arrangements with Companies Controlled by Vista
We have subscription arrangements for our solutions with companies controlled by Vista. We recognized revenue in connection with these agreements of $2.6 million, $0.8 million, $1.9 million and $0.2 million for the years ended December 31, 2016, 2017 and 2018 and the six months ended June 30, 2019, respectively. We also purchase services from companies controlled by Vista. We recognized expense of $0.1 million, $0.5 million, $0.3 million and $0.3 million for the years ended December 31, 2016, 2017 and 2018 and the six months ended June 30, 2019, respectively. We believe all of these arrangements are on comparable terms that are provided to unrelated third parties.
Term Loan Facility
From time to time, Vista may acquire loans incurred by us either from us, in open market transactions or through loan syndications. In connection with our entry into the Term Loan Facility on January 25, 2018, affiliates of Vista collectively acquired $35.0 million of term loans under our Term Loan Facility and as of June 30, 2019, affiliates of Vista collectively owned $34.7 million of our Term Loan Facility. During the year ended December 31, 2018, the largest principal amount of debt under the Term Loan Facility held by affiliates of Vista was $35.0 million. During the year ended December 31, 2018 and the six months ended June 30, 2019, affiliates of Vista were paid $0.2 million and $0.1 million in principal, respectively and $1.9 million and $1.1 million, respectively, in interest on the portion of the Term Loan Facility held by them. As of June 30, 2019, the portion of the Term Loan Facility held by affiliates of Vista bears interest at 6.19%.
Elastic Beam Acquisition
On April 5, 2018, we entered into a Securities Purchase Agreement, by and among, Ping Identity Corporation, the sellers party thereto and Bernard Harguindeguy, pursuant to which we
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acquired all of the 100% of the voting equity interest in Elastic Beam. $4.8 million and $4.2 million, respectively, of contingent compensation is payable on the first and second anniversary of the acquisition, contingent on certain individuals remaining employed as of those dates. During the six months ended June 30, 2019, we paid the first anniversary payment of $4.8 million. In connection with our acquisition of Elastic Beam, Mr. Harguindeguy, who became our Chief Technology Officer following the acquisition, received $5.8 million in consideration of his equity in Elastic Beam. On the first anniversary of the Elastic Beam Acquisition, Mr. Harguindeguy received (i) $2.4 million in earn-out consideration and (ii) $0.3 million in holdback consideration. In addition, Mr. Harguindeguy may receive up to $2.0 million in additional earn-out consideration, payable on the second anniversary of the Elastic Beam Acquisition.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Set forth below is a summary of the terms of the credit agreement governing certain of our outstanding indebtedness. This summary is not a complete description of all of the terms of the credit agreement. The credit agreement setting forth the terms and conditions of certain of our outstanding indebtedness is filed as an exhibit to the registration statement of which this prospectus forms a part.
Senior Secured Credit Facilities
On January 25, 2018, Ping Identity Corporation and Roaring Fork Intermediate, LLC, or Holdings, each of which are wholly-owned subsidiaries of ours, entered into the $275.0 million Credit Agreement with a syndicate of lenders, comprised of the $25.0 million Revolving Credit Facility and the $250.0 million Term Loan Facility. The proceeds from borrowing under the Credit Agreement were used to repay our then existing credit facilities, together with accrued interest and related prepayment penalties and expenses. As of June 30, 2019, we had $247.5 million and no borrowings outstanding under our Term Loan Facility and Revolving Credit Facility, respectively. As of June 30, 2019, the interest rate on our Term Loan Facility and Revolving Credit Facility was 6.19% and 0.25%, respectively.
Interest Rates and Fees
Borrowings under the Credit Agreement bear interest at a rate per annum, at Holdings' option, equal to an applicable margin, plus, (a) for alternative base rate borrowings, the highest of (i) the prime rate as determined by the administrative agent in effect on such day, (ii) the Federal Funds Rate in effect on such day plus 1/2 of 1.00% and (iii) the Adjusted LIBO Rate (for a one-month interest period and taking into account a 1.00% floor with respect to term loans) plus 1.00% and (b) for eurocurrency borrowings, the Adjusted LIBO Rate determined by the greater of (i) the LIBO Rate for the relevant interest period divided by 1 minus the statutory reserves (if any) and (ii) with respect to term loans only, 1.00%.
The applicable margin for borrowings under the Credit Agreement is (a) with respect to term loan borrowings, 2.75% for alternate base rate borrowings and 3.75% for eurocurrency borrowings and (b) with respect to both revolving and swingline loan borrowings, 2.75% for alternate base rate borrowings and 3.75% for eurocurrency borrowings when Holdings' first lien leverage ratio is greater than 5.00 to 1.00, with step downs to (i) 2.50% for alternate base rate borrowings and 3.50% for eurocurrency borrowings when Holdings' first lien leverage ratio is less than or equal to 5.00 to 1.00 but greater than 4.50 to 1.00 and (ii) 2.25% for alternate base rate borrowings and 3.25% for eurocurrency when Holdings' first lien leverage ratio is less than or equal to 4.50 to 1.00. Our first lien leverage ratio is determined in accordance with the terms of the Credit Agreement.
Additionally, Holdings is required to pay the following fees pursuant to the terms of the Credit Agreement: (a) a commitment fee on the average daily unused portion of the revolving credit commitments of 0.50% per annum when Holdings' first lien leverage ratio is greater than 3.50 to 1.00, with a step down to 0.375% when Holdings' first lien leverage ratio is greater than 5.00, with step downs to (i) 0.375% when Holdings' first lien leverage ratio is less than or equal to 5.00 to 1.00 but greater than 4.50 to 1.00 and (ii) 0.25% when Holdings' first lien leverage ratio is less than or equal to 4.50 to 1.00, (b) a customary administrative agent fee to the first lien administrative agent and (c) a fronting fee on the daily amount of letter of credit exposure of each letter of credit issued by each issuing bank at a rate equal to 3.75% when Holdings' first lien leverage ratio is greater than 5.00, with step downs to (i) 3.75% when Holdings' first lien leverage ratio is less than or equal to 5.00 to 1.00 but greater than 4.50 to 1.00 and (ii) 3.25% when Holdings' first lien leverage ratio is less than or equal to 4.50 to 1.00.
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Voluntary Prepayments
Holdings may voluntarily prepay outstanding loans under the Credit Agreement without premium or penalty, subject to certain notice and priority requirements.
Mandatory Prepayments
The Credit Agreement requires Holdings to prepay, subject to certain exceptions, the first lien term loans with:
Final Maturity and Amortization
The Term Loan Facility will mature on January 25, 2025 and the Revolving Credit Facility will mature on January 25, 2023. The Term Loan Facility requires quarterly amortization payments equal to approximately 0.25% of the original principal amount. The Revolving Credit Facility does not amortize.
Guarantors
All obligations under the Credit Agreement are unconditionally guaranteed by Holdings, and substantially all of its existing and future direct and indirect wholly-owned domestic subsidiaries, other than certain excluded subsidiaries.
Security
All obligations under the Credit Agreement are secured, subject to permitted liens and other exceptions, by first-priority perfected security interests in substantially all of the borrower's and the guarantors' assets.
Certain Covenants, Representations and Warranties
The Credit Agreement contains customary representations and warranties, affirmative covenants, reporting obligations and negative covenants. The negative covenants restrict Ping Identity Corporation and its subsidiaries' ability, among other things, to (subject to certain exceptions set forth in the Credit Agreement):
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Financial Covenant
Additionally, the Revolving Credit Facility requires, in the event amounts utilized under the Revolving Credit Facility (borrowings plus the amount of outstanding letters of credit in excess of $2.5 million) exceed 35% of the aggregate revolving commitments, Ping Identity Corporation to maintain a first lien leverage ratio, determined in accordance with the terms of the Credit Agreement, of no greater than 8.25:1.00.
In the event that we fail to comply with the financial covenant, the parent guarantor has the option to issue equity or make certain equity contributions to the borrower in order to increase consolidated adjusted EBITDA for the purpose of calculating and determining compliance with such covenant, subject to certain other conditions and limitations.
Events of Default
The lenders under the Credit Agreement are permitted to accelerate the loans and terminate commitments thereunder or exercise other remedies upon the occurrence of certain customary events of default, subject to certain grace periods and exceptions. These events of default include, among others, payment defaults, cross-defaults to certain material indebtedness, covenant defaults, material inaccuracy of representations and warranties, certain events of bankruptcy, material judgments, material defects with respect to lenders' perfection on the collateral, invalidity of subordination provisions of the subordinated debt and changes of control, none of which are expected to be triggered by this offering.
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DESCRIPTION OF CAPITAL STOCK
General
Upon completion of this offering, our authorized capital stock will consist of shares of common stock, par value $0.001 per share, and shares of undesignated preferred stock, par value $0.001 per share. As of June 30, 2019, we had shares of common stock outstanding held by ten shareholders of record and no shares of preferred stock outstanding, shares of common stock issuable upon exercise of outstanding stock options and shares of common stock issuable upon the vesting and settlement of outstanding RSUs. After consummation of this offering and the use of proceeds therefrom, we expect to have shares of our common stock outstanding, assuming no exercise by the underwriters of their option to purchase additional shares, and expect to have no shares of preferred stock outstanding. The following description of our capital stock is intended as a summary only and is qualified in its entirety by reference to our certificate of incorporation and bylaws to be in effect at the closing of this offering, which are filed as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of the DGCL.
Dividend Rights
Subject to preferences that may apply to shares of preferred stock outstanding at the time, holders of outstanding shares of common stock will be entitled to receive dividends out of assets legally available at the times and in the amounts as our Board may determine from time to time.
Voting Rights
Each outstanding share of common stock will be entitled to one vote on all matters submitted to a vote of shareholders. Holders of shares of our common stock shall have no cumulative voting rights.
Preemptive Rights
Our common stock will not be entitled to preemptive or other similar subscription rights to purchase any of our securities.
Conversion or Redemption Rights
Our common stock will be neither convertible nor redeemable.
Liquidation Rights
Upon our liquidation, the holders of our common stock will be entitled to receive pro rata our assets that are legally available for distribution, after payment of all debts and other liabilities and subject to the prior rights of any holders of preferred stock then outstanding.
Our Board may, without further action by our shareholders, from time to time, direct the issuance of shares of preferred stock in series and may, at the time of issuance, determine the designations, powers, preferences, privileges, and relative participating, optional or special rights as well as the qualifications, limitations or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the common stock. Satisfaction of any dividend preferences of
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outstanding shares of preferred stock would reduce the amount of funds available for the payment of dividends on shares of our common stock. Holders of shares of preferred stock may be entitled to receive a preference payment in the event of our liquidation before any payment is made to the holders of shares of our common stock. Under certain circumstances, the issuance of shares of preferred stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of our securities or the removal of incumbent management. Upon the affirmative vote of a majority of the total number of directors then in office, our Board, without shareholder approval, may issue shares of preferred stock with voting and conversion rights which could adversely affect the holders of shares of our common stock and the market value of our common stock.
Anti-Takeover Effects of Our Certificate of Incorporation and Our Bylaws
Our certificate of incorporation, bylaws and the DGCL will contain provisions, which are summarized in the following paragraphs, that are intended to enhance the likelihood of continuity and stability in the composition of our Board. These provisions are intended to avoid costly takeover battles, reduce our vulnerability to a hostile change of control and enhance the ability of our Board to maximize shareholder value in connection with any unsolicited offer to acquire us. However, these provisions may have an anti-takeover effect and may delay, deter or prevent a merger or acquisition of the Company by means of a tender offer, a proxy contest or other takeover attempt that a shareholder might consider in its best interest, including those attempts that might result in a premium over the prevailing market price for the shares of common stock held by shareholders.
These provisions include:
Classified Board
Our certificate of incorporation will provide that our Board will be divided into three classes of directors, with the classes as nearly equal in number as possible, and with the directors serving three-year terms. As a result, approximately one-third of our Board will be elected each year. The classification of directors will have the effect of making it more difficult for shareholders to change the composition of our Board. Our certificate of incorporation will also provide that, subject to any rights of holders of preferred stock to elect additional directors under specified circumstances, the number of directors will be fixed exclusively pursuant to a resolution adopted by our Board. Upon completion of this offering, we expect that our Board will have members.
Shareholder Action by Written Consent
Our certificate of incorporation will preclude shareholder action by written consent at any time when Vista beneficially owns, in the aggregate, less than 35% in voting power of the stock of the Company entitled to vote generally in the election of directors.
Special Meetings of Shareholders
Our certificate of incorporation and bylaws will provide that, except as required by law, special meetings of our shareholders may be called at any time only by or at the direction of our Board or the chairman of our Board; provided, however, at any time when Vista beneficially owns, in the aggregate, at least 35% in voting power of the stock of the Company entitled to vote generally in the election of directors, special meetings of our shareholders shall also be called by our Board or the chairman of our Board at the request of Vista. Our bylaws will prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting. These
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provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of the Company.
Advance Notice Procedures
Our bylaws will establish an advance notice procedure for shareholder proposals to be brought before an annual meeting of our shareholders, including proposed nominations of persons for election to our Board; provided, however, at any time when Vista beneficially owns, in the aggregate, at least 10% in voting power of the stock of the Company entitled to vote generally in the election of directors, such advance notice procedure will not apply to Vista. Shareholders at an annual meeting will only be able to consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our Board or by a shareholder who was a shareholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given our Secretary timely written notice, in proper form, of the shareholder's intention to bring that business before the meeting. Although the bylaws will not give our Board the power to approve or disapprove shareholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting, the bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the Company. These provisions do not apply to nominations by Vista pursuant to the Director Nomination Agreement. See "Certain Relationships and Related Party Transactions Related Party Transactions Director Nomination Agreement" for more details with respect to the Director Nomination Agreement.
Removal of Directors; Vacancies
Our certificate of incorporation will provide that directors may be removed with or without cause upon the affirmative vote of a majority in voting power of all outstanding shares of stock entitled to vote thereon, voting together as a single class; provided, however, at any time when Vista beneficially owns, in the aggregate, less than 40% in voting power of the stock of the Company entitled to vote generally in the election of directors, directors may only be removed for cause, and only by the affirmative vote of holders of at least 662/3% in voting power of all the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class. In addition, our certificate of incorporation will provide that, subject to the rights granted to one or more series of preferred stock then outstanding, any newly created directorship on our Board that results from an increase in the number of directors and any vacancies on our Board will be filled only by the affirmative vote of a majority of the remaining directors, even if less than a quorum, by a sole remaining director.
Supermajority Approval Requirements
Our certificate of incorporation and bylaws will provide that our Board is expressly authorized to make, alter, amend, change, add to, rescind or repeal, in whole or in part, our bylaws without a shareholder vote in any matter not inconsistent with the laws of the State of Delaware and our certificate of incorporation. For as long as Vista beneficially owns, in the aggregate, at least 50% in voting power of the stock of the Company entitled to vote generally in the election of directors, any amendment, alteration, rescission or repeal of our bylaws by our shareholders will require the affirmative vote of a majority in voting power of the outstanding shares of our stock entitled to vote on such amendment, alteration, change, addition, rescission or repeal. At any time when Vista beneficially owns, in the aggregate, less than 50% in voting power of all outstanding shares of the stock of the Company entitled to vote generally in the election of directors, any amendment, alteration, rescission or repeal of our bylaws by our shareholders will require the affirmative vote of
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the holders of at least 662/3% in voting power of all the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class.
The DGCL provides generally that the affirmative vote of a majority of the outstanding shares entitled to vote thereon, voting together as a single class, is required to amend a corporation's certificate of incorporation, unless the certificate of incorporation requires a greater percentage.
Our certificate of incorporation will provide that at any time when Vista beneficially owns, in the aggregate, less than 50% in voting power of the stock of the Company entitled to vote generally in the election of directors, the following provisions in our certificate of incorporation may be amended, altered, repealed or rescinded only by the affirmative vote of the holders of at least 662/3% (as opposed to a majority threshold that would apply if Vista beneficially owns, in the aggregate, 50% or more) in voting power of all the then-outstanding shares of stock of the Company entitled to vote thereon, voting together as a single class:
The combination of the classification of our Board, the lack of cumulative voting and the supermajority voting requirements will make it more difficult for our existing shareholders to replace our Board as well as for another party to obtain control of us by replacing our Board. Because our Board has the power to retain and discharge our officers, these provisions could also make it more difficult for existing shareholders or another party to effect a change in management.
Authorized but Unissued Shares
Our authorized but unissued shares of common stock and preferred stock will be available for future issuance without shareholder approval, subject to stock exchange rules. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. One of the effects of the existence of authorized but unissued common stock or preferred stock may be to enable our Board to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive our shareholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.
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Business Combinations
Upon completion of this offering, we will not be subject to the provisions of Section 203 of the DGCL. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested shareholder" for a three-year period following the time that the person becomes an interested shareholder, unless the business combination is approved in a prescribed manner. A "business combination" includes, among other things, a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested shareholder. An "interested shareholder" is a person who, together with affiliates and associates, owns, or did own within three years prior to the determination of interested shareholder status, 15% or more of the corporation's voting stock.
Under Section 203, a business combination between a corporation and an interested shareholder is prohibited unless it satisfies one of the following conditions: (1) before the shareholder became an interested shareholder, the board of directors approved either the business combination or the transaction which resulted in the shareholder becoming an interested shareholder; (2) upon consummation of the transaction which resulted in the shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances; or (3) at or after the time the shareholder became an interested shareholder, the business combination was approved by the board of directors and authorized at an annual or special meeting of the shareholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested shareholder.
A Delaware corporation may "opt out" of these provisions with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or bylaws resulting from a shareholders' amendment approved by at least a majority of the outstanding voting shares.
We will opt out of Section 203; however, our certificate of incorporation will contain similar provisions providing that we may not engage in certain "business combinations" with any "interested shareholder" for a three-year period following the time that the shareholder became an interested shareholder, unless:
Under certain circumstances, this provision will make it more difficult for a person who would be an "interested shareholder" to effect various business combinations with the Company for a three-year period. This provision may encourage companies interested in acquiring the Company to negotiate in advance with our Board because the shareholder approval requirement would be avoided if our Board approves either the business combination or the transaction which results in the shareholder becoming an interested shareholder. These provisions also may have the effect of preventing changes in our Board and may make it more difficult to accomplish transactions which shareholders may otherwise deem to be in their best interests.
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Our certificate of incorporation will provide that Vista, and any of its direct or indirect transferees and any group as to which such persons are a party, do not constitute "interested shareholders" for purposes of this provision.
Dissenters' Rights of Appraisal and Payment
Under the DGCL, with certain exceptions, our shareholders will have appraisal rights in connection with a merger or consolidation of us. Pursuant to the DGCL, shareholders who properly request and perfect appraisal rights in connection with such merger or consolidation will have the right to receive payment of the fair value of their shares as determined by the Delaware Court of Chancery.
Shareholders' Derivative Actions
Under the DGCL, any of our shareholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the shareholder bringing the action is a holder of our shares at the time of the transaction to which the action relates or such shareholder's stock thereafter devolved by operation of law.
Our certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the United States District Court for the District of Delaware) will be the sole and exclusive forum for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our shareholders, (3) any action asserting a claim against the Company or any director or officer of the Company arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws or (4) any other action asserting a claim against the Company or any director or officer of the Company that is governed by the internal affairs doctrine; provided that for the avoidance of doubt, the forum selection provision that identifies the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation, including any "derivative action", will not apply to suits to enforce a duty or liability created by the Securities Act, the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and to have consented to the provisions of our certificate of incorporation described above. Although we believe these provisions benefit us by providing increased consistency in the application of Delaware law for the specified types of actions and proceedings, the provisions may have the effect of discouraging lawsuits against us or our directors and officers.
Delaware law permits corporations to adopt provisions renouncing any interest or expectancy in certain opportunities that are presented to the corporation or its officers, directors or shareholders. Our certificate of incorporation will, to the maximum extent permitted from time to time by Delaware law, renounce any interest or expectancy that we have in, or right to be offered an opportunity to participate in, specified business opportunities that are from time to time presented to certain of our officers, directors or shareholders or their respective affiliates, other than those officers, directors, shareholders or affiliates who are our or our subsidiaries' employees. Our certificate of incorporation will provide that, to the fullest extent permitted by law, none of Vista or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his director and officer capacities) or his or her affiliates will have any duty to refrain from (1) engaging in a corporate opportunity in the same or similar lines of business in
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which we or our affiliates now engage or propose to engage or (2) otherwise competing with us or our affiliates. In addition, to the fullest extent permitted by law, in the event that Vista or any non-employee director acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for itself or himself or its or his affiliates or for us or our affiliates, such person will have no duty to communicate or offer such transaction or business opportunity to us or any of our affiliates and they may take any such opportunity for themselves or offer it to another person or entity. Our certificate of incorporation will not renounce our interest in any business opportunity that is expressly offered to a non-employee director solely in his or her capacity as a director or officer of the Company. To the fullest extent permitted by law, no business opportunity will be deemed to be a potential corporate opportunity for us unless we would be permitted to undertake the opportunity under our certificate of incorporation, we have sufficient financial resources to undertake the opportunity, and the opportunity would be in line with our business.
Limitations on Liability and Indemnification of Officers and Directors
The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their shareholders for monetary damages for breaches of directors' fiduciary duties, subject to certain exceptions. Our certificate of incorporation will include a provision that eliminates the personal liability of directors for monetary damages for any breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL. The effect of these provisions will be to eliminate the rights of us and our shareholders, through shareholders' derivative suits on our behalf, to recover monetary damages from a director for breach of fiduciary duty as a director, including breaches resulting from grossly negligent behavior. However, exculpation will not apply to any director if the director has acted in bad faith, knowingly or intentionally violated the law, authorized illegal dividends or redemptions or derived an improper benefit from his or her actions as a director.
Our bylaws will provide that we must indemnify and advance expenses to our directors and officers to the fullest extent authorized by the DGCL. We also will be expressly authorized to carry directors' and officers' liability insurance providing indemnification for our directors, officers and certain employees for some liabilities. We believe that these indemnification and advancement provisions and insurance will be useful to attract and retain qualified directors and officers.
The limitation of liability, indemnification and advancement provisions that will be included in our certificate of incorporation and bylaws may discourage shareholders from bringing a lawsuit against directors for breaches of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our shareholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
The transfer agent and registrar for our common stock is . The transfer agent's address is and its phone number is .
We have applied to list our common stock on NASDAQ under the symbol "PING".
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SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock. As described below, only a limited number of shares currently outstanding will be available for sale immediately after this offering due to contractual and legal restrictions on resale. Nevertheless, future sales of substantial amounts of our common stock, including shares issued upon the exercise of outstanding options, in the public market after this offering, or the perception that those sales may occur, could cause the prevailing market price for our common stock to fall or impair our ability to raise capital through sales of our equity securities.
Upon the closing of this offering, based on the number of shares of our common stock outstanding as of June 30, 2019, we will have outstanding shares of our common stock, after giving effect to the issuance of shares of our common stock in this offering, assuming no exercise by the underwriters of their option to purchase additional shares.
Of the shares that will be outstanding immediately after the closing of this offering, we expect that the shares to be sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by our "affiliates", as that term is defined in Rule 144 under the Securities Act. Shares purchased by our affiliates may not be resold except pursuant to an effective registration statement or an exemption from registration, including the safe harbor under Rule 144 of the Securities Act described below. In addition, following this offering, shares of common stock issuable pursuant to awards granted under certain of our equity plans that are covered by a registration statement on Form S-8 will be freely tradable in the public market, subject to certain contractual and legal restrictions described below.
The remaining shares of our common stock outstanding after this offering will be "restricted securities", as that term is defined in Rule 144 of the Securities Act, and we expect that substantially all of these restricted securities will be subject to the lock-up agreements described below. These restricted securities may be sold in the public market only if the sale is registered or pursuant to an exemption from registration, such as Rule 144 or Rule 701 of the Securities Act, which are summarized below.
We, each of our directors and executive officers and other shareholders and optionholders owning substantially all of our common stock and options to acquire common stock, have agreed that, without the prior written consent of Goldman Sachs & Co. LLC on behalf of the underwriters, we and they will not, subject to limited exceptions, directly or indirectly sell or dispose of any shares of common stock or any securities convertible into or exchangeable or exercisable for shares of common stock for a period of 180 days after the date of this prospectus. The lock-up restrictions and specified exceptions are described in more detail under "Underwriting".
Prior to the consummation of the offering, certain of our employees, including our executive officers, and/or directors may enter into written trading plans that are intended to comply with Rule 10b5-1 under the Exchange Act. Sales under these trading plans would not be permitted until the expiration of the lock-up agreements relating to the offering described above.
Following the lock-up periods set forth in the agreements described above, and assuming that the representatives of the underwriters do not release any parties from these agreements, all of the shares of our common stock that are restricted securities or are held by our affiliates as of the date of this prospectus will be eligible for sale in the public market in compliance with Rule 144 under the Securities Act.
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Pursuant to the registration rights agreement, we have granted Vista the right to cause us, in certain instances, at our expense, to file registration statements under the Securities Act covering resales of our common stock held by Vista or to piggyback on registered offerings initiated by us in certain circumstances. See "Certain Relationships and Related Party Transactions Related Party Transactions Registration Rights Agreement". These shares will represent % of our outstanding common stock after this offering, or % if the underwriters exercise their option to purchase additional shares in full.
In general, under Rule 144, beginning 90 days after we become subject to the public company reporting requirements of the Exchange Act, any person who is not our affiliate, who was not our affiliate at any time during the preceding three months and who has held their shares for at least six months, including the holding period of any prior owner other than one of our affiliates, may sell shares without restriction, subject to the availability of current public information about us and subject to applicable lock-up restrictions. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than one of our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.
Beginning 90 days after we become subject to the public company reporting requirements of the Exchange Act and subject to applicable lock-up restrictions, a person who is our affiliate or who was our affiliate at any time during the preceding three months and who has beneficially owned restricted securities for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled to sell a number of shares within any three-month period that does not exceed the greater of: (1) 1% of the number of shares of our common stock outstanding, which will equal approximately shares immediately after this offering; and (2) the average weekly trading volume of our common stock on during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
Sales under Rule 144 by our affiliates are also subject to certain manner of sale provisions, notice requirements and to the availability of current public information about us.
In general, under Rule 701, any of our employees, directors or officers who acquired shares from us in connection with a compensatory stock or option plan or other compensatory written agreement before the effective date of this offering are, subject to applicable lock-up restrictions, eligible to resell such shares in reliance upon Rule 144 beginning 90 days after the date of this prospectus. If such person is not an affiliate and was not our affiliate at any time during the preceding three months, the sale may be made subject only to the manner-of-sale restrictions of Rule 144. If such a person is an affiliate, the sale may be made under Rule 144 without compliance with the holding period requirements under Rule 144, but subject to the other Rule 144 restrictions described above.
Following this offering, we intend to file with the SEC a registration statement on Form S-8 under the Securities Act covering the shares of common stock that are subject to outstanding options and other awards issuable pursuant to our 2019 Plan. Shares covered by such registration statement will be available for sale in the open market following its effective date, subject to certain Rule 144 limitations applicable to affiliates and the terms of lock-up agreements applicable to those shares.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following discussion is a summary of the material U.S. federal income tax consequences to Non-U.S. Holders (as defined below) of the purchase, ownership and disposition of our common stock issued pursuant to this offering, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the Code, Treasury regulations promulgated thereunder, or Treasury Regulations, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service, or the IRS, in each case as in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a Non-U.S. Holder of our common stock. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to those discussed below regarding the tax consequences of the purchase, ownership and disposition of our common stock.
This discussion is limited to Non-U.S. Holders that hold our common stock as a "capital asset" within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a Non-U.S. Holder's particular circumstances, including the impact of the Medicare contribution tax on net investment income. In addition, it does not address consequences relevant to Non-U.S. Holders subject to special rules, including, without limitation:
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If any partnership or arrangement classified as a partnership for U.S. federal income tax purposes holds our common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding our common stock and partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
INVESTORS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
Definition of a Non-U.S. Holder
For purposes of this discussion, a "Non-U.S. Holder" is any beneficial owner of our common stock that is neither a "United States person" nor an entity treated as a partnership for U.S. federal income tax purposes. A United States person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following:
As described in the section entitled "Dividend Policy", we do not anticipate declaring or paying dividends to holders of our common stock in the foreseeable future. However, if we do make distributions of cash or property on our common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and first be applied against and reduce a Non-U.S. Holder's adjusted tax basis in its common stock, but not below zero. Any excess will be treated as capital gain and will be treated as described below under "Sale or Other Taxable Disposition".
Subject to the discussion below on effectively connected income, backup withholding, and the Foreign Account Tax Compliance Act, dividends paid to a Non-U.S. Holder of our common stock will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty, provided the Non-U.S. Holder furnishes to us or our paying agent prior to the payment of dividends a valid IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) certifying qualification for the lower treaty rate). A Non-U.S. Holder that does not timely furnish the required documentation, but that qualifies for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an
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appropriate claim for refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.
If dividends paid to a Non-U.S. Holder are effectively connected with the Non-U.S. Holder's conduct of a trade or business within the U.S. (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the U.S. to which such dividends are attributable), the Non-U.S. Holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. Holder's conduct of a trade or business within the U.S.
Any such effectively connected dividends will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on its effectively connected earnings and profits (as adjusted for certain items), which will include such effectively connected dividends. Non-U.S. Holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.
Sale or Other Taxable Disposition
Subject to the discussion below on backup withholding and the Foreign Account Tax Compliance Act, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other taxable disposition of our common stock unless:
Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on its effectively connected earnings and profits (as adjusted for certain items), which will include such effectively connected gain.
A Non-U.S. Holder described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on any gain derived from the disposition, which may generally be offset by U.S. source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the U.S.), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.
With respect to the third bullet point above, we believe we currently are not, and do not anticipate becoming, a USRPHC. Because the determination of whether we are a USRPHC depends, however, on the fair market value of our USRPIs relative to the fair market value of our non-U.S. real property interests and our other business assets, there can be no assurance we currently are not a USRPHC or will not become one in the future. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition by a Non-U.S. Holder of our common stock will not be subject to U.S. federal income tax if our common stock is "regularly
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traded", as defined by applicable Treasury Regulations, on an established securities market, and such Non-U.S. Holder owned, actually and constructively, five percent or less of our common stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the Non-U.S. Holder's holding period. If we were to become a USRPHC and our common stock were not considered to be "regularly traded" on an established securities market during the calendar year in which the relevant disposition by a Non-U.S. holder occurs, such Non-U.S. holder (regardless of the percentage of stock owned) would be subject to U.S. federal income tax on a sale or other taxable disposition of our common stock and a 15% withholding tax would apply to the gross proceeds from such disposition.
Non-U.S. Holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
Information Reporting and Backup Withholding
Payments of dividends on our common stock generally will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the Non-U.S. Holder is a United States person and the Non-U.S. Holder either certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any dividends on our common stock paid to the Non-U.S. Holder, regardless of whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of our common stock within the U.S. or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that such Non-U.S. Holder is a United States person, or the Non-U.S. Holder otherwise establishes an exemption. If a Non-U.S. Holder does not provide the certification described above or the applicable withholding agent has actual knowledge or reason to know that such Non-U.S. Holder is a United States person, payments of dividends or of proceeds of the sale or other taxable disposition of our common stock may be subject to backup withholding at a rate currently equal to 24% of the gross proceeds of such dividend, sale, or taxable disposition Proceeds of a disposition of our common stock conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides or is established.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. Holder's U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts
Subject to the discussion below regarding recently issued Proposed Treasury Regulations, withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such Sections commonly referred to as the Foreign Account Tax Compliance Act, or FATCA, on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on, or gross proceeds from the sale or other disposition of, our common stock paid to a "foreign financial institution" or a "non-financial foreign entity" (each as defined in the Code) (including, in some cases, when such foreign financial institution or non-financial foreign entity is acting as an intermediary), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity
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either certifies it does not have any "substantial United States owners" (as defined in the Code) or furnishes identifying information regarding each direct and indirect substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain "specified United States persons" or "United States-owned foreign entities" (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to noncompliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the U.S. governing FATCA may be subject to different rules.
Under the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on our common stock, and subject to recently issued Proposed Treasury Regulations described below, will apply to payments of gross proceeds from the sale or other disposition of such stock on or after January 1, 2019. On December 13, 2018, the U.S. Department of the Treasury released proposed regulations which, if finalized in their present form, would eliminate FATCA withholding on the gross proceeds from a sale or other disposition of our common stock.
Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our common stock.
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We and the underwriters named below have entered into an underwriting agreement with respect to the shares of common stock being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares of common stock indicated in the following table. Goldman Sachs & Co. LLC and BofA Securities, Inc. are the representatives of the underwriters.
Underwriters |
Number of Shares | |||
Goldman Sachs & Co. LLC |
||||
BofA Securities, Inc. |
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RBC Capital Markets, LLC |
||||
Citigroup Global Markets Inc. |
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Barclays Capital Inc. |
||||
Credit Suisse Securities (USA) LLC |
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Deutsche Bank Securities Inc. |
||||
Wells Fargo Securities, LLC |
||||
| | | | |
Total |
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| | | | |
| | | | |
| | | | |
The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.
The underwriters have an option to buy up to an additional shares from us to cover sales by the underwriters of a greater number of shares than the total number set forth in the table above. They may exercise that option for a period of 30 days following the consummation of this offering. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
The following tables show the per share and total underwriting discounts and commissions to be paid to the underwriters by us. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase up to additional shares from us.
|
No Exercise | Full Exercise |
||
| | | | |
Per Share |
$ | $ | ||
Total |
$ | $ |
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. After the initial offering of the shares, the representatives may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters' right to reject any order in whole or in part.
We and our officers, directors and holders of substantially all of the common stock and securities convertible into and exchangeable for our common stock, including the Vista Funds, have agreed or will agree with the underwriters, subject to certain exceptions, not to dispose of or hedge any of our or their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman
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Sachs & Co. LLC. This agreement does not apply to any existing employee benefit plans. See the section entitled "Shares Eligible for Future Sale" for a discussion of certain transfer restrictions.
Prior to the offering, there has been no public market for the shares. The initial public offering price has been negotiated among us and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be our historical performance, estimates of our business potential and earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.
We have applied to quote the common stock on NASDAQ under the symbol "PING".
In connection with the offering, the underwriters may purchase and sell shares of our common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering, and a short position represents the amount of such sales that have not been covered by subsequent purchases. A "covered short position" is a short position that is not greater than the amount of additional shares for which the underwriters' option described above may be exercised. The underwriters may cover any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to cover the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option described above. "Naked" short sales are any short sales that create a short position greater than the amount of additional shares for which the option described above may be exercised. The underwriters must cover any such naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of the Company's stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. The underwriters are not required to engage in these activities and may end any of these activities at any time. These transactions may be effected on NASDAQ, in the over-the-counter market or otherwise.
We estimate that our share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $ million. We have agreed to reimburse the underwriters for certain of their expenses in an amount up to $35,000.
We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act.
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European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, or each, a Relevant Member State, an offer to the public of our common stock may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of our common stock may be made at any time under the following exemptions under the Prospectus Directive:
provided that no such offer or shares of our common stock shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an "offer to public" in relation to our common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and our common stock to be offered so as to enable an investor to decide to purchase our common stock, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression "Prospectus Directive" means Directive 2003/71/EC (as amended), including by Directive 2010/73/EU and includes any relevant implementing measure in the Relevant Member State.
This European Economic Area selling restriction is in addition to any other selling restrictions set out below.
United Kingdom
In the United Kingdom, this prospectus is only addressed to and directed at qualified investors who are (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order); or (ii) high net worth entities and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). Any investment or investment activity to which this prospectus relates is available only to relevant persons and will only be engaged with relevant persons. Any person who is not a relevant person should not act or rely on this prospectus or any of its contents.
Canada
The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions, and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption form, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the
161
purchaser within the time limit prescribed by the securities legislation of the purchaser's province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser's province or territory of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Hong Kong
The securities may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong), or the Companies (Winding Up and Miscellaneous Provisions) Ordinance, or which do not constitute an invitation to the public within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong), or the Securities and Futures Ordinance, or (ii) to "professional investors" as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document relating to the securities may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the securities may not be circulated or distributed, nor may the securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined under Section 4A of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA) under Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to conditions set forth in the SFA.
Where the securities are subscribed or purchased under Section 275 of the SFA by a relevant person which is a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor, the securities (as defined in Section 239(1) of the SFA) of that corporation shall not be transferable for 6 months after that corporation has acquired the securities under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer in that corporation's securities pursuant to Section 275(1A) of the SFA, (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore, or Regulation 32.
162
Where the securities are subscribed or purchased under Section 275 of the SFA by a relevant person which is a trust (where the trustee is not an accredited investor (as defined in Section 4A of the SFA)) whose sole purpose is to hold investments and each beneficiary of the trust is an accredited investor, the beneficiaries' rights and interest (howsoever described) in that trust shall not be transferable for 6 months after that trust has acquired the securities under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer that is made on terms that such rights or interest are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction (whether such amount is to be paid for in cash or by exchange of securities or other assets), (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32.
Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended), or the FIEA. The securities may not be offered or sold, directly or indirectly, in Japan or to or for the benefit of any resident of Japan (including any person resident in Japan or any corporation or other entity organized under the laws of Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan, except pursuant to an exemption from the registration requirements of the FIEA and otherwise in compliance with any relevant laws and regulations of Japan.
Other Relationships
The Company estimates that its share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $ .
The Company has agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act.
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to the issuer and to persons and entities with relationships with the issuer, for which they received or will receive customary fees and expenses. Certain of the underwriters or their affiliates may have an indirect ownership interest in us through various private equity funds, including the Vista Funds or other funds affiliated with Vista.
In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively traded securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the issuer. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments. An affiliate of Goldman Sachs & Co. LLC serves as administrative agent, collateral agent, swingline lender, and issuing bank under the Credit Agreement.
163
The validity of the issuance of our common stock offered in this prospectus will be passed upon for us by Kirkland & Ellis LLP, Chicago, Illinois. Certain partners of Kirkland & Ellis LLP are members of a limited partnership that is an investor in one or more investment funds affiliated with Vista. Kirkland & Ellis LLP represents entities affiliated with Vista in connection with legal matters. Certain legal matters will be passed upon for the underwriters by Cooley LLP, Broomfield, Colorado.
The financial statements as of December 31, 2017 and 2018 and for the years then ended included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, or PwC, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
In connection with this offering, PwC completed an independence assessment to evaluate the services and relationships with the Company and its affiliates that may bear on PwC's independence under the SEC and the PCAOB (United States) independence rules for an audit period commencing January 1, 2017. PwC informed us that certain of its member firms within PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity ("PwC member firm"), were engaged to perform non-audit services by entities that were under common control by Vista. These non-audit services and business relationships are not in accordance with the auditor independence standards of Regulation S-X and the Public Company Accounting Oversight Board and are described below.
PwC noted the business relationship and non-audit services were entered into when the entities were not considered affiliates of the Company pursuant to the standards under which the audit engagement was performed (U.S. GAAS). The filing of the registration statement of which this prospectus is a part necessitates compliance with the SEC's independence rules. The Board and
164
management of the Company and PwC have separately considered the impact that the business relationships and non-audit services may have had on PwC's independence with respect to us. After consideration of the relevant facts and circumstances, management, our Board and PwC have concluded that PwC is capable of exercising objective and impartial judgment in connection with their audits of the Company's financial statements for each of the years ended December 31, 2017 and 2018 and that no reasonable investor would conclude otherwise.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act to register our common stock being offered in this prospectus. This prospectus, which forms part of the registration statement, does not contain all of the information included in the registration statement and the attached exhibits. You will find additional information about us and our common stock in the registration statement. References in this prospectus to any of our contracts, agreements or other documents are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contracts, agreements or documents.
You may read and copy the registration statement, the related exhibits and other information we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of this information by mail from the Public Reference Room at prescribed rates. You may obtain information regarding the operation of the Public Reference Room by calling 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy statements and other information about companies like us, who file electronically with the SEC. The address of that website is http://www.sec.gov. This reference to the SEC's website is an inactive textual reference only and is not a hyperlink.
Upon the effectiveness of the registration statement, we will be subject to the reporting, proxy and information requirements of the Exchange Act, and will be required to file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's Public Reference Room and the website of the SEC referred to above, as well as on our website, https://www.pingidentity.com. This reference to our website is an inactive textual reference only and is not a hyperlink. The contents of our website are not part of this prospectus, and you should not consider the contents of our website in making an investment decision with respect to our common stock. We will furnish our shareholders with annual reports containing audited financial statements and quarterly reports containing unaudited interim financial statements for each of the first three quarters of each year.
165
Roaring Fork Holding, Inc.
Index
Explanatory NoteDuring the preparation of the unaudited interim financial statements for the six months ended June 30, 2019, the Company became aware of errors in its income tax provision and related Balance Sheet accounts in its interim unaudited financial statements for the nine months ended September 30, 2018. As a result, the Company restated the interim unaudited financial statements for the nine months ended September 30, 2018. See Note 2 for additional information.
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Roaring Fork Holding, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Roaring Fork Holding, Inc. and its subsidiaries (the "Company") as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for the years then ended, including the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Denver, Colorado
April 1, 2019
We have served as the Company's auditor since 2016.
F-2
Consolidated Balance Sheets
(In thousands, except share amounts)
|
| December 31, | | June 30, 2019 |
| |||||||
| | | | | | | | | | |||
|
| 2017 | | 2018 | | (unaudited) | | |||||
| | | | | | | | |||||
Assets |
| | | | | | ||||||
Current assets: |
| | | | | | ||||||
Cash and cash equivalents |
| $ | 20,969 | | $ | 83,499 | | | $ | 83,000 | | |
Accounts receivable, net of allowances of $370, $455, and $513 at December 31, 2017 and 2018 and June 30, 2019 (unaudited), respectively |
| 48,940 | | 50,108 | | | 43,984 | | | |||
Contract assets, current |
| 46,049 | | 53,435 | | | 59,985 | | | |||
Deferred commissions, current |
| 1,858 | | 3,746 | | | 4,505 | | | |||
Prepaid expenses and other current assets |
| 3,644 | | 10,644 | | | 9,485 | | | |||
| | | | | | | | |||||
Total current assets |
| 121,460 | | 201,432 | | | 200,959 | | | |||
| | | | | | | | |||||
Noncurrent assets: |
| | | | | | ||||||
Property and equipment, net |
| 5,083 | | 5,630 | | | 6,493 | | | |||
Goodwill |
| 401,724 | | 417,696 | | | 417,696 | | | |||
Intangible assets, net |
| 225,958 | | 207,043 | | | 196,917 | | | |||
Contract assets, noncurrent |
| 14,613 | | 14,033 | | | 15,652 | | | |||
Deferred commissions, noncurrent |
| 4,496 | | 7,287 | | | 7,397 | | | |||
Deferred income taxes, net |
| 1,711 | | 1,829 | | | 2,465 | | | |||
Other noncurrent assets |
| 1,178 | | 2,073 | | | 1,858 | | | |||
| | | | | | | | |||||
Total noncurrent assets |
| 654,763 | | 655,591 | | | 648,478 | | | |||
| | | | | | | | |||||
Total assets |
| $ | 776,223 | | $ | 857,023 | | | $ | 849,437 | | |
| | | | | | | | |||||
| | | | | | | | | | |||
| | | | | | | | |||||
Liabilities and stockholders' equity |
| | | | | | ||||||
Current liabilities: |
| | | | | | ||||||
Accounts payable |
| $ | 1,790 | | $ | 1,766 | | | $ | 1,370 | | |
Accrued expenses and other current liabilities |
| 6,219 | | 7,906 | | | 7,086 | | | |||
Accrued compensation |
| 12,470 | | 18,394 | | | 13,854 | | | |||
Deferred revenue, current |
| 31,494 | | 31,493 | | | 33,344 | | | |||
Current portion of long-term debt |
| | | 2,500 | | | 2,500 | | | |||
| | | | | | | | |||||
Total current liabilities |
| 51,973 | | 62,059 | | | 58,154 | | | |||
| | | | | | | | |||||
Noncurrent liabilities: |
| | | | | | ||||||
Deferred revenue, noncurrent |
| 2,316 | | 3,874 | | | 2,146 | | | |||
Long-term debt, net of current portion |
| 165,206 | | 241,051 | | | 240,225 | | | |||
Deferred income taxes, net |
| 35,886 | | 39,112 | | | 38,209 | | | |||
Other liabilities, noncurrent |
| 162 | | 1,822 | | | 1,329 | | | |||
| | | | | | | | |||||
Total noncurrent liabilities |
| 203,570 | | 285,859 | | | 281,909 | | | |||
| | | | | | | | |||||
Total liabilities |
| 255,543 | | 347,918 | | | 340,063 | | | |||
| | | | | | | | |||||
Commitments and contingencies (Note 12) |
| | | | | | ||||||
Stockholders' equity: |
| | | | | | ||||||
Preferred stock; $0.001 par value; 200,000 shares authorized at December 31, 2017 and 2018 and June 30, 2019 (unaudited); no shares issued or outstanding at December 31, 2017 or 2018 or June 30, 2019 (unaudited) |
| | | | | | | | | |||
Common stock; $0.001 par value; 500,000 shares authorized at December 31, 2017 and 2018 and June 30, 2019 (unaudited); 382,333, 382,358, and 383,185 shares issued and outstanding at December 31, 2017 and 2018 and June 30, 2019 (unaudited), respectively |
| | | | | | | | | |||
Additional paid-in capital |
| 513,234 | | 516,044 | | | 519,121 | | | |||
Accumulated other comprehensive income (loss) |
| 114 | | (787 | ) | | (472 | ) | | |||
Retained earnings (accumulated deficit) |
| 7,332 | | (6,152 | ) | | (9,275 | ) | | |||
| | | | | | | | |||||
Total stockholders' equity |
| 520,680 | | 509,105 | | | 509,374 | | | |||
| | | | | | | | |||||
Total liabilities and stockholders' equity |
| $ | 776,223 | | $ | 857,023 | | | $ | 849,437 | | |
| | | | | | | | |||||
| | | | | | | | | | |||
| | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
|
Year Ended | Six Months Ended June 30, |
|||||||||||
| | | | | | | | | | | | | |
|
December 31, | 2018 | 2019 |
||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | (unaudited) | (unaudited) | |||||||||
| | | | | | | | | | | | | |
Revenue: |
|||||||||||||
Subscription |
$ | 160,219 | $ | 184,991 | $ | 90,576 | $ | 103,892 | |||||
Professional services and other |
12,320 | 16,571 | 8,874 | 9,006 | |||||||||
| | | | | | | | | | | | | |
Total revenue |
172,539 | 201,562 | 99,450 | 112,898 | |||||||||
Cost of revenue: |
|||||||||||||
Subscription (exclusive of amortization shown below) |
14,054 | 17,512 | 8,259 | 10,833 | |||||||||
Professional services and other (exclusive of amortization shown below) |
9,155 | 12,703 | 5,837 | 6,916 | |||||||||
Amortization expense |
12,626 | 14,396 | 7,064 | 7,822 | |||||||||
| | | | | | | | | | | | | |
Total cost of revenue |
35,835 | 44,611 | 21,160 | 25,571 | |||||||||
| | | | | | | | | | | | | |
Gross profit |
136,704 | 156,951 | 78,290 | 87,327 | |||||||||
| | | | | | | | | | | | | |
Operating expenses: |
|||||||||||||
Sales and marketing |
49,481 | 60,140 | 28,121 | 37,334 | |||||||||
Research and development |
26,215 | 36,229 | 16,393 | 22,311 | |||||||||
General and administrative |
20,202 | 28,355 | 13,079 | 15,748 | |||||||||
Depreciation and amortization |
16,526 | 16,341 | 8,356 | 8,274 | |||||||||
| | | | | | | | | | | | | |
Total operating expenses |
112,424 | 141,065 | 65,949 | 83,667 | |||||||||
| | | | | | | | | | | | | |
Income from operations |
24,280 | 15,886 | 12,341 | 3,660 | |||||||||
| | | | | | | | | | | | | |
Other income (expense): |
|||||||||||||
Interest expense |
(19,277 | ) | (15,837 | ) | (7,791 | ) | (8,249 | ) | |||||
Loss on extinguishment of debt |
| (9,785 | ) | (9,785 | ) | | |||||||
Other income (expense), net |
773 | (335 | ) | (912 | ) | 225 | |||||||
| | | | | | | | | | | | | |
Total other income (expense) |
(18,504 | ) | (25,957 | ) | (18,488 | ) | (8,024 | ) | |||||
| | | | | | | | | | | | | |
Income (loss) before income taxes |
5,776 | (10,071 | ) | (6,147 | ) | (4,364 | ) | ||||||
Benefit (provision) for income taxes |
13,185 | (3,375 | ) | 391 | 1,241 | ||||||||
| | | | | | | | | | | | | |
Net income (loss) |
$ | 18,961 | $ | (13,446 | ) | $ | (5,756 | ) | $ | (3,123 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net income (loss) per share: |
|||||||||||||
Basic |
$ | 49.60 | $ | (35.17 | ) | $ | (15.05 | ) | $ | (8.17 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Diluted |
$ | 49.60 | $ | (35.17 | ) | $ | (15.05 | ) | $ | (8.17 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted-average shares used in computing net income (loss) per share: |
|||||||||||||
Basic |
382,258 | 382,365 | 382,364 | 382,425 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Diluted |
382,297 | 382,365 | 382,364 | 382,425 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
|
Year Ended | Six Months Ended June 30, |
|||||||||||
| | | | | | | | | | | | | |
|
December 31, | 2018 | 2019 |
||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | (unaudited) | (unaudited) | |||||||||
| | | | | | | | | | | | | |
Net income (loss) |
$ | 18,961 | $ | (13,446 | ) | $ | (5,756 | ) | $ | (3,123 | ) | ||
Other comprehensive income (loss), net of tax: |
|||||||||||||
Foreign currency translation adjustments |
333 | (901 | ) | (486 | ) | 315 | |||||||
| | | | | | | | | | | | | |
Total other comprehensive income (loss) |
333 | (901 | ) | (486 | ) | 315 | |||||||
| | | | | | | | | | | | | |
Comprehensive income (loss) |
$ | 19,294 | $ | (14,347 | ) | $ | (6,242 | ) | $ | (2,808 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
|
Accumulated | Retained | |||||||||||||||||
|
Additional | Other | Earnings | Total | |||||||||||||||
|
Common Stock | Paid-in | Comprehensive | (Accumulated | Stockholders' | ||||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
Shares | Amount | Capital | Income (Loss) | Deficit) | Equity | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Balances at January 1, 2017 |
382,226 | $ | | $ | 510,609 | $ | (219 | ) | $ | (11,629 | ) | $ | 498,761 | ||||||
Net income |
| | | | 18,961 | 18,961 | |||||||||||||
Stock-based compensation |
| | 2,524 | | | 2,524 | |||||||||||||
Exercise of stock options |
76 | | 101 | | | 101 | |||||||||||||
Vesting of restricted stock |
31 | | | | | | |||||||||||||
Foreign currency translation adjustments, net of tax |
| | | 333 | | 333 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2017 |
382,333 | $ | | $ | 513,234 | $ | 114 | $ | 7,332 | $ | 520,680 | ||||||||
Cumulative-effect adjustment for adoption of ASU 2016-09 |
| | 38 | | (38 | ) | | ||||||||||||
Net loss |
| | | | (13,446 | ) | (13,446 | ) | |||||||||||
Stock-based compensation |
| | 2,848 | | | 2,848 | |||||||||||||
Vesting of restricted stock |
63 | | | | | | |||||||||||||
Repurchase of common stock |
(38 | ) | | (76 | ) | | | (76 | ) | ||||||||||
Foreign currency translation adjustments, net of tax |
| | | (901 | ) | | (901 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2018 |
382,358 | $ | | $ | 516,044 | $ | (787 | ) | $ | (6,152 | ) | $ | 509,105 | ||||||
Net loss (unaudited) |
| | | | (3,123 | ) | (3,123 | ) | |||||||||||
Stock-based compensation (unaudited) |
| | 2,099 | | | 2,099 | |||||||||||||
Exercise of stock options (unaudited) |
733 | | 978 | 978 | |||||||||||||||
Vesting of restricted stock (unaudited) |
94 | | | | | | |||||||||||||
Foreign currency translation adjustments, net of tax (unaudited) |
| | | 315 | | 315 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Balances at June 30, 2019 (unaudited) |
383,185 | $ | | $ | 519,121 | $ | (472 | ) | $ | (9,275 | ) | $ | 509,374 | ||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
Accumulated | Retained | |||||||||||||||||
|
Additional | Other | Earnings | Total | |||||||||||||||
|
Common Stock | Paid-in | Comprehensive | (Accumulated | Stockholders' | ||||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
Shares | Amount | Capital | Income (Loss) | Deficit) | Equity | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Balances at January 1, 2018 |
382,333 | $ | | $ | 513,234 | $ | 114 | $ | 7,332 | $ | 520,680 | ||||||||
Cumulative-effect adjustment for adoption of ASU 2016-09 (unaudited) |
| | 38 | | (38 | ) | | ||||||||||||
Net loss (unaudited) |
| | | | (5,756 | ) | (5,756 | ) | |||||||||||
Stock-based compensation (unaudited) |
| | 1,280 | | | 1,280 | |||||||||||||
Vesting of restricted stock (unaudited) |
31 | | | | | | |||||||||||||
Foreign currency translation adjustments, net of tax (unaudited) |
| | | (486 | ) | | (486 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Balances at June 30, 2018 (unaudited) |
382,364 | $ | | $ | 514,552 | $ | (372 | ) | $ | 1,538 | $ | 515,718 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Consolidated Statements of Cash Flows
(In thousands)
|
| Year Ended | | Six Months Ended June 30, |
| ||||||||||||
| | | | | | | | | | ||||||||
|
| December 31, | | | 2018 | | | | 2019 |
| | ||||||
| | | | | | | | | | | | | | ||||
|
| 2017 | | 2018 | | (unaudited) | | (unaudited) | | ||||||||
| | | | | | | | | | ||||||||
Cash flows from operating activities |
| | | | | | | | | ||||||||
Net income (loss) |
| $ | 18,961 | | $ | (13,446 | ) | | $ | (5,756 | ) | | | $ | (3,123 | ) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
| | | | | | | | | ||||||||
Loss on extinguishment of debt |
| | | 9,785 | | | 9,785 | | | | | | | ||||
Depreciation and amortization |
| 29,152 | | 30,737 | | | 15,420 | | | | 16,096 | | | ||||
Stock-based compensation expense |
| 2,524 | | 2,848 | | | 1,280 | | | | 2,099 | | | ||||
Amortization of deferred commissions |
| 3,460 | | 5,302 | | | 1,693 | | | | 2,760 | | | ||||
Amortization of deferred debt issuance costs |
| 1,372 | | 889 | | | 457 | | | | 424 | | | ||||
Deferred taxes |
| (13,286 | ) | 3,073 | | | (582 | ) | | | (1,471 | ) | | ||||
Other |
| 61 | | (440 | ) | | 10 | | | | 69 | | | ||||
Changes in operating assets and liabilities: |
| | | | | | | | | ||||||||
Accounts receivable |
| (9,967 | ) | (1,465 | ) | | 2,545 | | | | 6,044 | | | ||||
Contract assets |
| (22,171 | ) | (6,806 | ) | | (3,788 | ) | | | (8,169 | ) | | ||||
Deferred commissions |
| (7,693 | ) | (9,981 | ) | | (2,681 | ) | | | (3,629 | ) | | ||||
Prepaid expenses and other current assets |
| (218 | ) | (5,770 | ) | | (151 | ) | | | 3,087 | | | ||||
Other assets |
| (31 | ) | (763 | ) | | 126 | | | | 225 | | | ||||
Accounts payable |
| (34 | ) | 298 | | | 1,000 | | | | (376 | ) | | ||||
Accrued compensation |
| (1,087 | ) | 6,070 | | | (1,315 | ) | | | (4,611 | ) | | ||||
Accrued expenses and other |
| (3,824 | ) | 1,113 | | | (2,263 | ) | | | (1,484 | ) | | ||||
Deferred revenue |
| 6,204 | | 1,442 | | | (2,765 | ) | | | 123 | | | ||||
| | | | | | | | | | ||||||||
Net cash provided by operating activities |
| 3,423 | | 22,886 | | | 13,015 | | | | 8,064 | | | ||||
| | | | | | | | | | ||||||||
Cash flows from investing activities |
| | | | | | | | | ||||||||
Purchases of property and equipment and other |
| (2,519 | ) | (3,437 | ) | | (1,362 | ) | | | (2,330 | ) | | ||||
Capitalized software development costs |
| (3,442 | ) | (6,310 | ) | | (2,790 | ) | | | (4,492 | ) | | ||||
Acquisition of Elastic Beam, net of cash acquired of $0 |
| | | (17,414 | ) | | (17,414 | ) | | | | | | ||||
Other investing activities |
| | | 500 | | | | | | | | | | ||||
| | | | | | | | | | ||||||||
Net cash used in investing activities |
| (5,961 | ) | (26,661 | ) | | (21,566 | ) | | | (6,822 | ) | | ||||
| | | | | | | | | | ||||||||
Cash flows from financing activities |
| | | | | | | | | ||||||||
Payment of Elastic Beam consideration and holdbacks |
| | | | | | | | | | (1,136 | ) | | ||||
Payment of deferred offering costs |
| | | (493 | ) | | | | | | (543 | ) | | ||||
Proceeds from stock option exercises |
| 101 | | | | | | | | | 978 | | | ||||
Repurchase of common stock |
| | | (76 | ) | | | | | | | | | ||||
Proceeds from long-term debt |
| | | 250,000 | | | 250,000 | | | | | | | ||||
Issuance costs of long-term debt |
| | | (5,994 | ) | | (5,994 | ) | | | | | | ||||
Payment of long-term debt |
| | | (171,250 | ) | | (170,000 | ) | | | (1,250 | ) | | ||||
Payment of debt extinguishment costs |
| | | (5,085 | ) | | (5,085 | ) | | | | | | ||||
| | | | | | | | | | ||||||||
Net cash provided by (used in) financing activities |
| 101 | | 67,102 | | | 68,921 | | | | (1,951 | ) | | ||||
Effect of exchange rates on cash and cash equivalents and restricted cash |
| 274 | | (653 | ) | | (408 | ) | | | 220 | | | ||||
| | | | | | | | | | ||||||||
Net (decrease) increase in cash and cash equivalents and restricted cash |
| (2,163 | ) | 62,674 | | | 59,962 | | | | (489 | ) | | ||||
Cash and cash equivalents and restricted cash |
| | | | | | | | | ||||||||
Beginning of period |
| 23,632 | | 21,469 | | | 21,469 | | | | 84,143 | | | ||||
| | | | | | | | | | ||||||||
End of period |
| $ | 21,469 | | $ | 84,143 | | | $ | 81,431 | | | | $ | 83,654 | | |
| | | | | | | | | | ||||||||
| | | | | | | | | | | | | | ||||
| | | | | | | | | | ||||||||
Supplemental disclosures of cash flow information: |
| | | | | | | | | ||||||||
Cash paid for interest |
| $ | 20,758 | | $ | 13,598 | | | $ | 5,960 | | | | $ | 7,739 | | |
Cash paid for taxes |
| 199 | | 284 | | | 129 | | | | 308 | | | ||||
Noncash investing and financing activities: |
| | | | | | | | | ||||||||
Purchases of property and equipment in accounts payable |
| $ | 367 | | $ | 77 | | | $ | 82 | | | | $ | 50 | | |
Accruals related to the acquisition of Elastic Beam |
| | | 1,560 | | | 1,560 | | | | | | | ||||
Deferred offering costs, accrued but not yet paid |
| | | 833 | | | | | | | 1,546 | | | ||||
Reconciliation of cash and cash equivalents and restricted cash within the consolidated balance sheets to the amounts shown in the statements of cash flows above: |
| | | | | | | | | ||||||||
Cash and cash equivalents |
| $ | 20,969 | | $ | 83,499 | | | $ | 80,783 | | | | $ | 83,000 | | |
Restricted cash included in other noncurrent assets |
| 500 | | 644 | | | 648 | | | | 654 | | | ||||
| | | | | | | | | | ||||||||
Total cash and cash equivalents and restricted cash |
| $ | 21,469 | | $ | 84,143 | | | $ | 81,431 | | | | $ | 83,654 | | |
| | | | | | | | | | ||||||||
| | | | | | | | | | | | | | ||||
| | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-7
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
1. Organization and Description of Business
Roaring Fork Holding, Inc. and its wholly owned subsidiaries, referred to herein as the "Company", is headquartered in Denver, Colorado with international locations principally in Canada, Australia, the United Kingdom, Israel, and India. The Company, doing business as Ping Identity Corporation ("Ping Identity"), provides customers, employees, and partners with secure access to any service, application, or application programming interface ("API"), while also managing identity and profile data at scale.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). All amounts are reported in U.S. dollars. Certain amounts as of and for the year ended December 31, 2017 have been reclassified to conform with current period presentation.
Unaudited Interim Consolidated Financial Information
The accompanying interim consolidated balance sheet as of June 30, 2019, the consolidated statements of operations, of comprehensive income (loss), and of cash flows for the six months ended June 30, 2018 and 2019, the consolidated statements of stockholders' equity for the six months ended June 30, 2018 and 2019, and the related footnote disclosures are unaudited. These unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in management's opinion, include all adjustments necessary to state fairly the consolidated financial position of the Company as of June 30, 2019 and the results of operations and cash flows for the six months ended June 30, 2018 and 2019. The results for the six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any future period.
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, disclosures 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 estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, establishing allowances for doubtful accounts, determining useful lives for definite lived assets, assessing the recoverability of long lived assets (property and equipment, intangible assets, and goodwill), determining the fair values of assets acquired and liabilities assumed in business combinations, accounting for income taxes and related valuation allowances against deferred tax assets, valuing stock option awards, recognizing revenue, determining the amortization period for deferred commissions, and assessing the accounting treatment for commitments and contingencies. Management evaluates these estimates and assumptions on an
F-8
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
ongoing basis and makes estimates based on historical experience and various other assumptions that are believed to be reasonable. Actual results may differ from these estimates.
Segment and Geographic Information
The Company operates in a single operating segment. Operating segments are defined as components of an enterprise for which discrete financial information is available and is regularly reviewed by the chief operating decision maker in order to make decisions regarding resource allocation and performance assessment. The Company has determined that its chief operating decision maker is its Chief Executive Officer. The Company's chief operating decision maker reviews the Company's financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance. Since the Company operates in one operating segment, all required financial segment information can be found in the consolidated financial statements.
Revenue by geographic region is based on the delivery address of the customer, and is summarized by geographic area as follows:
|
Year Ended | Six Months Ended June 30, |
|||||||||||
| | | | | | | | | | | | | |
|
December 31, | 2018 | 2019 |
||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | (unaudited) | (unaudited) | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
United States |
$ | 130,135 | $ | 154,609 | $ | 75,641 | $ | 89,705 | |||||
International |
42,404 | 46,953 | 23,809 | 23,193 | |||||||||
| | | | | | | | | | | | | |
Total revenue |
$ | 172,539 | $ | 201,562 | $ | 99,450 | $ | 112,898 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Other than the United States, no other individual country exceeded 10% of total revenue for the years ended December 31, 2017 and 2018 or the six months ended June 30, 2018 and 2019 (unaudited).
The Company's long-lived assets are composed of property and equipment, net, and are summarized by geographic area as follows:
|
December 31, | June 30, 2019 |
||||||||
| | | | | | | | | | |
|
2017 | 2018 | (unaudited) | |||||||
| | | | | | | | | | |
|
(in thousands) | |||||||||
United States |
$ | 3,733 | $ | 4,388 | $ | 5,222 | ||||
Canada |
770 | 526 | 420 | |||||||
Other international locations |
580 | 716 | 851 | |||||||
| | | | | | | | | | |
Total property and equipment, net |
$ | 5,083 | $ | 5,630 | $ | 6,493 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-9
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
Outside of the United States and Canada, no other individual country held greater than 10% of total long-lived assets at December 31, 2017 and 2018 or June 30, 2019 (unaudited).
Foreign Currency
The reporting currency of the Company is the U.S. dollar. The functional currency of each subsidiary is the applicable local currency. For the subsidiary where the U.S. dollar is the functional currency, foreign currency denominated monetary assets and liabilities are remeasured into U.S. dollars at current exchange rates and foreign currency denominated nonmonetary assets and liabilities are remeasured into U.S. dollars at historical exchange rates. Transactions denominated in currencies other than the subsidiaries' functional currencies are recorded based on the exchange rates at the time such transactions arise. Resulting gains and losses are recorded in other income (expense), net in the consolidated statements of operations in the period of occurrence.
The Company's foreign subsidiaries are translated from the applicable functional currency to the U.S. dollar using the average exchange rates during the reporting period, while assets and liabilities are translated at the period-end exchange rates. Resulting gains or losses from translating foreign currency are included in accumulated other comprehensive income (loss).
Cash and Cash Equivalents
Cash consists of deposits with financial institutions whereas cash equivalents primarily consist of money market funds. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable represent amounts owed to the Company by its customers that are recorded at the invoiced amount. The Company reports accounts receivable net of allowance for doubtful accounts. Management makes judgments and estimates of the probable loss related to uncollectible accounts receivable considering a number of factors including collection trends, prevailing and anticipated economic conditions, and specific customer credit risk. The Company's allowance for doubtful accounts activity has historically not been significant. Probable losses are recorded in general and administrative expense in the accompanying consolidated statements of operations. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents on deposit at several financial institutions as well as accounts receivable. The Company deposits cash with high-credit-quality financial institutions, which, at times, may exceed federally insured amounts. The Company invests its cash equivalents in highly-rated money market funds. Additionally, the Company performs ongoing credit evaluations
F-10
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
of its customers' financial condition and will limit the amount of credit as deemed necessary, but currently does not require collateral from customers.
As of December 31, 2017 and 2018 and June 30, 2019 (unaudited), no single customer represented greater than 10% of accounts receivable.
For the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019, no single customer represented greater than 10% of revenue.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a three-level valuation hierarchy for the disclosure of fair value measurements. The determination of the applicable level within the hierarchy of a particular asset or liability depends on the inputs used in its valuation as of the measurement date, and notably the extent to which the inputs are market-based (observable) or internally determined (unobservable). The three levels are defined as follows:
Property and Equipment
Property and equipment are stated at historical cost less accumulated depreciation. Maintenance, repairs and minor renewals are expensed as incurred.
Depreciation is computed using the straight-line method based on the following estimated useful lives:
Asset Type
|
Useful Life | |
Computer equipment |
3 years | |
Purchased computer software |
1 - 3 years | |
Furniture and fixtures |
3 - 5 years | |
Leasehold improvements |
Lesser of the lease term or 10 years | |
Other |
3 - 5 years |
F-11
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
Capitalized Software Costs
Costs for the development of new software products sold to customers and substantial enhancements to existing software products sold to customers are expensed as incurred until technological feasibility has been established, at which time any additional costs are capitalized during the development stage and until the software is generally released. The Company believes its current process for developing software will be essentially completed concurrently with the establishment of technological feasibility; hence, no costs have been capitalized to date.
For development costs related to software to be used internally, the Company follows guidance of ASC 350-40, Internal Use Software. ASC 350-40 set forth the guidance for costs incurred for computer software developed or obtained for internal use and requires companies to capitalize qualifying computer software costs that are incurred during the application development stage. These capitalized costs are included in intangible assets in the consolidated balance sheets and are amortized on a straight-line basis over the expected useful life of the software, which is estimated to be between three and four years. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. For the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019, the Company capitalized $3.4 million, $6.3 million, $2.8 million, and $4.5 million, respectively, related to internal-use software costs.
The Company capitalizes the cost of software purchased from third-party vendors and has classified such costs as property and equipment in the consolidated balance sheets. These costs are amortized over their useful lives, which are primarily estimated to be three years.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The Company evaluates goodwill for impairment annually in the fourth quarter of each year and as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company's test for goodwill impairment starts with a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. If qualitative factors indicate that the fair value of the reporting unit is more likely than not less than its carrying amount, then a quantitative goodwill impairment test is performed. Under the quantitative impairment test, if the carrying amount of the reporting unit exceeds its fair value, then an impairment loss is recognized in an amount equal to that excess, not to exceed the total amount of goodwill. For purposes of the annual impairment test, the Company has determined it has one reporting unit. There was no impairment of goodwill recorded during the years ended December 31, 2017 and 2018 or the six months ended June 30, 2018 and 2019 (unaudited).
F-12
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
Intangible Assets
Intangible assets with finite lives arising from business combinations are initially recorded at fair value and amortized over their useful lives using the straight-line method. The estimated useful life for each acquired intangible asset class is as follows:
Asset Type |
Useful Life | |
Developed technology |
4 - 9 years | |
Customer relationships |
9 - 13 years | |
Trade names |
10 years | |
Product backlog |
2 - 3 years | |
Non-compete agreements |
3 years |
The Company records acquired in-process research and development as indefinite-lived intangible assets. Purchased intangible assets with indefinite lives are not amortized but assessed for potential impairment annually and when events or circumstances indicate that their carrying amounts might be impaired. There was no impairment of indefinite-lived intangible assets recorded during the years ended December 31, 2017 and 2018 or the six months ended June 30, 2018 and 2019 (unaudited). On completion of the related development projects, the in-process research and development assets are reclassified to developed technology and amortized over their estimated useful lives.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Such events and changes may include significant changes in performance relative to expected operating results, significant changes in asset use, significant negative industry or economic trends, and changes in the Company's business strategy. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. There were no events or changes in circumstances that indicated the Company's long-lived assets were impaired during the years ended December 31, 2017 and 2018 or the six months ended June 30, 2018 and 2019 (unaudited).
Deferred Debt Issuance Costs
Issuance costs incurred to obtain debt financing are deferred and amortized to interest expense using the effective interest method over the contractual term of the debt. Total deferred debt issuance costs incurred by the Company were $6.8 million and $6.0 million, related to the 2016 Credit Facilities and the 2018 Credit Facilities, respectively (discussed in Note 7). The carrying value of deferred debt issuance costs was $4.8 million, $5.2 million, and $4.8 million at December 31, 2017 and 2018 and June 30, 2019 (unaudited), respectively, which is included as a reduction to long-term debt in the accompanying consolidated balance sheets.
F-13
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
Deferred Rent
Certain of the Company's operating leases contain credits for tenant improvements, rent holidays, and rent escalation clauses. For these leases, the Company recognizes the related rent expense on a straight-line basis. The difference between the amounts charged to expense and the rent paid is recorded as deferred lease costs and amortized over the lease term.
Revenue Recognition
The Company recognizes revenue under Accounting Standards Codification Topic 606 ("ASC 606"), Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs the following steps:
The Company contracts with its customers through order forms, which in some cases are governed by master sales agreements. The Company determines that it has a contract with a customer when the order form has been approved, each party's rights regarding the products or services to be transferred can be identified, the payment terms for the products or services can be identified, the Company has determined the customer has the ability and intent to pay, and the contract has commercial substance. The Company applies judgment in determining the customer's ability and intent to pay, which is based on a variety of factors, including the customer's historical payment experience or, in the case of a new customer, credit, reputation, and financial or other information pertaining to the customer. At contract inception, the Company evaluates whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation.
Performance obligations promised in a contract are identified based on the products and services that will be transferred to the customer that are both (i) capable of being distinct, whereby the customer can benefit from a product or service either on its own or together with other resources that are readily available from third parties or from the Company, and (ii) are distinct in the context of the contract, whereby the transfer of certain products or services is separately identifiable from other promises in the contract.
The Company sells its solutions through subscription-based contracts. The Company's subscriptions for solutions deployed on-premise within the customer's technology infrastructure are comprised of a term-based license and an obligation to provide support and maintenance, where the term-based license and the support and maintenance constitute separate performance obligations. The Company's SaaS subscriptions provide customers the right to access cloud-hosted software and support for the SaaS service, which the Company considers to be a single
F-14
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
performance obligation. The Company also renews subscriptions for support and maintenance, which the Company considers to be a single performance obligation.
Professional services consist of consulting and training services. These services are distinct performance obligations from subscriptions and do not result in significant customization of the software.
The Company determines the transaction price based on the consideration that the Company expects to receive in exchange for transferring the promised goods or services to the customer. This transaction price is exclusive of amounts collected on behalf of third parties, such as sales tax and value-added tax. The Company does not offer refunds, rebates, or credits to customers in the normal course of business, so the impact of variable consideration has not been material.
In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of the Company's invoicing terms is to provide customers with a simple and predictable way to purchase the Company's subscriptions, not to provide customers with financing.
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on each obligation's relative standalone selling price ("SSP").
The SSP is determined based on the prices at which the Company separately sells the product, assuming the majority of these fall within a pricing range. In instances where SSP is not directly observable, such as when the Company does not sell the software license separately, the Company determines the SSP using information that may include market conditions and other observable inputs that can require significant judgment. There is typically a range of standalone selling prices for individual products and services based on a stratification of those products and services by quantity and other circumstances. If one of the performance obligations is outside of the SSP range, the Company determines SSP to be the nearest endpoint of the range.
Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised product or service to the customer. The Company's software subscriptions include both upfront revenue recognition when the Company transfers control of the term-based license to the customer, as well as revenue recognized ratably over the contract period for support and maintenance based on the stand-ready nature of these subscription elements. Revenue for the Company's SaaS products is recognized ratably over the contract period as the Company satisfies the performance obligation.
F-15
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
Professional services revenue provided on a time and materials basis is recognized as these services are performed. Revenue from training services and sponsorship fees is recognized on the date the services are complete.
The Company generates sales directly through its sales team as well as through its channel partners. Where channel partners are involved, the Company has determined that it is the principal in these arrangements. Sales to channel partners are generally made at a discount, and revenues are recorded at the discounted price once the revenue recognition criteria above have been met. In certain instances, the Company pays referral fees to its partners, which the Company has determined to be commensurate with internal sales commissions and thus records these payments as sales commissions. Channel partners generally receive an order from an end customer prior to placing an order with the Company, and payment from channel partners is not contingent on the partner's collection from end customers.
Disaggregation of Revenue
The following table presents revenue by category:
|
Six Months Ended | ||||||||||||
|
Year Ended | June 30, |
|||||||||||
| | | | | | | | | | | | | |
|
December 31, | 2018 | 2019 |
||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | (unaudited) | (unaudited) | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Subscription term-based licenses: |
|||||||||||||
Multi-year subscription term-based licenses |
$ | 86,421 | $ | 88,925 | $ | 44,510 | $ | 52,425 | |||||
1-year subscription term-based licenses |
35,678 | 44,743 | 21,445 | 21,082 | |||||||||
| | | | | | | | | | | | | |
Total subscription term-based licenses |
122,099 | 133,668 | 65,955 | 73,507 | |||||||||
Subscription SaaS and support and maintenance |
38,120 | 51,323 | 24,621 | 30,385 | |||||||||
Professional services and other |
12,320 | 16,571 | 8,874 | 9,006 | |||||||||
| | | | | | | | | | | | | |
Total revenue |
$ | 172,539 | $ | 201,562 | $ | 99,450 | $ | 112,898 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Contract Balances
Contract assets represent amounts for which the Company has recognized revenue, pursuant to its revenue recognition policy, for contracts that have not yet been invoiced to customers where there is a remaining performance obligation, typically for multi-year arrangements. In multi-year agreements, the Company generally invoices customers on an annual basis on each anniversary of the contract start date. Amounts anticipated to be billed within one year of the balance sheet date are recorded as contract assets, current; the remaining portion is recorded as contract assets, noncurrent in the consolidated balance sheets. The change in the total contract asset balance relates to entering into new multi-year contracts and billing on existing contracts.
F-16
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
The opening and closing balances of contract assets were as follows:
|
Six Months Ended | ||||||||||||
|
Year Ended | June 30, |
|||||||||||
| | | | | | | | | | | | | |
|
December 31, | 2018 | 2019 |
||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | (unaudited) | (unaudited) | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Beginning balance |
$ | 38,491 | $ | 60,662 | $ | 60,662 | $ | 67,468 | |||||
Ending balance |
60,662 | 67,468 | 64,450 | 75,637 | |||||||||
| | | | | | | | | | | | | |
Change |
$ | 22,171 | $ | 6,806 | $ | 3,788 | $ | 8,169 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Contract liabilities consist of customer billings in advance of revenue being recognized. The Company primarily invoices its customers for subscription arrangements annually in advance, though certain contracts require invoicing for the entire subscription in advance. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue, current; the remaining portion is recorded as deferred revenue, noncurrent in the consolidated balance sheets.
The opening and closing balances of contract liabilities included in deferred revenue were as follows:
|
Six Months Ended | ||||||||||||
|
Year Ended | June 30, |
|||||||||||
| | | | | | | | | | | | | |
|
December 31, | 2018 | 2019 |
||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | (unaudited) | (unaudited) | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Beginning balance |
$ | 27,606 | $ | 33,810 | $ | 33,810 | $ | 35,367 | |||||
Ending balance |
33,810 | 35,367 | 31,160 | 35,490 | |||||||||
| | | | | | | | | | | | | |
Change |
$ | 6,204 | $ | 1,557 | $ | (2,650 | ) | $ | 123 | ||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The change in deferred revenue relates primarily to invoicing customers and recognizing revenue in conjunction with the satisfaction of performance obligations. Revenue recognized during the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019 that was included in the deferred revenue balances at the beginning of the respective periods was as follows:
|
Six Months Ended | ||||||||||||
|
Year Ended | June 30, |
|||||||||||
| | | | | | | | | | | | | |
|
December 31, | 2018 | 2019 |
||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | (unaudited) | (unaudited) | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Deferred revenue recognized as revenue |
$ | 26,332 | $ | 31,391 | $ | 22,697 | $ | 24,301 |
F-17
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and noncancelable amounts to be invoiced. As of December 31, 2017 and 2018, the Company had $81.3 million and $95.8 million of transaction price allocated to remaining performance obligations, respectively. As of June 30, 2019 (unaudited), the Company had $114.3 million of transaction price allocated to remaining performance obligations, of which 88% is expected to be recognized as revenue over the next 24 months, with the remainder to be recognized thereafter.
Deferred Commissions
Sales commissions earned by the Company's internal and external sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for new contracts and additional sales to existing customers, are deferred and recorded in deferred commissions, current and noncurrent in the Company's consolidated balance sheets. Deferred commissions are amortized over the period of benefit, which the Company has determined to be generally four years. The Company determined the period of benefit by taking into consideration its customer contracts, its technology, and other factors. Deferred commissions are amortized consistent with the pattern of revenue recognition for each performance obligation for contracts for which the commissions were earned. The Company includes amortization of deferred commissions in sales and marketing expense in the consolidated statements of operations. The Company periodically reviews the carrying amount of deferred commissions to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred costs. The Company did not recognize an impairment of deferred commissions during the years ended December 31, 2017 and 2018 or the six months ended June 30, 2018 and 2019 (unaudited).
The following table summarizes the account activity of deferred commissions for the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019:
|
Six Months Ended | ||||||||||||
|
Year Ended | June 30, |
|||||||||||
| | | | | | | | | | | | | |
|
December 31, | 2018 | 2019 |
||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | (unaudited) | (unaudited) | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Beginning balance |
$ | 2,121 | $ | 6,354 | $ | 6,354 | $ | 11,033 | |||||
Additions to deferred commissions |
7,693 | 9,981 | 2,681 | 3,629 | |||||||||
Amortization of deferred commissions |
(3,460 | ) | (5,302 | ) | (1,693 | ) | (2,760 | ) | |||||
| | | | | | | | | | | | | |
Ending balance |
$ | 6,354 | $ | 11,033 | $ | 7,342 | $ | 11,902 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Deferred commissions, current |
$ | 1,858 | $ | 3,746 | $ | 2,221 | $ | 4,505 | |||||
Deferred commissions, noncurrent |
4,496 | 7,287 | 5,121 | 7,397 | |||||||||
| | | | | | | | | | | | | |
Total deferred commissions |
$ | 6,354 | $ | 11,033 | $ | 7,342 | $ | 11,902 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
F-18
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
Research and Development
Research and development costs include direct and allocated expenses. Other than software development costs that qualify for capitalization, as discussed above, research and development costs are expensed as incurred.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense is included within sales and marketing expense in the consolidated statements of operations. For the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019 (unaudited), advertising expenses were $1.2 million, $1.5 million, $0.6 million, and $0.7 million, respectively.
Stock-Based Compensation
Stock-based compensation expense for time-based awards is determined based on the grant-date fair value, net of forfeitures, and is recognized on a straight-line basis over the requisite service period of the award, which is typically the vesting term of the award. Prior to the adoption of ASU 2016-09 on January 1, 2018, the Company estimated the forfeiture rate annually using its historical experience of forfeited awards. The Company then adjusted for actual forfeitures at each vesting date. After the adoption of ASU 2016-09, forfeitures are accounted for as they occur.
Stock-based compensation expense for awards subject to both performance and market conditions is determined based on the grant-date fair value and is recognized on a graded vesting basis over the term of the award once it is probable that the performance conditions will be met.
The fair value of each time-based option grant is estimated on the date of the grant using the Black-Scholes option pricing model. For awards subject to performance and market conditions, the Company uses a Monte Carlo simulation model, which utilizes multiple inputs to estimate the probability that market conditions will be achieved. Both models require highly subjective assumptions as inputs, including the following:
F-19
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
The following assumptions were used for time-based options granted during the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019:
|
|
|
Six Months Ended June 30, |
|||||
---|---|---|---|---|---|---|---|---|
|
Year Ended December 31, |
|||||||
|
2018 (unaudited) |
2019 (unaudited) |
||||||
|
2017 | 2018 | ||||||
Risk-free rate |
2.0% - 2.2% | 2.6% - 3.0% | 2.7% | % | ||||
Expected term |
6.1 years | 6.1 years | 6.1 years | years | ||||
Dividend yield |
| | | | ||||
Volatility |
38% - 42% | 39% - 42% | 39% | % | ||||
Weighted-average grant date fair value of options granted during period |
$583.36 | $822.02 | $614.08 | $ |
The following assumptions were used for awards subject to performance and market conditions that were granted during the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019:
|
|
|
Six Months Ended June 30, |
|||||
---|---|---|---|---|---|---|---|---|
|
Year Ended December 31, | |||||||
|
2018 (unaudited) |
2019 (unaudited) |
||||||
|
2017 | 2018 | ||||||
Risk-free rate |
1.5% - 1.9% | 2.5% - 2.8% | 2.5% | % | ||||
Expected term |
3.8 - 4.5 years | 1.7 - 3.3 years | 3.3 years | years | ||||
Dividend yield |
| | | | ||||
Volatility |
57% - 62% | 45% - 55% | 55% | % | ||||
Weighted-average grant date fair value of options granted during period |
$388.74 | $388.63 | $478.03 | $ |
The Company calculates the fair value for restricted stock units ("RSUs") based on the estimated fair value of the Company's common stock on the date of grant and records
F-20
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
compensation expense over the vesting period using a straight-line method. Prior to the adoption of ASU 2016-09, the Company factored an estimated forfeiture rate in calculating compensation expense on RSUs and adjusted for actual forfeitures upon the vesting of each tranche of RSUs. After the adoption of ASU 2016-09, forfeitures are accounted for as they occur.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statement basis and the income tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. The Company's temporary differences result primarily from net operating losses, stock compensation, deferred revenue, intangible assets, and accrued expenses. Deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to the years in which the differences are expected to affect taxable income. A valuation allowance is established when necessary to reduce deferred income tax assets to the amounts expected to be realized.
The Company evaluates the tax positions taken or expected to be taken in the course of preparing the Company's tax returns to determine whether the tax positions are more likely than not of being sustained by the applicable tax authority. Tax positions not deemed to meet the more likely than not threshold would not be recorded as a tax benefit or expense in the current year. Interest and penalties related to income tax liabilities are included in the benefit (provision) for income taxes.
Deferred Offering Costs
Deferred offering costs are capitalized and consist of fees incurred in connection with the anticipated sale of common stock in an initial public offering ("IPO") and include legal, accounting, printing, and other IPO-related costs. Upon completion of an IPO, these deferred costs will be reclassified to stockholders' equity and recorded against the proceeds from the offering. In the event an IPO is terminated, the deferred offering costs would be expensed in the period of termination as a charge to operating expenses in the consolidated statements of operations.
The balance of deferred offering costs included within prepaid expenses and other current assets at December 31, 2018 and June 30, 2019 (unaudited) was $1.3 million and $3.2 million, respectively. As of December 31, 2017, the Company had not incurred such costs.
Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period, plus the dilutive effects of RSUs and stock options. Dilutive shares of common stock are determined by applying the treasury stock method.
F-21
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which supersedes the guidance in topic ASC 840, Leases. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 942, Leases, and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which affect certain aspects of the previously issued guidance. Amendments include an additional transition method that allows entities to apply the new standard on the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings, as well as a new practical expedient for lessors. The new leasing guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. While the Company is currently determining its implementation approach and assessing the impact on its consolidated financial statements and related disclosures, the Company expects that the majority of its operating lease commitments will increase total assets and total liabilities on its consolidated balance sheet upon adoption.
In March 2016, the FASB issued ASU No. 2016-09, Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"), which aligns with the FASB's current simplification initiatives. The major areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Specifically, ASU 2016-09 has introduced updates to minimum statutory tax withholding requirements, policy elections surrounding forfeitures, expected term, intrinsic values, and changes to the classification of certain share-based payment related transactions on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018, though early adoption is permitted. Effective January 1, 2018, the Company adopted ASU 2016-09 for the fiscal year as well as the interim periods within the fiscal year. The new guidance allows entities to make an election to account for forfeitures as they occur, which the Company adopted on a modified retrospective basis. An adjustment of $38.0 thousand was made to decrease retained earnings in the period of adoption for the cumulative prior years' impact. The adoption of the remaining provisions of ASU 2016-09 did not have a significant impact on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classifications of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), which addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 addresses eight specific cash flow issues with the intention of reducing the
F-22
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
existing diversity in practice. The amendments are effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019, though early adoption is permitted. Effective January 1, 2017, the Company adopted ASU 2016-15. There was no material impact to the Company's consolidated financial statements except that after adoption, the Company included cash payments for debt prepayment and debt extinguishment costs as cash outflows for financing activities.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"), which requires entities to show the changes in total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 as well as the interim periods within those years, and is applied retrospectively when adopted. Early adoption is permitted, and the Company elected to early adopt ASU 2016-18 effective January 1, 2017. Upon adoption, the Company has included restricted cash with cash and cash equivalents on its consolidated statements of cash flows and has excluded changes in restricted cash from net cash used in operating activities.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business ("ASU 2017-01"), which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. The impact to the Company's consolidated financial statements will depend on the facts and circumstances of any specific future transaction.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which simplifies how companies test goodwill for impairment. Under the new guidance, entities are no longer required to perform Step 2 of the impairment test, where a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of the goodwill. Instead, if the carrying amount of a reporting unit exceeds its fair value, then an impairment loss is recognized in the amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. This guidance is effective for fiscal years beginning after December 15, 2020, though early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted this standard effective October 1, 2017, and the adoption did not have a material effect on its consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation Stock Compensation (Topic 718): Scope of Modification Accounting ("ASU 2017-09"), which clarifies which changes to the terms or conditions of a share-based payment award are subject to the guidance on modification accounting. Upon adoption, entities shall apply the modification guidance to any changes to the terms or conditions of a share-based payment award unless the fair value, vesting conditions, and classification of a modified award are the same immediately before and after the modification. The amendments in this guidance are effective for all entities for annual periods beginning after December 15, 2017, including interim periods therein, and should be applied
F-23
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
prospectively to an award modified on or after the adoption date. Effective January 1, 2018, the Company adopted ASU 2017-09 for the fiscal year and the interim periods within the fiscal year. Since the Company does not regularly modify the terms and conditions of its share-based payment awards, the adoption of this standard did not have a material impact on the Company's consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02"), which provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. For all entities, it is effective for fiscal years beginning after December 15, 2018, and interim periods therein, though early adoption is permitted. Effective January 1, 2019, the Company adopted ASU 2018-02 for the fiscal year and the interim periods within the fiscal year. The adoption did not have a material impact on the Company's consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Compensation Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"), which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. ASU 2018-07 is effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020, though early adoption is permitted. Effective January 1, 2018, the Company adopted ASU 2018-07 for the fiscal year and the interim periods within the fiscal year, and the adoption did not have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which improves the disclosure requirements for fair value measurements. The updated guidance is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods therein. Early adoption is permitted. Further, an entity is permitted to early adopt any removed or modified disclosures upon the issuance of ASU 2018-13 while delaying the adoption of the additional disclosures until their effective date. The Company is currently assessing the impact of adopting the updated provisions on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"), which requires implementation costs incurred by customers in a cloud computing arrangement to be deferred over the noncancelable term of the cloud computing arrangement plus any optional renewal periods that (1) are reasonably certain to be exercised by the customer, or (2) for which exercise of the renewal option is controlled by the cloud service provider. The effective date of this pronouncement is for fiscal years beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021, though early adoption is permitted. The Company is currently evaluating the impact of this pronouncement on its consolidated financial statements.
F-24
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
2. Summary of Significant Accounting Policies (Continued)
Recent Accounting Pronouncements (unaudited)
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, though early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
3. Fair Value of Financial Instruments
The Company invests primarily in money market funds, which are measured and recorded at fair value on a recurring basis and are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The fair value of these financial instruments were as follows:
|
December 31, 2017 | ||||||||||||
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Cash and cash equivalents: |
|||||||||||||
Money market funds |
$ | 789 | $ | | $ | | $ | 789 |
|
December 31, 2018 | ||||||||||||
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Cash and cash equivalents: |
|||||||||||||
Money market funds |
$ | 57,974 | $ | | $ | | $ | 57,974 |
|
June 30, 2019 (unaudited) | ||||||||||||
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Cash and cash equivalents: |
|||||||||||||
Money market funds |
$ | 50,434 | $ | | $ | | $ | 50,434 |
The carrying amounts of the Company's accounts receivable, accounts payable, and other current liabilities approximate their fair values due to their short maturities. The carrying value of the Company's long-term debt approximates its fair value based on Level 2 inputs as the principal amounts outstanding are subject to variable interest rates that are based on market rates (see Note 7).
F-25
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
4. Property and Equipment
Property and equipment consisted of the following:
|
December 31, | June 30, 2019 |
||||||||
| | | | | | | | | | |
|
2017 | 2018 | (unaudited) | |||||||
|
(in thousands) | |||||||||
Computer equipment |
$ | 2,258 | $ | 4,218 | $ | 5,019 | ||||
Furniture and fixtures |
1,546 | 1,920 | 2,161 | |||||||
Purchased computer software |
950 | 450 | 700 | |||||||
Leasehold improvements |
2,627 | 2,868 | 3,236 | |||||||
Other |
363 | 363 | 424 | |||||||
| | | | | | | | | | |
Property and equipment, gross |
7,744 | 9,819 | 11,540 | |||||||
Less: Accumulated depreciation |
(2,661 | ) | (4,189 | ) | (5,047 | ) | ||||
| | | | | | | | | | |
Property and equipment, net |
$ | 5,083 | $ | 5,630 | $ | 6,493 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Depreciation expense for the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019 (unaudited) was $1.9 million, $2.2 million, $1.0 million, and $1.4 million, respectively.
5. Business Combinations
Elastic Beam Inc. Acquisition
On April 5, 2018, Ping Identity Corporation acquired 100% of the voting equity interest in Elastic Beam Inc., a Delaware Corporation ("Elastic Beam"). Elastic Beam is a machine learning/artificial intelligence API behavioral security software which detects, reports, and stops cyberattacks on data and applications via APIs. The purpose of this acquisition was to expand the Company's capabilities in identity security, particularly with regard to artificial intelligence.
The total purchase price was $19.0 million, which includes up-front cash consideration of $17.4 million that was funded with existing cash resources, and $1.6 million, of which $1.1 million and $0.5 million is payable on the first and second anniversary of the acquisition, respectively. During the six months ended June 30, 2019 (unaudited), the Company paid the first anniversary payment of $1.1 million.
$4.8 million and $4.2 million of contingent compensation is payable on the first and second anniversary of the acquisition, contingent on certain individuals remaining employed as of those dates. As these payments are subject to the continued employment of those individuals, they will be recognized through compensation expense as incurred. During the six months ended June 30, 2019 (unaudited), the Company paid the first anniversary payment of $4.8 million.
F-26
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
5. Business Combinations (Continued)
The following table summarizes the allocation of the purchase price, based on the estimated fair value of the assets acquired and liabilities assumed at the acquisition date:
|
April 5, 2018 | Useful Life | |||
|
(in thousands) | ||||
Fair value of net assets acquired |
|||||
In process research and development |
$ | 3,006 | Indefinite | ||
Goodwill |
15,972 | Indefinite | |||
Deferred tax asset |
108 | ||||
Other assets |
3 | ||||
| | | | | |
Total assets acquired |
19,089 | ||||
| | | | | |
Deferred revenue |
(115 | ) | |||
| | | | | |
Total liabilities assumed |
(115 | ) | |||
| | | | | |
Net assets acquired |
$ | 18,974 | |||
| | | | | |
| | | | | |
| | | | | |
Goodwill is primarily attributable to the workforce acquired and the expected synergies arising from integrating Elastic Beam's behavioral security software with the Company's existing security platform. None of the goodwill is deductible for tax purposes. The Company incurred $0.6 million of acquisition related expenses in conjunction with the Elastic Beam acquisition which are included in general and administrative expenses on the consolidated statements of operations for the year ended December 31, 2018 and the six months ended June 30, 2018 (unaudited).
Additional Acquisition Related Information
The operating results of Elastic Beam are included in the Company's consolidated statements of operations from the date of acquisition. Revenue and earnings of Elastic Beam since the date of acquisition and pro forma results of operations have not been prepared because the effect of the acquisition was not material to the consolidated statements of operations.
Additional information, such as that related to income tax and other contingencies, existing as of the acquisition date but unknown to the Company may become known during the remainder of the measurement period, not to exceed one year from the acquisition date, which may result in changes to the amounts and allocations recorded.
F-27
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
6. Goodwill and Intangible Assets
The changes in the carrying amount of the Company's goodwill balance were as follows:
|
December 31, | June 30, 2019 |
||||||||
| | | | | | | | | | |
|
2017 | 2018 | (unaudited) | |||||||
|
(in thousands) | |||||||||
Beginning balance |
$ | 401,724 | $ | 401,724 | $ | 417,696 | ||||
Additions to goodwill related to acquisitions |
| 15,972 | | |||||||
| | | | | | | | | | |
Ending balance |
$ | 401,724 | $ | 417,696 | $ | 417,696 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The Company's intangible assets as of December 31, 2017 were as follows:
|
December 31, 2017 | |||||||||
|
Gross Amount | Accumulated Amortization |
Net Carrying Value |
|||||||
|
(in thousands) | |||||||||
Developed technology |
$ | 104,932 | $ | (17,120 | ) | $ | 87,812 | |||
Customer relationships |
94,875 | (11,199 | ) | 83,676 | ||||||
Trade names |
56,436 | (8,441 | ) | 47,995 | ||||||
Product backlog |
2,185 | (1,547 | ) | 638 | ||||||
Capitalized internal-use software |
5,112 | (1,043 | ) | 4,069 | ||||||
Non-compete agreements |
1,224 | (606 | ) | 618 | ||||||
Other intangible assets |
716 | (152 | ) | 564 | ||||||
| | | | | | | | | | |
Total intangible assets subject to amortization |
265,480 | (40,108 | ) | 225,372 | ||||||
In-process research and development |
586 | | 586 | |||||||
| | | | | | | | | | |
Total intangible assets |
$ | 266,066 | $ | (40,108 | ) | $ | 225,958 | |||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-28
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
6. Goodwill and Intangible Assets (Continued)
The Company's intangible assets as of December 31, 2018 were as follows:
|
December 31, 2018 | |||||||||
|
Gross Amount | Accumulated Amortization |
Net Carrying Value |
|||||||
|
(in thousands) | |||||||||
Developed technology |
$ | 107,938 | $ | (29,433 | ) | $ | 78,505 | |||
Customer relationships |
94,875 | (18,702 | ) | 76,173 | ||||||
Trade names |
56,436 | (14,084 | ) | 42,352 | ||||||
Product backlog |
2,185 | (2,117 | ) | 68 | ||||||
Capitalized internal-use software |
11,422 | (2,995 | ) | 8,427 | ||||||
Non-compete agreements |
1,224 | (1,014 | ) | 210 | ||||||
Other intangible assets |
1,055 | (333 | ) | 722 | ||||||
| | | | | | | | | | |
Total intangible assets subject to amortization |
275,135 | (68,678 | ) | 206,457 | ||||||
In-process research and development |
586 | | 586 | |||||||
| | | | | | | | | | |
Total intangible assets |
$ | 275,721 | $ | (68,678 | ) | $ | 207,043 | |||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
The Company's intangible assets as of June 30, 2019 were as follows:
|
June 30, 2019 (unaudited) |
|||||||||
|
Gross Amount | Accumulated Amortization |
Net Carrying Value |
|||||||
|
(in thousands) | |||||||||
Developed technology |
$ | 107,938 | $ | (35,847 | ) | $ | 72,091 | |||
Customer relationships |
94,875 | (22,453 | ) | 72,422 | ||||||
Trade names |
56,584 | (16,924 | ) | 39,660 | ||||||
Product backlog |
2,185 | (2,168 | ) | 17 | ||||||
Capitalized internal-use software |
15,914 | (4,338 | ) | 11,576 | ||||||
Non-compete agreements |
1,224 | (1,218 | ) | 6 | ||||||
Other intangible assets |
1,001 | (442 | ) | 559 | ||||||
| | | | | | | | | | |
Total intangible assets subject to amortization |
279,721 | (83,390 | ) | 196,331 | ||||||
In-process research and development |
586 | | 586 | |||||||
| | | | | | | | | | |
Total intangible assets |
$ | 280,307 | $ | (83,390 | ) | $ | 196,917 | |||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Amortization expense for the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019 (unaudited) was $27.2 million, $28.6 million, $14.4 million, and $14.7 million, respectively. During the years ended December 31, 2017 and 2018, $3.0 million of in-process research and development was reclassified to developed technology when ready for intended use.
F-29
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
6. Goodwill and Intangible Assets (Continued)
As of December 31, 2018, expected amortization expense for intangible assets subject to amortization for the next five years is as follows:
Year Ending December 31, |
December 31, 2018 |
|||
|
(in thousands) | |||
2019 |
$ | 29,028 | ||
2020 |
28,764 | |||
2021 |
27,979 | |||
2022 |
26,124 | |||
2023 |
24,572 | |||
Thereafter |
69,990 | |||
| | | | |
Total |
$ | 206,457 | ||
| | | | |
| | | | |
| | | | |
As of June 30, 2019, expected amortization expense for intangible assets subject to amortization for the next five years is as follows:
Year Ending December 31,
|
June 30, 2019 (unaudited) |
|||
|
(in thousands) | |||
2019 (remaining six months) |
$ | 14,985 | ||
2020 |
29,915 | |||
2021 |
29,130 | |||
2022 |
27,276 | |||
2023 |
25,092 | |||
Thereafter |
69,933 | |||
| | | | |
Total |
$ | 196,331 | ||
| | | | |
| | | | |
| | | | |
7. Debt
In 2016, the Company entered into new credit facilities with a consortium of lenders comprised of (a) a term loan in an initial principal amount of $150.0 million, which was borrowed on June 30, 2016 and subsequently increased on August 3, 2016 by $20.0 million (the "2016 Term Loan"), and (b) a revolving line of credit in a principal committed amount of $10.0 million (the "2016 Revolver" and, collectively with the 2016 Term Loan, the "2016 Credit Facilities"). The 2016 Credit Facilities mature on June 30, 2021.
The principal amount of the 2016 Term Loan is payable at the maturity date. The 2016 Term Loan bears interest at the option of the Company at a rate per annum equal to (a) an adjusted LIBO rate (with a floor of 1.00% per annum) plus an applicable margin of 9.25%, payable on the last day of the applicable interest period applicable thereto, or (b) the alternate base rate (with a floor of 2.00% per annum) plus an applicable margin of 8.25%, payable quarterly in arrears the last
F-30
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
7. Debt (Continued)
business day of each March, June, September, and December. The initial 2016 Term Loans were borrowed as LIBO rate loans.
In conjunction with the 2016 Credit Facilities, the Company was required to comply with various financial debt covenants, including a recurring revenue leverage ratio of 2.1 to 1.0 beginning September 30, 2016 and decreasing quarterly to 1.3 to 1.0 on September 30, 2018, and a total leverage ratio of 8.3 to 1.0 beginning December 31, 2018 and decreasing quarterly to 2.4 to 1.0 on and after June 30, 2021. As of December 31, 2017, the Company was in compliance with all financial covenants.
In 2018, the Company refinanced its outstanding debt. In connection with the refinancing, the Company entered into new credit facilities with a consortium of lenders comprised of (a) a term loan with a principal amount of $250.0 million (the "2018 Term Loan"), and (b) a revolving line of credit in a principal committed amount of $25.0 million (the "2018 Revolver" and, collectively with the 2018 Term Loan, the "2018 Credit Facilities"). The 2018 Term Loan and 2018 Revolver mature on January 25, 2025 and January 25, 2023, respectively. Borrowings under the 2018 Credit Facilities are collateralized by substantially all of the assets of the Company.
There are no significant financial covenants to which the Company must comply in relation to the 2018 Term Loan. The wholly owned indirect subsidiary, Ping Identity Corporation, as borrower under the 2018 Credit Facilities, is limited to declare dividends or make any payment on account of its capital stock to, directly or indirectly, fund a dividend or other distribution to Roaring Fork Holding, Inc. (the "Parent"), subject to limited exceptions, including (1) stock repurchases in an amount not to exceed the greater of $1.5 million per year or 3.75% of consolidated EBITDA, with any unused amount being carried forward to future periods, (2) unlimited amounts subject to compliance with a 4.25 to 1.00 total leverage ratio giving pro forma effect to any distribution, (3) unlimited amounts up to 7% of the Parent's market capitalization, and (4) payment of the Parent's overhead expenses.
In conjunction with entering into the 2018 Credit Facilities, the Company paid all remaining balances of the 2016 Term Loan and terminated the 2016 Revolver, which resulted in a loss on extinguishment of debt of $9.8 million, included in the consolidated statements of operations for the year ended December 31, 2018 and the six months ended June 30, 2018 (unaudited).
Beginning September 2018, 0.25% of the principal amount of the 2018 Term Loan is payable quarterly. The 2018 Term Loan bears interest at the option of the Company at a rate per annum equal to (a) an adjusted LIBO rate (with a floor of 1.00% per annum) plus an applicable margin of 3.75%, payable on the last day of the applicable interest period applicable thereto ("Eurodollar" loan), or (b) the alternate base rate (with a floor of 2.00% per annum) plus an applicable margin of 2.75%, payable quarterly in arrears the last business day of each March, June, September, and December. The 2018 Term Loan was borrowed as a Eurodollar loan.
The Company recognized $17.9 million, $14.9 million, $7.3 million, and $7.8 million in interest expense in the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019 (unaudited), respectively.
F-31
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
7. Debt (Continued)
As of December 31, 2017 and 2018 and June 30, 2019 (unaudited), the Company's outstanding long-term debt balance was $165.2 million, $241.1 million, and $240.2 million, respectively (net of the current portion of long-term debt of $0.0 million, $2.5 million, and $2.5 million, and debt issuance costs of $4.8 million, $5.2 million, and $4.8 million, respectively), which was included in long-term debt. Debt issuance costs are a direct deduction from the long-term debt liability and are amortized into interest expense over the contractual term of the borrowings using the effective interest method. During the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019 (unaudited), the Company amortized $1.4 million, $0.9 million, $0.5 million, and $0.4 million of debt issuance costs, respectively.
Future principal payments on outstanding borrowings as of December 31, 2018 are as follows:
Year Ending December 31, |
December 31, 2018 |
|||
|
(in thousands) | |||
2019 |
$ | 2,500 | ||
2020 |
2,500 | |||
2021 |
2,500 | |||
2022 |
2,500 | |||
2023 |
2,500 | |||
Thereafter |
236,250 | |||
| | | | |
Total |
$ | 248,750 | ||
| | | | |
| | | | |
| | | | |
Future principal payments on outstanding borrowings as of June 30, 2019 are as follows:
Year Ending December 31, |
June 30, 2019 (unaudited) |
|||
|
(in thousands) | |||
2019 (remaining six months) |
$ | 1,250 | ||
2020 |
2,500 | |||
2021 |
2,500 | |||
2022 |
2,500 | |||
2023 |
2,500 | |||
Thereafter |
236,250 | |||
| | | | |
Total |
$ | 247,500 | ||
| | | | |
| | | | |
| | | | |
8. Income Taxes
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the "Tax Act") was signed into law. The Tax Act significantly changed U.S. income tax law by, among other things, reducing the U.S. federal income tax rate from 35 percent to 21 percent, transitioning from a global tax system to a modified territorial tax system, and limiting the tax deduction for interest expense. The Company has included the impact of the Tax Act in its benefit for income taxes for the years ended
F-32
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
8. Income Taxes (Continued)
December 31, 2017 and 2018 in accordance with its understanding of the Tax Act and the guidance available on the date the financial statements were available to be issued. The recorded effects of the Tax Act include the following:
With regard to the new provisions for global intangible low-taxed income ("GILTI"), the Company is allowed to make an accounting policy choice of either (1) treating taxes due for GILTI as a current-period expense when incurred or (2) factoring such amounts into the Company's measurement of its deferred taxes. In 2018, the Company elected to treat the taxes due for GILTI as a current-period expense when incurred.
The amounts of income (loss) from continuing operations before income taxes was as follows:
|
Year Ended December 31, |
||||||
|
2017 | 2018 | |||||
|
(in thousands) | ||||||
United States |
$ | 3,996 | $ | (12,488 | ) | ||
Foreign |
1,780 | 2,417 | |||||
| | | | | | | |
Income (loss) before income taxes |
$ | 5,776 | $ | (10,071 | ) | ||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The income taxes of foreign subsidiaries not included in the U.S. tax group are presented based on a separate return basis for each tax-paying entity.
F-33
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
8. Income Taxes (Continued)
The benefit (provision) for income taxes from continuing operations was as follows:
|
Year Ended December 31, |
||||||
| | | | | | | |
|
2017 | 2018 | |||||
| | | | | | | |
|
(in thousands) | ||||||
Current |
|||||||
Federal |
$ | | $ | (23 | ) | ||
State |
| (55 | ) | ||||
Foreign |
(96 | ) | (225 | ) | |||
| | | | | | | |
Total current expense |
(96 | ) | (303 | ) | |||
| | | | | | | |
Deferred |
|||||||
Federal |
14,501 | 1,416 | |||||
State |
(2,201 | ) | (4,756 | ) | |||
Foreign |
981 | 268 | |||||
| | | | | | | |
Total deferred benefit |
13,281 | (3,072 | ) | ||||
| | | | | | | |
Benefit (provision) for income taxes |
$ | 13,185 | $ | (3,375 | ) | ||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The benefit (provision) for income taxes from continuing operations differs from the provision determined by applying the U.S. statutory tax rate to pretax earnings as a result of the following:
|
Year Ended December 31, | ||||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | |||||||||||
| | | | | | | | | | | | | |
|
(dollars in thousands) | ||||||||||||
Statutory U.S. federal income taxes |
$ | (2,021 | ) | (35.0 | )% | $ | 2,115 | (21.0 | )% | ||||
State income taxes, net of federal taxes |
(166 | ) | (2.9 | ) | 405 | (4.0 | ) | ||||||
Foreign taxes rate differential |
257 | 4.4 | 18 | (0.2 | ) | ||||||||
Rate changes tax reform |
17,040 | 295.0 | | | |||||||||
Rate changes other |
(1,901 | ) | (32.9 | ) | (4,210 | ) | 41.8 | ||||||
Income tax credits |
1,358 | 23.5 | 536 | (5.3 | ) | ||||||||
Change in valuation allowance |
(533 | ) | (9.2 | ) | | | |||||||
Deemed repatriation of untaxed foreign earnings |
(1,158 | ) | (20.0 | ) | | | |||||||
Contingent deal consideration |
| | (985 | ) | 9.8 | ||||||||
Meals and entertainment |
(519 | ) | (9.0 | ) | (706 | ) | 7.0 | ||||||
GILTI inclusion |
| | (338 | ) | 3.4 | ||||||||
Acquisition costs |
| | (134 | ) | 1.3 | ||||||||
State net operating loss adjustment |
746 | 12.9 | | | |||||||||
Return to provision |
131 | 2.3 | 36 | (0.4 | ) | ||||||||
Other permanent items |
(45 | ) | (0.8 | ) | (159 | ) | 1.6 | ||||||
Other |
(4 | ) | (0.1 | ) | 47 | (0.5 | ) | ||||||
| | | | | | | | | | | | | |
Benefit (provision) for income taxes |
$ | 13,185 | 228.2 | % | $ | (3,375 | ) | 33.5 | % | ||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
F-34
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
8. Income Taxes (Continued)
Undistributed earnings of foreign subsidiaries were $10.6 million as of December 31, 2018, of which $8.9 million was deemed to be repatriated at December 31, 2017, pursuant to the Tax Act. The deemed repatriation resulted in $1.2 million of additional U.S. income tax expense. The Company considers the current earnings and any future foreign earnings to be indefinitely reinvested, and therefore does not record deferred taxes related to these earnings. Upon repatriation of earnings, in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to a dividends received deduction) and withholding taxes payable to certain foreign jurisdictions. Withholding taxes of less than $0.6 million would be payable upon remittance of all previously unremitted earnings at December 31, 2018.
The significant components of deferred tax assets and liabilities at December 31, 2017 and 2018 were as follows:
|
December 31, | ||||||
|
2017 | 2018 | |||||
|
(in thousands) | ||||||
Deferred tax assets |
|||||||
Accruals and reserves |
$ | 681 | $ | | |||
Fixed assets and intangible assets |
332 | 130 | |||||
Tax credits |
3,163 | 3,386 | |||||
Deferred share-based compensation |
812 | 1,525 | |||||
Loss and other carryforwards |
46,297 | 35,191 | |||||
Other |
452 | 720 | |||||
| | | | | | | |
Gross deferred tax assets |
51,737 | 40,952 | |||||
Valuation allowance |
(1,812 | ) | (1,812 | ) | |||
| | | | | | | |
Net deferred tax asset |
49,925 | 39,140 | |||||
| | | | | | | |
Deferred tax liabilities |
|||||||
Accruals and reserves |
| (138 | ) | ||||
Fixed assets and intangible assets |
(55,469 | ) | (53,849 | ) | |||
Deferred revenue |
(28,096 | ) | (21,896 | ) | |||
Other, net |
(535 | ) | (540 | ) | |||
| | | | | | | |
Gross deferred tax liabilities |
(84,100 | ) | (76,423 | ) | |||
| | | | | | | |
Net deferred tax liability |
$ | (34,175 | ) | $ | (37,283 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-35
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
8. Income Taxes (Continued)
The components giving rise to the net deferred income tax liabilities detailed above have been included in the accompanying consolidated balance sheet at December 31, 2017 and 2018 as follows:
|
December 31, | ||||||
|
2017 | 2018 | |||||
|
(in thousands) | ||||||
Noncurrent deferred tax assets |
$ | 1,711 | $ | 1,829 | |||
Noncurrent deferred tax liabilities |
(35,886 | ) | (39,112 | ) | |||
| | | | | | | |
Net deferred tax liability |
$ | (34,175 | ) | $ | (37,283 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
At December 31, 2018, the Company had U.S. net operating loss carryforwards of $144.1 million and U.S. research and development ("R&D") credit carryforwards of $1.3 million. If not used, the U.S. net operating loss and R&D credit carryforwards will begin expiring in 2021 and 2024, respectively. The Company also has disallowed interest carryforwards of $1.6 million, which do not expire. Additionally, the Company had $2.3 million of foreign R&D credit carryforwards at December 31, 2018 which, if not used, will begin expiring in 2030. Section 382 and Section 383 of the Internal Revenue Code contain provisions that limit the utilization of net operating loss and tax credit carryforwards if there has been a change of ownership. The Company has completed an analysis of the historical changes in ownership, and has determined that $2.5 million of the net operating loss carryforward at December 31, 2018 will expire prior to utilization due to the Section 382 limitation. As such, the Company has established a valuation allowance against the deferred tax asset related to these net operating loss carryforwards. Additionally, a change in ownership could be triggered by subsequent sales of securities by the Company or its shareholders resulting in a limitation of the net operating loss and tax credit carryforwards in the future.
The Company has determined that it is more likely than not it will be unable to realize the benefit of its deferred tax assets for R&D credit carryforwards in the U.S. prior to their expiration and has, therefore, established a valuation allowance offset against the deferred tax asset. A valuation allowance has not been established against the net deferred tax assets attributed to foreign jurisdictions. The valuation allowance for deferred tax assets was $1.8 million at December 31, 2017 and 2018. Changes in the valuation allowance for deferred tax assets during the years ended December 31, 2017 and 2018 were as follows:
|
December 31, | ||||||
|
2017 | 2018 | |||||
|
(in thousands) | ||||||
Valuation allowance at beginning of year |
$ | 1,279 | $ | 1,812 | |||
Increases recorded to income tax provision |
533 | | |||||
| | | | | | | |
Valuation allowance at end of year |
$ | 1,812 | $ | 1,812 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-36
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
8. Income Taxes (Continued)
The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The tax years for the Company that remain subject to examination are:
|
Years Under Examination |
Additional Open Years |
||
Jurisdiction |
||||
U.S. Federal |
None | 2015 - 2017 | ||
United Kingdom |
None | 2013 - 2017 | ||
Canada |
None | 2013 - 2017 | ||
Australia |
None | 2013 - 2017 | ||
Israel |
None | 2014 - 2017 | ||
France |
None | 2016 - 2017 |
Additionally, U.S. federal net operating losses and other foreign tax credits carried forward into open years may be subject to adjustment. The Company has evaluated its tax positions and has determined that it has certain unrecognized tax benefits. Accordingly, as of December 31, 2017 and 2018, the Company has reduced certain tax attributes to the extent they would be utilized to offset an unrecognized tax benefit. Changes in the unrecognized tax benefits during the years ended December 31, 2017 and 2018 were as follows:
|
December 31, | ||||||
|
2017 | 2018 | |||||
|
(in thousands) | ||||||
Unrecognized tax benefits at beginning of the year |
$ | 706 | $ | 292 | |||
Statute expiration |
(365 | ) | (78 | ) | |||
Currency |
11 | (13 | ) | ||||
Tax rate changes |
(60 | ) | 10 | ||||
| | | | | | | |
Unrecognized tax benefits at end of the year |
$ | 292 | $ | 211 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company does not currently anticipate significant changes in its unrecognized tax benefits over the next 12 months. No interest or penalties for the Company's unrecognized tax benefits were recorded for the years ended December 31, 2017 and 2018.
9. Stockholders' Equity
On June 30, 2016, the Board of Directors and stockholders approved the Second Amended and Restated Certificate of Incorporation authorizing the Company to issue up to 500,000 shares of common stock and 200,000 shares of preferred stock, each with a par value of $0.001 per share.
Common stock
The Company's Second Amended and Restated Certificate of Incorporation authorizes issuance of 500,000 shares of common stock with a par value of $0.001 per share. The common stock confers upon its holders the right to vote on all matters to be voted on by the stockholders of
F-37
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
9. Stockholders' Equity (Continued)
the Company (with each share representing one vote) and to ratably participate in any distribution of dividends or payments in the event of liquidation or dissolution on a per share basis. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future.
Preferred stock
The Company is authorized, without stockholder approval but subject to any limitations prescribed by law, to issue up to an aggregate of 200,000 shares of preferred stock (in one or more series or classes), to create additional series or classes of preferred stock, and to establish the number of shares to be included in such series or class. The Board of Directors is also authorized to increase or decrease the number of shares of any series or class subsequent to the issuance of shares of that series or class. Each series will have such rights, preferences and limitations, including voting rights, dividend rights, conversion rights, redemption privileges, and liquidation preferences as determined by the Board of Directors. As of December 31, 2017 and 2018 and June 30, 2019 (unaudited), the Company did not have any shares of preferred stock outstanding and currently has no plans to issue shares of preferred stock.
10. Stock-Based Compensation
On June 30, 2016, Roaring Fork Holding, Inc. established the 2016 Stock Option Plan ("2016 Plan"). The 2016 Plan provides for grants of restricted stock units and stock options to executives, directors, consultants, advisors, and key employees which allow option holders to purchase stock in Roaring Fork Holding, Inc. Roaring Fork Holding, Inc. has 40,000 shares of common stock reserved for issuance under the 2016 Plan.
Stock-based compensation expense for all equity arrangements for the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019 was as follows:
|
Year Ended | Six Months Ended June 30, |
|||||||||||
| | | | | | | | | | | | | |
|
December 31, | 2018 | 2019 |
||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | (unaudited) | (unaudited) | |||||||||
| | | | | | | | | | | | | |
|
(in thousands) | ||||||||||||
Sales and marketing |
$ | 626 | $ | 726 | $ | 351 | $ | 410 | |||||
Research and development |
297 | 342 | 108 | 433 | |||||||||
General and administrative |
1,601 | 1,780 | 821 | 1,256 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 2,524 | $ | 2,848 | $ | 1,280 | $ | 2,099 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Restricted Stock Units
The Company grants RSUs that vest annually over one to four years. The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019 (unaudited) was $1,333, $1,596, $1,596, and $2,260,
F-38
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
10. Stock-Based Compensation (Continued)
respectively. The total intrinsic value of RSUs vested during the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019 (unaudited) was $0.0 million, $0.1 million, $0.0 million, and $0.1 million, respectively. As of December 31, 2018 and June 30, 2019 (unaudited), there was $0.2 million and $0.2 million of total unrecognized compensation, which will be recognized over the remaining weighted-average vesting periods of 1.6 years and 1.0 years, respectively, using the straight-line method. A summary of the status of the Company's unvested RSUs and activity for the years ended December 31, 2017 and 2018 and the six months ended June 30, 2019 is as follows:
|
Shares | Weighted Average Grant Date Fair Value |
|||||
| | | | | | | |
Unvested as of January 1, 2017 |
125 | $ | 1,333 | ||||
Granted |
125 | 1,333 | |||||
Forfeited/canceled |
| | |||||
Vested |
(31 | ) | 1,333 | ||||
| | | | | | | |
Unvested as of December 31, 2017 |
219 | $ | 1,333 | ||||
| | | | | | | |
Granted |
63 | 1,596 | |||||
Forfeited/canceled |
| | |||||
Vested |
(63 | ) | 1,333 | ||||
| | | | | | | |
Unvested as of December 31, 2018 |
219 | $ | 1,409 | ||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Granted (unaudited) |
62 | 2,260 | |||||
Forfeited/canceled (unaudited) |
| | |||||
Vested (unaudited) |
(94 | ) | 1,509 | ||||
| | | | | | | |
Unvested as of June 30, 2019 (unaudited) |
187 | $ | 1,641 | ||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Stock Options
During the year ended December 31, 2017, the Company granted 3,353 time-based options and 1,676 options subject to performance and market conditions, both of which grant the holder the option to purchase common stock upon vesting. During the year ended December 31, 2018, the Company granted 8,313 time-based options and 4,157 options subject to performance and market conditions. During the six months ended June 30, 2018 (unaudited), the Company granted 833 time-based options and 417 options subject to performance and market conditions. No options were granted during the six months ended June 30, 2019 (unaudited). Time-based options vest over four years with 25% vesting one year after grant and the remainder vesting ratably on a quarterly basis thereafter. Options subject to performance and market conditions vest upon the sale of the business subject to certain conditions specified in the 2016 Plan. An option holder must be an employee of the Company at the date of sale of the business.
F-39
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
10. Stock-Based Compensation (Continued)
A summary of the Company's stock option activity and related information is as follows:
|
Options | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||
| | | | | | | | | | | | | |
|
(in years) | (in thousands) | |||||||||||
Outstanding January 1, 2017 |
25,880 | $ | 1,333 | 9.5 | $ | | |||||||
Granted |
5,029 | 1,381 | 111 | ||||||||||
Forfeited/canceled |
(2,500 | ) | 1,333 | 86 | |||||||||
Exercised |
(76 | ) | 1,333 | 8 | |||||||||
| | | | | | | | | | | | | |
Outstanding December 31, 2017 |
28,333 | $ | 1,342 | 8.7 | $ | 2,849 | |||||||
Granted |
12,470 | 2,062 | 84 | ||||||||||
Forfeited/canceled |
(3,162 | ) | 1,333 | 493 | |||||||||
Exercised |
| | | ||||||||||
| | | | | | | | | | | | | |
Outstanding December 31, 2018 |
37,641 | $ | 1,581 | 8.4 | $ | 25,678 | |||||||
Granted (unaudited) |
| | | ||||||||||
Forfeited/canceled (unaudited) |
(867 | ) | 1,333 | 1,346 | |||||||||
Exercised (unaudited) |
(733 | ) | 1,333 | 1,477 | |||||||||
| | | | | | | | | | | | | |
Outstanding June 30, 2019 (unaudited) |
36,041 | $ | 1,592 | 8.0 | $ | 63,242 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
As of June 30, 2019 (unaudited) |
|||||||||||||
Vested and expected to vest (unaudited) |
24,014 | $ | 1,592 | 8.0 | $ | 42,135 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Vested and exercisable (unaudited) |
10,915 | $ | 1,342 | 7.2 | $ | 21,878 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
All options have a 10 year contractual life. As of December 31, 2018 and June 30, 2019 (unaudited), unamortized stock-based compensation expense related to the time-based awards was $10.6 million and $8.4 million, respectively, which will be recognized over the respective remaining weighted-average vesting terms of 3.0 years and 2.7 years. As of December 31, 2018 and June 30, 2019 (unaudited), the awards subject to performance and market conditions were not considered probable of meeting vesting requirements, and accordingly, no expense was recorded. For these awards, unrecognized stock-based compensation expense as of December 31, 2018 and June 30, 2019 (unaudited) was $5.3 million and $5.1 million, respectively. As the awards were not probable of meeting vesting requirements, the timing of when this expense will be recognized is unknown.
11. Related Party Transactions
Vista Equity Partners ("Vista") is a U.S.-based investment firm that controls the funds which own a majority of the Company. During the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019 (unaudited), the Company paid for consulting services and other expenses related to services provided by Vista and Vista affiliates. The total expenses incurred by the Company for Vista were $0.9 million, $1.3 million, $0.6 million, and $0.6 million for the years
F-40
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
11. Related Party Transactions (Continued)
ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019 (unaudited), respectively. The Company had $0.3 million and $0.1 million in accounts payable related to these expenses at December 31, 2018 and June 30, 2019 (unaudited), respectively.
The Company also has revenue arrangements with Vista affiliates. The Company recognized revenue of $0.8 million, $1.9 million, $1.5 million, and $0.2 million in the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019 (unaudited), respectively. The Company had $1.0 million, $0.5 million, and $0.2 million in accounts receivable related to these agreements at December 31, 2017 and 2018 and June 30, 2019 (unaudited), respectively.
As discussed in Note 7, the Company entered into the 2018 Term Loan and 2018 Revolver on January 25, 2018 with a consortium of lenders for a principal amount of $250.0 million and principal committed amount of $25.0 million, respectively. At December 31, 2018, affiliates of Vista held $34.8 million of the 2018 Term Loan and there were no amounts drawn on the 2018 Revolver. During the year ended December 31, 2018, affiliates of Vista were paid $0.2 million in principal (beginning in September 2018) and $1.9 million in interest on the portion of the 2018 Term Loan held by them. During the six months ended June 30, 2018 (unaudited), affiliates of Vista were paid $0.8 million in interest.
At June 30, 2019 (unaudited), affiliates of Vista held $34.7 million of the 2018 Term Loan and there were no amounts drawn on the 2018 Revolver. During the six months ended June 30, 2019 (unaudited), affiliates of Vista were paid $0.1 million in principal and $1.1 million in interest on the portion of the 2018 Term Loan held by them.
12. Commitments and Contingencies
Letters of Credit
As of December 31, 2017 and 2018 and June 30, 2019 (unaudited), the Company had outstanding letters of credit under an office lease agreement that totaled $0.5 million, $0.6 million, and $0.7 million, respectively, which primarily guaranteed early termination fees in the event of default. The Company collateralizes the letters of credit with restricted cash balances which were classified in other noncurrent assets at December 31, 2017 and 2018 and June 30, 2019.
Leases
The Company leases office space and certain office equipment under noncancelable leases. Most of the leases contain renewal options at then market rates.
F-41
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
12. Commitments and Contingencies (Continued)
At December 31, 2018, future minimum lease payments under the existing leases were as follows:
Year Ending December 31, |
December 31, 2018 |
|||
|
(in thousands) | |||
2019 |
$ | 2,515 | ||
2020 |
2,955 | |||
2021 |
2,415 | |||
2022 |
2,315 | |||
2023 |
2,338 | |||
Thereafter |
4,942 | |||
| | | | |
Total |
$ | 17,480 | ||
| | | | |
| | | | |
| | | | |
At June 30, 2019, future minimum lease payments under the existing leases were as follows:
Year Ending December 31, |
June 30, 2019 (unaudited) |
|||
|
(in thousands) | |||
2019 (remaining six months) |
$ | 1,267 | ||
2020 |
2,975 | |||
2021 |
2,420 | |||
2022 |
2,314 | |||
2023 |
2,338 | |||
Thereafter |
4,943 | |||
| | | | |
Total |
$ | 16,257 | ||
| | | | |
| | | | |
| | | | |
Rent expense under noncancelable operating leases totaled $2.1 million, $2.3 million, $1.2 million, and $1.6 million for the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019 (unaudited), respectively.
Hosting Services Agreement
In December 2018, the Company entered into a non-cancelable contractual agreement for hosting services for the period from January 1, 2019 until December 31, 2019. The Company is required to pay a minimum annual commitment of $5.6 million for these services, of which 50% was paid upfront in December 2018. The Company expects to pay the additional $2.8 million during the remaining six months of the year ended December 31, 2019.
Employment Agreements
The Company has entered into various employment agreements with certain officers and foreign-based employees. The employment agreements provide for minimum annual base salaries,
F-42
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
12. Commitments and Contingencies (Continued)
allowances for benefits and insurance coverage, termination rights, and other provisions commonly found in such agreements. Under the terms of the employment agreements, the officers and employees are subject to noncompete provisions, as defined. Terms of the employment agreements vary and may be extended.
Employee Benefit Plans
The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code (the "401(k) Plan") in which full-time U.S. employees are eligible to participate on the first day of the subsequent month of his or her date of employment. The 401(k) Plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a percentage of their annual compensation as defined in the 401(k) Plan. Employees in the United Kingdom and Canada are covered by defined contribution savings arrangements that are administered based upon the legislative and tax requirements of the respective countries.
The Company made contributions to its employee benefit plans of $1.4 million, $2.0 million, $1.0 million, and $1.4 million for the years ended December 31, 2017 and 2018 and the six months ended June 30, 2018 and 2019 (unaudited), respectively.
Litigation
From time to time, the Company may be subject to various claims, charges, and litigation. The Company records a liability when it is both probable that a liability will be incurred and the amount of the loss can be reasonably estimated. The Company maintains insurance to cover certain actions and believes that resolution of such claims, charges, or litigation will not have a material impact on the Company's financial position, results of operations, or liquidity.
F-43
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
13. Net Income (Loss) Per Share
The following table provides a reconciliation of the numerator and denominator used in the Company's calculation of basic and diluted net income (loss) per share:
|
Year Ended | Six Months Ended June 30, |
|||||||||||
| | | | | | | | | | | | | |
|
December 31, | 2018 | 2019 |
||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | (unaudited) | (unaudited) | |||||||||
| | | | | | | | | | | | | |
|
(in thousands, except share and per share amounts) | ||||||||||||
Numerator |
|||||||||||||
Net income (loss) |
$ | 18,961 | $ | (13,446 | ) | $ | (5,756 | ) | $ | (3,123 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Denominator |
|||||||||||||
Basic shares: |
|||||||||||||
Weighted-average common stock outstanding basic |
382,258 | 382,365 | 382,364 | 382,425 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Diluted shares: |
|||||||||||||
Weighted-average common stock outstanding basic |
382,258 | 382,365 | 382,364 | 382,425 | |||||||||
Effect of potentially dilutive securities: |
|||||||||||||
RSUs |
39 | | | | |||||||||
| | | | | | | | | | | | | |
Weighted-average common stock outstanding diluted |
382,297 | 382,365 | 382,364 | 382,425 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net income (loss) per share: |
|||||||||||||
Basic |
$ | 49.60 | $ | (35.17 | ) | $ | (15.05 | ) | $ | (8.17 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Diluted |
$ | 49.60 | $ | (35.17 | ) | $ | (15.05 | ) | $ | (8.17 | ) | ||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following shares were excluded from the computation of diluted net income (loss) per share for the periods presented, as their effect would have been antidilutive:
|
Year Ended | Six Months Ended June 30, |
|||||||||||
| | | | | | | | | | | | | |
|
December 31, | 2018 | 2019 |
||||||||||
| | | | | | | | | | | | | |
|
2017 | 2018 | (unaudited) | (unaudited) | |||||||||
| | | | | | | | | | | | | |
RSUs |
| 219 | 251 | 187 | |||||||||
Stock options |
18,863 | 25,081 | 17,601 | 24,014 | |||||||||
| | | | | | | | | | | | | |
Total antidilutive shares |
18,863 | 25,300 | 17,852 | 24,201 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
F-44
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
14. Condensed Financial Information of Registrant (Parent Company Only)
Roaring Fork Holding, Inc.
(Parent Company Only)
Condensed Balance Sheets
(In thousands, except share amounts)
|
December 31, | ||||||
| | | | | | | |
|
2017 | 2018 | |||||
| | | | | | | |
Assets |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ | | $ | | |||
| | | | | | | |
Total current assets |
| | |||||
| | | | | | | |
Noncurrent assets: |
|||||||
Investment in subsidiaries |
520,680 | 509,105 | |||||
| | | | | | | |
Total noncurrent assets |
520,680 | 509,105 | |||||
| | | | | | | |
Total assets |
$ | 520,680 | $ | 509,105 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Liabilities and stockholders' equity |
|||||||
Current liabilities: |
|||||||
Current liabilities |
$ | | $ | | |||
| | | | | | | |
Total current liabilities |
| | |||||
| | | | | | | |
Noncurrent liabilities: |
|||||||
Liabilities, noncurrent |
| | |||||
| | | | | | | |
Total noncurrent liabilities |
| | |||||
| | | | | | | |
Total liabilities |
| | |||||
| | | | | | | |
Commitments and contingencies |
|||||||
Stockholders' equity: |
|||||||
Preferred stock; $0.001 par value; 200,000 shares authorized at December 31, 2017 and 2018; no shares issued or outstanding at December 31, 2017 or 2018 |
| | |||||
Common stock; $0.001 par value; 500,000 shares authorized at December 31, 2017 and 2018; 382,333 and 382,358 shares issued and outstanding at December 31, 2017 and 2018, respectively |
| | |||||
Additional paid-in capital |
513,234 | 516,044 | |||||
Accumulated other comprehensive income (loss) |
114 | (787 | ) | ||||
Retained earnings (accumulated deficit) |
7,332 | (6,152 | ) | ||||
| | | | | | | |
Total stockholders' equity |
520,680 | 509,105 | |||||
| | | | | | | |
Total liabilities and stockholders' equity |
$ | 520,680 | $ | 509,105 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-45
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
14. Condensed Financial Information of Registrant (Parent Company Only) (Continued)
Roaring Fork Holding, Inc.
(Parent Company Only)
Condensed Statements of Operations
(In thousands)
|
Year Ended December 31, |
||||||
| | | | | | | |
|
2017 | 2018 | |||||
| | | | | | | |
Revenue |
$ | | $ | | |||
Operating expenses |
| | |||||
| | | | | | | |
Income from operations |
| | |||||
Other income (expense), net |
| | |||||
| | | | | | | |
Income before income taxes and equity in net income of subsidiaries |
| | |||||
| | | | | | | |
Benefit for income taxes |
| | |||||
Equity in net income (loss) of subsidiaries |
18,961 | (13,446 | ) | ||||
| | | | | | | |
Net income (loss) |
$ | 18,961 | $ | (13,446 | ) | ||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Roaring Fork Holding, Inc.
(Parent Company Only)
Condensed Statements of Comprehensive Income (Loss)
(In thousands)
|
Year Ended December 31, |
||||||
| | | | | | | |
|
2017 | 2018 | |||||
| | | | | | | |
Net income (loss) |
$ | 18,961 | $ | (13,446 | ) | ||
Other comprehensive income (loss), net of tax: |
|||||||
Subsidiaries' other comprehensive income (loss) |
333 | (901 | ) | ||||
| | | | | | | |
Total other comprehensive income (loss) |
333 | (901 | ) | ||||
| | | | | | | |
Comprehensive income (loss) |
$ | 19,294 | $ | (14,347 | ) | ||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Basis of Presentation
Parent is a holding company with no material operations of its own that conducts substantially all of its activities through its subsidiaries. Parent has no direct outstanding debt obligations. However, Ping Identity Corporation, a wholly owned indirect subsidiary, as borrower under its 2016 Credit Facilities, is limited in its ability to declare dividends or make any payment on account of its capital stock to, directly or indirectly, fund a dividend or other distribution to the Parent, subject to limited exceptions, including (1) stock repurchases, (2) unlimited amounts subject to compliance with a 4.0 to 1.0 total leverage ratio giving pro forma effect to any distribution, (3) unlimited
F-46
Roaring Fork Holding, Inc.
Notes to Consolidated Financial Statements (Continued)
For the Years Ended December 31, 2017 and 2018 and the Six Months Ended June 30, 2018 and 2019 (unaudited)
14. Condensed Financial Information of Registrant (Parent Company Only) (Continued)
amounts up to 5% of the Parent's market capitalization and (4) payment of the Parent's overhead expenses. For a discussion of the 2016 Credit Facilities, see Note 7. Ping Identity Corporation is limited in its ability to declare dividends or make any payment on account of its capital stock to, directly or indirectly, fund a dividend or other distribution to the Parent as borrower under its 2018 Credit Facilities. For a discussion of the 2018 Credit Facilities and the associated dividend restrictions, refer to Note 7.
These condensed financial statements have been presented on a "parent-only" basis. Under a parent-only presentation, the Parent's investments in subsidiaries are presented under the equity method of accounting. A condensed statement of cash flows was not presented because the Parent has no material operating, investing, or financing cash flow activities for the year ended December 31, 2017 or 2018. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. As such, these parent-only statements should be read in conjunction with the accompanying notes to consolidated financial statements.
15. Subsequent Events
At April 1, 2019, the date at which the consolidated financial statements for the years ended December 31, 2017 and 2018 were available to be issued, the Company had not identified any material subsequent events requiring disclosure.
16. Subsequent Events (Unaudited)
In preparing the unaudited interim consolidated financial statements as of June 30, 2019 and for the six months ended June 30, 2018 and 2019, the Company has evaluated subsequent events through August [2], 2019, the date at which the unaudited interim consolidated financial statements were available to be issued. The Company has not identified any material subsequent events requiring disclosure.
F-47
Roaring Fork Holding, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
(Unaudited)
|
| December 31, 2017 |
| September 30, 2018 As Restated |
| ||||||
| | | | | | ||||||
Assets |
| | | | | | | ||||
Current assets: |
| | | | | | | ||||
Cash and cash equivalents |
| | $ | 20,969 | | | | $ | 88,554 | | |
Accounts receivable, net of allowances of $370 and $282 at December 31, 2017 and September 30, 2018, respectively |
| | 48,940 | | | | 37,922 | | | ||
Contract assets, current |
| | 46,049 | | | | 48,060 | | | ||
Deferred commissions, current |
| | 1,858 | | | | 2,652 | | | ||
Prepaid expenses and other current assets |
| | 3,644 | | | | 4,479 | | | ||
| | | | | | ||||||
Total current assets |
| | 121,460 | | | | 181,667 | | | ||
| | | | | | ||||||
Noncurrent assets: |
| | | | | | | ||||
Property and equipment, net |
| | 5,083 | | | | 4,956 | | | ||
Goodwill |
| | 401,724 | | | | 417,696 | | | ||
Intangible assets, net |
| | 225,958 | | | | 212,179 | | | ||
Contract assets, noncurrent |
| | 14,613 | | | | 15,312 | | | ||
Deferred commissions, noncurrent |
| | 4,496 | | | | 5,529 | | | ||
Deferred income taxes, net |
| | 1,711 | | | | 1,774 | | | ||
Other noncurrent assets |
| | 1,178 | | | | 1,194 | | | ||
| | | | | | ||||||
Total noncurrent assets |
| | 654,763 | | | | 658,640 | | | ||
| | | | | | ||||||
Total assets |
| | $ | 776,223 | | | | $ | 840,307 | | |
| | | | | | ||||||
| | | | | | | | | | ||
| | | | | | ||||||
Liabilities and stockholders' equity |
| | | | | | | ||||
Current liabilities: |
| | | | | | | ||||
Accounts payable |
| | $ | 1,790 | | | | $ | 1,562 | | |
Accrued expenses and other current liabilities |
| | 6,219 | | | | 6,522 | | | ||
Accrued compensation |
| | 12,470 | | | | 10,563 | | | ||
Deferred revenue, current |
| | 31,494 | | | | 27,582 | | | ||
Current portion of long-term debt |
| | | | | | 2,500 | | | ||
| | | | | | ||||||
Total current liabilities |
| | 51,973 | | | | 48,729 | | | ||
| | | | | | ||||||
Noncurrent liabilities: |
| | | | | | | ||||
Deferred revenue, noncurrent |
| | 2,316 | | | | 3,817 | | | ||
Long-term debt, net of current portion |
| | 165,206 | | | | 241,460 | | | ||
Deferred income taxes, net |
| | 35,886 | | | | 34,131 | | | ||
Other liabilities, noncurrent |
| | 162 | | | | 1,306 | | | ||
| | | | | | ||||||
Total noncurrent liabilities |
| | 203,570 | | | | 280,714 | | | ||
| | | | | | ||||||
Total liabilities |
| | 255,543 | | | | 329,443 | | | ||
| | | | | | ||||||
Commitments and contingencies (Note 11) |
| | | | | | | ||||
Stockholders' equity: |
| | | | | | | ||||
Preferred stock; $0.001 par value; 200,000 shares authorized at December 31, 2017 and September 30, 2018; no shares issued or outstanding at December 31, 2017 or September 30, 2018 |
| | | | | | | | | ||
Common stock; $0.001 par value; 500,000 shares authorized at December 31, 2017 and September 30, 2018; 382,333 and 382,358 shares issued and outstanding at December 31, 2017 and September 30, 2018, respectively |
| | | | | | | | | ||
Additional paid-in capital |
| | 513,234 | | | | 515,180 | | | ||
Accumulated other comprehensive income (loss) |
| | 114 | | | | (233 | ) | | ||
Retained earnings (accumulated deficit) |
| | 7,332 | | | | (4,083 | ) | | ||
| | | | | | ||||||
Total stockholders' equity |
| | 520,680 | | | | 510,864 | | | ||
| | | | | | ||||||
Total liabilities and stockholders' equity |
| | $ | 776,223 | | | | $ | 840,307 | | |
| | | | | | ||||||
| | | | | | | | | | ||
| | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-48
Roaring Fork Holding, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
|
Nine Months Ended September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2018 As Restated |
|||||
Revenue: |
|||||||
Subscription |
$ | 101,199 | $ | 129,057 | |||
Professional services and other |
9,414 | 13,012 | |||||
| | | | | | | |
Total revenue |
110,613 | 142,069 | |||||
Cost of revenue: |
|||||||
Subscription (exclusive of amortization shown below) |
9,980 | 12,785 | |||||
Professional services and other (exclusive of amortization shown below) |
6,361 | 9,184 | |||||
Amortization expense |
9,274 | 10,613 | |||||
| | | | | | | |
Total cost of revenue |
25,615 | 32,582 | |||||
| | | | | | | |
Gross profit |
84,998 | 109,487 | |||||
| | | | | | | |
Operating expenses: |
|||||||
Sales and marketing |
35,353 | 41,811 | |||||
Research and development |
18,879 | 26,027 | |||||
General and administrative |
14,806 | 19,490 | |||||
Depreciation and amortization |
12,380 | 12,332 | |||||
| | | | | | | |
Total operating expenses |
81,418 | 99,660 | |||||
| | | | | | | |
Income from operations |
3,580 | 9,827 | |||||
| | | | | | | |
Other income (expense): |
|||||||
Interest expense |
(14,357 | ) | (11,750 | ) | |||
Loss on extinguishment of debt |
| (9,785 | ) | ||||
Other income (expense), net |
726 | (1,043 | ) | ||||
| | | | | | | |
Total other income (expense) |
(13,631 | ) | (22,578 | ) | |||
| | | | | | | |
Loss before income taxes |
(10,051 | ) | (12,751 | ) | |||
Benefit for income taxes |
3,047 | 1,374 | |||||
| | | | | | | |
Net loss |
$ | (7,004 | ) | $ | (11,377 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net loss per share: |
|||||||
Basic and diluted |
$ | (18.32 | ) | $ | (29.75 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Weighted-average shares used in computing net loss per share: |
|||||||
Basic and diluted |
382,232 | 382,368 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements
F-49
Roaring Fork Holding, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
|
Nine Months Ended September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2018 As Restated |
|||||
Net loss |
$ | (7,004 | ) | $ | (11,377 | ) | |
Other comprehensive income (loss), net of tax: |
|||||||
Foreign currency translation adjustments |
337 | (347 | ) | ||||
| | | | | | | |
Total other comprehensive income (loss) |
337 | (347 | ) | ||||
| | | | | | | |
Comprehensive loss |
$ | (6,667 | ) | $ | (11,724 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-50
Roaring Fork Holding, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(In thousands, except share amounts)
(Unaudited)
|
Common Stock | |
Accumulated Other Comprehensive Income (Loss) |
Retained Earnings (Accumulated Deficit) |
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Additional Paid-in Capital |
Total Stockholders' Equity |
|||||||||||||||||
|
Shares | Amount | |||||||||||||||||
Balances at January 1, 2018 |
382,333 | $ | | $ | 513,234 | $ | 114 | $ | 7,332 | $ | 520,680 | ||||||||
Cumulative-effect adjustment for adoption of ASU 2016-09 |
| | 38 | | (38 | ) | | ||||||||||||
Net loss As restated |
| | | | (11,377 | ) | (11,377 | ) | |||||||||||
Stock-based compensation |
| | 1,984 | | | 1,984 | |||||||||||||
Vesting of restricted stock |
63 | | | | | | |||||||||||||
Repurchase of common stock |
(38 | ) | | (76 | ) | | | (76 | ) | ||||||||||
Foreign currency translation adjustments, net of tax |
| | | (347 | ) | | (347 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Balances at September 30, 2018 As restated |
382,358 | $ | | $ | 515,180 | $ | (233 | ) | $ | (4,083 | ) | $ | 510,864 | ||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
|
Common Stock | |
Accumulated Other Comprehensive Income (Loss) |
Retained Earnings (Accumulated Deficit) |
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Additional Paid-in Capital |
Total Stockholders' Equity |
|||||||||||||||||
|
Shares | Amount | |||||||||||||||||
Balances at January 1, 2017 |
382,226 | $ | | $ | 510,609 | $ | (219 | ) | $ | (11,629 | ) | $ | 498,761 | ||||||
Net loss |
| | | | (7,004 | ) | (7,004 | ) | |||||||||||
Stock-based compensation |
| | 1,826 | | | 1,826 | |||||||||||||
Exercise of stock options |
76 | | 101 | | | 101 | |||||||||||||
Vesting of restricted stock |
31 | | | | | | |||||||||||||
Foreign currency translation adjustments, net of tax |
| | | 337 | | 337 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Balances at September 30, 2017 |
382,333 | $ | | $ | 512,536 | $ | 118 | $ | (18,633 | ) | $ | 494,021 | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-51
Roaring Fork Holding, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
Nine Months Ended September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2018 As Restated |
|||||
Cash flows from operating activities |
|||||||
Net loss |
$ | (7,004 | ) | $ | (11,377 | ) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|||||||
Loss on extinguishment of debt |
| 9,785 | |||||
Depreciation and amortization |
21,654 | 22,945 | |||||
Stock-based compensation expense |
1,826 | 1,984 | |||||
Amortization of deferred commissions |
1,735 | 2,716 | |||||
Amortization of deferred debt issuance costs |
1,026 | 673 | |||||
Deferred taxes |
(2,709 | ) | (1,755 | ) | |||
Other |
(78 | ) | (50 | ) | |||
Changes in operating assets and liabilities: |
|||||||
Accounts receivable |
11,465 | 10,903 | |||||
Contract assets |
(7,208 | ) | (2,710 | ) | |||
Deferred commissions |
(4,205 | ) | (4,543 | ) | |||
Prepaid expenses and other current assets |
(1,020 | ) | (472 | ) | |||
Other assets |
82 | 126 | |||||
Accounts payable |
(33 | ) | 111 | ||||
Accrued compensation |
(6,641 | ) | (1,828 | ) | |||
Accrued expenses and other |
(4,603 | ) | (297 | ) | |||
Deferred revenue |
(5,159 | ) | (2,526 | ) | |||
| | | | | | | |
Net cash provided by (used in) operating activities |
(872 | ) | 23,685 | ||||
| | | | | | | |
Cash flows from investing activities |
|||||||
Purchases of property and equipment and other |
(1,922 | ) | (2,081 | ) | |||
Capitalized software development costs |
(2,686 | ) | (4,314 | ) | |||
Acquisition of Elastic Beam, net of cash acquired of $0 |
| (17,414 | ) | ||||
| | | | | | | |
Net cash used in investing activities |
(4,608 | ) | (23,809 | ) | |||
| | | | | | | |
Cash flows from financing activities |
|||||||
Payment of deferred offering costs |
| (52 | ) | ||||
Proceeds from stock option exercises |
101 | | |||||
Repurchase of common stock |
| (76 | ) | ||||
Proceeds from long-term debt |
| 250,000 | |||||
Issuance costs of long-term debt |
| (5,994 | ) | ||||
Payment of long-term debt |
| (170,625 | ) | ||||
Payment of debt extinguishment costs |
| (5,085 | ) | ||||
| | | | | | | |
Net cash provided by financing activities |
101 | 68,168 | |||||
Effect of exchange rates on cash and cash equivalents and restricted cash |
269 | (310 | ) | ||||
| | | | | | | |
Net (decrease) increase in cash and cash equivalents and restricted cash |
(5,110 | ) | 67,734 | ||||
Cash and cash equivalents and restricted cash |
|||||||
Beginning of period |
23,632 | 21,469 | |||||
| | | | | | | |
End of period |
$ | 18,522 | $ | 89,203 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Supplemental disclosures of cash flow information: |
|||||||
Cash paid for interest |
$ | 16,234 | $ | 9,646 | |||
Cash paid for taxes |
137 | 208 | |||||
Noncash investing and financing activities: |
|||||||
Purchases of property and equipment in accounts payable |
$ | 42 | $ | 52 | |||
Accruals related to the acquisition of Elastic Beam |
| 1,560 | |||||
Deferred offering costs, accrued but not yet paid |
| 367 | |||||
Reconciliation of cash and cash equivalents and restricted cash within the consolidated balance sheets to the amounts shown in the statements of cash flows above: |
|||||||
Cash and cash equivalents |
$ | 18,022 | $ | 88,554 | |||
Restricted cash included in other noncurrent assets |
500 | 649 | |||||
| | | | | | | |
Total cash and cash equivalents and restricted cash |
$ | 18,522 | $ | 89,203 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F-52
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
1. Organization and Description of Business
Roaring Fork Holding, Inc. and its wholly owned subsidiaries, referred to herein as the "Company", is headquartered in Denver, Colorado with international locations principally in Canada, Australia, the United Kingdom, Israel, and India. The Company, doing business as Ping Identity Corporation ("Ping Identity"), provides customers, employees, and partners with secure access to any service, application, or application programming interface ("API"), while also managing identity and profile data at scale.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). All amounts are reported in U.S. dollars. The Company reclassified certain immaterial amounts within the cost of revenue categories in the condensed consolidated statements of operations to conform to the presentation in the statement of operations for the year ended December 31, 2018.
Restatement of Previously Issued Unaudited Condensed Consolidated Financial Statements
In 2019, the Company identified errors in the accounting for quarterly income taxes impacting the Company's income tax provision and related tax assets and liabilities. The Company determined that these errors were material to the previously issued unaudited interim financial statements as of and for the period ended September 30, 2018. There was no impact to any previous periods or other previously issued financial statements, including the annual periods ending December 31, 2018 and 2017. These errors resulted in a correction to the unaudited condensed consolidated balance sheet at September 30, 2018 to increase tax receivable by $0.1 million, decrease income tax assets by $0.2 million, and increase deferred income tax liabilities by $3.5 million as well as a correction to the unaudited condensed consolidated statement of operations for the nine months ended September 30, 2018 to decrease the benefit for income taxes by $3.6 million. Impacts to the unaudited condensed consolidated statement of cash flows are limited to changes within cash flows from operating activities as noted below and therefore, there are no impacts on the operating, investing, or financial subtotals.
F-53
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
The impacts of these corrections to the unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2018 are as follows:
|
September 30, 2018 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
As Previously Reported |
Restatement Adjustment |
As Restated | |||||||
|
(in thousands) | |||||||||
Condensed consolidated balance sheet: |
||||||||||
Assets |
||||||||||
Prepaid expenses and other current assets |
$ | 4,428 | $ | 51 | $ | 4,479 | ||||
Deferred income taxes, net |
1,942 | (168 | ) | 1,774 | ||||||
Total assets |
840,424 | (117 | ) | 840,307 | ||||||
Liabilities and stockholders' equity |
||||||||||
Deferred income taxes, net |
30,653 | 3,478 | 34,131 | |||||||
Total liabilities |
325,965 | 3,478 | 329,443 | |||||||
Accumulated deficit |
(488 | ) | (3,595 | ) | (4,083 | ) | ||||
Total stockholders' equity |
514,459 | (3,595 | ) | 510,864 | ||||||
Total liabilities and stockholders' equity |
$ | 840,424 | $ | (117 | ) | $ | 840,307 |
|
For the Nine Months Ended September 30, 2018 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
As Previously Reported |
Restatement Adjustment |
As Restated | |||||||
|
(in thousands) | |||||||||
Condensed consolidated statement of operations: |
||||||||||
Loss before income taxes |
$ | (12,751 | ) | $ | | $ | (12,751 | ) | ||
Benefit (provision) for income taxes |
4,969 | (3,595 | ) | 1,374 | ||||||
Net loss |
$ | (7,782 | ) | $ | (3,595 | ) | $ | (11,377 | ) | |
Net loss per share basic and diluted |
$ | (20.35 | ) | $ | (9.40 | ) | $ | (29.75 | ) | |
Weighted-average shares used in computing net loss per share basic and diluted |
382,368 | | 382,368 |
F-54
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
|
For the Nine Months Ended September 30, 2018 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
As Previously Reported |
Restatement Adjustment |
As Restated | |||||||
|
(in thousands) | |||||||||
Condensed consolidated statement of comprehensive loss: |
||||||||||
Net loss |
$ | (7,782 | ) | $ | (3,595 | ) | $ | (11,377 | ) | |
Other comprehensive loss, net of tax: |
||||||||||
Foreign currency translation adjustments |
(347 | ) | | (347 | ) | |||||
Comprehensive loss |
$ | (8,129 | ) | $ | (3,595 | ) | $ | (11,724 | ) |
|
For the Nine Months Ended September 30, 2018 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
As Previously Reported |
Restatement Adjustment |
As Restated | |||||||
|
(in thousands) | |||||||||
Condensed consolidated statement of cash flows: |
||||||||||
Cash flows from operating activities |
||||||||||
Net loss |
$ | (7,782 | ) | $ | (3,595 | ) | $ | (11,377 | ) | |
Deferred taxes |
(5,401 | ) | 3,646 | (1,755 | ) | |||||
Prepaid expenses and other current assets |
(421 | ) | (51 | ) | (472 | ) | ||||
Net cash provided by operating activities |
$ | 23,685 | $ | | $ | 23,685 |
Unaudited Interim Condensed Consolidated Financial Information
The accompanying interim condensed consolidated balance sheet as of September 30, 2018, the condensed consolidated statements of operations, of comprehensive income (loss), and of cash flows for the nine months ended September 30, 2017 and 2018, the condensed consolidated statement of stockholders' equity for the nine months ended September 30, 2017 and 2018, and the related footnote disclosures are unaudited. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in management's opinion, include all adjustments necessary to state fairly the consolidated financial position of the Company as of September 30, 2018 and results of operations and cash flows for the nine months ended September 30, 2017 and 2018. The results for the nine months ended September 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018 or for any other future period.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of
F-55
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
assets and liabilities, disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, establishing allowances for doubtful accounts, determining useful lives for definite lived assets, assessing the recoverability of long lived assets (property and equipment, intangible assets, and goodwill), determining the fair values of assets acquired and liabilities assumed in business combinations, accounting for income taxes and related valuation allowances against deferred tax assets, valuing stock option awards, recognizing revenue, determining the amortization period for deferred commissions, and assessing the accounting treatment for commitments and contingencies. Management evaluates these estimates and assumptions on an ongoing basis and makes estimates based on historical experience and various other assumptions that are believed to be reasonable. Actual results may differ from these estimates.
Segment and Geographic Information
The Company operates in a single operating segment. Operating segments are defined as components of an enterprise for which discrete financial information is available and is regularly reviewed by the chief operating decision maker in order to make decisions regarding resource allocation and performance assessment. The Company has determined that its chief operating decision maker is its Chief Executive Officer. The Company's chief operating decision maker reviews the Company's financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance. Since the Company operates in one operating segment, all required financial segment information can be found in the consolidated financial statements.
Revenue by geographic region is based on the delivery address of the customer, and is summarized by geographic area as follows:
|
Nine Months Ended September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2018 | |||||
|
(in thousands) | ||||||
United States |
$ |
85,447 |
$ |
109,059 |
|||
International |
25,166 | 33,010 | |||||
| | | | | | | |
Total revenue |
$ | 110,613 | $ | 142,069 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Other than the United States, no other individual country exceeded 10% of total revenue for the nine months ended September 30, 2017 or 2018.
F-56
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
The Company's long-lived assets are composed of property and equipment, net, and are summarized by geographic area as follows:
|
December 31, 2017 |
September 30, 2018 |
|||||
---|---|---|---|---|---|---|---|
|
(in thousands) | ||||||
United States |
$ |
3,733 |
$ |
3,666 |
|||
Canada |
770 | 627 | |||||
Other international locations |
580 | 663 | |||||
| | | | | | | |
Total property and equipment, net |
$ | 5,083 | $ | 4,956 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Outside of the United States and Canada, no other individual country held greater than 10% of total long-lived assets at December 31, 2017 or September 30, 2018.
Foreign Currency
The reporting currency of the Company is the U.S. dollar. The functional currency of each subsidiary is the applicable local currency. For the subsidiary where the U.S. dollar is the functional currency, foreign currency denominated monetary assets and liabilities are remeasured into U.S. dollars at current exchange rates and foreign currency denominated nonmonetary assets and liabilities are remeasured into U.S. dollars at historical exchange rates. Transactions denominated in currencies other than the subsidiaries' functional currencies are recorded based on the exchange rates at the time such transactions arise. Resulting gains and losses are recorded in other income (expense), net in the condensed consolidated statements of operations in the period of occurrence.
The Company's foreign subsidiaries are translated from the applicable functional currency to the U.S. dollar using the average exchange rates during the reporting period, while assets and liabilities are translated at the period-end exchange rates. Resulting gains or losses from translating foreign currency are included in accumulated other comprehensive income (loss).
Cash and Cash Equivalents
Cash consists of deposits with financial institutions whereas cash equivalents primarily consist of money market funds. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable represent amounts owed to the Company by its customers that are recorded at the invoiced amount. The Company reports accounts receivable net of allowance for doubtful accounts. Management makes judgments and estimates of the probable loss related to uncollectible accounts receivable considering a number of factors including collection trends, prevailing and anticipated economic conditions, and specific customer credit risk. The Company's allowance for doubtful accounts activity has historically not been significant. Probable losses are
F-57
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
recorded in general and administrative expense in the accompanying condensed consolidated statements of operations. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents on deposit at several financial institutions as well as accounts receivable. The Company deposits cash with high-credit-quality financial institutions, which, at times, may exceed federally insured amounts. The Company invests its cash equivalents in highly-rated money market funds. Additionally, the Company performs ongoing credit evaluations of its customers' financial condition and will limit the amount of credit as deemed necessary, but currently does not require collateral from customers.
As of December 31, 2017 and September 30, 2018, no single customer represented greater than 10% of accounts receivable.
For the nine months ended September 30, 2017 and 2018, no single customer represented greater than 10% of revenue.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a three-level valuation hierarchy for the disclosure of fair value measurements. The determination of the applicable level within the hierarchy of a particular asset or liability depends on the inputs used in its valuation as of the measurement date, and notably the extent to which the inputs are market-based (observable) or internally determined (unobservable). The three levels are defined as follows:
Property and Equipment
Property and equipment are stated at historical cost less accumulated depreciation. Maintenance, repairs and minor renewals are expensed as incurred.
F-58
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
Depreciation is computed using the straight-line method based on the following estimated useful lives:
Asset Type
|
Useful Life | |
---|---|---|
Computer equipment |
3 years | |
Purchased computer software |
3 years | |
Furniture and fixtures |
3 - 5 years | |
Leasehold improvements |
Lesser of the lease term or 10 years | |
Other |
3 - 5 years |
Capitalized Software Costs
Costs for the development of new software products sold to customers and substantial enhancements to existing software products sold to customers are expensed as incurred until technological feasibility has been established, at which time any additional costs are capitalized during the development stage and until the software is generally released. The Company believes its current process for developing software will be essentially completed concurrently with the establishment of technological feasibility; hence, no costs have been capitalized to date.
For development costs related to software to be used internally, the Company follows guidance of ASC 350-40, Internal Use Software. ASC 350-40 set forth the guidance for costs incurred for computer software developed or obtained for internal use and requires companies to capitalize qualifying computer software costs that are incurred during the application development stage. These capitalized costs are included in intangible assets in the condensed consolidated balance sheets and are amortized on a straight-line basis over the expected useful life of the software, which is estimated to be between three and four years. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. For the nine months ended September 30, 2017 and 2018, the Company capitalized $2.7 million and $4.3 million, respectively, related to internal-use software costs.
The Company capitalizes the cost of software purchased from third-party vendors and has classified such costs as property and equipment in the condensed consolidated balance sheets. These costs are amortized over their useful lives, which are primarily estimated to be three years.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The Company evaluates goodwill for impairment annually in the fourth quarter of each year and as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company's test for goodwill impairment starts with a qualitative assessment to determine whether it is necessary to perform a quantitative goodwill impairment test. If qualitative factors indicate that the fair value of the reporting unit is more likely
F-59
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
than not less than its carrying amount, then a quantitative goodwill impairment test is performed. Under the quantitative impairment test, if the carrying amount of the reporting unit exceeds its fair value, then an impairment loss is recognized in an amount equal to that excess, not to exceed the total amount of goodwill. For purposes of the annual impairment test, the Company has determined it has one reporting unit. There was no impairment of goodwill recorded during the nine months ended September 30, 2017 or 2018.
Intangible Assets
Intangible assets with finite lives arising from business combinations are initially recorded at fair value and amortized over their useful lives using the straight-line method. The estimated useful life for each acquired intangible asset class is as follows:
Asset Type
|
Useful Life | |
---|---|---|
Developed technology |
4 - 9 years | |
Customer relationships |
9 - 13 years | |
Trade names |
10 years | |
Product backlog |
2 - 3 years | |
Non-compete agreements |
3 years |
The Company records acquired in-process research and development as indefinite-lived intangible assets. Purchased intangible assets with indefinite lives are not amortized but assessed for potential impairment annually and when events or circumstances indicate that their carrying amounts might be impaired. There was no impairment of indefinite-lived intangible assets recorded during the nine months ended September 30, 2017 or 2018. On completion of the related development projects, the in-process research and development assets are reclassified to developed technology and amortized over their estimated useful lives.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment and finite-lived intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Such events and changes may include significant changes in performance relative to expected operating results, significant changes in asset use, significant negative industry or economic trends, and changes in the Company's business strategy. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. There were no events or changes in circumstances that indicated the Company's long-lived assets were impaired during the nine months ended September 30, 2017 or 2018.
F-60
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
Deferred Debt Issuance Costs
Issuance costs incurred to obtain debt financing are deferred and amortized to interest expense using the effective interest method over the contractual term of the debt. Total deferred debt issuance costs incurred by the Company were $6.8 million and $6.0 million, related to the 2016 Credit Facilities and the 2018 Credit Facilities, respectively (discussed in Note 7). The carrying value of deferred debt issuance costs was $4.8 million and $5.4 million at December 31, 2017 and September 30, 2018, respectively, which is included as a reduction to long-term debt in the accompanying condensed consolidated balance sheets.
Deferred Rent
Certain of the Company's operating leases contain credits for tenant improvements, rent holidays, and rent escalation clauses. For these leases, the Company recognizes the related rent expense on a straight-line basis. The difference between the amounts charged to expense and the rent paid is recorded as deferred lease costs and amortized over the lease term.
Revenue Recognition
The Company recognizes revenue under Accounting Standards Codification Topic 606 ("ASC 606"), Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements, the Company performs the following steps:
1. Identification of the contract with a customer
The Company contracts with its customers through order forms, which in some cases are governed by master sales agreements. The Company determines that it has a contract with a customer when the order form has been approved, each party's rights regarding the products or services to be transferred can be identified, the payment terms for the products or services can be identified, the Company has determined the customer has the ability and intent to pay, and the contract has commercial substance. The Company applies judgment in determining the customer's ability and intent to pay, which is based on a variety of factors, including the customer's historical payment experience or, in the case of a new customer, credit, reputation, and financial or other information pertaining to the customer. At contract inception, the Company evaluates whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract includes more than one performance obligation.
2. Determination of whether the goods or services in a contract comprise performance obligations
Performance obligations promised in a contract are identified based on the products and services that will be transferred to the customer that are both (i) capable of being distinct, whereby the customer can benefit from a product or service either on its own or together with other
F-61
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
resources that are readily available from third parties or from the Company, and (ii) are distinct in the context of the contract, whereby the transfer of certain products or services is separately identifiable from other promises in the contract.
The Company sells its solutions through subscription-based contracts. The Company's subscriptions for solutions deployed on-premise within the customer's technology infrastructure are comprised of a term-based license and an obligation to provide support and maintenance, where the term-based license and the support and maintenance constitute separate performance obligations. The Company's SaaS subscriptions provide customers the right to access cloud-hosted software and support for the SaaS service, which the Company considers to be a single performance obligation. The Company also renews subscriptions for support and maintenance, which the Company considers to be a single performance obligation.
Professional services consist of consulting and training services. These services are distinct performance obligations from subscriptions and do not result in significant customization of the software.
3. Measurement of the transaction price
The Company determines the transaction price based on the consideration that the Company expects to receive in exchange for transferring the promised goods or services to the customer. This transaction price is exclusive of amounts collected on behalf of third parties, such as sales tax and value-added tax. The Company does not offer refunds, rebates, or credits to customers in the normal course of business, so the impact of variable consideration has not been material.
In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component. The primary purpose of the Company's invoicing terms is to provide customers with a simple and predictable way to purchase the Company's subscriptions, not to provide customers with financing.
4. Allocation of the transaction price to separate performance obligations
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on each obligation's relative standalone selling price ("SSP").
The SSP is determined based on the prices at which the Company separately sells the product, assuming the majority of these fall within a pricing range. In instances where SSP is not directly observable, such as when the Company does not sell the software license separately, the Company determines the SSP using information that may include market conditions and other observable inputs that can require significant judgment. There is typically a range of standalone selling prices for individual products and services based on a stratification of those products and
F-62
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
services by quantity and other circumstances. If one of the performance obligations is outside of the SSP range, the Company determines SSP to be the nearest endpoint of the range.
5. Recognition of revenue when or as the Company satisfies each performance obligation
Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised product or service to the customer. The Company's software subscriptions include both upfront revenue recognition when the Company transfers control of the term-based license to the customer, as well as revenue recognized ratably over the contract period for support and maintenance based on the stand-ready nature of these subscription elements. Revenue for the Company's SaaS products is recognized ratably over the contract period as the Company satisfies the performance obligation.
Professional services revenue provided on a time and materials basis is recognized as these services are performed. Revenue from training services and sponsorship fees is recognized on the date the services are complete.
The Company generates sales directly through its sales team as well as through its channel partners. Where channel partners are involved, the Company has determined that it is the principal in these arrangements. Sales to channel partners are generally made at a discount, and revenues are recorded at the discounted price once the revenue recognition criteria above have been met. In certain instances, the Company pays referral fees to its partners, which the Company has determined to be commensurate with internal sales commissions and thus records these payments as sales commissions. Channel partners generally receive an order from an end customer prior to placing an order with the Company, and payment from channel partners is not contingent on the partner's collection from end customers.
Disaggregation of Revenue
The following table presents revenue by category:
|
Nine Months Ended September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2018 | |||||
|
(in thousands) | ||||||
Subscription term-based licenses: |
|||||||
Multi-year subscription term-based licenses |
$ | 46,935 | $ | 59,077 | |||
1-year subscription term-based licenses |
26,349 | 32,118 | |||||
| | | | | | | |
Total subscription term-based licenses |
73,284 | 91,195 | |||||
Subscription SaaS and support and maintenance |
27,915 | 37,862 | |||||
Professional services and other |
9,414 | 13,012 | |||||
| | | | | | | |
Total revenue |
$ | 110,613 | $ | 142,069 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-63
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
Contract Balances
Contract assets represent amounts for which the Company has recognized revenue, pursuant to its revenue recognition policy, for contracts that have not yet been invoiced to customers where there is a remaining performance obligation, typically for multi-year arrangements. In multi-year agreements, the Company generally invoices customers on an annual basis on each anniversary of the contract start date. Amounts anticipated to be billed within one year of the balance sheet date are recorded as contract assets, current; the remaining portion is recorded as contract assets, noncurrent in the condensed consolidated balance sheets. The change in the total contract asset balance relates to entering into new multi-year contracts and billing on existing contracts.
The opening and closing balances of contract assets were as follows:
|
Nine Months Ended September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2018 | |||||
|
(in thousands) | ||||||
Beginning balance |
$ | 38,491 | $ | 60,662 | |||
Ending balance |
45,699 | 63,372 | |||||
| | | | | | | |
Change |
$ | 7,208 | $ | 2,710 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Contract liabilities consist of customer billings in advance of revenue being recognized. The Company primarily invoices its customers for subscription arrangements annually in advance, though certain contracts require invoicing for the entire subscription in advance. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue, current; the remaining portion is recorded as deferred revenue, noncurrent in the condensed consolidated balance sheets.
The opening and closing balances of contract liabilities included in deferred revenue were as follows:
|
Nine Months Ended September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2018 | |||||
|
(in thousands) | ||||||
Beginning balance |
$ | 27,606 | $ | 33,810 | |||
Ending balance |
22,447 | 31,399 | |||||
| | | | | | | |
Change |
$ | (5,159 | ) | $ | (2,411 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-64
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
The change in deferred revenue relates primarily to invoicing customers and recognizing revenue in conjunction with the satisfaction of performance obligations. Revenue recognized during the nine months ended September 30, 2017 and 2018 that was included in the deferred revenue balances at the beginning of the respective periods was as follows:
|
Nine Months Ended September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2018 | |||||
|
(in thousands) | ||||||
Deferred revenue recognized as revenue |
$ | 23,675 | $ | 26,753 |
Remaining Performance Obligations
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and noncancelable amounts to be invoiced. As of December 31, 2017 and September 30, 2018, the Company had $81.3 million and $80.0 million of transaction price allocated to remaining performance obligations, respectively, of which 88% is expected to be recognized as revenue over the next 24 months, with the remainder to be recognized thereafter.
Deferred Commissions
Sales commissions earned by the Company's internal and external sales force are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions for new contracts and additional sales to existing customers, are deferred and recorded in deferred commissions, current and noncurrent in the Company's condensed consolidated balance sheets. Deferred commissions are amortized over the period of benefit, which the Company has determined to be generally four years. The Company determined the period of benefit by taking into consideration its customer contracts, its technology, and other factors. Deferred commissions are amortized consistent with the pattern of revenue recognition for each performance obligation for contracts for which the commissions were earned. The Company includes amortization of deferred commissions in sales and marketing expense in the condensed consolidated statements of operations. The Company periodically reviews the carrying amount of deferred commissions to determine whether events or changes in circumstances have occurred that could impact the period of benefit of these deferred costs. The Company did not recognize an impairment of deferred commissions during the nine months ended September 30, 2017 or 2018.
F-65
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
The following table summarizes the account activity of deferred commissions for the nine months ended September 30, 2017 and 2018:
|
Nine Months Ended September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2018 | |||||
|
(in thousands) | ||||||
Beginning balance |
$ |
2,121 |
$ |
6,354 |
|||
Additions to deferred commissions |
4,205 | 4,543 | |||||
Amortization of deferred commissions |
(1,735 | ) | (2,716 | ) | |||
| | | | | | | |
Ending balance |
$ | 4,591 | $ | 8,181 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Deferred commissions, current |
$ | 1,405 | $ | 2,652 | |||
Deferred commissions, noncurrent |
3,186 | 5,529 | |||||
| | | | | | | |
Total deferred commissions |
$ | 4,591 | $ | 8,181 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Research and Development
Research and development costs include direct and allocated expenses. Other than software development costs that qualify for capitalization, as discussed above, research and development costs are expensed as incurred.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense is included within sales and marketing expense in the consolidated statements of operations. For the nine months ended September 30, 2017 and 2018, advertising expenses were $0.9 million and $0.8 million, respectively.
Stock-Based Compensation
Stock-based compensation expense for time-based awards is determined based on the grant-date fair value, net of forfeitures, and is recognized on a straight-line basis over the requisite service period of the award, which is typically the vesting term of the award. Prior to the adoption of ASU 2016-09 on January 1, 2018, the Company estimated the forfeiture rate annually using its historical experience of forfeited awards. The Company then adjusted for actual forfeitures at each vesting date. After the adoption of ASU 2016-09, forfeitures are accounted for as they occur.
Stock-based compensation expense for awards subject to both performance and market conditions is determined based on the grant-date fair value and is recognized on a graded vesting basis over the term of the award once it is probable that the performance conditions will be met.
F-66
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
The fair value of each time-based option grant is estimated on the date of the grant using the Black-Scholes option pricing model. For awards subject to performance and market conditions, the Company uses a Monte Carlo simulation model, which utilizes multiple inputs to estimate the probability that market conditions will be achieved. Both models require highly subjective assumptions as inputs, including the following:
The following assumptions were used for time-based options granted during the nine months ended September 30, 2017 and 2018:
|
Nine Months Ended September 30, |
|||
---|---|---|---|---|
|
2017 | 2018 | ||
Risk-free rate |
2.0% - 2.2% | 2.7% - 3.0% | ||
Expected term |
6.1 years | 6.1 years | ||
Dividend yield |
| | ||
Volatility |
38% - 42% | 39% - 41% | ||
Weighted-average grant date fair value of options granted during period |
$583.36 | $744.91 |
F-67
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
The following assumptions were used for awards subject to performance and market conditions that were granted during the nine months ended September 30, 2017 and 2018:
|
Nine Months Ended September 30, |
|||
---|---|---|---|---|
|
2017 | 2018 | ||
Risk-free rate |
1.5% - 1.9% | 2.5% - 2.7% | ||
Expected term |
3.8 - 4.5 years | 1.8 - 3.3 years | ||
Dividend yield |
| | ||
Volatility |
57% - 62% | 45% - 55% | ||
Weighted-average grant date fair value of options granted during period |
$388.74 | $361.80 |
The Company calculates the fair value for restricted stock units ("RSUs") based on the estimated fair value of the Company's common stock on the date of grant and records compensation expense over the vesting period using a straight-line method. Prior to the adoption of ASU 2016-09, the Company factored an estimated forfeiture rate in calculating compensation expense on RSUs and adjusted for actual forfeitures upon the vesting of each tranche of RSUs. After the adoption of ASU 2016-09, forfeitures are accounted for as they occur.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statement basis and the income tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. The Company's temporary differences result primarily from net operating losses, stock compensation, deferred revenue, intangible assets, and accrued expenses. Deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to the years in which the differences are expected to affect taxable income. A valuation allowance is established when necessary to reduce deferred income tax assets to the amounts expected to be realized.
The Company evaluates the tax positions taken or expected to be taken in the course of preparing the Company's tax returns to determine whether the tax positions are more likely than not of being sustained by the applicable tax authority. Tax positions not deemed to meet the more likely than not threshold would not be recorded as a tax benefit or expense in the current year. Interest and penalties related to income tax liabilities are included in the benefit (provision) for income taxes.
Deferred Offering Costs
Deferred offering costs are capitalized and consist of fees incurred in connection with the anticipated sale of common stock in an initial public offering ("IPO") and include legal, accounting, printing, and other IPO-related costs. Upon completion of an IPO, these deferred costs will be
F-68
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
reclassified to stockholders' equity and recorded against the proceeds from the offering. In the event an IPO is terminated, the deferred offering costs would be expensed in the period of termination as a charge to operating expenses in the consolidated statements of operations.
The balance of deferred offering costs included within prepaid expenses and other current assets at September 30, 2018 was $0.4 million. As of December 31, 2017, the Company had not incurred such costs.
Net Income Per Share
Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period, plus the dilutive effects of RSUs and stock options. Dilutive shares of common stock are determined by applying the treasury stock method.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which supersedes the guidance in topic ASC 840, Leases. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 942, Leases, and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which affect certain aspects of the previously issued guidance. Amendments include an additional transition method that allows entities to apply the new standard on the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings, as well as a new practical expedient for lessors. The new leasing guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. While the Company is currently determining its implementation approach and assessing the impact on its condensed consolidated financial statements and related disclosures, the Company expects that the majority of its operating lease commitments will increase total assets and total liabilities on its condensed consolidated balance sheet upon adoption.
In March 2016, the FASB issued ASU No. 2016-09, Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"), which aligns with the FASB's current simplification initiatives. The major areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and
F-69
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
classification on the statement of cash flows. Specifically, ASU 2016-09 has introduced updates to minimum statutory tax withholding requirements, policy elections surrounding forfeitures, expected term, intrinsic values, and changes to the classification of certain share-based payment related transactions on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018, though early adoption is permitted. Effective January 1, 2018, the Company adopted ASU 2016-09 for the fiscal year as well as the interim periods within the fiscal year. The new guidance allows entities to make an election to account for forfeitures as they occur, which the Company adopted on a modified retrospective basis. An adjustment of $38.0 thousand was made to decrease retained earnings in the period of adoption for the cumulative prior years' impact. The adoption of the remaining provisions of ASU 2016-09 did not have a significant impact on the Company's condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, though early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on its condensed consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classifications of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), which addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 addresses eight specific cash flow issues with the intention of reducing the existing diversity in practice. The amendments are effective for fiscal years beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019, though early adoption is permitted. Effective January 1, 2017, the Company adopted ASU 2016-15. There was no material impact to the Company's condensed consolidated financial statements except that after adoption, the Company included cash payments for debt prepayment and debt extinguishment costs as cash outflows for financing activities.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"), which requires entities to show the changes in total of cash, cash equivalents, restricted cash, and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 as well as the interim periods within those years, and is applied retrospectively when adopted. Early adoption is permitted, and the Company elected to early adopt ASU 2016-18 effective January 1, 2017. Upon adoption, the Company has included restricted cash with cash and cash equivalents on its condensed consolidated statements of cash flows and has excluded changes in restricted cash from net cash used in operating activities.
F-70
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business ("ASU 2017-01"), which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The new guidance is effective for fiscal years beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. The impact to the Company's condensed consolidated financial statements will depend on the facts and circumstances of any specific future transaction.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"), which simplifies how companies test goodwill for impairment. Under the new guidance, entities are no longer required to perform Step 2 of the impairment test, where a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of the goodwill. Instead, if the carrying amount of a reporting unit exceeds its fair value, then an impairment loss is recognized in the amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. This guidance is effective for fiscal years beginning after December 15, 2020, though early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted this standard effective October 1, 2017, and the adoption did not have a material effect on its condensed consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation Stock Compensation (Topic 718): Scope of Modification Accounting ("ASU 2017-09"), which clarifies which changes to the terms or conditions of a share-based payment award are subject to the guidance on modification accounting. Upon adoption, entities shall apply the modification guidance to any changes to the terms or conditions of a share-based payment award unless the fair value, vesting conditions, and classification of a modified award are the same immediately before and after the modification. The amendments in this guidance are effective for all entities for annual periods beginning after December 15, 2017, including interim periods therein, and should be applied prospectively to an award modified on or after the adoption date. Effective January 1, 2018, the Company adopted ASU 2017-09 for the fiscal year and the interim periods within the fiscal year. Since the Company does not regularly modify the terms and conditions of its share-based payment awards, the adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ("ASU 2018-02"), which provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. For all entities, it is effective for fiscal years beginning after December 15, 2018, and interim periods therein, though early adoption is permitted. The amendments in ASU 2018-02 should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The adoption of
F-71
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
2. Summary of Significant Accounting Policies (Continued)
ASU 2018-02 is not expected to have a material impact on the Company's condensed consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Compensation Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"), which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. ASU 2018-07 is effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020, though early adoption is permitted. Effective January 1, 2018, the Company adopted ASU 2018-07 for the fiscal year and the interim periods within the fiscal year, and the adoption did not have a material impact on the Company's condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"), which improves the disclosure requirements for fair value measurements. The updated guidance is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods therein. Early adoption is permitted. Further, an entity is permitted to early adopt any removed or modified disclosures upon the issuance of ASU 2018-13 while delaying the adoption of the additional disclosures until their effective date. The Company is currently assessing the impact of adopting the updated provisions on its condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"), which requires implementation costs incurred by customers in a cloud computing arrangement to be deferred over the noncancelable term of the cloud computing arrangement plus any optional renewal periods that (1) are reasonably certain to be exercised by the customer, or (2) for which exercise of the renewal option is controlled by the cloud service provider. The effective date of this pronouncement is for fiscal years beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021, though early adoption is permitted. The Company is currently evaluating the impact of this pronouncement on its condensed consolidated financial statements.
3. Fair Value of Financial Instruments
The Company invests primarily in money market funds, which are measured and recorded at fair value on a recurring basis and are classified within Level 1 of the fair value hierarchy because
F-72
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
3. Fair Value of Financial Instruments (Continued)
they are valued based on quoted market prices in active markets. The fair value of these financial instruments were as follows:
|
December 31, 2017 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
|
(in thousands) | ||||||||||||
Cash and cash equivalents: |
|||||||||||||
Money market funds |
$ | 789 | $ | | $ | | $ | 789 |
|
September 30, 2018 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
|
(in thousands) | ||||||||||||
Cash and cash equivalents: |
|||||||||||||
Money market funds |
$ | 67,585 | $ | | $ | | $ | 67,585 |
The carrying amounts of the Company's accounts receivable, accounts payable, and other current liabilities approximate their fair values due to their short maturities. The carrying value of the Company's long-term debt approximates its fair value based on Level 2 inputs as the principal amounts outstanding are subject to variable interest rates that are based on market rates (see Note 7).
4. Property and Equipment
Property and equipment consisted of the following:
|
December 31, 2017 |
September 30, 2018 |
|||||
---|---|---|---|---|---|---|---|
|
(in thousands) | ||||||
Computer equipment |
$ | 2,258 | $ | 3,042 | |||
Furniture and fixtures |
1,546 | 1,946 | |||||
Purchased computer software |
950 | 950 | |||||
Leasehold improvements |
2,627 | 2,858 | |||||
Other |
363 | 363 | |||||
| | | | | | | |
Property and equipment, gross |
7,744 | 9,159 | |||||
Less: Accumulated depreciation |
(2,661 | ) | (4,203 | ) | |||
| | | | | | | |
Property and equipment, net |
$ | 5,083 | $ | 4,956 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Depreciation expense for the nine months ended September 30, 2017 and 2018 was $1.4 million and $1.6 million, respectively.
F-73
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
5. Business Combinations
Elastic Beam Inc. Acquisition
On April 5, 2018, Ping Identity Corporation acquired 100% of the voting equity interest in Elastic Beam Inc., a Delaware Corporation ("Elastic Beam"). Elastic Beam is a machine learning/artificial intelligence API behavioral security software which detects, reports, and stops cyberattacks on data and applications via APIs. The purpose of this acquisition was to expand the Company's capabilities in identity security, particularly with regard to artificial intelligence.
The total purchase price was $19.0 million, which includes up-front cash consideration of $17.4 million that was funded with existing cash resources, and $1.6 million, of which $1.1 million and $0.5 million is payable on the first and second anniversary of the acquisition, respectively.
$4.8 million and $4.2 million of contingent compensation is payable on the first and second anniversary of the acquisition, contingent on certain individuals remaining employed as of those dates. As these payments are subject to the continued employment of those individuals, they will be recognized through compensation expense as incurred.
The following table summarizes the allocation of the purchase price, based on the estimated fair value of the assets acquired and liabilities assumed at the acquisition date:
|
April 5, 2018 | Useful Life | |||
---|---|---|---|---|---|
|
(in thousands) | ||||
Fair value of net assets acquired |
|||||
In process research and development |
$ | 3,006 | Indefinite | ||
Goodwill |
15,972 | Indefinite | |||
Deferred tax asset |
108 | ||||
Other assets |
3 | ||||
| | | | | |
Total assets acquired |
19,089 | ||||
| | | | | |
Deferred revenue |
(115 | ) | |||
| | | | | |
Total liabilities assumed |
(115 | ) | |||
| | | | | |
Net assets acquired |
$ | 18,974 | |||
| | | | | |
| | | | | |
| | | | | |
Goodwill is primarily attributable to the workforce acquired and the expected synergies arising from integrating Elastic Beam's behavioral security software with the Company's existing security platform. None of the goodwill is deductible for tax purposes. The Company incurred $0.6 million of acquisition related expenses in conjunction with the Elastic Beam acquisition which are included in general and administrative expenses on the consolidated statements of operations for the nine months ended September 30, 2018.
Additional Acquisition Related Information
The operating results of Elastic Beam are included in the Company's consolidated statements of operations from the date of acquisition. Revenue and earnings of Elastic Beam since the date of
F-74
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
5. Business Combinations (Continued)
acquisition and pro forma results of operations have not been prepared because the effect of the acquisition was not material to the consolidated statements of operations.
Additional information, such as that related to income tax and other contingencies, existing as of the acquisition date but unknown to the Company may become known during the remainder of the measurement period, not to exceed one year from the acquisition date, which may result in changes to the amounts and allocations recorded.
6. Goodwill and Intangible Assets
The changes in the carrying amount of the Company's goodwill balance were as follows:
|
December 31, 2017 |
September 30, 2018 |
|||||
---|---|---|---|---|---|---|---|
|
(in thousands) | ||||||
Beginning balance |
$ | 401,724 | $ | 401,724 | |||
Additions to goodwill related to acquisitions |
| 15,972 | |||||
| | | | | | | |
Ending balance |
$ | 401,724 | $ | 417,696 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company's intangible assets as of December 31, 2017 were as follows:
|
December 31, 2017 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Gross Amount | Accumulated Amortization |
Net Carrying Value |
|||||||
|
(in thousands) | |||||||||
Developed technology |
$ | 104,932 | $ | (17,120 | ) | $ | 87,812 | |||
Customer relationships |
94,875 | (11,199 | ) | 83,676 | ||||||
Trade names |
56,436 | (8,441 | ) | 47,995 | ||||||
Product backlog |
2,185 | (1,547 | ) | 638 | ||||||
Capitalized internal-use software |
5,112 | (1,043 | ) | 4,069 | ||||||
Non-compete agreements |
1,224 | (606 | ) | 618 | ||||||
Other intangible assets |
716 | (152 | ) | 564 | ||||||
| | | | | | | | | | |
Total intangible assets subject to amortization |
265,480 | (40,108 | ) | 225,372 | ||||||
In-process research and development |
586 | | 586 | |||||||
| | | | | | | | | | |
Total intangible assets |
$ | 266,066 | $ | (40,108 | ) | $ | 225,958 | |||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
F-75
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
6. Goodwill and Intangible Assets (Continued)
The Company's intangible assets as of September 30, 2018 were as follows:
|
September 30, 2018 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Gross Amount | Accumulated Amortization |
Net Carrying Value |
|||||||
|
(in thousands) | |||||||||
Developed technology |
$ | 107,938 | $ | (26,227 | ) | $ | 81,711 | |||
Customer relationships |
94,875 | (16,826 | ) | 78,049 | ||||||
Trade names |
56,436 | (12,673 | ) | 43,763 | ||||||
Product backlog |
2,185 | (2,091 | ) | 94 | ||||||
Capitalized internal-use software |
9,426 | (2,452 | ) | 6,974 | ||||||
Non-compete agreements |
1,224 | (912 | ) | 312 | ||||||
Other intangible assets |
973 | (283 | ) | 690 | ||||||
| | | | | | | | | | |
Total intangible assets subject to amortization |
273,057 | (61,464 | ) | 211,593 | ||||||
In-process research and development |
586 | | 586 | |||||||
| | | | | | | | | | |
Total intangible assets |
$ | 273,643 | $ | (61,464 | ) | $ | 212,179 | |||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Amortization expense for the nine months ended September 30, 2017 and 2018 was $20.2 million and $21.4 million, respectively. During the nine months ended September 30, 2017 and 2018, $3.0 million of in-process research and development was reclassified to developed technology when ready for intended use.
As of September 30, 2018, expected amortization expense for intangible assets subject to amortization for the next five years is as follows:
Year Ending December 31,
|
September 30, 2018 |
|||
---|---|---|---|---|
|
(in thousands) |
|||
2018 (remaining three months) |
$ | 7,213 | ||
2019 |
28,598 | |||
2020 |
28,255 | |||
2021 |
27,470 | |||
2022 |
25,616 | |||
Thereafter |
94,441 | |||
| | | | |
Total |
$ | 211,593 | ||
| | | | |
| | | | |
| | | | |
F-76
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
7. Debt
In 2016, the Company entered into new credit facilities with a consortium of lenders comprised of (a) a term loan in an initial principal amount of $150.0 million, which was borrowed on June 30, 2016 and subsequently increased on August 3, 2016 by $20.0 million (the "2016 Term Loan"), and (b) a revolving line of credit in a principal committed amount of $10.0 million (the "2016 Revolver" and, collectively with the 2016 Term Loan, the "2016 Credit Facilities"). The 2016 Credit Facilities mature on June 30, 2021.
The principal amount of the 2016 Term Loan is payable at the maturity date. The 2016 Term Loan bears interest at the option of the Company at a rate per annum equal to (a) an adjusted LIBO rate (with a floor of 1.00% per annum) plus an applicable margin of 9.25%, payable on the last day of the applicable interest period applicable thereto, or (b) the alternate base rate (with a floor of 2.00% per annum) plus an applicable margin of 8.25%, payable quarterly in arrears the last business day of each March, June, September, and December. The initial 2016 Term Loans were borrowed as LIBO rate loans.
In conjunction with the 2016 Credit Facilities, the Company was required to comply with various financial debt covenants, including a recurring revenue leverage ratio of 2.1 to 1.0 beginning September 30, 2016 and decreasing quarterly to 1.3 to 1.0 on September 30, 2018, and a total leverage ratio of 8.3 to 1.0 beginning December 31, 2018 and decreasing quarterly to 2.4 to 1.0 on and after June 30, 2021. As of December 31, 2017, the Company was in compliance with all financial covenants.
In 2018, the Company refinanced its outstanding debt. In connection with the refinancing, the Company entered into new credit facilities with a consortium of lenders comprised of (a) a term loan with a principal amount of $250.0 million (the "2018 Term Loan"), and (b) a revolving line of credit in a principal committed amount of $25.0 million (the "2018 Revolver" and, collectively with the 2018 Term Loan, the "2018 Credit Facilities"). The 2018 Term Loan and 2018 Revolver mature on January 25, 2025 and January 25, 2023, respectively. Borrowings under the 2018 Credit Facilities are collateralized by substantially all of the assets of the Company.
There are no significant financial covenants to which the Company must comply in relation to the 2018 Term Loan. The wholly owned indirect subsidiary, Ping Identity Corporation, as borrower under the 2018 Credit Facilities, is limited to declare dividends or make any payment on account of its capital stock to, directly or indirectly, fund a dividend or other distribution to Roaring Fork Holding, Inc. (the "Parent"), subject to limited exceptions, including (1) stock repurchases in an amount not to exceed the greater of $1.5 million per year or 3.75% of consolidated EBITDA, with any unused amount being carried forward to future periods, (2) unlimited amounts subject to compliance with a 4.25 to 1.00 total leverage ratio giving pro forma effect to any distribution, (3) unlimited amounts up to 7% of the Parent's market capitalization and (4) payment of the Parent's overhead expenses.
In conjunction with entering into the 2018 Credit Facilities, the Company paid all remaining balances of the 2016 Term Loan and terminated the 2016 Revolver, which resulted in a loss on extinguishment of debt of $9.8 million, included in the condensed consolidated statements of operations for the nine months ended September 30, 2018.
F-77
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
7. Debt (Continued)
Beginning September 2018, 0.25% of the principal amount of the 2018 Term Loan is payable quarterly. The 2018 Term Loan bears interest at the option of the Company at a rate per annum equal to (a) an adjusted LIBO rate (with a floor of 1.00% per annum) plus an applicable margin of 3.75%, payable on the last day of the applicable interest period applicable thereto ("Eurodollar" loan), or (b) the alternate base rate (with a floor of 2.00% per annum) plus an applicable margin of 2.75%, payable quarterly in arrears the last business day of each March, June, September, and December. The 2018 Term Loan was borrowed as a Eurodollar loan.
The Company recognized $13.3 million and $11.1 million in interest expense in the nine months ended September 30, 2017 and 2018, respectively.
As of December 31, 2017 and September 30, 2018, the Company's outstanding long-term debt balance was $165.2 million and $241.5 million, respectively (net of the current portion of long-term debt of $0.0 million and $2.5 million, and debt issuance costs of $4.8 million and $5.4 million, respectively), which was included in long-term debt. Debt issuance costs are a direct deduction from the long-term debt liability and are amortized into interest expense over the contractual term of the borrowings using the effective interest method. During the nine months ended September 30, 2017 and 2018, the Company amortized $1.0 million and $0.7 million of debt issuance costs, respectively.
Future principal payments on outstanding borrowings as of September 30, 2018 are as follows:
Year Ending December 31,
|
September 30, 2018 | |||
---|---|---|---|---|
|
(in thousands) | |||
2018 (remaining three months) |
$ | 625 | ||
2019 |
2,500 | |||
2020 |
2,500 | |||
2021 |
2,500 | |||
2022 |
2,500 | |||
Thereafter |
238,750 | |||
| | | | |
Total |
$ | 249,375 | ||
| | | | |
| | | | |
| | | | |
8. Stockholders' Equity
On June 30, 2016, the Board of Directors and stockholders approved the Second Amended and Restated Certificate of Incorporation authorizing the Company to issue up to 500,000 shares of common stock and 200,000 shares of preferred stock, each with a par value of $0.001 per share.
Common stock
The Company's Second Amended and Restated Certificate of Incorporation authorizes issuance of 500,000 shares of common stock with a par value of $0.001 per share. The common stock confers upon its holders the right to vote on all matters to be voted on by the stockholders of
F-78
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
8. Stockholders' Equity (Continued)
the Company (with each share representing one vote) and to ratably participate in any distribution of dividends or payments in the event of liquidation or dissolution on a per share basis. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future.
Preferred stock
The Company is authorized, without stockholder approval but subject to any limitations prescribed by law, to issue up to an aggregate of 200,000 shares of preferred stock (in one or more series or classes), to create additional series or classes of preferred stock, and to establish the number of shares to be included in such series or class. The Board of Directors is also authorized to increase or decrease the number of shares of any series or class subsequent to the issuance of shares of that series or class. Each series will have such rights, preferences and limitations, including voting rights, dividend rights, conversion rights, redemption privileges, and liquidation preferences as determined by the Board of Directors. As of December 31, 2017 and September 30, 2018, the Company did not have any shares of preferred stock outstanding and currently has no plans to issue shares of preferred stock.
9. Stock-Based Compensation
On June 30, 2016, Roaring Fork Holding, Inc. established the 2016 Stock Option Plan ("2016 Plan"). The 2016 Plan provides for grants of restricted stock units and stock options to executives, directors, consultants, advisors, and key employees which allow option holders to purchase stock in Roaring Fork Holding, Inc. Roaring Fork Holding, Inc. has 40,000 shares of common stock reserved for issuance under the 2016 Plan.
Stock-based compensation expense for all equity arrangements for the nine months ended September 30, 2017 and 2018 was as follows:
|
Nine Months Ended September 30, |
||||||
---|---|---|---|---|---|---|---|
|
2017 | 2018 | |||||
|
(in thousands) | ||||||
Sales and marketing |
$ |
446 |
$ |
535 |
|||
Research and development |
225 | 184 | |||||
General and administrative |
1,155 | 1,265 | |||||
| | | | | | | |
Total |
$ | 1,826 | $ | 1,984 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-79
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
9. Stock-Based Compensation (Continued)
Restricted Stock Units
The Company grants RSUs that vest annually over one to four years. The weighted-average grant-date fair value of RSUs granted during the nine months ended September 30, 2018 was $1,596. The total intrinsic value of RSUs vested during the nine months ended September 30, 2018 was $0.1 million. As of December 31, 2017 and September 30, 2017 and 2018, there was $0.2 million, $0.3 million, and $0.2 million, respectively, of total unrecognized compensation, which will be recognized over the remaining weighted-average vesting periods of 2.8 years, 3.1 years, and 1.7 years, respectively, using the straight-line method. A summary of the status of the Company's unvested RSUs and activity for the nine months ended September 30, 2018 is as follows:
|
Shares | Weighted Average Grant Date Fair Value |
|||||
---|---|---|---|---|---|---|---|
Unvested as of January 1, 2018 |
219 | $ | 1,333 | ||||
Granted |
63 | 1,596 | |||||
Forfeited/canceled |
| | |||||
Vested |
(63 | ) | 1,333 | ||||
| | | | | | | |
Unvested as of September 30, 2018 |
219 | $ | 1,409 | ||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Stock Options
During the nine months ended September 30, 2018, the Company granted 4,193 time-based options and 2,097 options subject to performance and market conditions, both of which grant the holder the option to purchase common stock upon vesting. Time-based options vest over four years with 25% vesting one year after grant and the remainder vesting ratably on a quarterly basis thereafter. Options subject to performance and market conditions vest upon the sale of the business subject to certain conditions specified in the 2016 Plan. An option holder must be an employee of the Company at the date of sale of the business.
F-80
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
9. Stock-Based Compensation (Continued)
A summary of the Company's stock option activity and related information is as follows:
|
Options | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term |
Aggregate Intrinsic Value |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
(in years) | (in thousands) | |||||||||||
Outstanding January 1, 2018 |
28,333 | $ | 1,342 | 8.7 | $ | 2,849 | |||||||
Granted |
6,290 | 1,876 | | ||||||||||
Forfeited/canceled |
(3,162 | ) | 1,333 | 493 | |||||||||
Exercised |
| | | ||||||||||
| | | | | | | | | | | | | |
Outstanding September 30, 2018 |
31,461 | $ | 1,449 | 8.4 | $ | 21,202 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
As of September 30, 2018 |
|||||||||||||
Vested and expected to vest |
20,961 | $ | 1,450 | 8.4 | $ | 14,124 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Vested and exercisable |
8,303 | $ | 1,338 | 7.9 | $ | 6,519 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
All options have a 10 year contractual life. As of December 31, 2017 and September 30, 2017 and 2018, unamortized stock-based compensation expense related to the time-based awards was $7.2 million, $7.8 million, and $7.7 million, respectively, which will be recognized over the respective remaining weighted-average vesting terms of 2.8 years, 3.0 years, and 2.8 years. As of December 31, 2017 and September 30, 2017 and 2018, the awards subject to performance and market conditions were not considered probable of meeting vesting requirements, and accordingly, no expense was recorded. For these awards, unrecognized stock-based compensation expense as of December 31, 2017 and September 30, 2017 and 2018 was $4.2 million, $4.2 million, and $4.5 million, respectively. As the awards were not probable of meeting vesting requirements, the timing of when this expense will be recognized is unknown.
10. Related Party Transactions
Vista Equity Partners ("Vista") is a U.S.-based investment firm that controls the funds which own a majority of the Company. During the nine months ended September 30, 2017 and 2018, the Company paid for consulting services and other expenses related to services provided by Vista and Vista affiliates. The total expenses incurred by the Company for Vista were $0.8 million and $0.9 million for the nine months ended September 30, 2017 and 2018, respectively.
The Company also has revenue arrangements with Vista affiliates. The Company recognized revenue of $0.7 million and $1.7 million in the nine months ended September 30, 2017 and 2018, respectively. The Company had $1.0 million and $0.1 million in accounts receivable related to these agreements at December 31, 2017 and September 30, 2018, respectively.
F-81
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
10. Related Party Transactions (Continued)
As discussed in Note 7, the Company entered into the 2018 Term Loan and 2018 Revolver on January 25, 2018 with a consortium of lenders for a principal amount of $250.0 million and principal committed amount of $25.0 million, respectively. At September 30, 2018, affiliates of Vista held $34.9 million of the 2018 Term Loan and there were no amounts drawn on the 2018 Revolver.
11. Commitments and Contingencies
Letters of Credit
As of December 31, 2017 and September 30, 2018, the Company had outstanding letters of credit under an office lease agreement that totaled $0.5 million and $0.6 million, respectively, which primarily guaranteed early termination fees in the event of default. The Company collateralizes the letters of credit with restricted cash balances which were classified in other noncurrent assets at December 31, 2017 and September 30, 2018.
Leases
The Company leases office space and certain office equipment under noncancelable leases. Most of the leases contain renewal options at then market rates.
At September 30, 2018, future minimum lease payments under the existing leases were as follows:
Year Ending December 31, |
September 30, 2018 |
|||
|
(in thousands) | |||
2018 (remaining three months) |
$ | 695 | ||
2019 |
2,252 | |||
2020 |
2,846 | |||
2021 |
2,429 | |||
2022 |
2,325 | |||
Thereafter |
7,291 | |||
| | | | |
Total |
$ | 17,838 | ||
| | | | |
| | | | |
| | | | |
Rent expense under noncancelable operating leases totaled $1.5 million and $1.8 million for the nine months ended September 30, 2017 and 2018, respectively.
Employment Agreements
The Company has entered into various employment agreements with certain officers and foreign-based employees. The employment agreements provide for minimum annual base salaries, allowances for benefits and insurance coverage, termination rights, and other provisions commonly found in such agreements. Under the terms of the employment agreements, the officers and
F-82
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
11. Commitments and Contingencies (Continued)
employees are subject to noncompete provisions, as defined. Terms of the employment agreements vary and may be extended.
Employee Benefit Plans
The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code (the "401(k) Plan") in which full-time U.S. employees are eligible to participate on the first day of the subsequent month of his or her date of employment. The 401(k) Plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a percentage of their annual compensation as defined in the 401(k) Plan. Employees in the United Kingdom and Canada are covered by defined contribution savings arrangements that are administered based upon the legislative and tax requirements of the respective countries.
The Company made contributions to its employee benefit plans of $1.1 million and $1.4 million for the nine months ended September 30, 2017 and 2018, respectively.
Litigation
From time to time, the Company may be subject to various claims, charges, and litigation. The Company records a liability when it is both probable that a liability will be incurred and the amount of the loss can be reasonably estimated. The Company maintains insurance to cover certain actions and believes that resolution of such claims, charges, or litigation will not have a material impact on the Company's financial position, results of operations, or liquidity.
F-83
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
12. Net Loss Per Share
The following table provides a reconciliation of the numerator and denominator used in the Company's calculation of basic and diluted net income (loss) per share:
|
Nine Months Ended September 30, |
||||||
| | | | | | | |
|
2017 | 2018 As Restated |
|||||
| | | | | | | |
|
(in thousands, except share and per share amounts) |
||||||
Numerator |
|||||||
Net loss |
$ | (7,004 | ) | $ | (11,377 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Denominator |
|||||||
Basic shares: |
|||||||
Weighted-average common stock outstanding basic |
382,232 | 382,368 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Diluted shares: |
|||||||
Weighted-average common stock outstanding basic |
382,232 | 382,368 | |||||
Effect of potentially dilutive securities: |
|||||||
RSUs |
| | |||||
| | | | | | | |
Weighted-average common stock outstanding diluted |
382,232 | 382,368 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net loss per share: |
|||||||
Basic |
$ | (18.32 | ) | $ | (29.75 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Diluted |
$ | (18.32 | ) | $ | (29.75 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The following shares were excluded from the computation of diluted net loss per share for the periods presented, as their effect would have been antidilutive:
|
Nine Months Ended September 30, |
||||||
| | | | | | | |
|
2017 | 2018 | |||||
| | | | | | | |
RSUs |
219 | 219 | |||||
Stock options |
18,863 | 20,961 | |||||
| | | | | | | |
Total antidilutive shares |
19,082 | 21,180 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F-84
Roaring Fork Holding, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
For the Nine Months ended September 30, 2017 and 2018
(Unaudited)
13. Subsequent Events
At February 13, 2019, the date at which the unaudited interim condensed consolidated financial statements were originally available to be issued, the Company had not identified any material subsequent events requiring disclosure. In conjunction with the reissuance of these unaudited interim condensed consolidated financial statements, the Company evaluated subsequent events through August 2, 2019, the date at which the unaudited interim condensed consolidated financial statements were reissued. The Company has not identified any material subsequent events requiring disclosure.
F-85
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all costs and expenses, other than the underwriting discounts and commissions payable by us, in connection with the offer and sale of the securities being registered. All amounts shown are estimates except for the Securities and Exchange Commission, or SEC, registration fee and the FINRA filing fee.
SEC registration fee |
$ | * | ||
FINRA filing fee |
* | |||
listing fee |
* | |||
Printing expenses |
* | |||
Legal fees and expenses |
* | |||
Accounting fees and expenses |
* | |||
Transfer agent fees and registrar fees |
* | |||
Miscellaneous expenses |
* | |||
| | | | |
Total expenses |
$ | * | ||
| | | | |
| | | | |
| | | | |
Item 14. Indemnification of Directors and Officers.
Section 102(b)(7) of the Delaware General Corporation Law, or DGCL, allows a corporation to provide in its certificate of incorporation that a director of the corporation will not be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except where the director breached the duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware corporate law or obtained an improper personal benefit. Our certificate of incorporation will provide for this limitation of liability.
Section 145 of the DGCL, or Section 145, provides that a Delaware corporation may indemnify any person who was, is or is threatened to be made, party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his conduct was illegal. A Delaware corporation may indemnify any persons who are, were or are a party to any threatened, pending or completed action or suit by or in the right of the corporation by reason of the fact that such person is or was a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the corporation's best interests, provided that no indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above,
II-1
the corporation must indemnify him against the expenses which such officer or director has actually and reasonably incurred.
Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would otherwise have the power to indemnify him under Section 145.
Our bylaws will provide that we will indemnify our directors and officers to the fullest extent authorized by the DGCL and must also pay expenses incurred in defending any such proceeding in advance of its final disposition upon delivery of an undertaking, by or on behalf of an indemnified person, to repay all amounts so advanced if it should be determined ultimately that such person is not entitled to be indemnified under this section or otherwise.
Upon completion, of this offering we intend to enter into indemnification agreements with each of our executive officers and directors. The indemnification agreements will provide the executive officers and directors with contractual rights to indemnification, expense advancement and reimbursement, to the fullest extent permitted under the DGCL.
The indemnification rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any statute, provision of our certificate of incorporation or bylaws, agreement, vote of shareholders or disinterested directors or otherwise.
We will maintain standard policies of insurance that provide coverage (1) to our directors and officers against loss arising from claims made by reason of breach of duty or other wrongful act and (2) to us with respect to indemnification payments that we may make to such directors and officers. The proposed form of Underwriting Agreement to be filed as Exhibit 1.1 to this Registration Statement provides for indemnification of our directors and officers by the underwriters party thereto against certain liabilities arising under the Securities Act of 1933 or otherwise.
Item 15. Recent Sales of Unregistered Securities.
Set forth below is information regarding securities sold by us within the past three years that were not registered under the Securities Act. Also included is the consideration, if any, received by us for such securities and information relating to the section of the Securities Act, or rule of the SEC, under which exemption from registration was claimed.
Since January 1, 2016, we have made sales of the following unregistered securities:
II-2
The offers and sales of the above securities were deemed to be exempt from registration under the Securities Act of 1933 in reliance upon Section 4(a)(2) of the Securities Act of 1933 or Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the above securities represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof. Appropriate legends were placed upon any stock certificates issued in these transactions.
Item 16. Exhibits and Financial Statement Schedules.
Exhibit Number |
Description | ||
1.1 | Form of Underwriting Agreement. | ||
3.1 |
Fourth Amended and Restated Certificate of Incorporation of Ping Identity Holding Corp. to be in effect upon the closing of this offering |
||
3.2 |
Amended and Restated Bylaws of Ping Identity Holding Corp. to be in effect upon the closing of this offering |
||
4.1 |
Registration Rights Agreement. |
||
5.1 |
** |
Opinion of Kirkland & Ellis LLP. |
|
10.1 |
* |
Credit Agreement, dated as of January 25, 2018, among Ping Identity Corporation, as borrower, Roaring Fork Intermediate, LLC, as holdings, the other guarantors from time to time party thereto, the lenders and issuing banks from time to time party thereto and Goldman Sachs Bank USA, as administrative agent, collateral agent, swingline lender and issuing bank. |
|
10.2 |
* |
Master Services Agreement, effective as of February 23, 2017, between Vista Consulting Group, LLC and Ping Identity Corporation. |
|
10.3 |
* |
Form of Ping Identity Holding Corp. Omnibus Incentive Plan. |
|
10.4 |
* |
Form of Stock Option Award Agreement. |
|
10.5 |
* |
Form of Restricted Shares Award Agreement. |
|
10.6 |
* |
Form of Stock Appreciation Right Award Agreement. |
|
10.7 |
* |
Form of Restricted Stock Unit Award Agreement. |
|
10.8 |
Form of Indemnification Agreement. |
||
10.9 |
Director Nomination Agreement. |
II-3
Exhibit Number |
Description | ||
10.10 | Lease Agreement, dated as of January 21, 2011, by and between FSP 1001 17th Street LLC (as successor in interest to MG-1005, LLC), as landlord and Ping Identity Corporation, as tenant. | ||
10.11 |
* |
First Amendment to Lease Agreement, dated as of November 12, 2015, by and between FSP 1001 17th Street LLC, as landlord and Ping Identity Corporation, as tenant. |
|
10.12 |
* |
Second Amendment to Lease Agreement, dated as of December 6, 2017, by and between FSP 1001 17th Street LLC, as landlord and Ping Identity Corporation, as tenant. |
|
10.13 |
* |
Third Amendment to Lease Agreement, dated as of August 21, 2018, by and between FSP 1001 17th Street LLC, as landlord and Ping Identity Corporation, as tenant. |
|
10.14 |
* |
Fourth Amendment to Lease Agreement, dated as of February 1, 2019, by and between FSP 1001 17th Street LLC, as landlord and Ping Identity Corporation, as tenant. |
|
10.15 |
* |
Fifth Amendment to Lease Agreement, dated as of March 18, 2019, by and between FSP 1001 17th Street LLC, as landlord and Ping Identity Corporation, as tenant. |
|
10.16 |
+* |
Letter Agreement, dated as of June 20, 2016, by and between Andre Durand and Ping Identity Corporation. |
|
10.17 |
+* |
Letter Agreement, dated as of November 2, 2018, by and between B. Kristian Nagel and Ping Identity Corporation. |
|
10.18 |
+* |
Letter Agreement, dated as of October 22, 2018, by and between Bernard Harguindeguy and Ping Identity Corporation. |
|
10.19 |
+* |
Letter Agreement, dated as of June 24, 2016, by and between Lauren Romer and Ping Identity Corporation. |
|
10.20 |
+* |
Letter Agreement, dated as of July 7, 2016, by and between Raj Dani and Ping Identity Corporation. |
|
10.21 |
+* |
Roaring Fork Holding, Inc. 2016 Stock Option Plan. |
|
10.22 |
+* |
Form of Stock Option Agreement under the 2016 Stock Option Plan (409A Compliant Form). |
|
10.23 |
+* |
Form of Stock Option Agreement under the 2016 Stock Option Plan (409A Exempt Form). |
|
10.24 |
+* |
Form of Restricted Stock Unit Agreement under the 2016 Stock Option Plan. |
|
21.1 |
* |
List of subsidiaries of Ping Identity Holding Corp. |
|
23.1 |
** |
Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm. |
|
23.2 |
** |
Consent of Kirkland & Ellis LLP (included in Exhibit 5.1). |
|
24.1 |
Powers of Attorney (included on signature page). |
II-4
No financial statement schedules are provided because the information called for is not applicable or is shown in the financial statements or notes.
The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions referenced in Item 14 of this Registration Statement, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
II-5
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Denver, State of Colorado, on , 2019.
|
Ping Identity Holding Corp. | |||||
|
By: |
|
||||
|
Name: | Andre Durand | ||||
|
Title: | Chief Executive Officer |
***
The undersigned directors and officers of Ping Identity Holding Corp. hereby appoint each of , and , as attorney-in-fact for the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, to sign and file with the Securities and Exchange Commission under the Securities Act of 1933 any and all amendments (including post-effective amendments) and exhibits to this registration statement on Form S-1 (or any other registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933) and any and all applications and other documents to be filed with the Securities and Exchange Commission pertaining to the registration of the securities covered hereby, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary or desirable, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature
|
Title
|
Date
|
||
Andre Durand |
Chief Executive Officer and Director (Principal Executive Officer) | |||
Raj Dani |
Chief Financial Officer (Principal Financial and Accounting Officer) |
|||
Rod Aliabadi |
Director |
|||
David A. Breach |
Director |
II-6
Signature
|
Title
|
Date
|
||
Clifford Chiu |
Director | |||
Michael Fosnaugh |
Director |
|||
John McCormack |
Director |
|||
Brian N. Sheth |
Director |
|||
Yancey L. Spruill |
Director |
II-7
Ping Identity Holding Corp.
Common Stock, par value $0.001 per share
Underwriting Agreement(1)
, 2019
Goldman Sachs & Co. LLC,
BofA Securities, Inc.
As representatives (the Representatives) of the several Underwriters
named in Schedule I hereto
c/o Goldman Sachs & Co. LLC
200 West Street
New York, New York 10282-2198
c/o BofA Securities, Inc.
One Bryant Park
New York, New York 10036
Ladies and Gentlemen:
Ping Identity Holding Corp., a Delaware corporation (the Company), proposes, subject to the terms and conditions stated in this agreement (this Agreement), to issue and sell to the Underwriters named in Schedule I hereto (the Underwriters) an aggregate of shares and, at the election of the Underwriters, up to additional shares of Common Stock, par value $0.001 (Stock) of the Company and the stockholders of the Company named in Schedule II hereto (the Selling Stockholders) propose, subject to the terms and conditions stated in this Agreement, to sell to the Underwriters an aggregate of shares and, at the election of the Underwriters, up to additional shares of Stock. The aggregate of shares to be sold by the Company and the Selling Stockholders is herein called the Firm Shares and the aggregate of additional shares to be sold by the Company and the Selling Stockholders is herein called the Optional Shares. The Firm Shares and the Optional Shares that the Underwriters elect to purchase pursuant to Section 2 hereof are herein collectively called the Shares.
1. (a) The Company represents and warrants to, and agrees with, each of the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333- ) (the Initial Registration Statement) in respect of the Shares has been filed with the Securities and Exchange Commission (the Commission); the Initial Registration Statement and any
(1) NTD: Draft assumes secondary component will be included.
post-effective amendment thereto, each in the form heretofore delivered to you, have been declared effective by the Commission in such form; other than a registration statement, if any, increasing the size of the offering (a Rule 462(b) Registration Statement), filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the Act), which became effective upon filing, no other document with respect to the Initial Registration Statement has been filed with the Commission; and no stop order suspending the effectiveness of the Initial Registration Statement, any post-effective amendment thereto or the Rule 462(b) Registration Statement, if any, has been issued and no proceeding for that purpose has been initiated or, to the Companys knowledge, threatened by the Commission (any preliminary prospectus included in the Initial Registration Statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act is hereinafter called a Preliminary Prospectus; the various parts of the Initial Registration Statement and the Rule 462(b) Registration Statement, if any, including all exhibits thereto and including the information contained in the form of final prospectus filed with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the Initial Registration Statement at the time it was declared effective, each as amended at the time such part of the Initial Registration Statement became effective or such part of the Rule 462(b) Registration Statement, if any, became or hereafter becomes effective, are hereinafter collectively called the Registration Statement; the Preliminary Prospectus relating to the Shares that was included in the Registration Statement immediately prior to the Applicable Time (as defined in Section 1(a)(iii) hereof) is hereinafter called the Pricing Prospectus; and such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the Prospectus; any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Act is hereinafter called a Section 5(d) Communication; and any Section 5(d) Communication that is a written communication within the meaning of Rule 405 under the Act is hereinafter called a Section 5(d) Writing; and any issuer free writing prospectus as defined in Rule 433 under the Act relating to the Shares is hereinafter called an Issuer Free Writing Prospectus);
(ii) (A) No order preventing or suspending the use of any Preliminary Prospectus or any Issuer Free Writing Prospectus has been issued by the Commission, and (B) each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain 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, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with the Underwriter Information (as defined in Section 9(c) of this Agreement);
(iii) For the purposes of this Agreement, the Applicable Time is : m (Eastern time) on the date of this Agreement. The Pricing Prospectus, as supplemented by the information listed on Schedule III(c) hereto, taken together (collectively, the Pricing Disclosure Package), as of the Applicable Time, did 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 the light of the circumstances under which they were made, not misleading; and each Issuer Free Writing Prospectus listed on Schedule III(d) hereto and each Section 5(d) Writing listed on Schedule III(d) hereto does not conflict with the information contained in
the Registration Statement, the Pricing Prospectus or the Prospectus and each Issuer Free Writing Prospectus and each Section 5(d) Writing, as supplemented by and taken together with the Pricing Disclosure Package, as of the Applicable Time, did not, and as of each Time of Delivery 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 the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to statements or omissions made in reliance upon and in conformity with the Underwriter Information;
(iv) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement and the Prospectus will conform, in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder and do not and will not, as of the applicable effective date as to each part of the Registration Statement, as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, and as of each Time of Delivery, contain 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; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with the Underwriter Information;
(v) Neither the Company nor any of its subsidiaries has, since the date of the latest audited financial statements included in the Pricing Prospectus, (i) sustained any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree or (ii) entered into any transaction or agreement (whether or not in the ordinary course of business) that is material to the Company and its subsidiaries taken as a whole or incurred any liability or obligation, direct or contingent, that is material to the Company and its subsidiaries taken as a whole, in each case otherwise than as set forth or contemplated in the Pricing Prospectus; and, since the respective dates as of which information is given in the Registration Statement and the Pricing Prospectus, there has not been (x) any change in the capital stock (other than as a result of (A) the exercise or settlement (including any net or cashless exercises or settlement), if any, of stock options or restricted stock units or the award, vesting or settlement, if any, of stock options or restricted stock units in the ordinary course of business pursuant to the Companys equity plans that are described in the Pricing Prospectus and the Prospectus, (B) the repurchase upon termination of employment or services pursuant to agreements providing for the right of such repurchase of shares of capital stock granted under the Companys equity plans that are described in the Pricing Prospectus and the Prospectus or (C) the issuance, if any, of stock upon conversion of Company securities as described in the Pricing Prospectus and the Prospectus) or long-term debt of the Company or any of its subsidiaries or (y) any Material Adverse Effect (as defined below); as used in this Agreement, Material Adverse Effect shall mean any material adverse change or effect, or any development involving a prospective material adverse change or effect, in or affecting (i) the general affairs, management, financial position, stockholders equity or results of operations of the Company and its subsidiaries, taken as a whole, except as set forth or contemplated in the Pricing Prospectus, or (ii) the ability of the Company to perform its obligations under this Agreement;
(vi) The Company and its subsidiaries do not own any real property. The Company and its subsidiaries have good and marketable title to all personal property owned by them (other than with respect to Intellectual Property, which is addressed exclusively in subsection (xxviii) below) free and clear of all liens, encumbrances and defects except such as are described in the Pricing Prospectus or such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect; and any real property and buildings held under lease, or sublease, by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases, or subleases (subject to the effects of (A) bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer, reorganization, moratorium or other similar laws relating to or affecting the rights or remedies of creditors generally; (B) the application of general principles of equity (including without limitation, concepts of materiality, reasonableness, good faith and fair dealing, regardless of whether enforcement is considered in proceedings at law or in equity); and (C) applicable law and public policy with respect to rights to indemnity and contribution) with such exceptions as are not material and do not materially interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries;
(vii) Each of the Company and each of its significant subsidiaries (as such term is defined in Rule 1-02 of Regulation S-X) has been (i) duly organized and is validly existing and in good standing (or the foreign equivalent) under the laws of its jurisdiction of organization, with power and authority (corporate and other) to own its properties and conduct its business as described in the Pricing Prospectus, and (ii) duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, except, in the case of this clause (ii), where the failure to be so qualified or in good standing (or foreign equivalent) would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, and each subsidiary of the Company has been listed in the Registration Statement;
(viii) The Company has an authorized capitalization as set forth in the Pricing Prospectus and all of the issued shares of capital stock of the Company, including the Shares to be sold by the Selling Stockholders have been duly and validly authorized and issued and are fully paid and non-assessable and conform in all material respects to the description of the Stock contained in the Pricing Disclosure Package and the Prospectus; and all of the issued shares of capital stock of each subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and (except, in the case of any foreign subsidiary, for directors qualifying shares) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims, except for such liens or encumbrances described in the Pricing Prospectus and the Prospectus;
(ix) The Shares to be issued and sold by the Company to the Underwriters hereunder have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued and fully paid and non-assessable and will conform in all material respects to the description of the Stock
contained in the Pricing Disclosure Package and the Prospectus; and the issuance of the Shares is not subject to any preemptive or similar rights;
(x) The issue and sale of the Shares to be sold by the Company and the compliance by the Company with this Agreement and the consummation of the transactions contemplated in this Agreement and the Pricing Prospectus will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, (A) any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, (B) the certificate of incorporation or by-laws (or other applicable organizational document) of the Company or any of its subsidiaries, or (C) any statute or any judgment, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties, except, in the case of clause (A) and (C) for such defaults, breaches, or violations that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issuance of the Shares to be sold by the Company and the sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement, except such as have been obtained under the Act, the approval by the Financial Industry Regulatory Authority (FINRA) of the underwriting terms and arrangements and such consents, approvals, authorizations, orders, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters;
(xi) Neither the Company nor any of its significant subsidiaries is (i) in violation of its certificate of incorporation or by-laws (or other applicable organizational document), (ii) in violation of any statute or any judgment, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties, or (iii) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, except, in the case of the foregoing clauses (ii) and (iii), for such defaults as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;
(xii) The statements set forth in the Pricing Prospectus and the Prospectus under the caption Description of Capital Stock, insofar as they purport to constitute a summary of the terms of the Stock, under the caption Material U.S. Federal Income Tax Consequences to Non-U.S. Holders, and under the caption Underwriting, insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair in all material respects;
(xiii) Other than as set forth in the Pricing Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries or, to the Companys knowledge, any officer or director of the Company, is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries (or such officer or director), would individually or in the aggregate reasonably be expected to have a Material Adverse Effect;
and, to the Companys knowledge, no such proceedings are threatened or contemplated by governmental authorities or others;
(xiv) The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof, will not be an investment company within the meaning of the Investment Company Act of 1940, as amended (the Investment Company Act);
(xv) At the time of filing the Initial Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or any offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the Act) of the Shares, and at the date hereof, the Company was not and is not an ineligible issuer, as defined under Rule 405 under the Act;
(xvi) PricewaterhouseCoopers LLP, who have certified certain financial statements of the Company and its subsidiaries, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder;
(xvii) The Company maintains a system of internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) that (i) complies with the requirements of the Exchange Act applicable to the Company, (ii) has been designed by the Companys principal executive officer and principal financial officer, or under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and (iii) is sufficient to provide reasonable assurance that (A) transactions are executed in accordance with managements general or specific authorization, (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets, (C) access to assets is permitted only in accordance with managements general or specific authorization and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences; and the Companys internal control over financial reporting is effective and the Company is not aware of any material weaknesses in its internal control over financial reporting (it being understood that this subsection shall not require the Company to comply with Section 404 of the Sarbanes-Oxley Act of 2002 as of an earlier date than it would otherwise be required to so comply under applicable law);
(xviii) Since the date of the latest audited financial statements included in the Pricing Prospectus, there has been no change in the Companys internal control over financial reporting that has materially and adversely affected, or is reasonably likely to materially and adversely affect, the Companys internal control over financial reporting;
(xix) The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) that comply with the requirements of the Exchange Act applicable to the Company upon completion of the sale of the Firm Shares; such disclosure controls and procedures have been designed to ensure that material information relating to the Company and its subsidiaries is made known to the Companys principal executive officer and principal financial officer by others within those entities; and such disclosure controls and procedures are effective;
(xx) This Agreement has been duly authorized, executed and delivered by the Company;
(xxi) None of the Company or any of its subsidiaries nor, to the knowledge of the Company, any director, officer, agent, employee, affiliate or other person while acting on behalf of the Company or any of its subsidiaries has (i) made, offered, promised or authorized any unlawful contribution, gift, entertainment or other unlawful expense; (ii) made, offered, promised or authorized any direct or indirect unlawful payment; or (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, the Bribery Act 2010 of the United Kingdom or any other applicable anti-bribery or anti-corruption law;
(xxii) The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with the requirements of applicable anti-money laundering laws, including, but not limited to, the Bank Secrecy Act of 1970, as amended by the USA PATRIOT ACT of 2001, and the rules and regulations promulgated thereunder, and the anti-money laundering laws of the various jurisdictions in which the Company and its subsidiaries conduct business (collectively, the Money Laundering Laws) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened;
(xxiii) None of the Company or any of its subsidiaries nor, to the knowledge of the Company, any director, officer, agent, employee or affiliate of the Company or any of its subsidiaries is currently the subject or the target of any sanctions administered or enforced by the U.S. Government, including, without limitation, the Office of Foreign Assets Control of the U.S. Department of the Treasury (OFAC), or the U.S. Department of State and including, without limitation, the designation as a specially designated national or blocked person, the European Union, Her Majestys Treasury, the United Nations Security Council, or other relevant sanctions authority (collectively, Sanctions), nor is the Company or any of its subsidiaries located, organized or resident in a country or territory that is currently the subject or the target of Sanctions, and the Company will not directly or indirectly use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity (i) to fund or facilitate any activities of or business with any person, or in any country or territory, that, at the time of such funding, is the subject or the target of Sanctions or (ii) in any other manner that will result in a violation by any person (including any person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions;
(xxiv) The financial statements included in the Registration Statement, the Pricing Prospectus and the Prospectus, together with the related schedules (if any) and notes, present fairly, in all material respects, the financial position of the Company and its subsidiaries at the dates indicated and the statement of operations, stockholders equity and cash flows of the Company and its subsidiaries for the periods specified; said financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP) applied on a consistent basis throughout the periods involved. The supporting schedules, if any, present fairly in all material respects the information required to be stated therein in accordance with GAAP. The selected financial data and the summary financial information included in the Registration Statement, the Pricing
Prospectus and the Prospectus present fairly, in all material respects, the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included therein. Except as included therein, no historical or pro forma financial statements or supporting schedules are required to be included in the Registration Statement, the Pricing Prospectus or the Prospectus under the Act or the rules and regulations promulgated thereunder. All disclosures contained in the Registration Statement, the Pricing Prospectus and the Prospectus regarding non-GAAP financial measures (as such term is defined by the rules and regulations of the Commission) comply in all material respects with Regulation G of the Exchange Act and Item 10 of Regulation S-K of the Act, to the extent applicable;
(xxv) There are no off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K of the Act) that may have a material current or future effect on the Companys financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources;
(xxvi) The Company has not sold or issued any securities during the six-month period preceding the date of the Prospectus, including any sales pursuant to Rule 144A or Regulation D of the Act, other than (i) shares issued pursuant to employee benefit plans disclosed in the Pricing Disclosure Package and the Prospectus, stock option plans or other employee compensation plans or pursuant to outstanding options, rights or warrants, or (ii) as disclosed in the Pricing Disclosure Package and the Prospectus;
(xxvii) Except in all cases where such violation, claim, request, notice, proceeding, investigation or material capital expenditure would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (A) neither the Company nor any of its subsidiaries is in violation of any applicable statute, law, rule, regulation, ordinance, code, rule of common law or order of or with any governmental agency or body or any court, domestic or foreign, relating to the use, management, disposal or release of hazardous or toxic substances or wastes or relating to pollution or the protection of the environment or human health or relating to exposure to hazardous or toxic substances or wastes (collectively, Environmental Laws), (B) neither the Company nor any of its subsidiaries has received any written claim, written request for information or written notice of liability or investigation arising under, relating to or based upon any Environmental Laws, (C) neither the Company nor any of its subsidiaries is aware of any pending or threatened notice, claim, proceeding or investigation which might lead to liability under Environmental Laws, (D) the Company does not anticipate incurring material capital expenditures relating to compliance with Environmental Laws (including, without limitation, any capital or operating expenditures required for clean-up, investigation or closure of properties or compliance with Environmental Laws or any permit, license, approval, any related constraints on operating activities and any potential liabilities to third parties) and (E) neither the Company nor any of its subsidiaries has been named as a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended;
(xxviii) (A) The Company and its subsidiaries own or possess or, to their knowledge, can obtain on reasonable terms, adequate rights to use all patents, trademarks, service marks, trade names, domain names, copyrights, licenses and know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and other technology and intellectual property rights,
including registrations and applications for registration thereof (collectively, Intellectual Property) used by them or necessary for the conduct of their respective businesses as currently conducted or proposed to be conducted by them as described in the Registration Statement, the Pricing Prospectus and the Prospectus (the Company Intellectual Property), except where the failure to do so would not reasonably be expected to have a Material Adverse Effect; (B) except as described in the Registration Statement, the Pricing Prospectus and the Prospectus, neither the Company nor any of its subsidiaries has received any written notice, or otherwise has any knowledge, of any infringement of, or conflict with asserted rights of others with respect to any Intellectual Property that would render any Company Intellectual Property invalid, unenforceable or inadequate to protect the interest of the Company and any of its subsidiaries therein, except as would not reasonably be expected to have a Material Adverse Effect; (C) to the Companys knowledge, there are no third parties who have ownership rights or rights to use, or have a claim over, any Company Intellectual Property, except for (i) the retained rights of the owners of Company Intellectual Property which is licensed to the Company or the subsidiaries and (ii) the rights of customers, licensees, resellers and other channel partners to use Company Intellectual Property in the ordinary course, consistent with past practice, (B) there is no pending, or to the Companys knowledge, threatened action, suit, proceeding or claim by others challenging the Companys rights or any of the subsidiaries rights in or to any Company Intellectual Property, except as would not reasonably be expected to have a Material Adverse Effect, (D) there is no pending or, to the Companys knowledge, threatened action, suit, proceeding or claim by others challenging the validity, enforceability or scope of any Company Intellectual Property, except as would not reasonably be expected to have a Material Adverse Effect, (E) there is no pending or, to the Companys knowledge, threatened action, suit, proceeding or claim by others that the Company or any of the subsidiaries infringes or misappropriates any Intellectual Property or other proprietary rights of others, except as would not reasonably be expected to have a Material Adverse Effect, (F) the Company and its subsidiaries have taken commercially reasonably steps consistent with prevalent industry practices to ensure that, and to the Companys knowledge, no Company Intellectual Property has been obtained or is being used by the Company or any of the subsidiaries in violation of any contractual obligation binding on the Company or any of the subsidiaries, or otherwise in violation of the rights of any persons, except as would not reasonably be expected to have a Material Adverse Effect; (G) the Company and its subsidiaries have taken reasonable steps consistent with prevalent industry practice to secure interests in the Company Intellectual Property developed by their employees, consultants, agents and contractors in the course of their service to the Company, including the execution of valid assignment and non-disclosure agreements or licenses for the benefit of the Company and/or its subsidiaries by such employees, consultants, agents and contractors under which they have assigned or licensed, to the Company, all of their right, title and interest in and to any Company Intellectual Property and the rights associated therewith except where the failure to do so would not reasonably be expected to have a Material Adverse Effect; (H) there are no outstanding options, licenses or binding agreements of any kind relating to the Company Intellectual Property owned by the Company or any of its subsidiaries that are required to be described in the Registration Statement, the Pricing Prospectus and the Prospectus and are not so described; (I) the Company and its subsidiaries are not a party to or bound by any options, licenses or binding agreements with respect to any Intellectual Property of any other person or entity that are required to be set forth in the Registration Statement and the Prospectus
and are not so described; (J) the Company and its subsidiaries have used all software and other materials distributed under a free, open source, or similar licensing model (including but not limited to the GNU General Public License, GNU Lesser General Public License and GNU Affero General Public License) (Open Source Materials) in material compliance with all license terms applicable to such Open Source Materials, except where the failure to comply would not reasonably be expected to result in a Material Adverse Effect; (K) neither the Company nor any of its subsidiaries has used or distributed any Open Source Materials in a manner that requires or has required (i) the Company or any of its subsidiaries to permit reverse engineering of any proprietary products or services of the Company or any of the subsidiaries, or any proprietary software code or other technology owned by the Company or any of the subsidiaries or (ii) any proprietary products or services of the Company or any of its subsidiaries, or any proprietary software code or other technology owned by the Company or any of the subsidiaries, to be (x) disclosed or distributed in source code form, (y) licensed for the purpose of making derivative works, or (z) redistributed at no charge or minimum charge, except, in the case of each of (i) and (ii) above, for the Open Source Materials themselves (and derivatives thereof) and otherwise such as would not reasonably be expected to result in a Material Adverse Effect; (L) no government funding, facilities or resources of a university, college, other educational institution or research center or funding from third parties was used in the development of any Company Intellectual Property owned or purportedly owned by the Company or any of its subsidiaries that does not permit use by the Company or any of its subsidiaries as described in the Registration Statement, the Pricing Prospectus and the Prospectus, and no governmental agency or body, university, college, other educational institution or research center has any claim of ownership in or to any Company Intellectual Property that is owned or purported to be owned by the Company or any of its subsidiaries, except as would not reasonably be expected to have a Material Adverse Effect; (M) the Company and its subsidiaries have taken commercially reasonable steps in accordance with prevalent industry practice to maintain the confidentiality of all trade secrets and confidential information owned, used or held for use by the Company or any of its subsidiaries that the Company in its reasonable business judgment wishes to maintain as trade secrets except where the failure to do so would not reasonably be expected to have a Material Adverse Effect;
(xxix) The information technology systems, equipment and software used by the Company or any of its subsidiaries in their respective businesses (the IT Assets) are adequate for the operation of the business of the Company and its subsidiaries as currently conducted. Such IT Assets (i) operate and perform in all material respects in accordance with their documentation and functional specifications and otherwise as required by the Companys and its subsidiaries respective businesses as currently conducted, (ii) except as described in the Registration Statement, the Pricing Prospectus and the Prospectus, have not materially malfunctioned or failed since the Companys inception, except as would not reasonably be expected to have a Material Adverse Effect, and (iii) are subject to industry standard scans for viruses, back doors, Trojan horses, time bombs, worms, drop dead devices or other software or hardware components that are designed or intended to interrupt use of, permit unauthorized access to, or disable, damage or erase, any software material to the business of the Company or any of its subsidiaries. The Company and its subsidiaries have implemented commercially reasonable backup and disaster recovery technology processes consistent with prevalent industry practices. To the
Companys knowledge, no person has gained unauthorized access to any IT Asset since the Companys inception in a manner that has resulted or could reasonably be expected to result in a Material Adverse Effect;
(xxx) With regard to their receipt, collection, handling, processing, sharing, transfer, usage, disclosure, interception, security, storage and disposal of all data and information that identifies or relates to a distinct individual, user account, or device, including without limitation IP addresses, mobile device identifiers, geolocation information and website usage activity data, or that is directly linked to such information (collectively, Personal and Device Data), the Company and its subsidiaries comply, and at all times have complied, in all material respects with all applicable laws, regulations, and contractual obligations (including the European Union General Data Protection Regulation) (Privacy Legal Obligations). The Company and its subsidiaries have commercially reasonable policies and procedures designed to ensure the Company and its subsidiaries comply in all material respects with such Privacy Legal Obligations and take appropriate steps that are reasonably designed to assure compliance with such policies and procedures. Such policies and procedures comply in all material respects with all Privacy Legal Obligations. The Company and its subsidiaries maintain, and at all times have maintained, reasonable data security policies and procedures designed to protect the confidentiality, security, and integrity of Personal and Device Data and to prevent unauthorized use of and access to Personal and Device Data. The Company and its subsidiaries have required and do require all third parties to which they provide any Personal and Device Data to maintain the privacy and security of such Personal and Device Data and to comply with applicable Privacy Legal Obligations, including by contractually requiring such third parties to protect such Personal and Device Data from unauthorized access, use and/or disclosure. There has been no material unauthorized access to, or use or disclosure of, Personal and Device Data maintained by or for the Company or its subsidiaries;
(xxxi) (A) There are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the Act except as have been validly waived or complied with and (B) the holders of outstanding shares of the Companys capital stock are not entitled to preemptive or other rights to subscribe for the Shares that have not been complied with or otherwise effectively waived;
(xxxii) The Company and each of its subsidiaries has filed all federal, state, local and foreign tax returns required to be filed through the date hereof or have requested extensions thereof and have paid all taxes required to be paid thereon, except for cases in which the failure to file or pay would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; no tax deficiency has been determined adversely to the Company or any of its subsidiaries (nor has the Company or any of its subsidiaries received written notice of any tax deficiency that will be assessed or, to the Companys knowledge, has been proposed by any taxing authority, which could reasonably be expected to be determined adversely to the Company or its subsidiaries);
(xxxiii) The Company and each of its subsidiaries is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are, in the Companys reasonable judgment, prudent and customary in the businesses in which the Company and its subsidiaries are engaged; and neither the Company nor any of its subsidiaries has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business;
(xxxiv) No material labor dispute with or disturbance by the employees of the Company or any of its subsidiaries exists or, to the Companys knowledge, is threatened; and neither the Company nor any of its subsidiaries has received written notice of any existing, threatened or imminent labor disturbance by the employees of any of its principal vendors, partners or contractors;
(xxxv) Nothing has come to the attention of the Company that has caused the Company to believe that the statistical and market-related data included in the Registration Statement, the Pricing Disclosure Package or the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects and, to the extent required, the Company has obtained the written consent to the use of such data from such sources;
(xxxvi) From the time of initial confidential submission of a registration statement relating to the Shares with the Commission (or, if earlier, the first date on which a Section 5(d) Communication was made) through the date hereof, the Company has been and is an emerging growth company as defined in Section 2(a)(19) of the Act (an Emerging Growth Company);
(xxxvii) (A) Each Plan (as defined below) has been sponsored, maintained and contributed to in compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to the Employee Retirement Income Security Act of 1974, as amended (ERISA), and the Internal Revenue Code of 1986, as amended (the Code); (B) no non-exempt prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any Plan; (C) for each Plan, no failure to satisfy the minimum funding standards (within the meaning of Section 412 of the Code or Section 302 of ERISA), whether or not waived, has occurred or is reasonably expected to occur; (D) no reportable event (within the meaning of Section 4043(c) of ERISA, other than those events as to which notice is waived) has occurred or is reasonably expected to occur; (E) neither the Company nor any member of its Controlled Group (defined as any organization which is a member of a controlled group of corporations within the meaning of Section 414 of the Code) has incurred, nor is reasonably expected to incur, any liability under Title IV of ERISA (other than contributions to any Plan or any Multiemployer Plan (as defined below) or premiums to the Pension Benefit Guaranty Corporation (the PBGC), in the ordinary course and without default) in respect of a Plan or a Multiemployer Plan; and (F) there is no pending audit or investigation by the Internal Revenue Service, the Department of Labor, the PBGC or any other governmental agency or any foreign regulatory agency with respect to any Plan. Each Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination or opinion letter from the Internal Revenue Service or has time remaining to do so and, to the knowledge of the Company, nothing has occurred, whether by action or by failure to act, which would reasonably be expected to cause the loss of such qualification. None of the following events has occurred or is reasonably likely to occur: (x) a material increase in the aggregate amount of contributions required to be made to all Plans by the Company or its subsidiaries in the current fiscal year of the Company and its subsidiaries compared to the amount of such contributions made in the Company and its subsidiaries most recently completed fiscal year; or (y) a material increase in the Company and its subsidiaries
accumulated post-retirement benefit obligations (within the meaning of Financial Accounting Standards Board Accounting Standards Codification Topic 715) compared to the amount of such obligations in the Company and its subsidiaries most recently completed fiscal year. For purposes of this paragraph, (i) the term Plan means an employee benefit plan, within the meaning of Section 3(3) of ERISA, subject to Title IV of ERISA, but excluding any Multiemployer Plan, for which the Company or any member of its Controlled Group has any liability and (ii) the term Multiemployer Plan means a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA;
(xxxviii) There are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Underwriter for a brokerage commission, finders fee or other similar payment in connection with this offering;
(xxxix) The Company has taken all necessary actions to ensure that it is in compliance with all provisions of the Sarbanes-Oxley Act with which the Company is required to comply as of the Applicable Time, and the Company is actively taking steps to ensure that it will be in compliance with other provisions of the Sarbanes-Oxley Act that will become applicable to the Company subsequent to the Applicable Time;
(xxxx) No forward-looking statement (within the meaning of Section 27A of the Act and Section 21E of the Exchange Act) contained in the Pricing Prospectus or the Prospectus has been made or reaffirmed by the Company without a reasonable basis or has been disclosed by the Company other than in good faith; and
(xxxxi) There is no debt of, or guaranteed by, the Company or any of its subsidiaries that is rated by a nationally recognized statistical rating organization, as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act.
(b) Each of the Selling Stockholders severally and not jointly represents and warrants to, and agrees with, each of the Underwriters and the Company that:
(i) All consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Stockholder of this Agreement and the Power of Attorney and the Custody Agreement referred to below (if applicable to such Selling Stockholder), and for the sale and delivery of the Shares to be sold by such Selling Stockholder hereunder, have been obtained; and such Selling Stockholder has full right, power and authority to enter into this Agreement, the Power-of-Attorney and the Custody Agreement and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder;
(ii) The sale of the Shares to be sold by such Selling Stockholder hereunder and the compliance by such Selling Stockholder with this Agreement, the Power of Attorney and the Custody Agreement (if applicable to such Selling Stockholder) and the consummation of the transactions herein and therein contemplated will not (A) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any statute, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder is bound or to which any of the property or assets of such Selling Stockholder is subject, (B) result in any violation of the provisions of the organizational documents, limited liability company agreement or partnership agreement or other similar agreement, as applicable, of
such Selling Stockholder or (C) result in any violation of any statute or any judgment, order, rule or regulation of any court or governmental agency or body having jurisdiction over such Selling Stockholder or any of its subsidiaries or any property or assets of such Selling Stockholder, except in the case of (A) and (C), for such violations that would not reasonably be expected to have a material adverse effect on the ability of such Selling Stockholder to consummate the transactions contemplated by this Agreement; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental body or agency is required for the performance by such Selling Stockholder of its obligations under this Agreement, the Power of Attorney and the Custody Agreement (if applicable to such Selling Stockholder) and the consummation by such Selling Stockholder of the transactions contemplated by this Agreement, the Power of Attorney and the Custody Agreement in connection with the Shares to be sold by such Selling Stockholder hereunder, except the registration under the Act of the Shares and such consents, approvals, authorizations, orders, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the Underwriters;
(iii) Such Selling Stockholder has, and immediately prior to each Time of Delivery (as defined in Section 4 hereof) such Selling Stockholder will have, good and valid title to, or a valid security entitlement within the meaning of Section 8-501 of the New York Uniform Commercial Code in respect of, the Shares to be sold by such Selling Stockholder hereunder at such Time of Delivery, free and clear of all liens, encumbrances, equities or claims, except for any liens, encumbrances, equities or claims pursuant to the Custody Agreement (if applicable to such Selling Stockholder); and, upon delivery of such Shares and payment therefor pursuant hereto, good and valid title to such Shares, free and clear of all liens, encumbrances, equities or claims, will pass to the several Underwriters;
(iv) On or prior to the date of the Pricing Prospectus, such Selling Stockholder has executed and delivered to the Underwriters an agreement substantially in the form of Annex I hereto.
(v) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action that is designed to or that has constituted or might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares;
(vi) The Registration Statement and Preliminary Prospectus did, and the Prospectus and any further amendments or supplements to the Registration Statement and the Prospectus will, when they become effective or are filed with the Commission, as the case may be, not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; provided that such representations and warranties set forth in this clause (vi) apply, with respect to a Selling Stockholder, only to statements or omissions made in the Registration Statement, the Preliminary Prospectus, the Prospectus and any further amendments or supplements to the Registration Statement, the Preliminary Prospectus and the Prospectus that are made in reliance upon and in conformity with written information
furnished to the Company by such Selling Stockholder expressly for use therein; provided, further, that it is agreed that such information furnished by such Selling Stockholder to the Company consists only of (A) the legal name, address and the number of Shares owned by such Selling Stockholder before and after the offering, (B) any biographical information provided by the Selling Stockholder with regard to representatives of the Selling Stockholder that are members of the board of directors of the Company and (C) the other information with respect to such Selling Stockholder (excluding percentages) which appear in the table (and corresponding footnotes) under the caption Principal and Selling Stockholders (such information with respect to such Selling Stockholder, the Selling Stockholder Information);
(vii) In order to document the Underwriters compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, such Selling Stockholder will deliver to you prior to or at the First Time of Delivery a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof);
(viii) In the case of each Selling Stockholder denoted with an asterisk (*) on Schedule [II] (collectively, the POA Selling Stockholders), certificates in negotiable form or book-entry securities entitlements representing all of the Shares to be sold by such Selling Stockholder hereunder have been placed in custody under a Custody Agreement, in the form heretofore furnished to you (the Custody Agreement), duly executed and delivered by such Selling Stockholder to [Name of Custodian], as custodian (the Custodian), and such Selling Stockholder has duly executed and delivered a Power of Attorney, in the form heretofore furnished to you (the Power of Attorney), appointing the persons indicated in Schedule II hereto, and each of them, as such Selling Stockholders attorneys-in-fact (the Attorneys-in-Fact) with authority to execute and deliver this Agreement on behalf of such Selling Stockholder, to determine the purchase price to be paid by the Underwriters to the Selling Stockholders as provided in Section 2 hereof, to authorize the delivery of the Shares to be sold by such Selling Stockholder hereunder and otherwise to act on behalf of such Selling Stockholder in connection with the transactions contemplated by this Agreement and the Custody Agreement;
(ix) In the case of each POA Selling Stockholder, the Shares held in custody for such Selling Stockholder under the Custody Agreement are subject to the interests of the Underwriters hereunder; the arrangements made by such Selling Stockholder for such custody, and the appointment by such Selling Stockholder of the Attorneys-in-Fact by the Power of Attorney, are to that extent irrevocable; the obligations of the Selling Stockholders hereunder shall not be terminated by operation of law, whether by the death or incapacity of any individual Selling Stockholder or, in the case of an estate or trust, by the death or incapacity of any executor or trustee or the termination of such estate or trust, or in the case of a partnership or corporation, by the dissolution of such partnership, limited liability company or corporation, or by the occurrence of any other event; if any individual Selling Stockholder or any such executor or trustee should die or become incapacitated, or if any such estate or trust should be terminated, or if any such partnership, limited liability company or corporation should be dissolved, or if any
other such event should occur, before the delivery of the Shares to be sold by such Selling Stockholder hereunder, certificates representing the Shares to be sold by such Selling Stockholder hereunder shall be delivered by or on behalf of the Selling Stockholders in accordance with the terms and conditions of this Agreement and of the Custody Agreements; and actions taken by the Attorneys-in-Fact pursuant to the Powers of Attorney shall be as valid as if such death, incapacity, termination, dissolution or other event had not occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of such death, incapacity, termination, dissolution or other event; for the avoidance of doubt, the representations in this clause (ix) shall not be deemed to be made by any Selling Stockholder that is not a POA Selling Stockholder; and
(x) Such Selling Stockholder will not directly or indirectly use the proceeds of the offering of the Shares hereunder (i) in any manner that will result in a violation by any person (including any person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions, or (ii) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any person in violation of any Money Laundering Laws or any applicable anti-bribery or anti-corruption laws; provided that the foregoing shall not apply with respect to the distribution of the proceeds of the offering to any of such Selling Stockholders direct or indirect limited partners once such proceeds are no longer under the control of such Selling Stockholder if prior to such distribution such Selling Stockholder has no knowledge that such proceeds will be used for any of the foregoing purposes.
(xi) In the case of each POA Selling Stockholder, such POA Selling Stockholder is not prompted by any material non-public information concerning the Company or any of its subsidiaries that is not disclosed in the Pricing Prospectus to sell its Shares pursuant to this Agreement.
(xii) Such Selling Stockholder is not (i) an employee benefit plan subject to ERISA, (ii) a plan or account subject to Section 4975 of the Internal Revenue Code of 1986, as amended or (iii) an entity deemed to hold plan assets of any such plan or account under Section 3(42) of ERISA, 29 C.F.R. 2510.3-101, or otherwise.
2. Subject to the terms and conditions herein set forth, the Company and each of the Selling Stockholders agree, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company and each of the Selling Stockholders, at a purchase price per share of $ , the number of Firm Shares (to be adjusted by you so as to eliminate fractional shares) determined by multiplying the aggregate number of Firm Shares to be sold by the Company and each of the Selling Stockholders as set forth opposite their respective names in Schedule II hereto by a fraction, the numerator of which is the aggregate number of Firm Shares to be purchased by such Underwriter as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the aggregate number of Firm Shares to be purchased by all of the Underwriters from the Company and all of the Selling Stockholders hereunder and (b) in the event and to the extent that the Underwriters shall exercise the election to purchase Optional Shares as provided below, the Company and the Selling Stockholders, as and to the extent indicated in Schedule II hereto agree, severally and not jointly, to sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company and each of the Selling Stockholders, at the purchase price per share set forth in clause (a) of this Section 2 (provided that the purchase price per Optional Share shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Firm Shares but not payable on the Optional Shares), that portion of the number of Optional Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Optional Shares by a fraction, the numerator of which is the maximum number of Optional Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in Schedule I hereto and the denominator of which is the maximum number of Optional Shares that all of the Underwriters are entitled to purchase hereunder.
The Company and the Selling Stockholders, as and to the extent indicated in Schedule II hereto, hereby grant, severally and not jointly, to the Underwriters the right to purchase at their election up to Optional Shares, at the purchase price per share set forth in the paragraph above, for the sole purpose of covering sales of shares in excess of the number of Firm Shares, provided that the purchase price per Optional Share shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Firm Shares but not payable on the Optional Shares. [Any such election to purchase Optional Shares shall be made in proportion to the maximum number of Optional Shares to be sold by the Company and all Selling Stockholders as set forth in Schedule II hereto] [initially with respect to the Optional Shares to be sold by the Company and then among the Selling Stockholders in proportion to the maximum number of Optional Shares to be sold by each Selling Stockholder as set forth in Schedule II hereto].(2) Any such election to purchase Optional Shares may be exercised only by written notice from you to the Company, the Selling Stockholders, or as applicable, and the Attorneys-in-Fact, given within a period of 30 calendar days after the date of this Agreement and setting forth the aggregate number of Optional Shares to be purchased and the date on which such Optional Shares are to be delivered, as determined by you but in no event earlier than the First Time of Delivery (as defined in Section 4 hereof) or, unless you and the Company, the Selling Stockholders, or as applicable, and the Attorneys-in-Fact otherwise agree in writing, earlier than two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the several Underwriters propose to offer the Firm Shares for sale upon the terms and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in definitive or book-entry form, and in such authorized denominations and registered in such names as the Representatives may request upon at least forty-eight hours prior notice to the Company and the Selling Stockholders shall be delivered by or on behalf of the Company and the Selling Stockholders to the Representatives, through the facilities of the Depository Trust Company (DTC), for the account of such Underwriter, against payment by or on behalf of such Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the accounts specified by the Company and the Custodian to the Representatives at least forty-eight hours in advance. The Company and the Selling
(2) NTD: Allocation of optional shares TBD if secondary component included.
Stockholders will cause the certificates, if any, representing the Shares to be made available for checking and packaging at least twenty-four hours prior to the Time of Delivery (as defined below) with respect thereto at the office of DTC or its designated custodian (the Designated Office). The time and date of such delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City time, on , 2019 or such other time and date as the Representatives, the Company, the Selling Stockholders, and as applicable, the Attorneys-in-Fact may agree upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time, on the date specified by the Representatives in each written notice given by the Representatives of the Underwriters election to purchase such Optional Shares, or such other time and date as the Representatives, the Company, the Selling Stockholders, and as applicable, the Attorneys-in-Fact may agree upon in writing. Such time and date for delivery of the Firm Shares is herein called the First Time of Delivery, each such time and date for delivery of the Optional Shares, if not the First Time of Delivery, is herein called the Second Time of Delivery, and each such time and date for delivery is herein called a Time of Delivery.
(b) The documents to be delivered at each Time of Delivery by or on behalf of the parties hereto pursuant to Section 8 hereof, including the cross receipt for the Shares and any additional documents requested by the Underwriters pursuant to Section 8(k) hereof, will be delivered at the offices of Cooley LLP, 380 Interlocken Crescent, Suite #900, Broomfield, Colorado 80021 (the Closing Location), and the Shares will be delivered at the Designated Office, all at such Time of Delivery. A meeting will be held at the Closing Location at p.m., New York City time, on the New York Business Day next preceding such Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, New York Business Day shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York City are generally authorized or obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commissions close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or the Prospectus prior to the last Time of Delivery which shall be disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any amendment or supplement to the Prospectus has been filed and to furnish you with copies thereof; to file promptly all material required to be filed by the Company with the Commission pursuant to Rule 433(d) under the Act; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or other prospectus in respect of the Shares, of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or other prospectus relating to the Shares or suspending any such qualification, to promptly use its best efforts to obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may reasonably request to qualify the Shares for offering and sale under the securities laws of such jurisdictions as you may reasonably request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Shares, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation (where not otherwise required) or to file a general consent to service of process in any jurisdiction (where not otherwise required) or subject itself to taxation in any such jurisdiction in which it was not otherwise subject to taxation;
(c) Prior to 10:00 a.m., New York City time, on the New York Business Day two business days after the date of this Agreement and from time to time, to furnish the Underwriters with written and electronic copies of the Prospectus in New York City in such quantities as you may reasonably request, and, if the delivery of a prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) is required at any time prior to the expiration of nine months after the time of issue of the Prospectus in connection with the offering or sale of the Shares and if at such time any event shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) is delivered, not misleading, or, if for any other reason it shall be necessary during such same period to amend or supplement the Prospectus in order to comply with the Act, to notify you and upon your request to prepare and furnish without charge to each Underwriter and to any dealer (whose names and addresses the Underwriters shall furnish to the Company in connection with any such request) in securities as many written and electronic copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance; and in case any Underwriter is required to deliver a prospectus (or in lieu thereof, the notice referred to in Rule 173(a) under the Act) in connection with sales of any of the Shares at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many written and electronic copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as practicable (which may be satisfied by filing with the Commissions Electronic Data Gathering, Analysis and Retrieval System (EDGAR)), but in any event not later than sixteen months after the effective date of the Registration Statement (as defined in Rule 158(c) under the Act), an earnings statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158);
(e) (i) During the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus (the Company Lock-Up
Period), not to (i) offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise transfer or dispose of, directly or indirectly, or file with or confidentially submit to the Commission a registration statement under the Act relating to, any securities of the Company that are substantially similar to the Shares, including but not limited to any options or warrants to purchase shares of Stock or any securities that are convertible into or exchangeable for, or that represent the right to receive, Stock or any such substantially similar securities, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Stock or any such other securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Stock or such other securities, in cash or otherwise (other than the Shares to be sold hereunder or pursuant to employee stock option plans existing on, or upon the conversion or exchange of convertible or exchangeable securities outstanding as of, the date of this Agreement), without the prior written consent of Goldman Sachs & Co. LLC; provided, however, that the foregoing restrictions shall not apply to:
(A) the Shares to be sold hereunder;
(B) the issuance by the Company of shares of Stock, including upon the vesting, exercise or settlement of options or restricted stock units or the conversion of convertible securities or the exchange of exchangeable securities, or options to purchase shares of Stock or the grant of other equity-based awards (including any securities convertible into shares of Stock), in each case outstanding on the date hereof and provided that such option or security is disclosed in or contemplated by the Pricing Prospectus;
(C) the entry into an agreement providing for the issuance by the Company of shares of Stock or any security convertible into or exercisable for shares of Stock in connection with the acquisition by the Company or any of its subsidiaries of the securities, businesses, property or other assets of another person or entity or pursuant to an employee benefit plan assumed by the Company in connection with such acquisition, or the issuance of any such securities pursuant to any such agreement;
(D) the entry into any agreement providing for the issuance of shares of Stock or any security convertible into or exercisable for shares of Stock in connection with joint ventures, commercial relationships or other strategic transactions, and the issuance of any such securities pursuant to any such agreement; or
(E) the filing of any registration statement on Form S-8 relating to securities granted or to be granted pursuant to the Companys equity-based compensation plans that are described in the Pricing Prospectus or any assumed employee benefit plan contemplated by clause (C);
provided, that that in the case of clauses (C) and (D), the number of shares of Stock that the Company may sell or issue or agree to sell or issue pursuant to such clauses shall not exceed, in the aggregate, 5% of the total number of shares of Stock issued and outstanding immediately following the First Time of Delivery; and provided further that in the case of clauses (B) through (D), (1) the Company shall cause each recipient of such securities to execute and deliver to you, on or prior to the issuance of such securities, a lock-up letter on the same terms as the lock-up letter referred to in Section 8(j), and (2) the Company shall enter stop transfer instructions with the Companys transfer agent and registrar on such securities until the expiration of the Lock-Up Period.
(ii) If Goldman Sachs & Co. LLC, in its sole discretion, agrees to release or waive the restrictions in lock-up letters described in Section 1(b)(iv) or Section 8(j) hereof, in each case for an officer or director of the Company and provides the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver (indicating the effective date of such release or waiver in such notice to the Company), the Company agrees to announce the impending release or waiver by a press release substantially in the form of Annex II hereto through a major news service at least two business days before the effective date of the release or waiver.
(f) During a period of three years from the effective date of the Registration Statement, so long as the Company is subject to the reporting requirements of either Section 13 or Section 15(d) of the Exchange Act, to furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), to make available to its stockholders consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail; provided that no reports, documents or other information need to be furnished pursuant to this Section 5(f) to the extent that they are available on EDGAR;
(g) During a period of three years from the effective date of the Registration Statement, so long as the Company is subject to the reporting requirements of either Section 13 or Section 15(d) of the Exchange Act, to furnish to you copies of all reports or other communications (financial or other) furnished to stockholders, and to deliver to you as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of the Company is listed (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its stockholders generally or to the Commission); provided, that no reports, documents or other information need to be furnished pursuant to this Section 5(g) to the extent they are available on EDGAR or to the extent such provision of such reports, documents or other information would require public disclosure by the Company under Regulation FD;
(h) To use the net proceeds received by it from the sale of the Shares pursuant to this Agreement in the manner specified in the Pricing Prospectus under the caption Use of Proceeds;
(i) To use its best efforts to list for quotation the Shares on the Nasdaq Stock Market Inc.s National Market (Nasdaq);
(j) To file with the Commission such information on Form 10-Q or Form 10-K as may be required by Rule 463 under the Act;
(k) If the Company elects to rely upon Rule 462(b), the Company shall file a Rule 462(b) Registration Statement with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for the Rule 462(b)
Registration Statement or give irrevocable instructions for the payment of such fee pursuant to Rule 3a(c) of the Commissions Informal and other Procedures (16 CFR 202.3a);
(l) Upon request of any Underwriter, to furnish, or cause to be furnished, to such Underwriter an electronic version of the Companys trademarks, servicemarks and corporate logo for use on the website, if any, operated by such Underwriter for the purpose of facilitating the on-line offering of the Shares (the License); provided, however, that the License shall be used solely for the purpose described above, is granted without any fee and may not be assigned or transferred; and
(m) To promptly notify you if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of the Shares within the meaning of the Act and (ii) the last Time of Delivery.
6. (a) The Company represents and agrees that, without the prior consent of the Representatives, it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus as defined in Rule 405 under the Act; each Selling Stockholder represents and agrees that, without the prior consent of the Company and the Representatives, it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus; each Underwriter represents and agrees that, without the prior consent of the Company and the Representatives, it has not made and will not make any offer relating to the Shares that would constitute a free writing prospectus; any such free writing prospectus the use of which has been consented to by the Company and the Representatives is listed on Schedule III(a) or Schedule III(c) hereto;
(b) The Company has complied and will comply with the requirements of Rule 433 under the Act applicable to any Issuer Free Writing Prospectus, including timely filing with the Commission or retention where required and legending; and the Company represents that it has satisfied and agrees that it will satisfy the conditions under Rule 433 under the Act to avoid a requirement to file with the Commission any electronic road show;
(c) The Company agrees that if at any time following issuance of an Issuer Free Writing Prospectus or Section 5(d) Writing prepared or authorized by it any event occurred or occurs as a result of which such Issuer Free Writing Prospectus or Section 5(d) Writing prepared or authorized by it would conflict with the information in the Registration Statement, the Pricing Prospectus or the Prospectus or would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances then prevailing, not misleading, the Company will give prompt notice thereof to the Representatives and, if requested by the Representatives, will prepare and furnish without charge to each Underwriter an Issuer Free Writing Prospectus, Section 5(d) Writing or other document which will correct such conflict, statement or omission; provided, however, that this representation and warranty shall not apply to any statements or omissions in an Issuer Free Writing Prospectus made in reliance upon and in conformity with the Underwriter Information or any Selling Stockholder Information;
(d) The Company represents and agrees that (i) it has not engaged in, or authorized any other person to engage in, any Section 5(d) Communications, other than Section 5(d) Communications with the prior consent of the Representatives with entities
that are qualified institutional buyers as defined in Rule 144A under the Act or institutions that are accredited investors as defined in Rule 501(a) under the Act; and (ii) it has not distributed, or authorized any other person to distribute, any Section 5(d) Writings, other than those distributed with the prior consent of the Representatives; and the Company reconfirms that the Underwriters have been authorized to act on its behalf in engaging in Section 5(d) Communications; and
(e) Each Underwriter represents and agrees that any Section 5(d) Communications undertaken by it were with entities that are qualified institutional buyers as defined in Rule 144A under the Act or institutions that are accredited investors as defined in Rule 501(a) under the Act.
7. The Company and each of the Selling Stockholders covenant and agree with one another and with the several Underwriters that (a) the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Companys counsel and accountants in connection with the registration of the Shares under the Act and all other expenses incurred in connection with the preparation, printing, reproduction and filing of the Registration Statement, any Preliminary Prospectus, any Section 5(d) Writing, any Issuer Free Writing Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Shares; (iii) all expenses incurred in connection with the qualification of the Shares for offering and sale under state securities laws as provided in Section 5(b) hereof, including the reasonable and documented fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky survey; (iv) all fees and expenses in connection with listing the Shares on Nasdaq; (v) the filing fees incident to, and the reasonable and documented fees and disbursements of counsel for the Underwriters in connection with, any required review by FINRA of the terms of the sale of the Shares; (vi) the cost of preparing stock certificates, if applicable; (vii) the cost and charges of any transfer agent or registrar; (viii) the costs and expenses of the Company relating to investor presentations on any road show or testing-the-waters meetings undertaken in connection with the marketing of the Shares, including without limitation, expenses associated with the production of investor presentation slides, graphics and videos, fees and expenses of any consultants engaged by the Company in connection with the road show presentations, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and the cost of aircraft and other transportation chartered in connection with the road show or testing-the-waters meetings; provided, however, that the cost of any aircraft chartered in connection with the road show or any testing-the-waters meetings shall be paid 50% by the Company and 50% by the Underwriters; (ix) the fees and expenses of one counsel for the Selling Stockholders and (x) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section; provided, however, that the amount payable by the Company pursuant to subsection (iii) and the reasonable fees and disbursements of counsel to the Underwriters described in subsection (v) of this Section shall not exceed $35,000 in the aggregate; and (b) such Selling Stockholder will pay or cause to be paid all costs and expenses incident to the performance of such Selling
Stockholders obligations hereunder which are not otherwise specifically provided for in this Section, including (i) any fees and expenses of counsel for such Selling Stockholder not paid by the Company under (a)(iv) of this subsection, and (ii) all expenses and taxes incident to the sale and delivery of the Shares to be sold by such Selling Stockholder to the Underwriters hereunder. It is understood, however, that the Company shall bear, and the Selling Stockholders shall not be required to pay or to reimburse the Company for, the cost of any other matters not directly relating to the sale and purchase of the Shares pursuant to this Agreement, and that, except as provided in this Section, and Sections 9 and 12 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Shares by them, and any advertising expenses connected with any offers they may make.
8. The obligations of the Underwriters hereunder, as to the Shares to be delivered at each Time of Delivery, shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company and the Selling Stockholders herein are, at and as of the Applicable Time and such Time of Delivery, true and correct, the condition that the Company and the Selling Stockholders shall have performed all of their obligations hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) under the Act within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; all material required to be filed by the Company pursuant to Rule 433(d) under the Act shall have been filed with the Commission within the applicable time period prescribed for such filing by Rule 433; if the Company has elected to rely upon Rule 462(b) under the Act, the Rule 462(b) Registration Statement shall have become effective by 10:00 P.M., Washington, D.C. time, on the date of this Agreement; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; no stop order suspending or preventing the use of the Pricing Prospectus, Prospectus or any Issuer Free Writing Prospectus shall have been initiated or threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction;
(b) Cooley LLP, counsel for the Underwriters, shall have furnished to you such written opinion or opinions dated such Time of Delivery, in form and substance satisfactory to you, and such counsel shall have received such papers and information as it may reasonably request to enable it to pass upon such matters;
(c) Kirkland & Ellis LLP, counsel for the Company, shall have furnished to you their written opinion, dated such Time of Delivery, in form and substance reasonably satisfactory to you;
(d) The respective counsel for each of the Selling Stockholders, as indicated in Schedule II hereto, each shall have furnished to you their written opinion with respect to each of the Selling Stockholders for whom they are acting as counsel, dated such Time of Delivery, in form and substance reasonably satisfactory to you;
(e) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at each Time of Delivery, PricewaterhouseCoopers LLP shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you;
(f) (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included in the Pricing Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Pricing Prospectus, and (ii) since the respective dates as of which information is given in the Pricing Prospectus there shall not have been any change in the capital stock (other than as a result of (A) the exercise or settlement (including any net or cashless exercises or settlements) of stock options or restricted stock units, as applicable, or the award of stock options or restricted stock units in the ordinary course of business, and (B) the repurchase of unvested Stock by the Company upon termination of the holders employment with the Company, in each case under (A) and (B) pursuant to the terms of the Companys equity plans that are described in the Pricing Prospectus and subject to the terms of award agreements that have been filed as exhibits to the Registration Statement), or long-term debt of the Company or its subsidiaries, taken as a whole, or any change or effect, or any development involving a prospective change or effect, in or affecting (x) the business, properties, general affairs, management, financial position, stockholders equity or results of operations of the Company and its subsidiaries, taken as a whole, except as set forth or contemplated in the Pricing Prospectus and the Prospectus, or (y) the ability of the Company to perform its obligations under this Agreement, including the issuance and sale of the Shares, or to consummate the transactions contemplated in the Pricing Prospectus and the Prospectus, the effect of which, in any such case described in clause (i) or (ii), is in your judgment so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Pricing Prospectus and the Prospectus;
(g) On or after the Applicable Time (i) no downgrading shall have occurred in the rating accorded the Companys debt securities by any nationally recognized statistical rating organization, as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Companys debt securities;
(h) On or after the Applicable Time there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on Nasdaq; (ii) a suspension or material limitation in trading in the Companys securities on Nasdaq; (iii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities or a material disruption in commercial banking or securities settlement or clearance services in the United
States; (iv) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war or (v) the occurrence of any other calamity or crisis or any change in financial, political or economic conditions in the United States or elsewhere, if the effect of any such event specified in clause (iv) or (v) in your judgment makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares being delivered at such Time of Delivery on the terms and in the manner contemplated in the Pricing Prospectus and the Prospectus;
(i) The Shares to be sold at such Time of Delivery shall have been duly listed for quotation on Nasdaq;
(j) The Company shall have obtained and delivered to the Underwriters executed copies of an agreement from each director, each officer and each stockholder of the Company listed on Schedule IV, substantially to the effect set forth in Annex I hereof in form and substance satisfactory to you;
(k) The Company shall have complied with the provisions of Section 5(c) hereof with respect to the furnishing of prospectuses on the New York Business Day next succeeding the date of this Agreement;
(l) The Company and the Selling Stockholders shall have furnished or caused to be furnished to you at such Time of Delivery certificates of officers of the Company and of the Selling Stockholders, respectively, reasonably satisfactory to you as to the accuracy of the representations and warranties of the Company and the Selling Stockholders, respectively, herein at and as of such Time of Delivery, as to the performance by the Company and the Selling Stockholders of all of their respective obligations hereunder to be performed at or prior to such Time of Delivery, as to such other matters as you may reasonably request, and the Company shall have furnished or caused to be furnished certificates as to the matters set forth in subsections (a) and (f) of this Section; and
(m) The Chief Financial Officer of the Company shall have furnished to you a certificate as to the accuracy of certain financial information included in the Registration Statement, the Pricing Prospectus and the Prospectus, dated such Time of Delivery in form and substance satisfactory to you.
9. (a) The Company will indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus, any roadshow as defined in Rule 433(h) under the Act (a roadshow), any issuer information filed or required to be filed pursuant to Rule 433(d) under the Act or any Section 5(d) Writing prepared or authorized by the Company, or arise out of or are based upon the 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 each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however,
that the Company and the Selling Stockholders shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus or any Section 5(d) Writing, in reliance upon and in conformity with the Underwriter Information.
(b) Each of [insert names of Selling Stockholders], will severally and not jointly indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto or any Issuer Free Writing Prospectus, or any roadshow or any Section 5(d) Writing, in reliance upon and in conformity with any Selling Stockholder Information furnished to the Company in writing by such Selling Stockholder expressly for use therein; and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that such Selling Stockholder shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus or any amendment or supplement thereto or any Issuer Free Writing Prospectus or any 5(d) Writing, in reliance upon and in conformity with the Underwriter Information; and provided, further, that the liability of each Selling Stockholder pursuant to this subsection (b) shall not exceed the proceeds (net of any underwriting discounts and commissions but before deducting expenses) from the sale of the Shares sold by such Selling Stockholder hereunder (the Selling Stockholder Proceeds).
(c) Each Underwriter, severally and not jointly, will indemnify and hold harmless the Company and each Selling Stockholder against any losses, claims, damages or liabilities to which the Company or such Selling Stockholder may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any Preliminary
Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or any roadshow or any Section 5(d) Writing, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or any roadshow or any Section 5(d) Writing, in reliance upon and in conformity with the Underwriter Information; and will reimburse the Company and each Selling Stockholder for any legal or other expenses reasonably incurred by the Company or such Selling Stockholder in connection with investigating or defending any such action or claim as such expenses are incurred. As used in this Agreement with respect to an Underwriter and an applicable document, Underwriter Information shall mean the written information furnished to the Company by such Underwriter through the Representatives expressly for use therein; it being understood and agreed upon that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: the concession and reallowance figures appearing in the [ ] paragraph under the caption Underwriting, and the information contained in the [ ] paragraph under the caption Underwriting.
(d) Promptly after receipt by an indemnified party under subsection (a), (b) or (c) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; provided that the failure to notify the indemnifying party shall not relieve it from any liability that it may have under the preceding paragraphs of this Section 9 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided further that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party otherwise than under the preceding paragraphs of this Section 9. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim 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 indemnified party.
(e) If the indemnification provided for in this Section 9 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a), (b) or (c) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (d) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders on the one hand or the Underwriters on the other and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, each of the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this subsection (e) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e), (i) no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, (ii) the contribution by the Selling Stockholders pursuant to this subsection (e) shall not exceed the Selling Stockholder Proceeds (without duplication of any amounts such Selling Stockholder has paid under subsection (b) above) and (iii) the Selling Stockholders shall be liable only to the extent that the relevant loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission, in each case, which relates to the Selling
Stockholder made in the Registration Statement, any Preliminary Prospectus, the Pricing Prospectus or the Prospectus, or any amendment or supplement thereto, or any Issuer Free Writing Prospectus, or any roadshow, or any Section 5(d) Writing, in reliance upon and in conformity with any Selling Stockholder Information furnished to the Underwriters in writing by the Selling Stockholder expressly for use therein. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters obligations in this subsection (e) to contribute are several in proportion to their respective underwriting obligations and not joint and the Selling Stockholders obligations in this subsection (e) to contribute are several in proportion to their Selling Stockholder Proceeds and not joint.
(f) The obligations of the Company and the Selling Stockholders under this Section 9 shall be in addition to any liability which the Company and the Selling Stockholders may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act and each broker-dealer affiliate of any Underwriter; and the obligations of the Underwriters under this Section 9 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any person who, with his or her consent, is named in the Registration Statement as about to become a director of the Company) and to each person, if any, who controls the Company or any Selling Stockholder within the meaning of the Act.
(g) Notwithstanding anything to the contrary in this Agreement, the aggregate liability of each Selling Stockholder under such Selling Stockholders representations and warranties contained in Section 1(b) hereof, under any certificate delivered pursuant to this Agreement, under the indemnity and contribution agreements contained in this Section 9, or otherwise pursuant to this Agreement shall not exceed the Selling Stockholder Proceeds received by such Selling Stockholder.
10. (a) If any Underwriter shall default in its obligation to purchase the Shares that it has agreed to purchase hereunder at a Time of Delivery, you may in your discretion arrange for you or another party or other parties to purchase such Shares on the terms contained herein. If within thirty-six hours after such default by any Underwriter you do not arrange for the purchase of such Shares, then the Company and the Selling Stockholders shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Shares on such terms. In the event that, within the respective prescribed periods, you notify the Company and the Selling Stockholders that you have so arranged for the purchase of such Shares, or the Company or a Selling Stockholder notifies you that it has so arranged for the purchase of such Shares, you or the Company or the Selling Stockholders shall have the right to postpone such Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees to file promptly any amendments or supplements to the Registration Statement or the Prospectus which in your opinion may thereby be made necessary. The term Underwriter as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you, the Company and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased does not exceed one-eleventh of the aggregate number of all the Shares to be purchased at such Time of Delivery, then the Company and the Selling Stockholders shall have the right to require each non-defaulting Underwriter to purchase the number of Shares which such Underwriter agreed to purchase hereunder at such Time of Delivery and, in addition, to require each non-defaulting Underwriter to purchase its pro rata share (based on the number of Shares which such Underwriter agreed to purchase hereunder) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made; but nothing herein shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by you, the Company and the Selling Stockholders as provided in subsection (a) above, the aggregate number of such Shares which remains unpurchased exceeds one-eleventh of the aggregate number of all of the Shares to be purchased at such Time of Delivery, or if the Company and the Selling Stockholders shall not exercise the right described in subsection (b) above to require non-defaulting Underwriters to purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement (or, with respect to a Second Time of Delivery, the obligations of the Underwriters to purchase and of the Company and the Selling Stockholders to sell the Optional Shares) shall thereupon terminate, without liability on the part of any non-defaulting Underwriter, the Company or the Selling Stockholders, except for the expenses to be borne by the Company, the Selling Stockholders the Underwriters as provided in Section 7 hereof and the indemnity and contribution agreements in Section 9 hereof; but nothing herein shall relieve a defaulting Underwriter from liability for its default.
11. The respective indemnities, agreements, representations, warranties and other statements of the Company, the Selling Stockholders and the several Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Underwriter or any controlling person of any Underwriter, or the Company, or any of the Selling Stockholders, or any officer or director or controlling person of the Company, or any controlling person of any Selling Stockholders, and shall survive delivery of and payment for the Shares.
12. If this Agreement shall be terminated pursuant to Section 10 hereof, neither the Company nor the Selling Stockholders shall then be under any liability to any Underwriter except as provided in Sections 7 and 9 hereof; but, if for any other reason (other than those set forth in clauses (i), (iii), (iv) and (v) of Section 8(h)), any Shares are not delivered by or on behalf of the Company and the Selling Stockholders as provided herein, the Company and each of the Selling Stockholders pro rata (based on the number of Shares to be sold by the Company and such Selling Stockholder hereunder), with the number of Shares to be sold by and to be included, for the purposes of this Section, in the number of Shares to be sold by the Company, will reimburse the Underwriters through you for all documented out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Shares not
so delivered, but the Company and the Selling Stockholders shall then be under no further liability to any Underwriter except as provided in Sections 7 and 9 hereof.
13. In all dealings hereunder, you shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by you jointly or by you on behalf of the Underwriters; and in all dealings with any POA Selling Stockholder hereunder, you and the Company shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of such POA Selling Stockholder made or given by any or all of the Attorneys-in-Fact for such POA Selling Stockholder.
In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Underwriters are required to obtain, verify and record information that identifies their respective clients, including the Company and the Selling Stockholders, which information may include the name and address of their respective clients, as well as other information that will allow the Underwriters to properly identify their respective clients.
All statements, requests, notices and agreements hereunder shall be in writing, and (A) if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as the representatives (i) in care of Goldman Sachs & Co. LLC, 200 West Street, New York, New York 10282-2198, Attention: Registration Department and (ii) in care of BofA Securities, Inc. at One Bryant Park, New York, New York 10036, Attention: Syndicate Department; (B) if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth on the cover of the Registration Statement, Attention: Secretary; (C) if to any Selling Stockholder shall be delivered or sent by mail, telex or facsimile transmission to the Attorneys-in-Fact for the Selling Stockholders at the address set forth in Schedule II hereto (B); and (D) if to any stockholder that has delivered a lock-up letter described in Section 8(j) hereof shall be delivered or sent by mail to his or her respective address provided in Schedule IV hereto or such other address as such stockholder provides in writing to the Company; provided, however, that any notice to an Underwriter pursuant to Section 9(d) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Underwriter at its address set forth in its Underwriters Questionnaire or telex constituting such Questionnaire, which address will be supplied to the Company or the Selling Stockholders by you on request; provided further that notices under subsection 5(e) shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to you as the Representatives at Goldman Sachs & Co. LLC, 200 West Street, New York, New York 10282-2198, Attention: Control Room. Any such statements, requests, notices or agreements shall take effect upon receipt thereof.
14. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and the Selling Stockholders and, to the extent provided in Sections 9 and 11 hereof, the officers and directors of the Company and each person who controls the Company, any Selling Stockholder or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign by reason merely of such purchase.
15. Time shall be of the essence of this Agreement. As used herein, the term business day shall mean any day when the Commissions office in Washington, D.C. is open for business.
16. The Company and the Selling Stockholders acknowledge and agree that (i) the purchase and sale of the Shares pursuant to this Agreement is an arms-length commercial transaction between the Company and the Selling Stockholders, on the one hand, and the several Underwriters, on the other, (ii) in connection therewith and with the process leading to such transaction each Underwriter is acting solely as a principal and not the agent or fiduciary of the Company or any Selling Stockholder, (iii) no Underwriter has assumed an advisory or fiduciary responsibility in favor of the Company or any Selling Stockholder with respect to the offering contemplated hereby or the process leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Company or any Selling Stockholder on other matters) or any other obligation to the Company or any Selling Stockholder except the obligations expressly set forth in this Agreement and (iv) the Company and each Selling Stockholder has consulted its own legal and financial advisors to the extent it deemed appropriate. The Company and each Selling Stockholder agrees that it will not claim that the Underwriters, or any of them, has rendered advisory services of any nature or respect, or owes a fiduciary or similar duty to the Company, or any Selling Stockholder in connection with such transaction or the process leading thereto.
17. This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Company, the Selling Stockholders and the Underwriters, or any of them, with respect to the subject matter hereof.
18. Recognition of the U.S. Special Resolution Regimes:
(a) In the event that any Underwriter that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer from such Underwriter of this Agreement, and any interest and obligation in or under this Agreement, will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Agreement, and any such interest and obligation, were governed by the laws of the United States or a state of the United States.
(b) In the event that any Underwriter that is a Covered Entity or a BHC Act Affiliate of such Underwriter becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against such Underwriter are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States.
(c) For the purposes of this Section 18, the following definitions shall apply:
(i) BHC Act Affiliate has the meaning assigned to the term affiliate in, and shall be interpreted in accordance with, 12 U.S.C. § 1841(k).
(ii) Covered Entity means any of the following:
(A) a covered entity as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b);
(B) a covered bank as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or
(C) a covered FSI as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
(iii) Default Right has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
(iv) U.S. Special Resolution Regime means each of (i) the Federal Deposit Insurance Act and the regulations promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated thereunder.
19. This Agreement and any transaction contemplated by this Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflict of laws that would results in the application of any other law than the laws of the State of New York. The Company and each Selling Stockholder agree that any suit or proceeding arising in respect of this Agreement or any transaction contemplated by this Agreement will be tried exclusively in the U.S. District Court for the Southern District of New York or, if that court does not have subject matter jurisdiction, in any state court located in The City and County of New York and the Company and each Selling Stockholder agree to submit to the jurisdiction of, and to venue in, such courts.
20. The Company, each Selling Stockholder and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
21. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument.
22. Notwithstanding anything herein to the contrary, the Company and the Selling Stockholders are authorized to disclose to any persons the U.S. federal and state income tax treatment and tax structure of the potential transaction and all materials of any kind (including tax opinions and other tax analyses) provided to the Company and the Selling Stockholders relating to that treatment and structure, without the Underwriters imposing any limitation of any kind. However, any information relating to the tax treatment and tax structure shall remain confidential (and the foregoing sentence shall not apply) to the extent necessary to enable any person to comply with securities laws. For this purpose, tax structure is limited to any facts that may be relevant to that treatment.
If the foregoing is in accordance with your understanding, please sign and return to us one for the Company and each of the Representatives plus one for each counsel and the Custodian counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the Underwriters, the Company and each of the Selling Stockholders. It is understood that your acceptance of this letter on behalf of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which shall be submitted to the Company and the Selling
Stockholders for examination upon request, but without warranty on your part as to the authority of the signers thereof.
(signature page follows)
Any person executing and delivering this Agreement as Attorney-in-Fact for a Selling Stockholder represents by so doing that he has been duly appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and binding Power-of-Attorney that authorizes such Attorney-in-Fact to take such action.
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Very truly yours, | ||
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Ping Identity Holding Corp. | ||
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As Attorney-in-Fact acting on behalf of each of the Selling Stockholders named in Schedule II to this Agreement. | |
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Accepted as of the date hereof: |
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[in ] |
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Goldman Sachs & Co. LLC |
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BofA Securities, Inc. |
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On behalf of each of the Underwriters |
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SCHEDULE I
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Goldman Sachs & Co. LLC |
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BofA Securities, Inc. |
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RBC Capital Markets, LLC |
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Citigroup Global Markets Inc. |
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Barclays Capital Inc. |
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Credit Suisse Securities (USA) LLC |
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Deutsche Bank Securities Inc. |
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Wells Fargo Securities, LLC |
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SCHEDULE II
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The Company. |
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The Selling Stockholder(s): |
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[Name of Selling Stockholder](b) |
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[Name of Selling Stockholder](c) |
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(a) This Selling Stockholder is represented by [Name and Address of Counsel] and has appointed [Names of Attorneys-in-Fact (not less than two)], and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(b) This Selling Stockholder is represented by [Name and Address of Counsel] and has appointed [Names of Attorneys-in-Fact (not less than two)], and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(c) This Selling Stockholder is represented by [Name and Address of Counsel] and has appointed [Names of Attorneys-in-Fact (not less than two)], and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(d) This Selling Stockholder is represented by [Name and Address of Counsel] and has appointed [Names of Attorneys-in-Fact (not less than two)], and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
(e) This Selling Stockholder is represented by [Name and Address of Counsel] and has appointed [Names of Attorneys-in-Fact (not less than two)], and each of them, as the Attorneys-in-Fact for such Selling Stockholder.
SCHEDULE III
(a) Issuer Free Writing Prospectuses not included in the Pricing Disclosure Package:
[Electronic roadshow dated XXXX]
(b) Additional Documents Incorporated by Reference:
[None]
(c) Information other than the Pricing Prospectus that comprise the Pricing Disclosure Package:
The initial public offering price per share for the Shares is $
The number of Shares purchased by the Underwriters is [ ].
[Add any other pricing disclosure.]
(d) Section 5(d) Writings:
[ ]
SCHEDULE IV
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ANNEX I
Form of Lock-Up Agreement
[To Insert]
ANNEX II
[Form of Press Release]
Ping Identity Holding Corp.
[Date]
Ping Identity Holding Corp. announced today that Goldman Sachs & Co. LLC, the lead book-running manager in the Companys recent public sale of shares of the Companys common stock, is [waiving] [releasing] a lock-up restriction with respect to shares of the Companys common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on , 20 , and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PING IDENTITY CORP.
* * * * *
[ ], being the [ ] of Ping Identity Corp., a corporation duly organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the Corporation), DOES HEREBY CERTIFY as follows:
FIRST: The present name of the Corporation is Ping Identity Corp. The Corporation was incorporated under the name Roaring Fork Holding, Inc. by the filing of its original Certificate of Incorporation with the Delaware Secretary of State on May 25, 2016. The Corporation filed its (i) Amended and Restated Certificate of Incorporation on June 30, 2016, (ii) Second Amended Restated Certificate of Incorporation on August 3, 2016 and (iii) Third Amended and Restated Certificate of Incorporation on [], 2019 (as amended and restated, the Certificate of Incorporation).
SECOND: The Board of Directors of the Corporation, pursuant to a unanimous written consent, adopted resolutions authorizing the Corporation to amend, integrate and restate the Certificate of Incorporation of the Corporation in its entirety to read as set forth in Exhibit A attached hereto and made a part hereof (the Restated Certificate).
THIRD: The Restated Certificate restates and integrates and further amends the Certificate of Incorporation of this Corporation.
FOURTH: The Restated Certificate was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware and by the written consent of its stockholders in accordance with Section 228 of the General Corporation Law of the State of Delaware.
* * * * *
IN WITNESS WHEREOF, Ping Identity Corp. has caused this Fourth Amended and Restated Certificate of Incorporation to be executed by its duly authorized officer on this day of , 2019.
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PING IDENTITY CORP. | |
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Exhibit A
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PING IDENTITY CORP.
ARTICLE ONE
The name of the corporation is Ping Identity Corp. (the Corporation).
ARTICLE TWO
The address of the Corporations registered office in the State of Delaware is [ ]. The name of its registered agent at such address is [ ].
ARTICLE THREE
The nature and purpose of the business of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (DGCL).
ARTICLE FOUR
Section 1. Authorized Shares. The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is [550,000,000] shares, consisting of two classes as follows:
1. [50,000,000] shares of Preferred Stock, par value $0.001 per share (the Preferred Stock); and
2. [500,000,000] shares of Common Stock, par value $0.001 per share (the Common Stock).
The Preferred Stock and the Common Stock shall have the designations, rights, powers and preferences and the qualifications, restrictions and limitations thereof, if any, set forth below.
Section 2. Preferred Stock. The Board of Directors of the Corporation (the Board of Directors) is authorized, subject to limitations prescribed by law, to provide, by resolution or resolutions for the issuance of shares of Preferred Stock in one or more series, and with respect to each series, to establish the number of shares to be included in each such series, and to fix the voting powers (if any), designations, powers, preferences, and relative, participating, optional or other special rights, if any, of the shares of each such series, and any qualifications, limitations or restrictions thereof. The powers (including voting powers), preferences, and relative, participating, optional and other special rights of each series of Preferred Stock and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. Subject to the rights of the holders of any series of
Preferred Stock, the number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the approval of the Board of Directors and by the affirmative vote of the holders of a majority in voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally in an election of directors, without the separate vote of the holders of the Preferred Stock as a class, irrespective of the provisions of Section 242(b)(2) of the DGCL.
Section 3. Common Stock.
(a) Except as otherwise provided by the DGCL or this fourth amended and restated certificate of incorporation (as it may be amended, the Certificate of Incorporation) and subject to the rights of holders of any series of Preferred Stock, all of the voting power of the stockholders of the Corporation shall be vested in the holders of the Common Stock. Each share of Common Stock shall entitle the holder thereof to one vote for each share held by such holder on all matters voted upon by the stockholders of the Corporation; provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any certificate of designation relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any certificate of designation relating to any series of Preferred Stock) or pursuant to the DGCL.
(b) Except as otherwise required by law or expressly provided in this Certificate of Incorporation, each share of Common Stock shall have the same powers, rights and privileges and shall rank equally, share ratably and be identical in all respects as to all matters.
(c) Subject to the rights of the holders of Preferred Stock and to the other provisions of applicable law and this Certificate of Incorporation, holders of Common Stock shall be entitled to receive equally, on a per share basis, such dividends and other distributions in cash, securities or other property of the Corporation if, as and when declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor.
(d) In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, after payment or provision for payment of the Corporations debts and any other payments required by law and amounts payable upon shares of Preferred Stock ranking senior to the shares of Common Stock upon such dissolution, liquidation or winding up, if any, the remaining net assets of the Corporation shall be distributed to the holders of shares of Common Stock and the holders of shares of any other class or series ranking equally with the shares of Common Stock upon such dissolution, liquidation or winding up, equally on a per share basis. A merger or consolidation of the Corporation with or into any other corporation or other entity, or a sale or conveyance of all or any part of the assets of the Corporation (which shall not in fact result in the liquidation of the Corporation and the distribution of assets
to its stockholders) shall not be deemed to be a voluntary or involuntary liquidation or dissolution or winding up of the Corporation within the meaning of this Paragraph (d).
(e) Upon filing and effectiveness of this Certificate of Incorporation with the Secretary of State of the State of Delaware in accordance with the DGCL (the Effective Time), each share of then outstanding common stock, par value $0.001 per share, of the Corporation (Old Common Stock), shall automatically, without any action on the part of the holders thereof or the Corporation, be reclassified as and subdivided into [ ] validly issued, fully paid and non-assessable shares of Common Stock (the Stock Split). No fractional shares will be issued in connection with the Stock Split. Fractional shares that would otherwise be issuable to stockholders of record as a result of the Stock Split will be rounded up to a whole share. Each stock certificate of the Corporation which immediately prior to Effective Time represented one or more shares of Old Common Stock shall immediately after the Effective Time represent the whole number of shares of Common Stock into which the shares of Old Common Stock represented by such stock certificate prior to the Stock Split were reclassified and subdivided in the Stock Split (the Split-Adjusted Shares). The Corporation shall, upon the request of each holder of record having a certificate or certificates representing shares of Old Common Stock issued and outstanding immediately prior to the Effective Time (each a Pre-Split Certificate), issue and deliver to such holder in exchange for each Pre-Split Certificate, a new certificate or certificates representing the Split-Adjusted Shares, provided, however, that the Corporation shall not be obligated to issue a new certificate evidencing such Split-Adjusted Shares unless and until the corresponding Pre-Split Certificate is delivered to the Corporation or its transfer agent, or the holder notifies the Corporation or its transfer agent that the Pre-Split Certificate has been lost, stolen or destroyed and executes an agreement reasonably satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with the Pre-Split Certificate.
(f) No holder of shares of Common Stock shall be entitled to preemptive or subscription rights.
ARTICLE FIVE
Section 1. Board of Directors. Except as otherwise provided in this Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
Section 2. Number of Directors. Subject to any rights of the holders of any class or series of Preferred Stock to elect additional directors under specified circumstances or otherwise, the number of directors which shall constitute the Board of Directors shall initially be eight (8) and, thereafter, shall be fixed from time to time exclusively by resolution of the Board.
Section 3. Classes of Directors. The directors of the Corporation, other than those who may be elected by the holders of any series of Preferred Stock, shall be divided into three classes, as nearly equal in number as possible, designated Class I, Class II and Class III.
Section 4. Election and Term of Office. The directors shall be elected by a plurality of the votes cast; provided that, whenever the holders of any class or series of capital stock of the Corporation are entitled to elect one or more directors pursuant to the provisions of this Certificate of Incorporation (including, but not limited to, any duly authorized certificate of designation), such directors shall be elected by a plurality of the votes cast by such holders. The term of office of the initial Class I directors shall expire at the first annual meeting of stockholders following the date the Common Stock is first publicly traded (the IPO Date), the term of office of the initial Class II directors shall expire at the second succeeding annual meeting of stockholders after the IPO Date and the term of office of the initial Class III directors shall expire at the third succeeding annual meeting of the stockholders after the IPO Date. For the purposes hereof, the Board of Directors may assign directors already in office to Class I, Class II and Class III, in accordance with the terms of that certain Director Nomination Agreement, dated on or about [ ], 2019 (as amended and/or restated or supplemented in accordance with its terms, the Nomination Agreement), by and among the Corporation and the investors named therein. At each annual meeting of stockholders after the IPO Date, directors elected to replace those of a class whose terms expire at such annual meeting shall be elected to hold office until the third succeeding annual meeting after their election and until their respective successors shall have been duly elected and qualified. Each director shall hold office until the annual meeting of stockholders for the year in which such directors term expires and a successor is duly elected and qualified or until his or her earlier death, resignation or removal. Nothing in this Certificate of Incorporation shall preclude a director from serving consecutive terms. Elections of directors need not be by written ballot unless the Bylaws of the Corporation (as amended and/or restated the Bylaws) shall so provide.
Section 5. Newly-Created Directorships and Vacancies. Subject to the rights of the holders of any series of Preferred Stock then outstanding and except as otherwise set forth in the Nomination Agreement, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, disqualification, removal from office or any other cause may be filled only by resolution of a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and may not be filled in any other manner. A director elected or appointed to fill a vacancy shall serve for the unexpired term of his or her predecessor in office and until his or her successor is elected and qualified or until his or her earlier death, resignation or removal. A director elected or appointed to fill a position resulting from an increase in the number of directors shall hold office until the next election of the class for which such director shall have been elected or appointed and until his or her successor is elected and qualified, or until his or her earlier death, resignation or removal. No decrease in the authorized number of directors shall shorten the term of any incumbent director.
Section 6. Removal and Resignation of Directors. Subject to the rights of the holders of any series of Preferred Stock then outstanding and notwithstanding any other provision of this Certificate of Incorporation, (i) prior to the first date (the Trigger Date) on which Vista Equity Partners Fund VI, L.P., Vista Equity Partners Fund VI-A, L.P., VEPF VI FAF, L.P., Vista Equity Partners Fund VI GP, L.P., VEPF VI GP, Ltd., VEPF Management, L.P. and VEP Group, LLC (collectively, Vista) and their Affiliated Companies (as defined herein) cease to beneficially own in the aggregate (directly or indirectly) 40% or more of the voting power of the then outstanding shares of capital stock of the Corporation then entitled to vote generally in the election of directors
(Voting Stock), directors may be removed with or without cause upon the affirmative vote of stockholders representing at least a majority of the voting power of the then outstanding shares of Voting Stock, voting together as a single class and (ii) on and after the Trigger Date, directors may only be removed for cause and only upon the affirmative vote of stockholders representing at least sixty-six and two-thirds percent (662/3%) of the voting power of the then outstanding shares of Voting Stock, at a meeting of the Corporations stockholders called for that purpose. Any director may resign at any time upon written notice to the Corporation.
Section 7. Rights of Holders of Preferred Stock. Notwithstanding the provisions of this ARTICLE FIVE, whenever the holders of one or more series of Preferred Stock shall have the right, voting separately or together by series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorship shall be subject to the rights of such series of Preferred Stock. During any period when the holders of any series of Preferred Stock, voting separately as a series or together with one or more series, have the right to elect additional directors, then upon commencement and for the duration of the period during which such right continues: (i) the then otherwise total authorized number of directors of the Corporation shall automatically be increased by such specified number of directors, and the holders of such Preferred Stock shall be entitled to elect the additional directors so provided for or fixed pursuant to said provisions, and (ii) each such additional director shall serve until such directors successor shall have been duly elected and qualified, or until such directors right to hold such office terminates pursuant to said provisions, whichever occurs earlier, subject to his or her earlier death, resignation, disqualification or removal. Except as otherwise provided by the Board of Directors in the resolution or resolutions establishing such series, whenever the holders of any series of Preferred Stock having such right to elect additional directors are divested of such right pursuant to the provisions of such stock, the terms of office of all such additional directors elected by the holders of such stock, or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of such additional directors, shall forthwith terminate (in which case each such director thereupon shall cease to be qualified as, and shall cease to be, a director) and the total authorized number of directors of the Corporation shall automatically be reduced accordingly.
Section 8. Advance Notice. Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws .
ARTICLE SIX
Section 1. Limitation of Liability.
(a) To the fullest extent permitted by the DGCL as it now exists or may hereafter be amended (but, in the case of any such amendment, only to the extent such amendment permits the Corporation to provide broader exculpation than permitted prior thereto), no director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages arising from a breach of fiduciary duty as a director.
(b) Any amendment, repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such amendment, repeal or modification with respect to any act, omission or other matter occurring prior to such amendment, repeal or modification.
ARTICLE SEVEN
Section 1. Action by Written Consent. Prior to the first date (the Stockholder Consent Trigger Date) on which Vista and its Affiliated Companies (as defined herein) cease to beneficially own in the aggregate (directly or indirectly) at least 35% of the Voting Stock, any action which is required or permitted to be taken by the Corporations stockholders may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of the Corporations stock entitled to vote thereon were present and voted. From and after the Stockholder Consent Trigger Date, any action required or permitted to be taken by the Corporations stockholders may be taken only at a duly called annual or special meeting of the Corporations stockholders and the power of stockholders to consent in writing without a meeting is specifically denied; provided, however, that any action required or permitted to be taken by the holders of Preferred Stock, voting separately as a series or separately as a class with one or more other such series, may be taken without a meeting, without prior notice and without a vote, to the extent expressly so provided the resolutions creating such series of Preferred Stock.
Section 2. Special Meetings of Stockholders. Subject to the rights of the holders of any series of Preferred Stock then outstanding and to the requirements of applicable law, special meetings of stockholders of the Corporation may be called only (i) by or at the direction of the Board of Directors or the Chairman of the Board of Directors pursuant to a written resolution adopted by the affirmative vote of the majority of the total number of directors that the Corporation would have if there were no vacancies or (ii) prior to the Stockholder Consent Trigger Date, by the Chairman of the Board of Directors at the written request of the holders of a majority of the voting power of the then outstanding shares of Voting Stock in the manner provided for in the Bylaws. Any business transacted at any special meeting of stockholders shall be limited to the purpose or purposes stated in the notice of the meeting.
ARTICLE EIGHT
Section 1. Certain Acknowledgments. In recognition and anticipation that (i) certain of the directors, partners, principals, officers, members, managers and/or employees of Vista or its Affiliated Companies (as defined below) may serve as directors or officers of the Corporation and (ii) Vista and its Affiliated Companies engage and may continue to engage in the same or similar activities or related lines of business as those in which the Corporation, directly or indirectly, may engage and/or other business activities that overlap with or compete with those in which the Corporation, directly or indirectly, may engage, and (iii) that the Corporation and its Affiliated Companies may engage in material business transactions with Vista and its Affiliated Companies, and that the Corporation is expected to benefit therefrom, the provisions of this ARTICLE EIGHT are set forth to regulate and define the conduct of certain affairs of the Corporation as they may involve Vista and/or its Affiliated Companies and/or their respective
directors, partners, principals, officers, members, managers and/or employees, including any of the foregoing who serve as officers or directors of the Corporation (collectively, the Exempted Persons), and the powers, rights, duties and liabilities of the Corporation and its officers, directors and stockholders in connection therewith. As used in this Certificate of Incorporation, Affiliated Companies shall mean (a) in respect of Vista, any entity that controls, is controlled by or under common control with Vista (other than the Corporation and any company that is controlled by the Corporation) and any investment funds managed by Vista and (b) in respect of the Corporation, any company controlled by the Corporation.
Section 2. Competition and Corporate Opportunities. To the fullest extent permitted by applicable law, none of the Exempted Persons shall have any fiduciary duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as the Corporation or any of its Affiliated Companies, and no Exempted Person shall be liable to the Corporation or its stockholders for breach of any fiduciary duty solely by reason of any such activities of Vista, its Affiliated Companies or such Exempted Person. To the fullest extent permitted by applicable law, the Corporation, on behalf of itself and its Affiliated Companies, renounces any interest or expectancy of the Corporation and its Affiliated Companies in, or in being offered an opportunity to participate in, business opportunities that are from time to time presented to the Exempted Persons, even if the opportunity is one that the Corporation or its Affiliated Companies might reasonably be deemed to have pursued or had the ability or desire to pursue if granted the opportunity to do so, and each Exempted Person shall have no duty to communicate or offer such business opportunity to the Corporation or its Affiliated Companies and, to the fullest extent permitted by applicable law, shall not be liable to the Corporation, any of its Affiliated Companies or its stockholders for breach of any fiduciary or other duty, as a director, officer or stockholder of the Corporation solely, by reason of the fact that Vista, its Affiliated Companies or any such Exempted Person pursues or acquires such business opportunity, sells, assigns, transfers or directs such business opportunity to another person or fails to present such business opportunity, or information regarding such business opportunity, to the Corporation or any of its Affiliated Companies. Notwithstanding anything to the contrary in this Section 2, the Corporation does not renounce any interest or expectancy it may have in any business opportunity that is expressly offered to any Exempted Person solely in his or her capacity as a director or officer of the Corporation, and not in any other capacity.
Section 3. Certain Matters Deemed Not Corporate Opportunities. In addition to and notwithstanding the foregoing provisions of this ARTICLE EIGHT, a corporate opportunity shall not be deemed to belong to the Corporation if it is a business opportunity the Corporation is not financially able or contractually permitted or legally able to undertake, or that is, from its nature, not in the line of the Corporations business or is of no practical advantage to it or that is one in which the Corporation has no interest or reasonable expectancy.
Section 4. Amendment of this Article. Notwithstanding anything to the contrary elsewhere contained in this Certificate of Incorporation, subject to the rights of the holders of any series of Preferred Stock then outstanding, and in addition to any vote required by applicable law, the affirmative vote of the holders of at least eighty percent (80%) of the voting power of the then outstanding shares of Voting Stock, voting together as a single class, shall be required to alter, amend or repeal, or to adopt any provision inconsistent with, this ARTICLE EIGHT; provided however, that, to the fullest extent permitted by law, neither the alteration, amendment
or repeal of this ARTICLE EIGHT nor the adoption of any provision of this Certificate of Incorporation inconsistent with this ARTICLE EIGHT shall apply to or have any effect on the liability or alleged liability of any Exempted Person for or with respect to any activities or opportunities which such Exempted Person becomes aware prior to such alteration, amendment, repeal or adoption.
Section 5. Deemed Notice. Any person or entity purchasing or otherwise acquiring or holding any interest in any shares of the Corporation shall be deemed to have notice of and to have consented to the provisions of this ARTICLE EIGHT.
ARTICLE NINE
Section 1. Section 203 of the DGCL. The Corporation expressly elects not to be subject to the provisions of Section 203 of the DGCL.
Section 2. Business Combinations with Interested Stockholders. Notwithstanding any other provision in this Certificate of Incorporation to the contrary, the Corporation shall not engage in any Business Combination (as defined hereinafter), at any point in time at which the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act of 1934, as amended (the Exchange Act), with any Interested Stockholder (as defined hereinafter) for a period of three years following the time that such stockholder became an Interested Stockholder, unless:
(a) prior to such time the Board of Directors approved either the Business Combination or the transaction which resulted in such stockholder becoming an Interested Stockholder;
(b) upon consummation of the transaction which resulted in such stockholder becoming an Interested Stockholder, such stockholder owned at least eighty-five percent (85%) of the Voting Stock of the Corporation outstanding at the time the transaction commenced, excluding for purposes of determining the Voting Stock outstanding (but not the outstanding Voting Stock owned by such Interested Stockholder) those shares owned (i) by Persons (as defined hereinafter) who are directors and also officers of the Corporation and (ii) employee stock plans of the Corporation in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
(c) at or subsequent to such time, the Business Combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least sixty-six and two-thirds percent (662/3%) of the outstanding Voting Stock which is not owned by such Interested Stockholder.
Section 3. Exceptions to Prohibition on Interested Stockholder Transactions. The restrictions contained in this ARTICLE NINE shall not apply if:
(a) a stockholder becomes an Interested Stockholder inadvertently and (i) as soon as practicable divests itself of ownership of sufficient shares so that the stockholder
ceases to be an Interested Stockholder; and (ii) would not, at any time within the three- year period immediately prior to a Business Combination between the Corporation and such stockholder, have been an Interested Stockholder but for the inadvertent acquisition of ownership; or
(b) the Business Combination is proposed prior to the consummation or abandonment of and subsequent to the earlier of the public announcement or the notice required hereunder of a proposed transaction which (i) constitutes one of the transactions described in the second sentence of this Section 3(b) of ARTICLE NINE; (ii) is with or by a Person who either was not an Interested Stockholder during the previous three years or who became an Interested Stockholder with the approval of the Board of Directors; and (iii) is approved or not opposed by a majority of the directors then in office (but not less than one) who were directors prior to any Person becoming an Interested Stockholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors. The proposed transactions referred to in the preceding sentence are limited to (x) a merger or consolidation of the Corporation (except for a merger in respect of which, pursuant to Section 251(f) of the DGCL, no vote of the stockholders of the Corporation is required); (y) a sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation (other than to any direct or indirect wholly-owned subsidiary or to the Corporation) having an aggregate market value equal to fifty percent (50%) or more of either that aggregate market value of all of the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding Stock (as defined hereinafter) of the Corporation; or (z) a proposed tender or exchange offer for fifty percent (50%) or more of the outstanding Voting Stock of the Corporation. The Corporation shall give not less than 20 days notice to all Interested Stockholders prior to the consummation of any of the transactions described in clause (x) or (y) of the second sentence of this Section 3(b) of ARTICLE NINE.
Section 4. Definitions. As used in this ARTICLE NINE only, and unless otherwise provided by the express terms of this ARTICLE NINE, the following terms shall have the meanings ascribed to them as set forth in this Section 4:
(a) Affiliate means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another Person;
(b) Associate, when used to indicate a relationship with any Person, means: (i) any corporation, partnership, unincorporated association or other entity of which such Person is a director, officer or general partner or is, directly or indirectly, the owner of twenty percent (20%) or more of any class of Voting Stock; (ii) any trust or other estate in which such Person has at least a twenty percent (20%) beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity; and (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same residence as such Person;
(c) Business Combination means:
(i) any merger or consolidation of the Corporation or any direct or indirect majority-owned subsidiary of the Corporation with (A) the Interested Stockholder, or (B) any other corporation, partnership, unincorporated association or entity if the merger or consolidation is caused by the Interested Stockholder and as a result of such merger or consolidation Section 2 of this ARTICLE NINE is not applicable to the surviving entity;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except proportionately as a stockholder of the Corporation, to or with the Interested Stockholder, whether as part of a dissolution or otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation which assets have an aggregate market value equal to ten percent (10%) or more of either the aggregate market value of all the assets of the Corporation determined on a consolidated basis or the aggregate market value of all the outstanding Stock of the Corporation;
(iii) any transaction which results in the issuance or transfer by the Corporation or by any direct or indirect majority-owned subsidiary of the Corporation of any Stock of the Corporation or of such subsidiary to the Interested Stockholder, except: (A) pursuant to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into Stock of the Corporation or any such subsidiary which securities were outstanding prior to the time that the Interested Stockholder became such; (B) pursuant to a merger under Section 251(g) of the DGCL; (C) pursuant to a dividend or distribution paid or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into Stock of the Corporation or any such subsidiary which security is distributed, pro rata to all holders of a class or series of Stock of the Corporation subsequent to the time the Interested Stockholder became such; (D) pursuant to an exchange offer by the Corporation to purchase Stock made on the same terms to all holders of such Stock; or (E) any issuance or transfer of Stock by the Corporation; provided however, that in no case under items (C)-(E) of this Section 4(c)(iii) of ARTICLE NINE shall there be an increase in the Interested Stockholders proportionate share of the Stock of any class or series of the Corporation or of the Voting Stock of the Corporation;
(iv) any transaction involving the Corporation or any direct or indirect majority-owned subsidiary of the Corporation which has the effect, directly or indirectly, of increasing the proportionate share of the Stock of any class or series, or securities convertible into the Stock of any class or series, of the Corporation or of any such subsidiary which is owned by the Interested Stockholder, except as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares of Stock not caused, directly or indirectly, by the Interested Stockholder; or
(v) any receipt by the Interested Stockholder of the benefit, directly or indirectly (except proportionately as a stockholder of the Corporation), of any loans, advances, guarantees, pledges or other financial benefits (other than those expressly permitted in Sections 4(c)(i)-(iv) of ARTICLE NINE) provided by or through the Corporation or any direct or indirect majority-owned subsidiary of the Corporation;
(d) Control, including the terms controlling, controlled by and under common control with, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Stock, by contract or otherwise. A Person who is the owner of twenty percent (20%) or more of the outstanding Voting Stock of any corporation, partnership, unincorporated association or other entity shall be presumed to have control of such entity, in the absence of proof by a preponderance of the evidence to the contrary; notwithstanding the foregoing, a presumption of control shall not apply where such Person holds Voting Stock, in good faith and not for the purpose of circumventing this ARTICLE NINE, as an agent, bank, broker, nominee, custodian or trustee for one or more owners who do not individually or as a group (as such term is used in Rule 13d-5 under the Securities Exchange Act of 1934, as such Rule is in effect as of the date of this Certificate of Incorporation) have control of such entity;
(e) Interested Stockholder means any Person (other than the Corporation and any direct or indirect majority-owned subsidiary of the Corporation) that (i) is the owner of fifteen percent (15%) or more of the outstanding Voting Stock of the Corporation, or (ii) is an Affiliate or Associate of the Corporation and was the owner of fifteen percent (15%) or more of the outstanding Voting Stock of the Corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such Person is an Interested Stockholder, and the affiliates and associates of such Person. Notwithstanding anything in this ARTICLE NINE to the contrary, the term Interested Stockholder shall not include: (x) Vista or any of its Affiliated Companies, or any other Person with whom any of the foregoing are acting as a group or in concert for the purpose of acquiring, holding, voting or disposing of shares of Stock of the Corporation, (y) any Person who would otherwise be an Interested Stockholder either in connection with or because of a transfer, sale, assignment, conveyance, hypothecation, encumbrance, or other disposition of five percent (5%) or more of the outstanding Voting Stock of the Corporation (in one transaction or a series of transactions) by Vista or any of its affiliates or associates to such Person; provided, however, that such Person was not an Interested Stockholder prior to such transfer, sale, assignment, conveyance, hypothecation, encumbrance, or other disposition; or (z) any Person whose ownership of shares in excess of the fifteen percent (15%) limitation set forth herein is the result of action taken solely by the Corporation, provided that, for purposes of this clause (z) only, such Person shall be an Interested Stockholder if thereafter such Person acquires additional shares of Voting Stock of the Corporation, except as a result of further action by the Corporation not caused, directly or indirectly, by such Person;
(f) Owner, including the terms own and owned, when used with respect to any Stock, means a Person that individually or with or through any of its Affiliates or Associates beneficially owns such Stock, directly or indirectly; or has (A) the right to acquire such Stock (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the owner of Stock tendered pursuant to a tender or exchange offer made by such Person or any of such Persons Affiliates or Associates until such tendered Stock is accepted for purchase or exchange; or (B) the right to vote such Stock pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the owner of any Stock because of such Persons right to vote such Stock if the agreement, arrangement or understanding to vote such Stock arises solely from a revocable proxy or consent given in response to a proxy or consent solicitation made to 10 or more Persons; or (C) has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent as described in (B) of this Section 4(f) of ARTICLE NINE), or disposing of such Stock with any other Person that beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, such Stock; provided, that, for the purpose of determining whether a Person is an Interested Stockholder, the Voting Stock of the Corporation deemed to be outstanding shall include Stock deemed to be owned by the Person through application of this definition of owned but shall not include any other unissued Stock of the Corporation which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise;
(g) Person means any individual, corporation, partnership, unincorporated association or other entity;
(h) Stock means, with respect to any corporation, any capital stock of such corporation and, with respect to any other entity, any equity interest of such entity; and
(i) Voting Stock means, with respect to any corporation, Stock of any class or series entitled to vote generally in the election of directors and, with respect to any entity that is not a corporation, any equity interest entitled to vote generally in the election of the governing body of such entity. Every reference to a percentage of Voting Stock shall refer to such percentage of the votes of such Voting Stock.
ARTICLE TEN
Section 1. Amendments to the Bylaws. Subject to the rights of holders of any series of Preferred Stock then outstanding, in furtherance and not in limitation of the powers conferred by law, prior to the first date (the Amendment Trigger Date) on which Vista and its Affiliated Companies cease to beneficially own in the aggregate (directly or indirectly) at least 50% of the Voting Stock, the Bylaws may be amended, altered or repealed and new bylaws made by, in addition to any vote of the holders of any class or series of capital stock of the Corporation required herein (including any resolution setting forth the terms of any series of Preferred Stock) and any other vote otherwise required by applicable law, the affirmative vote of the holders of at least a majority of
the voting power of all of the then outstanding shares of Voting Stock, voting together as a single class. On and after the Amendment Trigger Date, the Bylaws may be amended, altered or repealed and new bylaws made by (i) the Board or (ii) in addition to any of the holders of any class or series of capital stock of the Corporation required herein (including any certificate of designation relating to any series of Preferred Stock), the Bylaws or applicable law, the affirmative vote of the holders of at least sixty-six and two-thirds percent (662/3%) of the voting power of the then outstanding Voting Stock, voting together as a single class.
Section 2. Amendments to this Certificate of Incorporation. Subject to the rights of holders of any series of Preferred Stock then outstanding, notwithstanding any other provision of this Certificate of Incorporation or the Bylaws, and in addition to any affirmative vote of the holders of any particular class or series of the capital stock required by law or otherwise, no provision of ARTICLE FIVE, ARTICLE SIX, ARTICLE SEVEN, ARTICLE NINE, ARTICLE TEN or ARTICLE ELEVEN of this Certificate of Incorporation may be altered, amended or repealed in any respect, nor may any provision of this Certificate of Incorporation or the Bylaws inconsistent therewith be adopted, unless in addition to any other vote required by this Certificate of Incorporation or otherwise required by law, (i) prior to the Amendment Trigger Date, such alteration, amendment, repeal or adoption is approved by the affirmative vote of the holders of a majority of the voting power of all outstanding shares of Voting Stock, voting together as a single class, and (ii) from and after the Amendment Trigger Date, such alteration, amendment, repeal or adoption is approved by the affirmative vote of holders of at least sixty-six and two-thirds percent (662/3%) of the voting power of all outstanding shares of Voting Stock, voting together as a single class, at a meeting of the Corporations stockholders called for that purpose.
ARTICLE ELEVEN
Section 1. Exclusive Forum. Unless this Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the United States District Court for the District of Delaware) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or stockholder of the Corporation to the Corporation or the Corporations stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, the Certificate of Incorporation or the Bylaws or (iv) any action asserting a claim governed by the internal affairs doctrine; provided that for the avoidance of doubt, this provision, including for any derivative action, will not apply to suits to enforce a duty or liability created by the Securities Act, the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
Section 2. Notice. Any Person purchasing or otherwise acquiring or holding any interest in shares of capital stock of the Corporation (including, without limitation, shares of Common Stock) shall be deemed to have notice of and to have consented to the provisions of this ARTICLE ELEVEN.
ARTICLE TWELVE
If any provision or provisions of this Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not, to the fullest extent permitted by applicable law, in any way be affected or impaired thereby.
AMENDED AND RESTATED BYLAWS
OF
PING IDENTITY CORP.
A Delaware corporation
(Adopted as of [ ], 2019)
ARTICLE I
OFFICES
Section 1. Offices. Ping Identity Corp. (the Corporation) may have an office or offices other than its registered office at such place or places, either within or outside the State of Delaware, as the Board of Directors of the Corporation (the Board of Directors) may from time to time determine or the business of the Corporation may require. The registered office of the Corporation in the State of Delaware shall be as stated in the corporations certificate of incorporation as then in effect (the Certificate of Incorporation).
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. The Board of Directors may designate a place, if any, either within or outside the State of Delaware, as the place of meeting for any annual meeting or for any special meeting of stockholders.
Section 2. Annual Meeting. An annual meeting of the stockholders shall be held at such date and time as is specified by resolution of the Board of Directors. At the annual meeting, stockholders shall elect directors to succeed those whose terms expire at such annual meeting and transact such other business as properly may be brought before the annual meeting pursuant to Section 11 of this ARTICLE II of these Amended and Restated Bylaws (these Bylaws). The Board of Directors may postpone, reschedule or cancel any annual meeting of stockholders previously scheduled by the Board of Directors.
Section 3. Special Meetings. Special meetings of the stockholders may only be called in the manner provided in the Certificate of Incorporation. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. The Board of Directors may postpone, reschedule or cancel any special meeting of stockholders previously scheduled by the Board of Directors.
Section 4. Notice of Meetings. Whenever stockholders are required or permitted to take action at a meeting, notice of the meeting shall be given that shall state the place, if any, date, and time of the meeting of the stockholders, the means of remote communications, if any, by which stockholders and proxyholders not physically present may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting, and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be given, not less than 10 nor more than 60 days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the General Corporation Law of the State of Delaware (the DGCL)) or the Certificate of Incorporation.
(a) Form of Notice. All such notices shall be delivered in writing or in any other manner permitted by the DGCL. If mailed, such notice shall be deemed given when deposited in the United States mail, postage prepaid, addressed to the stockholder at his, her or its address as the same appears on the records of the Corporation. If given by facsimile telecommunication, such notice shall be deemed given when directed to a number at which the stockholder has consented to receive notice by facsimile. Subject to the limitations of Section 4(c) of this ARTICLE II, if given by electronic transmission, such notice shall be deemed to be delivered: (i) by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (ii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (x) such posting and (y) the giving of such separate notice; and (iii) if by any other form of electronic transmission, when directed to the stockholder. An affidavit of the secretary or an assistant secretary of the Corporation, the transfer agent of the Corporation or any other agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
(b) Waiver of Notice. Whenever notice is required to be given under any provisions of the DGCL, the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the stockholder entitled to notice, or a waiver by electronic transmission given by the stockholder entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of, any meeting of the stockholders of the Corporation need be specified in any waiver of notice of such meeting. Attendance of a stockholder of the Corporation at a meeting of such stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened and does not further participate in the meeting.
(c) Notice by Electronic Transmission. Without limiting the manner by which notice otherwise may be given effectively to stockholders of the Corporation pursuant to the DGCL, the Certificate of Incorporation or these Bylaws, any notice to stockholders of the Corporation given by the Corporation under any provision of the DGCL, the Certificate of Incorporation or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder of the Corporation to whom the notice is given. Any such consent shall be deemed revoked if: (i) the Corporation is unable to deliver by electronic transmission two (2) consecutive notices given by the Corporation in accordance with such consent; and (ii) such inability becomes known to the secretary or an assistant secretary of the Corporation or to the transfer agent or other person responsible for the giving of notice. However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. For purposes of these Bylaws, except as otherwise limited by applicable
law, the term electronic transmission means any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such recipient through an automated process.
Section 5. List of Stockholders. The Corporation shall prepare, at least 10 days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, provided, however, if the record date for determining the stockholders entitled to vote is less than 10 days before the meeting date, the list shall reflect the stockholders entitled to vote as of the 10th day before the meeting date, arranged in alphabetical order and showing the address of each such stockholder and the number of shares registered in the name of each such stockholder. Nothing contained in this section shall require the Corporation to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least 10 days prior to the meeting: (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the Corporation. In the event the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, the list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Except as otherwise provided by law, the list shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 5 or to vote in person or by proxy at any meeting of stockholders.
Section 6. Quorum. The holders of a majority in voting power of the outstanding capital stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders, except as otherwise provided by law, by the Certificate of Incorporation or these Bylaws. If a quorum is not present, the chairman of the meeting or the holders of a majority of the voting power present in person or represented by proxy at the meeting and entitled to vote at the meeting may adjourn the meeting to another time and/or place from time to time until a quorum shall be present or represented by proxy. When a specified item of business requires a vote by a class or series (if the Corporation shall then have outstanding shares of more than one class or series) voting as a separate class or series, the holders of a majority in voting power of the outstanding stock of such class or series shall constitute a quorum (as to such class or series) for the transaction of such item of business. A quorum once established at a meeting shall not be broken by the withdrawal of enough votes to leave less than a quorum.
Section 7. Adjourned Meetings. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place. When a meeting is adjourned to another time and place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors shall fix a new record date for notice of such adjourned meeting, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and, except as otherwise required by law, shall not be more than 60 days nor less than 10 days before the date of such adjourned meeting, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting.
Section 8. Vote Required. Subject to the rights of the holders of any series of preferred stock then outstanding, when a quorum has been established, all matters other than the election of directors shall be determined by the affirmative vote of the majority of voting power of capital stock present in person or represented by proxy at the meeting and entitled to vote on the subject matter, unless by express provisions of an applicable law, the rules of any stock exchange upon which the Corporations securities are listed, any regulation applicable to the Corporation or its securities, the Certificate of Incorporation or these Bylaws a minimum or different vote is required, in which case such express provision shall govern and control the vote required on such matter. Directors shall be elected by a plurality of the votes cast.
Section 9. Voting Rights. Subject to the rights of the holders of any series of preferred stock then outstanding, except as otherwise provided by the DGCL, the Certificate of Incorporation or these Bylaws, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote in person or by proxy for each share of capital stock held by such stockholder which has voting power upon the matter in question. Voting at meetings of stockholders need not be by written ballot.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally.
Section 11. Advance Notice of Stockholder Business and Director Nominations.
(a) Business at Annual Meetings of Stockholders.
(i) Only such business (other than nominations of persons for election to the Board of Directors, which must be made in compliance with and are governed exclusively by Section 11(b) of this ARTICLE II) shall be conducted at an annual meeting of the stockholders as shall have been brought before the meeting (A) as specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors or any duly authorized
committee thereof, (B) by or at the direction of the Board of Directors or any duly authorized committee thereof, or (C) by any stockholder of the Corporation who (1) was a stockholder of record at the time of giving of notice provided for in Section 11(a)(iii) of this ARTICLE II and at the time of the meeting, (2) is entitled to vote at the meeting and (3) complies with the notice procedures set forth in Section 11(a)(iii) of this ARTICLE II. For the avoidance of doubt, the foregoing clause (C) of this Section 11(a)(i) of ARTICLE II shall be the exclusive means for a stockholder to propose such business (other than business included in the Corporations proxy materials pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the Exchange Act) or business brought by Vista (as defined below) and any entity that controls, is controlled by or under common control with Vista (other than the Corporation and any company that is controlled by the Corporation) and any investment funds managed by Vista (the Vista Affiliates) at any time prior to the Advance Notice Trigger Date (as defined below)) before an annual meeting of stockholders.
(ii) For any business (other than (A) nominations of persons for election to the Board of Directors, which must be made in compliance with and are governed exclusively by Section 11(b) of this ARTICLE II or (B) business brought by any of Vista Equity Partners Fund VI, L.P., Vista Equity Partners Fund VI-A, L.P., VEPF VI FAF, L.P., Vista Equity Partners Fund VI GP, L.P., VEPF VI GP, Ltd., VEPF Management, L.P. and VEP Group, LLC (collectively, Vista) and Vista Affiliates at any time prior to the date when Vista ceases to beneficially own in the aggregate (directly or indirectly) at least 10% of the voting power of the then outstanding shares of capital stock of the Corporation then entitled to vote generally in the election of directors (the Advance Notice Trigger Date) to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in proper written form as described in Section 11(a)(iii) of this ARTICLE II to the Secretary; any such proposed business must be a proper matter for stockholder action and the stockholder and the Stockholder Associated Person (as defined in Section 11(e) of this ARTICLE II) must have acted in accordance with the representations set forth in the Solicitation Statement (as defined in Section 11(a)(iii) of this ARTICLE II) required by these Bylaws. To be timely, a stockholders notice for such business (other than such a notice by Vista prior to the Advance Notice Trigger Date, which may be delivered at any time prior to the mailing of the definitive proxy statement pursuant to Section 14(a) of the Exchange Act related to the next annual meeting of stockholders) must be delivered by hand and received by the Secretary at the principal executive offices of the Corporation in proper written form not less than ninety (90) days and not more than one hundred twenty (120) days prior to the first anniversary of the preceding years annual meeting of stockholders (which date shall, for purposes of the Corporations first annual meeting of stockholders after its shares of Common Stock are first publicly traded, be deemed to have occurred on [ ], 2019); provided, however, that if and only if the annual meeting is not scheduled to be held within a period that commences thirty (30) days before such anniversary date and ends thirty (30) days after such anniversary date, or if no annual meeting was held in the preceding year (other than for purposes of the
Corporations first annual meeting of stockholders after its shares of Common Stock are first publicly traded), such stockholders notice must be delivered by the later of (A) the tenth day following the day the Public Announcement (as defined in Section 11(e) of this ARTICLE II) of the date of the annual meeting is first made or (B) the date which is ninety (90) days prior to the date of the annual meeting. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period (or extend any time period) for the giving of a stockholders notice as described above. Notices delivered pursuant to Section 11(a) of this ARTICLE II will be deemed received on any given day only if received prior to the close of business on such day (and otherwise shall be deemed received on the next succeeding business day).
(iii) To be in proper written form, a stockholders notice to the Secretary must set forth as to each matter of business the stockholder proposes to bring before the annual meeting:
(A) a brief description of the business desired to be brought before the annual meeting (including the specific text of any resolutions or actions proposed for consideration and if such business includes a proposal to amend these Bylaws, the specific language of the proposed amendment) and the reasons for conducting such business at the annual meeting,
(B) the name and address of the stockholder proposing such business, as they appear on the Corporations books, the name and address (if different from the Corporations books) of such proposing stockholder, and the name and address of any Stockholder Associated Person,
(C) the class or series and number of shares of stock of the Corporation which are directly or indirectly held of record or beneficially owned by such stockholder or by any Stockholder Associated Person, a description of any Derivative Positions (as defined in Section 11(e) of this ARTICLE II) directly or indirectly held or beneficially held by the stockholder or any Stockholder Associated Person, and whether and to the extent to which a Hedging Transaction (as defined in Section 11(e) of this ARTICLE II) has been entered into by or on behalf of such stockholder or any Stockholder Associated Person,
(D) a description of all arrangements or understandings between or among such stockholder or any Stockholder Associated Person and any other person or entity (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder, any Stockholder Associated Person or such other person or entity in such business,
(E) a representation that such stockholder is a stockholder of record of the Corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the annual meeting to bring such business before the meeting,
(F) any other information related to such stockholder or any Stockholder Associated Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with the solicitation of proxies or consents (even if a solicitation is not involved) by such stockholder or Stockholder Associated Person in support of the business proposed to be brought before the meeting pursuant to Section 14 of the Exchange Act, and the rules, regulations and schedules promulgated thereunder, and
(G) a representation as to whether such stockholder or any Stockholder Associated Person intends or is part of a group which intends to deliver a proxy statement and/or form of proxy to the holders of at least the percentage of the Corporations outstanding capital stock required to approve the proposal or otherwise to solicit proxies or votes from stockholders in support of the proposal (such representation, a Solicitation Statement).
In addition, any stockholder who submits a notice pursuant to Section 11(a) of this ARTICLE II is required to update and supplement the information disclosed in such notice, if necessary, in accordance with Section 11(d) of this ARTICLE II.
(iv) Notwithstanding anything in these Bylaws to the contrary, no business (other than nominations of persons for election to the Board of Directors, which must be made in compliance with and are governed exclusively by Section 11(b) of this ARTICLE II) shall be conducted at an annual meeting except in accordance with the procedures set forth in Section 11(a) of this ARTICLE II.
(b) Nominations at Annual Meetings of Stockholders.
(i) Only persons who are nominated in accordance and compliance with the procedures set forth in this Section 11(b) of ARTICLE II shall be eligible for election to the Board of Directors at an annual meeting of stockholders.
(ii) Nominations of persons for election to the Board of Directors of the Corporation may be made at an annual meeting of stockholders only (A) by or at the direction of the Board of Directors or any duly authorized committee thereof or (B) by any stockholder of the Corporation who (1) was a stockholder of record at the time of giving of notice provided for in this Section 11(b) of ARTICLE II and at the time of the annual meeting, (2) is entitled to vote at the meeting and (3) complies with the notice procedures set forth in this Section 11(b) of ARTICLE II. For the avoidance of doubt, clause (B) of this Section 11(b)(ii) of ARTICLE II shall be the exclusive means for a stockholder to make nominations of persons for election to the Board of Directors at an annual meeting of stockholders. For nominations to be properly brought by a stockholder at an
annual meeting of stockholders, the stockholder must have given timely notice thereof in proper written form as described in Section 11(b)(iii) of this ARTICLE II to the Secretary and the stockholder and the Stockholder Associated Person must have acted in accordance with the representations set forth in the Nomination Solicitation Statement required by these Bylaws. To be timely, a stockholders notice for the nomination of persons for election to the Board of Directors (other than such a notice by Vista prior to the Advance Notice Trigger Date, which may be delivered at any time up to thirty-five (35) days prior to the next annual meeting of stockholders) must be delivered to the Secretary at the principal executive offices of the Corporation in proper written form not less than ninety (90) days and not more than one hundred twenty (120) days prior to the first anniversary of the preceding years annual meeting of stockholders (which date shall, for purposes of the Corporations first annual meeting of stockholders after its shares of Common Stock are first publicly traded, be deemed to have occurred on [ ], 2019); provided, however, that if and only if the annual meeting is not scheduled to be held within a period that commences thirty (30) days before such anniversary date and ends thirty (30) days after such anniversary date, or if no annual meeting was held in the preceding year (other than for purposes of the Corporations first annual meeting of stockholders after its shares of Common Stock are first publicly traded), such stockholders notice must be delivered by the later of the tenth day following the day the Public Announcement of the date of the annual meeting is first made and the date which is ninety (90) days prior to the date of the annual meeting. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period (or extend any time period) for the giving of a stockholders notice as described above. Notices delivered pursuant to this Section 11(b) of ARTICLE II will be deemed received on any given day if received prior to the close of business on such day (and otherwise on the next succeeding day).
(iii) To be in proper written form, a stockholders notice to the Secretary shall set forth:
(A) as to each person that the stockholder proposes to nominate for election or re-election as a director of the Corporation, (1) the name, age, business address and residence address of the person, (2) the principal occupation or employment of the person, (3) the class or series and number of shares of capital stock of the Corporation which are directly or indirectly owned beneficially or of record by the person, (4) the date such shares were acquired and the investment intent of such acquisition and (5) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with the solicitation of proxies or consents for a contested election of directors (even if an election contest or proxy solicitation is not involved), or is otherwise required, pursuant to Section 14 of the Exchange Act, and the rules, regulations and schedules promulgated thereunder (including such persons written consent to being named in the
proxy statement as a nominee of the stockholder, if applicable, and to serving as a director if elected),
(B) as to the stockholder giving the notice, the name and address of such stockholder, as they appear on the Corporations books, the name and address (if different from the Corporations books) of such proposing stockholder, and the name and address of any Stockholder Associated Person,
(C) the class or series and number of shares of stock of the Corporation which are directly or indirectly held of record or beneficially owned by such stockholder or by any Stockholder Associated Person with respect to the Corporations securities, a description of any Derivative Positions directly or indirectly held or beneficially held by the stockholder or any Stockholder Associated Person, and whether and the extent to which a Hedging Transaction has been entered into by or on behalf of such stockholder or any Stockholder Associated Person,
(D) a description of all arrangements or understandings (including financial transactions and direct or indirect compensation) between or among such stockholder or any Stockholder Associated Person and each proposed nominee and any other person or entity (including their names) pursuant to which the nomination(s) are to be made by such stockholder,
(E) a representation that such stockholder is a holder of record of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the persons named in its notice,
(F) any other information relating to such stockholder or any Stockholder Associated Person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with the solicitation of proxies or consents for a contested election of directors (even if an election contest or proxy solicitation is not involved), or otherwise required, pursuant to Section 14 of the Exchange Act, and the rules, regulations and schedules promulgated thereunder, and
(G) a representation as to whether such stockholder or any Stockholder Associated Person intends or is part of a group which intends to deliver a proxy statement and/or form of proxy to the holders of a sufficient number of the Corporations outstanding shares reasonably believed by the stockholder or any Stockholder Associated Person, as the case may be, to elect each proposed nominee or otherwise to solicit proxies or votes from stockholders in support of the nomination (such representation, a Nomination Solicitation Statement).
In addition, any stockholder who submits a notice pursuant to this Section 11(b) of ARTICLE II is required to update and supplement the information disclosed in such notice, if necessary, in accordance with Section 11(d) of this ARTICLE II and shall comply with Section 11(f) of this ARTICLE II.
(iv) Notwithstanding anything in Section 11(b)(ii) of this ARTICLE II to the contrary, if the number of directors to be elected to the Board of Directors is increased effective after the time period for which nominations would otherwise be due under paragraph 11(b)(ii) of this Article II and there is no Public Announcement naming the nominees for additional directorships at least ten (10) days prior to the last day a stockholder may deliver a notice of nomination in accordance with Section 11(b)(ii), a stockholders notice required by Section 11(b)(ii) of this ARTICLE II shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such Public Announcement is first made by the Corporation.
(c) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the notice of meeting. Only persons who are nominated in accordance and compliance with the procedures set forth in this Section 11(c) of ARTICLE II shall be eligible for election to the Board of Directors at a special meeting of stockholders at which directors are to be elected. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the notice of meeting only (i) by or at the direction of the Board of Directors, any duly authorized committee thereof, or stockholders (if stockholders are permitted to call a special meeting of stockholders pursuant to Section 2 of Article EIGHT of the Certificate of Incorporation) or (ii) provided that the Board of Directors or stockholders (if stockholders are permitted to call a special meeting of stockholders pursuant to Section 2 of Article Eight of the Certificate of Incorporation) has determined that directors are to be elected at such special meeting, by any stockholder of the Corporation who (A) was a stockholder of record at the time of giving of notice provided for in this Section 11(c) of ARTICLE II and at the time of the special meeting, (B) is entitled to vote at the meeting and (C) complies with the notice procedures provided for in this Section 11(c) of ARTICLE II. For the avoidance of doubt, the foregoing clause (ii) of this Section 11(c) of ARTICLE II shall be the exclusive means for a stockholder to propose nominations of persons for election to the Board of Directors at a special meeting of stockholders at which directors are to be elected. For nominations to be properly brought by a stockholder at a special meeting of stockholders, the stockholder must have given timely notice thereof in proper written form as described in this Section 11(c) of ARTICLE II to the Secretary. To be timely, a stockholders notice for the nomination of persons for election to the Board of Directors (other than such a notice by Vista prior to the Advance Notice Trigger Date, which may be delivered at any time up to the later of (i) thirty-five (35) days prior to the special meeting of stockholders and (ii) the tenth day following the day on which a Public Announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting) must be received by the Secretary at the principal executive offices of the Corporation not earlier than the 120th day prior to such special meeting and not later than the close of business on the
later of the 90th day prior to such special meeting or the tenth day following the day on which a Public Announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall any adjournment or postponement of a special meeting or the announcement thereof commence a new time period (or extend any time period) for the giving of a stockholders notice as described above. Notices delivered pursuant to this Section 11(c) of ARTICLE II will be deemed received on any given day if received prior to the close of business on such day (and otherwise on the next succeeding day). To be in proper written form, such stockholders notice shall set forth all of the information required by, and otherwise be in compliance with, Section 11(b)(iii) of this ARTICLE II. In addition, any stockholder who submits a notice pursuant to this Section 11(c) of ARTICLE II is required to update and supplement the information disclosed in such notice, if necessary, in accordance with Section 11(d) of this ARTICLE II and shall comply with Section 11(f) of this ARTICLE II.
(d) Update and Supplement of Stockholders Notice. Any stockholder who submits a notice of proposal for business or nomination for election pursuant to this Section 11 of ARTICLE II is required to update and supplement the information disclosed in such notice, if necessary, so that the information provided or required to be provided in such notice shall be true and correct as of the record date for determining the stockholders entitled to notice of the meeting of stockholders and as of the date that is ten (10) business days prior to such meeting of the stockholders or any adjournment or postponement thereof, and such update and supplement shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the fifth business day after the record date for the meeting of stockholders (in the case of the update and supplement required to be made as of the record date), and not later than the close of business on the eighth business day prior to the date for the meeting of stockholders or any adjournment or postponement thereof (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting of stockholders or any adjournment or postponement thereof).
(e) Definitions. For purposes of this Section 11 of ARTICLE II, the term:
(i) Derivative Positions means, with respect to a stockholder or any Stockholder Associated Person, any derivative positions including, without limitation, any short position, profits interest, option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of capital stock of the Corporation or otherwise and any performance-related fees to which such stockholder or any Stockholder Associated Person is entitled based, directly or indirectly, on any increase or decrease in the value of shares of capital stock of the Corporation;
(ii) Hedging Transaction means, with respect to a stockholder or any Stockholder Associated Person, any hedging or other transaction (such as borrowed or loaned shares) or series of transactions, or any other agreement,
arrangement or understanding, the effect or intent of which is to increase or decrease the voting power or economic or pecuniary interest of such stockholder or any Stockholder Associated Person with respect to the Corporations securities;
(iii) Public Announcement means disclosure in a press release reported by the Dow Jones News Service, Associated Press, Business Wire, PR Newswire or comparable news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act; and
(iv) Stockholder Associated Person of any stockholder means (A) any person controlling, directly or indirectly, or acting in concert with, such stockholder, (B) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such stockholder or (C) any person directly or indirectly controlling, controlled by or under common control with such Stockholder Associated Person.
(f) Submission of Questionnaire, Representation and Agreement. To be qualified to be a nominee for election or re-election as a director of the Corporation, a person must deliver (in the case of a person nominated by a stockholder in accordance with Sections 11(b) or 11(c) of this ARTICLE II, in accordance with the time periods prescribed for delivery of notice under such sections) to the Secretary at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person (i) is not and will not become a party to (A) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a Voting Commitment) that has not been disclosed to the Corporation or (B) any Voting Commitment that could limit or interfere with such persons ability to comply, if elected as a director of the Corporation, with such persons fiduciary duties under applicable law, (ii) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein and (iii) would be in compliance, and if elected as a director of the Corporation will comply, with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation. The Corporation may also require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve either as a director of the Corporation or as an independent director of the Corporation under applicable Securities and Exchange Commission and stock exchange rules and the Corporations publicly disclosed corporate governance guidelines, or that could be material to a reasonable stockholders understanding of the qualifications and/or independence, or lack thereof, of such nominee, as determined in the Board of Directors sole discretion.
(g) Authority of Chairman; General Provisions. Except as otherwise provided by applicable law, the Certificate of Incorporation or these Bylaws, the chairman of the meeting shall have the power and duty to determine whether any nomination or other business proposed to be brought before the meeting was made or brought in accordance with the procedures set forth in these Bylaws (including whether the stockholder or Stockholder Associated Person, if any, on whose behalf the nomination or proposal is made or solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies or votes in support of such stockholders nominee or proposal in compliance with such stockholders representation as required by Section 11(a)(iii)(G) or Section 11(b)(iii)(G), as applicable, of these Bylaws) and, if any nomination or other business is not made or brought in compliance with these Bylaws, to declare that such nomination or proposal of other business be disregarded and not acted upon. Notwithstanding the foregoing provisions of this Section 11, unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or proposed business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 11, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
(h) Compliance with Exchange Act. Notwithstanding the foregoing provisions of these Bylaws, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules, regulations and schedules promulgated thereunder with respect to the matters set forth in these Bylaws; provided, however, that any references in these Bylaws to the Exchange Act or the rules, regulations and schedules promulgated thereunder are not intended to and shall not limit the requirements applicable to any nomination or other business to be considered pursuant to Section 11 of this ARTICLE II.
(i) Effect on Other Rights. Nothing in these Bylaws shall be deemed to (A) affect any rights of the stockholders to request inclusion of proposals in the Corporations proxy statement pursuant to Rule 14a-8 under the Exchange Act, (B) confer upon any stockholder a right to have a nominee or any proposed business included in the Corporations proxy statement, except as set forth in the Certificate of Incorporation or these Bylaws, (C) affect any rights of the holders of any series of preferred stock to elect directors pursuant to any applicable provisions of the Certificate of Incorporation or (D) limit the exercise, the method or timing of the exercise of, the rights of any person granted by the Corporation to nominate directors (including pursuant to that Director Nomination Agreement, dated as of on or about [ ], 2019 (as amended and/or restated or supplemented from time to time, the Nomination Agreement), by and among the Corporation and the investors named therein, which rights may be exercised without compliance with the provisions of this Section 11 of ARTICLE II.
Section 12. Fixing a Record Date for Stockholder Meetings. In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board of Directors may fixa record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 days nor less than 10 days before the date of such meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is first given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting in conformity herewith; and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the foregoing provisions of this Section 12 at the adjourned meeting.
Section 13. Action by Stockholders Without a Meeting. So long as stockholders of the Corporation have the right to act by written consent in accordance with Section 1 of ARTICLE EIGHT of the Certificate of Incorporation, the following provisions shall apply:
(a) Record Date. For the purpose of determining the stockholders entitled to consent to corporate action in writing without a meeting as may be permitted by the Certificate of Incorporation or the certificate of designation relating to any outstanding class or series of preferred stock, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten (10) (or the maximum number permitted by applicable law) days after the date on which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take action by written consent shall, by written notice delivered by hand to the Secretary at the Corporations principal place of business during regular business hours, request that the Board of Directors fix a record date, which notice shall include the text of any proposed resolutions. Notices delivered pursuant to Section 13(a) of this ARTICLE II will be deemed received on any given day only if received prior to the close of business on such day (and otherwise shall be deemed received on the next succeeding business day). The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such written notice is properly delivered to and deemed received by the Secretary, adopt a resolution fixing the record date (unless a record date has previously been fixed by the Board of Directors pursuant to the first sentence of this Section 13(a)). If no record date has been fixed by the Board of Directors pursuant to this Section 13(a) or otherwise within ten (10) days of receipt of a valid request by a stockholder, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required pursuant to applicable law, shall be the first date after the expiration of such ten (10) day time period on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation pursuant to Section 13(b); provided, however, that if prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall in such an event be at the close
of business on the day on which the Board of Directors adopts the resolution taking such prior action.
(b) Generally. No written consent shall be effective to take the corporate action referred to therein unless written consents signed by a sufficient number of stockholders to take such action are delivered to the Corporation, in the manner required by this Section 13, within sixty (60) (or the maximum number permitted by applicable law) days of the date of the earliest dated consent delivered to the Corporation in the manner required by applicable law. The validity of any consent executed by a proxy for a stockholder pursuant to an electronic transmission transmitted to such proxy holder by or upon the authorization of the stockholder shall be determined by or at the direction of the Secretary. A written record of the information upon which the person making such determination relied shall be made and kept in the records of the proceedings of the stockholders. Any such consent shall be inserted in the minute book as if it were the minutes of a meeting of stockholders. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given by the Corporation (at its expense) to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for notice of such meeting had been the date that written consent signed by a sufficient number of holders to take the action were delivered to the Corporation.
Section 14. Conduct of Meetings.
(a) Generally. Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in the Chairmans absence or disability, by the Chief Executive Officer, or in the Chief Executive Officers absence or disability, by the President, or in the Presidents absence or disability, by a Vice President (in the order as determined by the Board of Directors), or in the absence or disability of the foregoing persons by a chairman designated by the Board of Directors, or in the absence or disability of such person, by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in the Secretarys absence or disability the chairman of the meeting may appoint any person to act as secretary of the meeting.
(b) Rules, Regulations and Procedures. The Board of Directors may adopt by resolution such rules, regulations and procedures for the conduct of any meeting of stockholders of the Corporation as it shall deem appropriate including, without limitation, such guidelines and procedures as it may deem appropriate regarding the participation by means of remote communication of stockholders and proxyholders not physically present at a meeting. Except to the extent inconsistent with such rules, regulations and procedures as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time
allotted to questions or comments by participants. The chairman of the meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a nomination or matter or business was not properly brought before the meeting and if such chairman should so determine, such chairman shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. The chairman of the meeting shall announce at the meeting when the polls for each matter to be voted upon at the meeting will be opened and closed. After the polls close, no ballots, proxies or votes or any revocations or changes thereto may be accepted. The chairman of the meeting shall have the power, right and authority, for any or no reason, to convene, recess and/or adjourn any meeting of stockholders.
(c) Inspectors of Elections. The Corporation may, and to the extent required by law shall, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof. One or more other persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Unless otherwise required by law, inspectors may be officers, employees or agents of the Corporation. No person who is a candidate for an office at an election may serve as an inspector at such election. Each inspector, before entering upon the discharge of such inspectors duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspectors ability. The inspector shall have the duties prescribed by law and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by law.
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
Section 2. Annual Meetings. The annual meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of stockholders. In the event that the annual meeting of stockholders takes place telephonically or through any other means by which the stockholders do not convene in any one location, the annual meeting of the Board of Directors shall be held at the principal offices of the Corporation immediately after the annual meeting of the stockholders.
Section 3. Regular Meetings and Special Meetings. Regular meetings, other than the annual meeting, of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by resolution of the Board of Directors and publicized among all directors. Special meetings of the Board of Directors may be called by (i) the Chairman of the Board, if any, (ii) by the Secretary upon the written request of a majority of the directors then in office or (iii) if the Board of Directors then includes a director nominated or
designated for nomination by Vista, by any director nominated or designated for nomination by Vista, and in each case shall be held at the place, if any, on the date and at the time as he, she or they shall fix. Any and all business may be transacted at a special meeting of the Board of Directors.
Section 4. Notice of Meetings. Notice of regular meetings of the Board of Directors need not be given except as otherwise required by law or these Bylaws. Notice of each special meeting of the Board of Directors, and of each regular and annual meeting of the Board of Directors for which notice is required, shall be given by the Secretary as hereinafter provided in this Section 4. Such notice shall be state the date, time and place, if any, of the meeting. Notice of any special meeting, and of any regular or annual meeting for which notice is required, shall be given to each director at least (a) twenty-four (24) hours before the meeting if by telephone or by being personally delivered or sent by overnight courier, telecopy, electronic transmission, email or similar means or (b) five (5) days before the meeting if delivered by mail to the directors residence or usual place of business. Such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage prepaid, or when transmitted if sent by telex, telecopy, electronic transmission, email or similar means. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.
Section 5. Waiver of Notice. Any director may waive notice of any meeting of directors by a writing signed by the director or by electronic transmission. Any member of the Board of Directors or any committee thereof who is present at a meeting shall have waived notice of such meeting except when such member attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened and does not further participate in the meeting. Such member shall be conclusively presumed to have assented to any action taken unless his or her dissent shall be entered in the minutes of the meeting or unless his or her written dissent to such action shall be filed with the person acting as the secretary of the meeting before the adjournment thereof or shall be forwarded by registered mail to the secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to any member who voted in favor of such action.
Section 6. Chairman of the Board, Quorum, Required Vote and Adjournment. The Board of Directors may elect a Chairman of the Board. The Chairman of the Board must be a director and may be an officer of the Corporation. Subject to the provisions of these Bylaws and the direction of the Board of Directors, he or she shall perform all duties and have all powers which are commonly incident to the position of Chairman of the Board or which are delegated to him or her by the Board of Directors, preside at all meetings of the stockholders and Board of Directors at which he or she is present and have such powers and perform such duties as the Board of Directors may from time to time prescribe. If the Chairman of the Board is not present at a meeting of the Board of Directors, the Chief Executive Officer (if the Chief Executive Officer is a director and is not also the Chairman of the Board) shall preside at such meeting, and, if the Chief Executive Officer is not present at such meeting, a majority of the directors present at such meeting shall elect one of the directors present at the meeting to so preside. At all meetings of the Board of Directors, a majority of the directors then in office shall constitute a quorum for the transaction of business, provided, however, that a quorum shall never be less than
one-third the total number of directors. Unless by express provision of an applicable law, the Certificate of Incorporation or these Bylaws a different vote is required, the vote of a majority of directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board of Directors may from time to time determine. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may, to the fullest extent permitted by law, adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
Section 7. Committees.
(a) The Board of Directors may designate one or more committees, including an executive committee, consisting of one or more of the directors of the Corporation, and any committees required by the rules and regulations of such exchange as any securities of the Corporation are listed. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Except to the extent restricted by applicable law or the Certificate of Incorporation, each such committee, to the extent provided by the DGCL and in the resolution creating it, shall have and may exercise all the powers and authority of the Board of Directors. Each such committee shall serve at the pleasure of the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors upon request.
(b) Each committee of the Board of Directors may fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the Board of Directors designating such committee. Unless otherwise provided in such a resolution, the presence of at least a majority of the members of the committee shall be necessary to constitute a quorum. All matters shall be determined by a majority vote of the members present at a meeting at which a quorum is present. Unless otherwise provided in such a resolution, in the event that a member and that members alternate, if alternates are designated by the Board of Directors, of such committee is or are absent or disqualified, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member.
Section 8. Action by Written Consent. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
Section 9. Compensation. The Board of Directors shall have the authority to fix the compensation, including fees, reimbursement of expenses and equity compensation, of directors for services to the Corporation in any capacity, including for attendance of meetings of the Board
of Directors or participation on any committees. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.
Section 10. Reliance on Books and Records. A member of the Board of Directors, or a member of any committee designated by the Board of Directors shall, in the performance of such members duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporations officers or employees, or committees of the Board of Directors, or by any other person as to matters the member reasonably believes are within such other persons professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.
Section 11. Telephonic and Other Meetings. Unless restricted by the Certificate of Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting.
ARTICLE IV
OFFICERS
Section 1. Number and Election. Subject to the authority of Chief Executive Officer to appoint officers as set forth in Section 11 of this Article IV, the officers of the Corporation shall be elected by the Board of Directors and shall consist of a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, a Chief Financial Officer, a Treasurer and such other officers and assistant officers as may be deemed necessary or desirable by the Board of Directors. Any number of offices may be held by the same person. In its discretion, the Board of Directors may choose not to fill any office for any period as it may deem advisable.
Section 2. Term of Office. Each officer shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided.
Section 3. Removal. Any officer or agent of the Corporation may be removed with or without cause by the Board of Directors, a duly authorized committee thereof or by such officers as may be designated by a resolution of the Board of Directors, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer appointed by the Chief Executive Officer in accordance with Section 11 of this Article IV may also be removed by the Chief Executive Officer in his or her sole discretion.
Section 4. Vacancies. Any vacancy occurring in any office because of death, resignation, removal, disqualification or otherwise may be filled by the Board of Directors or the Chief Executive Officer in accordance with Section 11 of this Article IV.
Section 5. Compensation. Compensation of all executive officers shall be approved by the Board of Directors or a duly authorized committee thereof, and no officer shall be
prevented from receiving such compensation by virtue of his or her also being a director of the Corporation.
Section 6. Chief Executive Officer. The Chief Executive Officer shall have the powers and perform the duties incident to that position. The Chief Executive Officer shall, in the absence of the Chairman of the Board, or if a Chairman of the Board shall not have been elected, preside at each meeting of (a) the Board of Directors if the Chief Executive Officer is a director and (b) the stockholders. Subject to the powers of the Board of Directors and the Chairman of the Board, the Chief Executive Officer shall be in general and active charge of the entire business and affairs of the Corporation, and shall be its chief policy making officer. The Chief Executive Officer shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or provided in these Bylaws. The Chief Executive Officer is authorized to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. Whenever the President is unable to serve, by reason of sickness, absence or otherwise, the Chief Executive Officer shall perform all the duties and responsibilities and exercise all the powers of the President.
Section 7. The President. The President of the Corporation shall, subject to the powers of the Board of Directors, the Chairman of the Board and the Chief Executive Officer, have general charge of the business, affairs and property of the Corporation, and control over its officers, agents and employees. The President shall see that all orders and resolutions of the Board of Directors are carried into effect. The President is authorized to execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. The President shall, in the absence of the Chief Executive Officer, act with all of the powers and be subject to all of the restrictions of the Chief Executive Officer. The President shall have such other powers and perform such other duties as may be prescribed by the Chairman of the Board, the Chief Executive Officer, the Board of Directors or as may be provided in these Bylaws.
Section 8. Vice Presidents. The Vice President, or if there shall be more than one, the Vice Presidents, in the order determined by the Board of Directors or the Chairman of the Board, shall, perform such duties and have such powers as the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or these Bylaws may, from time to time, prescribe. The Vice Presidents may also be designated as Executive Vice Presidents or Senior Vice Presidents, as the Board of Directors may from time to time prescribe.
Section 9. The Secretary and Assistant Secretaries. The Secretary shall attend all meetings of the Board of Directors (other than executive sessions thereof) and all meetings of the stockholders and record all the proceedings of the meetings in a book or books to be kept for that purpose or shall ensure that his or her designee attends each such meeting to act in such capacity. Under the Board of Directors supervision, the Secretary shall give, or cause to be given, all notices required to be given by these Bylaws or by law; shall have such powers and perform such duties as the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the
President or these Bylaws may, from time to time, prescribe; and shall have custody of the corporate seal of the Corporation. The Secretary, or an Assistant Secretary, shall have authority to affix the corporate seal to any instrument requiring it and when so affixed, it may be attested by his or her signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature. The Assistant Secretary, or if there be more than one, any of the assistant secretaries, shall in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President, or Secretary may, from time to time, prescribe.
Section 10. The Chief Financial Officer and the Treasurer. The Chief Financial Officer shall have the custody of the corporate funds and securities; shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation as shall be necessary or desirable in accordance with applicable law or generally accepted accounting principles; shall deposit all monies and other valuable effects in the name and to the credit of the Corporation as may be ordered by the Chairman of the Board or the Board of Directors; shall receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever; shall cause the funds of the Corporation to be disbursed when such disbursements have been duly authorized, taking proper vouchers for such disbursements; and shall render to the Board of Directors, at its regular meeting or when the Board of Directors so requires, an account of the financial condition and operations of the Corporation; shall have such powers and perform such duties as the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or these Bylaws may, from time to time, prescribe. The Treasurer, if any, shall in the absence or disability of the chief financial officer, perform the duties and exercise the powers of the chief financial officer, subject to the power of the board of directors. The Treasurer, if any, shall perform such other duties and have such other powers as the board of directors may, from time to time, prescribe.
Section 11. Appointed Officers. In addition to officers designated by the Board in accordance with this ARTICLE IV, the Chief Executive Officer shall have the authority to appoint other officers below the level of Board-appointed Vice President as the Chief Executive Officer may from time to time deem expedient and may designate for such officers titles that appropriately reflect their positions and responsibilities. Such appointed officers shall have such powers and shall perform such duties as may be assigned to them by the Chief Executive Officer or the senior officer to whom they report, consistent with corporate policies. An appointed officer shall serve until the earlier of such officers resignation or such officers removal by the Chief Executive Officer or the Board of Directors at any time, either with or without cause.
Section 12. Other Officers, Assistant Officers and Agents. Officers, assistant officers and agents, if any, other than those whose duties are provided for in these Bylaws, shall have such authority and perform such duties as may from time to time be prescribed by resolution of the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors.
Section 13. Officers Bonds or Other Security. If required by the Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety as the Board of Directors may require.
Section 14. Delegation of Authority. The Board of Directors may by resolution delegate the powers and duties of such officer to any other officer or to any director, or to any other person whom it may select.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. Form. The shares of stock of the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. If shares are represented by certificates, the certificates shall be in such form as required by applicable law and as determined by the Board of Directors. Each certificate shall certify the number of shares owned by such holder in the Corporation and shall be signed by, or in the name of the Corporation by two authorized officers of the Corporation including, but not limited to, the Chairman of the Board (if an officer), the President, a Vice President, the Treasurer, the Secretary and an Assistant Secretary of the Corporation. Any or all signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates shall cease to be such officer, transfer agent or registrar of the Corporation whether because of death, resignation or otherwise before such certificate or certificates have been issued by the Corporation, such certificate or certificates may nevertheless be issued as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer, transfer agent or registrar of the Corporation at the date of issue. All certificates for shares shall be consecutively numbered or otherwise identified. The Board of Directors may appoint a bank or trust company organized under the laws of the United States or any state thereof to act as its transfer agent or registrar, or both in connection with the transfer of any class or series of securities of the Corporation. The Corporation, or its designated transfer agent or other agent, shall keep a book or set of books to be known as the stock transfer books of the Corporation, containing the name of each holder of record, together with such holders address and the number and class or series of shares held by such holder and the date of issue. When shares are represented by certificates, the Corporation shall issue and deliver to each holder to whom such shares have been issued or transferred, certificates representing the shares owned by such holder, and shares of stock of the Corporation shall only be transferred on the books of the Corporation by the holder of record thereof or by such holders attorney duly authorized in writing, upon surrender to the Corporation or its designated transfer agent or other agent of the certificate or certificates for such shares endorsed by the appropriate person or persons, with such evidence of the authenticity of such endorsement, transfer, authorization and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps. In that event, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate or certificates and record the transaction on its books. When shares are not represented by certificates, shares of stock of the Corporation shall only be transferred on the books of the
Corporation by the holder of record thereof or by such holders attorney duly authorized in writing, with such evidence of the authenticity of such transfer, authorization and other matters as the Corporation may reasonably require, and accompanied by all necessary stock transfer stamps, and within a reasonable time after the issuance or transfer of such shares, the Corporation shall, if required by applicable law, send the holder to whom such shares have been issued or transferred a written statement of the information required by applicable law. Unless otherwise provided by applicable law, the Certificate of Incorporation, Bylaws or any other instrument, the rights and obligations of the holders of uncertificated stock and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.
Section 2. Lost Certificates. The Corporation may issue or direct a new certificate or certificates or uncertificated shares to be issued in place of any certificate or certificates previously issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the owner of the lost, stolen or destroyed certificate. When authorizing such issue of a new certificate or certificates or uncertificated shares, the Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his or her legal representative, to give the Corporation a bond in such sum as it may direct, sufficient to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.
Section 3. Registered Stockholders. The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends, to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner, except as otherwise required by applicable law. The Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by applicable law.
Section 4. Fixing a Record Date for Purposes Other Than Stockholder Meetings or Actions by Written Consent. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purposes of any other lawful action (other than stockholder meetings and stockholder written consents which are expressly governed by Sections 12 and 13 of ARTICLE II hereof), the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
ARTICLE VI
GENERAL PROVISIONS
Section 1. Dividends. Subject to and in accordance with applicable law, the Certificate of Incorporation and any certificate of designation relating to any series of preferred stock, dividends upon the shares of capital stock of the Corporation may be declared and paid by the Board of Directors, in accordance with applicable law. Dividends may be paid in cash, in property or in shares of the Corporations capital stock, subject to the provisions of applicable law and the Certificate of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends a reserve or reserves for any proper purpose. The Board of Directors may modify or abolish any such reserves in the manner in which they were created.
Section 2. Checks, Notes, Drafts, Etc. All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation.
Section 3. Contracts. In addition to the powers otherwise granted to officers pursuant to ARTICLE IV hereof, the Board of Directors may authorize any officer or officers, or any agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.
Section 5. Corporate Seal. The Board of Directors may provide a corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the Corporation and the words Corporate Seal, Delaware. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Notwithstanding the foregoing, no seal shall be required by virtue of this Section.
Section 6. Voting Securities Owned By Corporation. Voting securities in any other corporation or entity held by the Corporation shall be voted by the Chairman of the Board, Chief Executive Officer, the President or the Chief Financial Officer, unless the Board of Directors specifically confers authority to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution.
Section 7. Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws and subject to applicable law, facsimile signatures of any officer or officers of the Corporation may be used.
Section 8. Section Headings. Section headings in these Bylaws are for convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein.
Section 9. Inconsistent Provisions. In the event that any provision (or part thereof) of these Bylaws is or becomes inconsistent with any provision of the Certificate of Incorporation, the DGCL, any other applicable law or the Nomination Agreement, the provision (or part thereof) of these Bylaws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect.
ARTICLE VII
INDEMNIFICATION
Section 1. Right to Indemnification and Advancement. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved (including involvement, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative (a proceeding), by reason of the fact that he or she is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (an indemnitee), whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including attorneys fees and related disbursements, judgments, fines, excise taxes or penalties under the Employee Retirement Income Security Act of 1974, as amended from time to time (ERISA) and any other penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitees heirs, executors and administrators; provided, however, that, except as provided in this Section 2 of this ARTICLE VII with respect to proceedings to enforce rights to indemnification and advance of expenses (as defined below), the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized in the specific case by the Board of Directors of the Corporation. The rights to indemnification and advance of expenses conferred in this Section 1 of ARTICLE VII shall be contract rights. In addition to the right to indemnification conferred herein, an indemnitee shall also have the right, to the fullest extent not prohibited by law, to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (an advance of expenses); provided, however, that if and to the extent that the DGCL requires, an advance of expenses shall be made only upon delivery to the Corporation of an undertaking (an undertaking), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (a final adjudication) that such indemnitee is not entitled to be indemnified for such expenses under this Section 1 or otherwise. The Corporation may also, by action of its Board of Directors, provide indemnification and advancement to employees and agents of the Corporation. Any reference to an officer of the Corporation in this ARTICLE VII shall be deemed to refer exclusively to the Chairman of the Board of Directors, Chief Executive Officer, President, Secretary and Treasurer of the
Corporation appointed pursuant to ARTICLE IV, and to any Vice President, Assistant Secretary, Assistant Treasurer or other officer of the Corporation appointed by the Board of Directors pursuant to ARTICLE IV of these By-laws, and any reference to an officer of any other enterprise shall be deemed to refer exclusively to an officer appointed by the board of directors or equivalent governing body of such other entity pursuant to the certificate of incorporation and bylaws or equivalent organizational documents of such other enterprise. The fact that any person who is or was an employee of the Corporation or an employee of any other enterprise has been given or has used the title of Vice President or any other title that could be construed to suggest or imply that such person is or may be an officer of the Corporation or of such other enterprise shall not result in such person being constituted as, or being deemed to be, an officer of the Corporation or of such other enterprise for purposes of this ARTICLE VII.
Section 2. Procedure for Indemnification. Any claim for indemnification or advance of expenses by an indemnitee under this Section 2 of ARTICLE VII shall be made promptly, and in any event within forty-five days (or, in the case of an advance of expenses, twenty days, provided that the director or officer has delivered the undertaking contemplated by Section 1 of this ARTICLE VII if required), upon the written request of the indemnitee. If the Corporation denies a written request for indemnification or advance of expenses, in whole or in part, or if payment in full pursuant to such request is not made within forty-five days (or, in the case of an advance of expenses, twenty days, provided that the indemnitee has delivered the undertaking contemplated by Section 1 of this ARTICLE VII if required), the right to indemnification or advances as granted by this ARTICLE VII shall be enforceable by the indemnitee in any court of competent jurisdiction. Such persons costs and expenses incurred in connection with successfully establishing his or her right to indemnification, in whole or in part, in any such action shall also be indemnified by the Corporation to the fullest extent permitted by applicable law. It shall be a defense to any such action (other than an action brought to enforce a claim for the advance of expenses where the undertaking required pursuant to Section 1 of this ARTICLE VII, if any, has been tendered to the Corporation) that the claimant has not met the applicable standard of conduct which make it permissible under the DGCL for the Corporation to indemnify the claimant for the amount claimed, but the burden of proof shall be on the Corporation to the fullest extent permitted by law. Neither the failure of the Corporation (including its Board of Directors, a committee thereof, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
Section 3. Insurance. The Corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was or has agreed to become a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, partner, member, trustee, administrator, employee or agent of another corporation, partnership, joint venture, limited liability company, trust or other enterprise against any expense, liability or loss asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation
would have the power to indemnify such person against such expenses, liability or loss under the DGCL.
Section 4. Service for Subsidiaries. Any person serving as a director, officer, partner, member, trustee, administrator, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, at least 50% of whose equity interests are owned by the Corporation (a subsidiary for purposes of this ARTICLE VII) shall be conclusively presumed to be serving in such capacity at the request of the Corporation.
Section 5. Reliance. Persons who after the date of the adoption of this provision become or remain directors or officers of the Corporation or who, while a director or officer of the Corporation, become or remain a director, officer, employee or agent of a subsidiary, shall be conclusively presumed to have relied on the rights to indemnity, advance of expenses and other rights contained in this ARTICLE VII in entering into or continuing such service. To the fullest extent permitted by law, the rights to indemnification and to the advance of expenses conferred in this ARTICLE VII shall apply to claims made against an indemnitee arising out of acts or omissions which occurred or occur both prior and subsequent to the adoption hereof. Any amendment, alteration or repeal of this ARTICLE VII that adversely affects any right of an indemnitee or its successors shall be prospective only and shall not limit, eliminate, or impair any such right with respect to any proceeding involving any occurrence or alleged occurrence of any action or omission to act that took place prior to such amendment or repeal.
Section 6. Non-Exclusivity of Rights; Continuation of Rights of Indemnification. The rights to indemnification and to the advance of expenses conferred in this ARTICLE VII shall not be exclusive of any other right which any person may have or hereafter acquire under the Certificate of Incorporation or under any statute, by-law, agreement, vote of stockholders or disinterested directors or otherwise. All rights to indemnification under this ARTICLE VII shall be deemed to be a contract between the Corporation and each director or officer of the Corporation who serves or served in such capacity at any time while this ARTICLE VII is in effect. Any repeal or modification of this ARTICLE VII or repeal or modification of relevant provisions of the DGCL or any other applicable laws shall not in any way diminish any rights to indemnification and advancement of expenses of such director or officer or the obligations of the Corporation arising hereunder with respect to any proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such repeal or modification.
Section 7. Merger or Consolidation. For purposes of this ARTICLE VII, references to the Corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this ARTICLE VII with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued.
Section 8. Savings Clause. To the fullest extent permitted by law, if this ARTICLE VII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify and advance expenses to each person entitled to indemnification under Section 1 of this ARTICLE VII as to all expense, liability and loss (including attorneys fees and related disbursements, judgments, fines, ERISA excise taxes and penalties and any other penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such person and for which indemnification and advancement of expenses is available to such person pursuant to this ARTICLE VII to the fullest extent permitted by any applicable portion of this ARTICLE VII that shall not have been invalidated.
ARTICLE VIII
AMENDMENTS
These Bylaws may be amended, altered, changed or repealed or new Bylaws adopted only in accordance with Section 1 of ARTICLE ELEVEN of the Certificate of Incorporation.
* * * * *
PING IDENTITY HOLDING CORP.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this Agreement) is made as of [ ], 2019 among Ping Identity Holding Corp., a Delaware corporation (the Company), and each of the investors listed on the signature pages hereto under the caption Investors (collectively, the Investors), each of the executives listed on the signature pages under the caption Executives or who executes a Joinder as an Executive (collectively, the Executives), and each other Person who executes a Joinder as an Other Holder (collectively, the Other Holders). Except as otherwise specified herein, all capitalized terms used in this Agreement are defined in Exhibit A attached hereto.
In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:
Section 1 Demand Registrations.
(a) Requests for Registration. At any time and from time to time, the Majority Holders may request registration under the Securities Act of all or any portion of their Registrable Securities on Form S-1 or any similar long-form registration (Long-Form Registrations) or on Form S-3 or any similar short-form registration (Short-Form Registrations), if available (any such requested registration, a Demand Registration). The Majority Holders may request that any Demand Registration be made pursuant to Rule 415 under the Securities Act (a Shelf Registration) and (if the Company is a WKSI at the time any such request is submitted to the Company or will become one by the time of the filing of such Shelf Registration) that such Shelf Registration be an automatic shelf registration statement (as defined in Rule 405 under the Securities Act) (an Automatic Shelf Registration Statement). Each request for a Demand Registration must specify the approximate number or dollar value of Registrable Securities requested to be registered by the requesting Holders and (if known) the intended method of distribution. The Majority Holders will be entitled to request an unlimited number of Demand Registrations in which the Company will pay all Registration Expenses, whether or not any such registration is consummated.
(b) Notice to Other Holders. Within ten (10) days after receipt of any such request, the Company will give written notice of the Demand Registration to all other Holders and, subject to the terms of Section 1(e), will include in such Demand Registration (and in all related registrations and qualifications under state blue sky laws and in any related underwriting) all Registrable Securities with respect to which the Company has received written requests for inclusion therein within ten (10) days after the receipt of the Companys notice; provided that, with the consent of the Majority Holders, the Company may instead provide notice of the Demand Registration to all other Holders within three (3) Business Days following the non-confidential filing of the registration statement with respect to the Demand Registration so long as such registration statement is not an Automatic Shelf Registration Statement.
(c) Form of Registrations. All Long-Form Registrations will be underwritten registrations unless otherwise approved by the Majority Holders. Demand Registrations will be Short-Form Registrations whenever the Company is permitted to use any applicable short form and if the managing underwriters (if any) and the Majority Holders agree to the use of a Short-Form Registration.
(d) Shelf Registrations.
(i) For so long as a registration statement for a Shelf Registration (a Shelf Registration Statement) is and remains effective, the Majority Holders will have the right at any time or from time to time to elect to sell pursuant to an offering (including an underwritten offering) Registrable Securities available for sale pursuant to such registration statement (Shelf Registrable Securities). If the Majority Holders desire to sell Registrable Securities pursuant to an underwritten offering, they shall deliver to the Company a written notice (a Shelf Offering Notice) specifying the number of Shelf Registrable Securities that the holders desire to sell pursuant to such underwritten offering (the Shelf Offering). As promptly as practicable, but in no event later than two (2) Business Days after receipt of a Shelf Offering Notice, the Company will give written notice of such Shelf Offering Notice to all other Holders of Shelf Registrable Securities that have been identified as selling stockholders in such Shelf Registration Statement and are otherwise permitted to sell in such Shelf Offering. The Company, subject to Section 1(e) and Section 7, will include in such Shelf Offering all Shelf Registrable Securities with respect to which the Company has received written requests for inclusion (which request will specify the maximum number of Shelf Registrable Securities intended to be disposed of by such Holder) within seven (7) days after the receipt of the Shelf Offering Notice. The Company will, as expeditiously as possible (and in any event within 20 days after the receipt of a Shelf Offering Notice), but subject to Section 1(e), use its best efforts to facilitate such Shelf Offering.
(ii) If the Majority Holders wish to engage in an underwritten block trade or bought deal off of a Shelf Registration Statement (either through filing an Automatic Shelf Registration Statement or through a take-down from an already existing Shelf Registration Statement) (each, an Underwritten Block Trade), then notwithstanding the time periods set forth in Section 1(d)(i), such Majority Holders will notify the Company of the Underwritten Block Trade not less than two (2) Business Days prior to the day such offering is first anticipated to commence. If requested by the Majority Holders, the Company will promptly notify other Holders of such Underwritten Block Trade and such notified Holders (each, a Potential Participant) may elect whether or not to participate no later than the next Business Day (i.e. one (1) Business Day prior to the day such offering is to commence) (unless a longer period is agreed to by the Majority Holders), and the Company will as expeditiously as possible use its best efforts to facilitate such Underwritten Block Trade (which may close as early as two (2) Business Days after the date it commences); provided further that, notwithstanding the provisions of Section 1(d)(i), no Holder (other than Holders of Investor Registrable Securities) will be permitted to participate in an Underwritten Block Trade without the consent of the Majority Holders. Any Potential Participants request to participate in an Underwritten Block Trade shall be binding on the Potential Participant.
(iii) All determinations as to whether to complete any Shelf Offering and as to the timing, manner, price and other terms of any Shelf Offering contemplated by this Section 1(d) shall be determined by the Majority Holders, and the Company shall use its best efforts to cause any Shelf Offering to occur as promptly as practicable.
(iv) The Company will, at the request of the Majority Holders, file any prospectus supplement or any post-effective amendments and otherwise take any action necessary to include therein all disclosure and language deemed necessary or advisable by the Majority Holders to effect such Shelf Offering.
(e) Priority on Demand Registrations and Shelf Offerings. The Company will not include in any Demand Registration any securities which are not Registrable Securities without the prior written consent of the Majority Holders. If a Demand Registration or a Shelf Offering is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities and (if permitted hereunder) other securities requested to be included in such offering exceeds the number of Registrable Securities and other securities (if any), which can be sold therein without adversely affecting the marketability, proposed offering price, timing or method of distribution of the offering, then the Company will include in such offering (prior to the inclusion of any securities which are not Registrable Securities); (i) first, the number of Investor Registrable Securities requested to be included which, in the opinion of such underwriters, can be sold, without any such adverse effect, pro rata among the respective Investors on the basis of the number of Investor Registrable Securities owned by each such Investor; and (ii) second, the number of Registrable Securities requested to be included by Other Holders which, in the opinion of such underwriters, can be sold, without any such adverse effect, pro rata among the respective other Holders on the basis of the number of Registrable Securities owned by each such other Holder. In addition, if any Holders of Executive Registrable Securities have requested to include such securities in an underwritten offering and the managing underwriters for such offering advise the Company that in their opinion the inclusion of some or all of such Executive Registrable Securities could adversely affect the marketability, proposed offering price, timing and/or method of distribution of the offering, then the Company shall exclude from such offering the number of such Executive Registrable Securities identified by the managing underwriters as having any such adverse effect prior to the exclusion of any Registrable Securities of any other Holders as set forth in this Section 1(e).
(f) Restrictions on Demand Registration and Shelf Offerings.
(i) The Company may postpone, for up to sixty (60) days from the date of the request (the Suspension Period), the filing or the effectiveness of a registration statement for a Demand Registration or suspend the use of a prospectus that is part of a Shelf Registration Statement (and therefore suspend sales of the Shelf Registrable Securities) by providing written notice to the Holders if the following conditions are met: (A) the Company determines that the offer or sale of Registrable Securities would reasonably be expected to have a material adverse effect on any proposal or plan by the Company or any Subsidiary to engage in any material acquisition of assets or stock (other than in the ordinary course of business) or any material merger, consolidation, tender offer, recapitalization, reorganization, financing or other transaction involving the Company and (B) upon advice of counsel, the sale of Registrable Securities pursuant to the registration
statement would require disclosure of material non-public information not otherwise required to be disclosed under applicable law, and (x) the Company has a bona fide business purpose for preserving the confidentiality of such transaction, (y) disclosure would have a material adverse effect on the Company or the Companys ability to consummate such transaction, or (z) such transaction renders the Company unable to comply with SEC requirements, in each case under circumstances that would make it impractical or inadvisable to cause the registration statement (or such filings) to become effective or to promptly amend or supplement the registration statement on a post effective basis, as applicable. The Company may delay or suspend the effectiveness of a Demand Registration or Shelf Registration Statement pursuant to this Section 1(f)(i) only once in any twelve (12)-month period (for avoidance of doubt, in addition to the Companys rights and obligations under Section 4(a)(vi)).
(ii) In the case of an event that causes the Company to suspend the use of a Shelf Registration Statement as set forth in paragraph (f)(ii) above or pursuant to Section 4(a)(vi) (a Suspension Event), the Company will give a notice to the Holders whose Registrable Securities are registered pursuant to such Shelf Registration Statement (a Suspension Notice) to suspend sales of the Registrable Securities and such notice must state generally the basis for the notice and that such suspension will continue only for so long as the Suspension Event or its effect is continuing. Each Holder agrees not to effect any sales of its Registrable Securities pursuant to such Shelf Registration Statement (or such filings) at any time after it has received a Suspension Notice from the Company and prior to receipt of an End of Suspension Notice. A Holder may recommence effecting sales of the Registrable Securities pursuant to the Shelf Registration Statement (or such filings) following further written notice to such effect (an End of Suspension Notice) from the Company, which End of Suspension Notice will be given by the Company to the Holders promptly following the conclusion of any Suspension Event.
(g) Selection of Underwriters. The Majority Holders will have the right to select the investment banker(s) and manager(s) to administer any underwritten offering in connection with any Demand Registration or Shelf Offering.
(h) Other Registration Rights. Except as provided in this Agreement, the Company will not grant to any Person(s) the right to request the Company or any Subsidiary to register any equity securities of the Company or any Subsidiary, or any securities convertible or exchangeable into or exercisable for such securities, without the prior written consent of the Majority Holders.
(i) Revocation of Demand Notice or Shelf Offering Notice. At any time prior to the effective date of the registration statement relating to a Demand Registration or the pricing of any offering relating to a Shelf Offering Notice, the Majority Holders may revoke such notice of a Demand Registration or Shelf Offering Notice on behalf of all Holders participating in such Demand Registration or Shelf Offering without liability to such Holders (including, for the avoidance of doubt, the Majority Holders), in each case by providing written notice to the Company.
(j) Confidentiality. Each Holder agrees to treat as confidential the receipt of any notice hereunder (including notice of a Demand Registration, a Shelf Offering Notice and a
Suspension Notice) and the information contained therein, and not to disclose or use the information contained in any such notice (or the existence thereof) without the prior written consent of the Company until such time as the information contained therein is or becomes available to the public generally (other than as a result of disclosure by such Holder in breach of the terms of this Agreement).
Section 2 Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register any of its equity securities under the Securities Act (including primary and secondary registrations, and other than pursuant to an Excluded Registration) (a Piggyback Registration), the Company will give prompt written notice (and in any event within three (3) Business Days after the public filing of the registration statement relating to the Piggyback Registration) to all Holders of its intention to effect such Piggyback Registration and, subject to the terms of Section 2(b) and Section 2(c), will include in such Piggyback Registration (and in all related registrations or qualifications under blue sky laws and in any related underwriting) all Registrable Securities with respect to which the Company has received written requests for inclusion therein within ten (10) days after delivery of the Companys notice; provided that the Company shall not be required to provide such notice or include any Registrable Securities in such registration if the Investor elects not to include any Investor Registrable Securities in such registration, unless the Majority Holders otherwise consent in writing.
(b) Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability, proposed offering price, timing or method of distribution of the offering, the Company will include in such registration (i) first, the securities the Company proposes to sell, (ii) second, the Investor Registrable Securities requested to be included in such registration which, in the opinion of the underwriters, can be sold without any such adverse effect, pro rata among the Investors on the basis of the number of Investor Registrable Securities owned by each such Investor, (iii) third, the Registrable Securities requested to be included in such registration by Other Holders which, in the opinion of the underwriters, can be sold without any such adverse effect, pro rata among the other Holders on the basis of the number of Registrable Securities owned by each such other Holder, and (iv) fourth, other securities requested to be included in such registration which, in the opinion of the underwriters, can be sold without any such adverse effect. In addition, if any Holders of Executive Registrable Securities have requested to include such securities in a Piggyback Registration that is an underwritten primary offering on behalf of the Company and the managing underwriters for such offering advise the Company in writing that in their opinion the inclusion of some or all of such Executive Registrable Securities could adversely affect the marketability, proposed offering price, timing and/or method of distribution of the offering, the Company shall first exclude from such offering the number (which may be all) of such Executive Registrable Securities identified by the managing underwriters as having any such adverse effect prior to the exclusion of any securities in such offering.
(c) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Companys equity securities (other
than Majority Holders), and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability, proposed offering price, timing or method of distribution of the offering, the Company will include in such registration (i) first, the securities requested to be included therein by the holders initially requesting such registration and the Registrable Securities requested to be included in such registration which, in the opinion of the underwriters, can be sold without any such adverse effect, (ii) second, the Registrable Securities requested to be included in such registration, pro rata among the Holders on the basis of the number of Registrable Securities owned by each such Holder which, in the opinion of the underwriters, can be sold without any such adverse effect, and (iii) third, other securities requested to be included in such registration which, in the opinion of the underwriters, can be sold without any such adverse effect. In addition, if any Holders of Executive Registrable Securities have requested to include such securities in a Piggyback Registration that is an underwritten secondary offering and the managing underwriters for such offering advise the Company in writing that in their opinion the inclusion of some or all of such Executive Registrable Securities could adversely affect the marketability, proposed offering price, timing or method of distribution of the offering, the Company shall be permitted to first exclude from such offering the number (which may be all) of such Executive Registrable Securities identified by the managing underwriters as having any such adverse effect prior to the exclusion of any securities in such offering.
(d) Right to Terminate Registration. The Company will have the right to terminate or withdraw any registration initiated by it under this Section 2, whether or not any holder of Registrable Securities has elected to include securities in such registration.
(e) Selection of Underwriters. If any Piggyback Registration is an underwritten offering, the selection of investment banker(s) and manager(s) for the offering must be approved by the Majority Holders, which approval shall not be unreasonably withheld, conditioned, or delayed.
Section 3 Stockholder Lock-Up Agreements and Company Holdback Agreement.
(a) Stockholder Lock-up Agreements. In connection with any underwritten Public Offering, each Holder will enter into any lock-up, holdback or similar agreements requested by the underwriter(s) managing such offering, in each case with such modifications and exceptions as may be approved by the Majority Holders. Without limiting the generality of the foregoing, each Holder hereby agrees that in connection with the Companys initial Public Offering and in connection with any Demand Registration, Shelf Offering or Piggyback Registration that is an underwritten Public Offering, not to (i) offer, sell, contract to sell, pledge or otherwise dispose of (including sales pursuant to Rule 144), directly or indirectly, any equity securities of the Company (including equity securities of the Company that may be deemed to be owned beneficially by such Holder in accordance with the rules and regulations of the SEC) (collectively, Securities), or any securities, options or rights convertible into or exchangeable or exercisable for Securities (collectively, Other Securities), (ii) enter into a transaction which would have the same effect as described in clause (i) above, (iii) enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences or ownership of any Securities or Other Securities, whether such transaction is to be settled by delivery of such Securities or Other
Securities, in cash or otherwise (each of (i), (ii) and (iii) above, a Sale Transaction), or (iv) publicly disclose the intention to enter into any Sale Transaction, commencing on the date on which the Company gives notice to the Holders that a preliminary prospectus has been circulated for such underwritten Public Offering or the pricing of such offering and continuing to the date that is (x) 180 days following the date of the final prospectus for such underwritten Public Offering in the case of the Companys initial Public Offering, or (y) 90 days following the date of the final prospectus in the case of any other such underwritten Public Offering (each such period, or such shorter period as agreed to by the managing underwriters, a Holdback Period), in each case with such modifications and exceptions as may be approved by the Majority Holders. The Company may impose stop-transfer instructions with respect to any Securities or Other Securities subject to the restrictions set forth in this Section 3(a) until the end of such Holdback Period. Notwithstanding the foregoing, no Holder (other than officers and directors of the Company) will be subject to the Holdback Period in connection with an underwritten block Shelf Offering unless such Holder was provided notice one day prior to such underwritten block Shelf Offering and provided the opportunity to participate therein (whether or not such Holder elects to participate in such underwritten block trade).
(b) Company Holdback Agreement. The Company (i) will not file any registration statement for a Public Offering or cause any such registration statement to become effective, or effect any public sale or distribution of its Securities or Other Securities during any Holdback Period (other than as part of such underwritten Public Offering, or a registration on Form S-4 or Form S-8 or any successor or similar form which is (x) then in effect or (y) shall become effective upon the conversion, exchange or exercise of any then outstanding Other Securities) and (ii) will cause each holder of Securities and Other Securities (including each of its directors and executive officers) to agree not to effect any Sale Transaction during any Holdback Period, except as part of such underwritten registration (if otherwise permitted), unless approved in writing by the Majority Holders and the underwriters managing the Public Offering and to enter into any lock-up, holdback or similar agreements requested by the underwriter(s) managing such offering, in each case with such modifications and exceptions as may be approved by the Majority Holders.
Section 4 Registration Procedures.
(a) Company Obligations. Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement or have initiated a Shelf Offering, the Company will use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company will as expeditiously as possible:
(i) prepare and file with (or submit confidentially to) the SEC a registration statement, and all amendments and supplements thereto and related prospectuses, with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, all in accordance with the Securities Act and all applicable rules and regulations promulgated thereunder (provided that before filing or confidentially submitting a registration statement or prospectus or any amendments or supplements thereto, the Company will furnish to the counsel selected by the Majority Holders covered by such registration statement copies of all such documents proposed to
be filed or submitted, which documents will be subject to the review and comment of such counsel);
(ii) notify each Holder of (A) the issuance by the SEC of any stop order suspending the effectiveness of any registration statement or the initiation of any proceedings for that purpose, (B) the receipt by the Company or its counsel of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (C) the effectiveness of each registration statement filed hereunder;
(iii) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period ending when all of the securities covered by such registration statement have been disposed of in accordance with the intended methods of distribution by the sellers thereof set forth in such registration statement (but not in any event before the expiration of any longer period required under the Securities Act or, if such registration statement relates to an underwritten Public Offering, such longer period as in the opinion of counsel for the underwriters a prospectus is required by law to be delivered in connection with sale of Registrable Securities by an underwriter or dealer) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement;
(iv) furnish, without charge, to each seller of Registrable Securities thereunder and each underwriter, if any, such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) (in each case including all exhibits and documents incorporated by reference therein), each amendment and supplement thereto, each Free Writing Prospectus and such other documents as such seller or underwriter, if any, may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller (the Company hereby consenting to the use in accordance with all applicable laws of each such registration statement, each such amendment and supplement thereto, and each such prospectus (or preliminary prospectus or supplement thereto) or Free Writing Prospectus by each such seller of Registrable Securities and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such registration statement or prospectus);
(v) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph or (B) consent to general service of process in any such jurisdiction or (C) subject itself to taxation in any such jurisdiction);
(vi) notify in writing each seller of such Registrable Securities (A) promptly after it receives notice thereof, of the date and time when such registration statement and each post-effective amendment thereto has become effective or a prospectus or supplement to any prospectus relating to a registration statement has been filed and when any registration or qualification has become effective under a state securities or blue sky law or any exemption thereunder has been obtained, (B) promptly after receipt thereof, of any request by the SEC for the amendment or supplementing of such registration statement or prospectus or for additional information, and (C) at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event or of any information or circumstances as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, subject to Section 1(f), if required by applicable law or to the extent requested by the Majority Holders, the Company will use its best efforts to promptly prepare and file a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading and (D) if at any time the representations and warranties of the Company in any underwriting agreement, securities sale agreement, or other similar agreement, relating to the offering shall cease to be true and correct;
(vii) (A) use best efforts to cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed on a securities exchange and, without limiting the generality of the foregoing, to arrange for at least two market markers to register as such with respect to such Registrable Securities with FINRA, and (B) comply (and continue to comply) with the requirements of any self-regulatory organization applicable to the Company, including without limitation all corporate governance requirements;
(viii) use best efforts to provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement;
(ix) enter into and perform such customary agreements (including, as applicable, underwriting agreements in customary form) and take all such other actions as the Majority Holders or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, making available the executive officers of the Company and participating in road shows, investor presentations, marketing events and other selling efforts and effecting a stock or unit split or combination, recapitalization or reorganization);
(x) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition or sale pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate and business documents and properties of the Company as will be necessary to enable them to exercise their due diligence responsibility, and cause the Companys officers, directors, employees, agents, representatives and independent accountants to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement and the disposition of such Registrable Securities pursuant thereto;
(xi) take all actions to ensure that any Free-Writing Prospectus utilized in connection with any Demand Registration or Piggyback Registration or Shelf Offering hereunder complies in all material respects with the Securities Act, is filed in accordance with the Securities Act to the extent required thereby, is retained in accordance with the Securities Act to the extent required thereby and, when taken together with the related prospectus, prospectus supplement and related documents, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;
(xii) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve (12) months beginning with the first day of the Companys first full calendar quarter after the effective date of the registration statement, which earnings statement will satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(xiii) permit any Holder which, in its sole and exclusive judgment, might be deemed to be an underwriter or a controlling person of the Company, to participate in the preparation of such registration or comparable statement and to allow such Holder to provide language for insertion therein, in form and substance satisfactory to the Company, which in the reasonable judgment of such Holder and its counsel should be included;
(xiv) use best efforts to (A) make Short-Form Registration available for the sale of Registrable Securities and (B) prevent the issuance of any stop order suspending the effectiveness of a registration statement, or the issuance of any order suspending or preventing the use of any related prospectus or suspending the qualification of any Common Equity included in such registration statement for sale in any jurisdiction use, and in the event any such order is issued, best efforts to obtain promptly the withdrawal of such order;
(xv) use its best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the sellers thereof to consummate the disposition of such Registrable Securities;
(xvi) cooperate with the Holders covered by the registration statement and the managing underwriter or agent, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing securities to be sold under the registration statement, or the removal of any restrictive legends associated with any account at which such securities are held, and enable such securities to be in such denominations and registered in such names as the managing underwriter, or agent, if any, or such Holders may request;
(xvii) if requested by any managing underwriter, include in any prospectus or prospectus supplement updated financial or business information for the Companys most recent period or current quarterly period (including estimated results or ranges of results) if required for purposes of marketing the offering in the view of the managing underwriter;
(xviii) take no direct or indirect action prohibited by Regulation M under the Exchange Act; provided, however, that to the extent that any prohibition is applicable to the Company, the Company will take such action as is necessary to make any such prohibition inapplicable;
(xix) cooperate with each Holder covered by the registration statement and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with the preparation and filing of applications, notices, registrations and responses to requests for additional information with FINRA, the New York Stock Exchange, Nasdaq or any other national securities exchange on which the shares of Common Equity are or are to be listed, and (B) to the extent required by the rules and regulations of FINRA, retain a Qualified Independent Underwriter acceptable to the managing underwriter;
(xx) in the case of any underwritten offering, use its best efforts to obtain, and deliver to the underwriter(s), in the manner and to the extent provided for in the applicable underwriting agreement, one or more cold comfort letters from the Companys independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters;
(xxi) use its best efforts to provide a legal opinion of the Companys outside counsel, (i) dated the effective date of such registration statement addressed to the Company addressing the validity of the Registrable Securities being offered thereby, and (ii) on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a Demand Registration or Shelf Offering, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the closing date of the applicable sale, (A) one or more legal opinions of the Companys outside counsel, dated such date, in form and substance as customarily given to underwriters in an underwritten public offering or, in the case of a non-underwritten offering, to the broker, placement agent or other agent of the Holders assisting in the sale of the Registrable Securities and (B) one or more negative assurances letters of the Companys outside counsel, dated such date, in form and substance as is customarily given to underwriters in an underwritten public offering or, in the case of a non-underwritten offering, to the broker, placement agent or other agent of the Holders assisting in the sale of the Registrable Securities, in each case, addressed to the underwriters, if any, or, if requested, in the case of a non-underwritten offering, to the broker, placement agent or other agent of the Holders assisting in the sale of the Registrable Securities and (ii) customary certificates executed by authorized officers of the Company as may be requested by any Holder or any underwriter of such Registrable Securities;
(xxii) if the Company files an Automatic Shelf Registration Statement covering any Registrable Securities, use its best efforts to remain a WKSI (and not become an ineligible issuer (as defined in Rule 405 under the Securities Act)) during the period during which such Automatic Shelf Registration Statement is required to remain effective;
(xxiii) if the Company does not pay the filing fee covering the Registrable Securities at the time an Automatic Shelf Registration Statement is filed, pay such fee at such time or times as the Registrable Securities are to be sold; and
(xxiv) if the Automatic Shelf Registration Statement has been outstanding for at least three (3) years, at the end of the third year, refile a new Automatic Shelf Registration Statement covering the Registrable Securities, and, if at any time when the Company is required to re-evaluate its WKSI status the Company determines that it is not a WKSI, use its best efforts to refile the Shelf Registration Statement on Form S-3 and, if such form is not available, Form S-1 and keep such registration statement effective during the period during which such registration statement is required to be kept effective.
(b) Officer Obligations. Each Holder that is an officer of the Company agrees that if and for so long as he or she is employed by the Company or any Subsidiary thereof, he or she will participate fully in the sale process in a manner customary for persons in like positions and consistent with his or her other duties with the Company, including the preparation of the registration statement and the preparation and presentation of any road shows.
(c) Automatic Shelf Registration Statements. If the Company files any Automatic Shelf Registration Statement for the benefit of the holders of any of its securities other than the Holders, and the Holders of Investor Registrable Securities do not request that their Registrable Securities be included in such Shelf Registration Statement, the Company agrees that, at the request of the Majority Holders, it will include in such Automatic Shelf Registration Statement such disclosures as may be required by Rule 430B in order to ensure that the Holders of Investor Registrable Securities may be added to such Shelf Registration Statement at a later time through the filing of a prospectus supplement rather than a post-effective amendment. If the Company has filed any Automatic Shelf Registration Statement for the benefit of the holders of any of its securities other than the Holders, the Company shall, at the request of the Majority Holders, file any post-effective amendments necessary to include therein all disclosure and language necessary to ensure that the holders of Registrable Securities may be added to such Shelf Registration Statement.
(d) Additional Information. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish the Company such information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request in writing, as a condition to such sellers participation in such registration.
(e) In-Kind Distributions. If an Investor (and/or any of their Affiliates) seeks to effectuate an in-kind distribution of all or part of their Registrable Securities to their respective direct or indirect equityholders, the Company will, subject to any applicable lock-ups, work with the foregoing Persons to facilitate such in-kind distribution in the manner reasonably requested and consistent with the Companys obligations under the Securities Act.
(f) Suspended Distributions. Each Person participating in a registration hereunder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4(a)(vi), such Person will immediately discontinue the disposition of its Registrable Securities pursuant to the registration statement until such Persons receipt of the copies of of a supplemented or amended prospectus as contemplated by Section 4(a)(vi), subject to the Companys compliance with its obligations under Section 4(a)(vi).
(g) Other. To the extent that any of the Investors is or may be deemed to be an underwriter of Registrable Securities pursuant to any SEC comments or policies, the Company agrees that (i) the indemnification and contribution provisions contained in Section 6 shall be applicable to the benefit of such Investor in their role as an underwriter or deemed underwriter in addition to their capacity as a holder and (2) such Investor shall be entitled to conduct the due diligence which they would normally conduct in connection with an offering of securities registered under the Securities Act, including without limitation receipt of customary opinions and comfort letters addressed to such Investor.
Section 5 Registration Expenses.
Except as expressly provided herein, all out-of-pocket expenses incurred by the Company or any Investor in connection with the performance of or compliance with this Agreement and/or in connection with any Demand Registration, Piggyback Registration or Shelf Offering, whether or not the same shall become effective, shall be paid by the Company, including, without limitation: (i) all registration and filing fees, and any other fees and expenses associated with filings required to be made with the SEC or FINRA, (ii) all fees and expenses in connection with compliance with any securities or blue sky laws, (iii) all printing, duplicating, word processing, messenger, telephone, facsimile and delivery expenses (including expenses of printing certificates for the Registrable Securities in a form eligible for deposit with The Depository Trust Company or other depositary and of printing prospectuses and Company Free Writing Prospectuses), (iv) all fees and disbursements of counsel for the Company and of all independent certified public accountants of the Company (including the expenses of any special audit and cold comfort letters required by or incident to such performance), (v) Securities Act liability insurance or similar insurance if the Company so desires or the underwriters so require in accordance with then-customary underwriting practice, (vi) all fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange on which similar securities of the Company are then listed (or on which exchange the Registrable Securities are proposed to be listed in the case of the Companys initial Public Offering), (vii) all applicable rating agency fees with respect to the Registrable Securities, (viii) all fees and disbursements of legal counsel for the Company, (ix) all reasonable fees and disbursements of one legal counsel for selling Holders selected by the Majority Holders together with any necessary local counsel as may be required by either the Investors, (x) all reasonable fees and disbursements of legal counsel for each Holder participating in such Registration (or, in the case of a Shelf Registration, each Holder selling Registrable Securities under the Shelf Registration Statement) solely in connection with the preparation of any legal opinions requested by the underwriters in respect of such Holder personally, (xi) any fees and disbursements of underwriters customarily paid by issuers or sellers of securities, (xii) all fees and expenses of any special experts or other Persons retained by the Company or the Majority Holders in connection with any Registration (xiii) all of the Companys internal expenses (including all salaries and expenses of its officers and employees performing
legal or accounting duties) and (xiv) all expenses related to the road-show for any underwritten offering, including all travel, meals and lodging. All such expenses are referred to herein as Registration Expenses. The Company shall not be required to pay, and each Person that sells securities pursuant to a Demand Registration, Shelf Offering or Piggyback Registration hereunder will bear and pay, all underwriting discounts and commissions applicable to the Registrable Securities sold for such Persons account and all transfer taxes (if any) attributable to the sale of Registrable Securities.
Section 6 Indemnification and Contribution.
(a) By the Company. The Company will indemnify and hold harmless, to the fullest extent permitted by law and without limitation as to time, each Holder, such Holders officers, directors employees, agents, fiduciaries, stockholders, managers, partners, members, affiliates, direct and indirect equityholders, consultants and representatives, and any successors and assigns thereof, and each Person who controls such holder (within the meaning of the Securities Act) (the Indemnified Parties) against all losses, claims, actions, damages, liabilities and expenses (including with respect to actions or proceedings, whether commenced or threatened, and including reasonable attorney fees and expenses) (collectively, Losses) caused by, resulting from, arising out of, based upon or related to any of the following (each, a Violation) by the Company: (i) any untrue or alleged untrue statement of material fact contained in (A) any registration statement, prospectus, preliminary prospectus or Free-Writing Prospectus, or any amendment thereof or supplement thereto or (B) any application or other document or communication (in this Section 6, collectively called an application) executed by or on behalf of the Company or based upon written information furnished by or on behalf of the Company filed in any jurisdiction in order to qualify any securities covered by such registration under the blue sky or securities laws thereof, (ii) any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any violation or alleged violation by the Company of the Securities Act or any other similar federal or state securities laws or any rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance. In addition, the Company will reimburse such Indemnified Party for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such Losses. Notwithstanding the foregoing, the Company will not be liable in any such case to the extent that any such Losses result from, arise out of, are based upon, or relate to an untrue statement, or omission, made in such registration statement, any such prospectus, preliminary prospectus or Free-Writing Prospectus or any amendment or supplement thereto, or in any application, in reliance upon, and in conformity with, written information prepared and furnished in writing to the Company by such Indemnified Party expressly for use therein or by such Indemnified Partys failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such Indemnified Party with a sufficient number of copies of the same. In connection with an underwritten offering, the Company will indemnify such underwriters, their officers and directors, and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Indemnified Parties or as otherwise agreed to in the underwriting agreement executed in connection with such underwritten offering. Such indemnity and reimbursement of expenses shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of such securities by such seller.
(b) By Holders. In connection with any registration statement in which a Holder is participating, each such Holder will furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, will indemnify the Company, its officers, directors, employees, agents and representatives, and each Person who controls the Company (within the meaning of the Securities Act) against any Losses resulting from (as determined by a final and appealable judgment, order or decree of a court of competent jurisdiction) any untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such Holder expressly for use therein; provided that the obligation to indemnify will be individual, not joint and several, for each holder and will be limited to the net amount of proceeds received by such Holder from the sale of Registrable Securities pursuant to such registration statement.
(c) Claim Procedure. Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice will impair any Persons right to indemnification hereunder only to the extent such failure has prejudiced the indemnifying party) and (ii) unless in such indemnified partys reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld, conditioned or delayed). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. In such instance, the conflicted indemnified parties will have a right to retain one separate counsel, chosen by the Majority Holders, at the expense of the indemnifying party.
(d) Contribution. If the indemnification provided for in this Section 6 is held by a court of competent jurisdiction to be unavailable to, or is insufficient to hold harmless, an indemnified party or is otherwise unenforceable with respect to any Loss referred to herein, then such indemnifying party will contribute to the amounts paid or payable by such indemnified party as a result of such Loss, (i) 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 hand in connection with the statements or omissions which resulted in such Loss as well as any other relevant equitable considerations or (ii) if the allocation provided by clause (i) of this Section 6(d) is not permitted by applicable law, then in such proportion as is appropriate to reflect not only such relative fault but also the relative benefit of the Company on the one hand and of the sellers of Registrable Securities and any other sellers participating in the registration statement on the other in connection
with the statement or omissions which resulted in such Losses, as well as any other relevant equitable considerations; provided that the maximum amount of liability in respect of such contribution will be limited, in the case of each seller of Registrable Securities, to an amount equal to the net proceeds actually received by such seller from the sale of Registrable Securities effected pursuant to such registration. The relative fault of the indemnifying party and of the indemnified party will be determined by reference to, among other things, whether the 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 relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just or equitable if the contribution pursuant to this Section 6(d) were to be determined by pro rata allocation or by any other method of allocation that does not take into account such equitable considerations. The amount paid or payable by an indemnified party as a result of the Losses referred to herein will be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending against any action or claim which is the subject hereof. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who is not guilty of such fraudulent misrepresentation.
(e) Release. No indemnifying party will, except with the consent of the indemnified party, consent to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation.
(f) Non-exclusive Remedy; Survival. The indemnification and contribution provided for under this Agreement will be in addition to any other rights to indemnification or contribution that any indemnified party may have pursuant to law or contract (and the Company and its Subsidiaries shall be considered the indemnitors of first resort in all such circumstances to which this Section 6 applies) and will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and will survive the transfer of Registrable Securities and the termination or expiration of this Agreement.
Section 7 Cooperation with Underwritten Offerings. No Person may participate in any underwritten registration hereunder unless such Person (i) agrees to sell such Persons securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements (including, without limitation, pursuant to the terms of any over-allotment or green shoe option requested by the underwriters; provided that no Holder will be required to sell more than the number of Registrable Securities such Holder has requested to include in such registration) and (ii) completes, executes and delivers all questionnaires, powers of attorney, stock powers, custody agreements, indemnities, underwriting agreements and other documents and agreements required under the terms of such underwriting arrangements or as may be reasonably requested by the Company and the lead managing underwriter(s). To the extent that any such agreement is entered into pursuant to, and consistent with, Section 3, Section 4 and/or this Section 7, the respective rights and obligations created under
such agreement will supersede the respective rights and obligations of the Holders, the Company and the underwriters created thereby with respect to such registration.
Section 8 Subsidiary Public Offering. If, after an initial Public Offering of the common equity securities of one of its Subsidiaries, the Company distributes securities of such Subsidiary to its equityholders, then the rights and obligations of the Company pursuant to this Agreement will apply, mutatis mutandis, to such Subsidiary, and the Company will cause such Subsidiary to comply with such Subsidiarys obligations under this Agreement as if it were the Company hereunder.
Section 9 Joinder; Additional Parties; Transfer of Registrable Securities.
(a) Joinder. The Company may from time to time (with the prior written consent of the Majority Holders) permit any Person who acquires Common Equity (or rights to acquire Common Equity) to become a party to this Agreement and to be entitled to and be bound by all of the rights and obligations as a Holder by obtaining an executed joinder to this Agreement from such Person in the form of Exhibit B attached hereto (a Joinder). Upon the execution and delivery of a Joinder by such Person, the Common Equity held by such Person shall become the category of Registrable Securities (i.e. Investor, Executive or Other Registrable Securities), and such Person shall be deemed the category of Holder (i.e. Investor, Executive or Other Holder), in each case as set forth on the signature page to such Joinder.
(b) Restrictions on Transfers. Prior to transferring any Registrable Securities to any Person (including, without limitation, by operation of law), the transferring Holder must first obtain the prior written consent of the Majority Holders, and if so obtained, cause the prospective transferee to execute and deliver to the Company a Joinder, except that such consent and Joinder shall not be required in the case of (i) a transfer to the Company, (ii) a transfer by the Investor to its partners or members, (iii) a Public Offering, (iv) a sale pursuant to Rule 144 after the completion of the Companys initial Public Offering and/or (v) a transfer in connection with a Sale of the Company. Any transfer or attempted transfer of Registrable Securities in violation of any provision of this Agreement will be void, and the Company will not record such transfer on its books or treat any purported transferee of such Registrable Securities as the owner thereof for any purpose (but the Company will be entitled to enforce against such Person the obligations hereunder).
(c) Legend. Each certificate (if any) evidencing any Registrable Securities and each certificate issued in exchange for or upon the transfer of any Registrable Securities (unless such Registrable Securities would no longer be Registrable Securities after such transfer) will be stamped or otherwise imprinted with a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AND OTHER PROVISIONS SET FORTH IN A REGISTRATION RIGHTS AGREEMENT DATED AS OF , 20 AMONG THE ISSUER OF SUCH SECURITIES (THE COMPANY) AND CERTAIN OF THE COMPANYS EQUITYHOLDERS, AS AMENDED. A COPY OF SUCH
AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST.
The Company will imprint such legend on certificates evidencing Registrable Securities outstanding prior to the date hereof. The legend set forth above will be removed from the certificates evidencing any securities that have ceased to be Registrable Securities.
Section 10 General Provisions.
(a) Amendments and Waivers. Except as otherwise provided herein, the provisions of this Agreement may be amended, modified or waived only with the prior written consent of the Company and the Majority Holders. The failure or delay of any Person to enforce any of the provisions of this Agreement will in no way be construed as a waiver of such provisions and will not affect the right of such Person thereafter to enforce each and every provision of this Agreement in accordance with its terms. A waiver or consent to or of any breach or default by any Person in the performance by that Person of his, her or its obligations under this Agreement will not be deemed to be a consent or waiver to or of any other breach or default in the performance by that Person of the same or any other obligations of that Person under this Agreement.
(b) Remedies. The parties to this Agreement will be entitled to enforce their rights under this Agreement specifically (without posting a bond or other security), to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that a breach of this Agreement would cause irreparable harm and money damages would not be an adequate remedy for any such breach and that, in addition to any other rights and remedies existing hereunder, any party will be entitled to specific performance and/or other injunctive relief from any court of law or equity of competent jurisdiction (without posting any bond or other security) in order to enforce or prevent violation of the provisions of this Agreement.
(c) Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited, invalid, illegal or unenforceable in any respect under any applicable law or regulation in any jurisdiction, such prohibition, invalidity, illegality or unenforceability will not affect the validity, legality or enforceability of any other provision of this Agreement in such jurisdiction or in any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such prohibited, invalid, illegal or unenforceable provision had never been contained herein.
(d) Entire Agreement. Except as otherwise provided herein, this Agreement contains the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties hereto, written or oral, which may have related to the subject matter hereof in any way.
(e) Successors and Assigns. Except as otherwise provided herein, this Agreement will bind and inure to the benefit and be enforceable by the Company and its successors and
permitted assigns and the Holders and their respective successors and permitted assigns (whether so expressed or not).
(f) Notices. Any notice, demand or other communication to be given under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given (i) when delivered personally to the recipient, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; but if not, then on the next Business Day, (iii) one Business Day after it is sent to the recipient by reputable overnight courier service (charges prepaid) or (iv) three Business Days after it is mailed to the recipient by first class mail, return receipt requested. Such notices, demands and other communications will be sent to the Company at the address specified on the signature page hereto or any Joinder and to any holder, or at such address or to the attention of such other Person as the recipient party has specified by prior written notice to the sending party. Any party may change such partys address for receipt of notice by giving prior written notice of the change to the sending party as provided herein. The Companys address is:
Ping Identity Holding Corp.
1001 17th Street, Suite 100
Denver, CO 80202
Attn: Lauren Romer
Facsimile: 303-468-2909
With a copy to:
Kirkland & Ellis LLP
300 N. LaSalle
Chicago, IL 60654
Attn: Robert Hayward, P.C.
Robert Goedert, P.C.
Email: rhayward@kirkland.com
rgoedert@kirkland.com
Facsimile: 312-862-2200
or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.
(g) Business Days. If any time period for giving notice or taking action hereunder expires on a day that is not a Business Day, the time period will automatically be extended to the Business Day immediately following such Saturday, Sunday or legal holiday.
(h) Governing Law. The corporate law of the State of Delaware will govern all issues and questions concerning the relative rights of the Company and its equityholders. All issues and questions concerning the construction, validity, interpretation and enforcement of this Agreement and the exhibits and schedules hereto will be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.
(i) MUTUAL WAIVER OF JURY TRIAL. AS A SPECIFICALLY BARGAINED FOR INDUCEMENT FOR EACH OF THE PARTIES HERETO TO ENTER INTO THIS AGREEMENT (AFTER HAVING THE OPPORTUNITY TO CONSULT WITH COUNSEL), EACH PARTY HERETO EXPRESSLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO OR ARISING IN ANY WAY FROM THIS AGREEMENT OR THE MATTERS CONTEMPLATED HEREBY.
(j) CONSENT TO JURISDICTION AND SERVICE OF PROCESS. EACH OF THE PARTIES IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF THIS AGREEMENT, ANY RELATED AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. EACH OF THE PARTIES HERETO FURTHER AGREES THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED MAIL TO SUCH PARTYS RESPECTIVE ADDRESS SET FORTH ABOVE WILL BE EFFECTIVE SERVICE OF PROCESS FOR ANY ACTION, SUIT OR PROCEEDING WITH RESPECT TO ANY MATTERS TO WHICH IT HAS SUBMITTED TO JURISDICTION IN THIS PARAGRAPH. EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS AGREEMENT, ANY RELATED DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE, AND HEREBY AND THEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(k) No Recourse. Notwithstanding anything to the contrary in this Agreement, the Company and each Holder agrees and acknowledges that no recourse under this Agreement or any documents or instruments delivered in connection with this Agreement, will be had against any current or future director, officer, employee, general or limited partner or member of any Holder or any Affiliate or assignee thereof, whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any statute, regulation or other applicable law, it being expressly agreed and acknowledged that no personal liability whatsoever will attach to, be imposed on or otherwise be incurred by any current or future officer, agent or employee of any Holder or any current or future member of any Holder or any current or future director, officer, employee, partner or member of any Holder or of any Affiliate or assignee thereof, as such for any obligation of any Holder under this Agreement or any documents or instruments delivered in connection with this Agreement for any claim based on, in respect of or by reason of such obligations or their creation.
(l) Descriptive Headings; Interpretation. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. The use of the word including in this Agreement will be by way of example rather than by limitation.
(m) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party.
(n) Counterparts. This Agreement may be executed in multiple counterparts, any one of which need not contain the signature of more than one party, but all such counterparts taken together will constitute one and the same agreement.
(o) Electronic Delivery. This Agreement, the agreements referred to herein, and each other agreement or instrument entered into in connection herewith or therewith or contemplated hereby or thereby, and any amendments hereto or thereto, to the extent executed and delivered by means of a photographic, photostatic, facsimile or similar reproduction of such signed writing using a facsimile machine or electronic mail will be treated in all manner and respects as an original agreement or instrument and will be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. At the request of any party hereto or to any such agreement or instrument, each other party hereto or thereto will re-execute original forms thereof and deliver them to all other parties. No party hereto or to any such agreement or instrument will raise the use of a facsimile machine or electronic mail to deliver a signature or the fact that any signature or agreement or instrument was transmitted or communicated through the use of a facsimile machine or electronic mail as a defense to the formation or enforceability of a contract and each such party forever waives any such defense.
(p) Further Assurances. In connection with this Agreement and the transactions contemplated hereby, each Holder agrees to execute and deliver any additional documents and instruments and perform any additional acts that may be necessary or appropriate to effectuate and perform the provisions of this Agreement and the transactions contemplated hereby.
(q) Dividends, Recapitalizations, Etc. If at any time or from time to time there is any change in the capital structure of the Company by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment will be made in the provisions hereof so that the rights and privileges granted hereby will continue.
(r) No Third-Party Beneficiaries. No term or provision of this Agreement is intended to be, or shall be, for the benefit of any Person not a party hereto, and no such other Person shall have any right or cause of action hereunder, except as otherwise expressly provided herein.
(s) Current Public Information At all times after the Company has filed a registration statement with the SEC pursuant to the requirements of either the Securities Act or the Exchange Act, the Company will file all reports required to be filed by it under the Securities Act and the Exchange Act and will take such further action as the Majority Holders may reasonably request, all to the extent required to enable such Holders to sell Registrable Securities (or securities that would be Registrable Securities but for the final sentence of the definition of Registrable Securities) pursuant to Rule 144.
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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.
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VISTA EQUITY PARTNERS FUND VI, L.P. | |
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VISTA EQUITY PARTNERS FUND VI-A, L.P. | |
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VEPF VI FAF, L.P. | |
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[Signature Page to Registration Rights Agreement]
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Andre Durand |
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[Signature Page to Registration Rights Agreement]
EXHIBIT A
DEFINITIONS
Capitalized terms used in this Agreement have the meanings set forth below.
Affiliate of any Person means any other Person controlled by, controlling or under common control with such Person and, in the case of an individual, also includes any member of such individuals Family Group; provided that the Company and its Subsidiaries will not be deemed to be Affiliates of any holder of Registrable Securities. As used in this definition, control (including, with its correlative meanings, controlling, controlled by and under common control with) will mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities, by contract or otherwise).
Agreement has the meaning set forth in the recitals.
Automatic Shelf Registration Statement has the meaning set forth in Section 1(a).
Business Day means a day that is not a Saturday or Sunday or a day on which banks in New York City are authorized or requested by law to close.
Common Equity means the Companys common stock, par value $0.001 per share.
Company has the meaning set forth in the preamble and shall include its successor(s).
Demand Registrations has the meaning set forth in Section 1(a).
End of Suspension Notice has the meaning set forth in Section 1(f)(ii).
Exchange Act means the Securities Exchange Act of 1934, as amended from time to time, or any successor federal law then in force, together with all rules and regulations promulgated thereunder.
Excluded Registration means any registration (i) pursuant to a Demand Registration (which is addressed in Section 1(a)) and (ii) in connection with registrations on Form S-4 or S-8 promulgated by the SEC or any successor or similar forms).
Executives has the meaning set forth in the recitals.
Executive Registrable Securities means any Common Equity held by the management employees of the Company who are listed as Executives on the signature page hereto or to a Joinder.
Family Group means with respect to any individual, such individuals current or former spouse, their respective parents, descendants of such parents (whether natural or adopted)
and the spouses of such descendants, any any trust, limited partnership, corporation or limited liability company established solely for the benefit of such individual or such individuals current or former spouse, their respective parents, descendants of such parents (whether natural or adopted) or the spouses of such descendants.
FINRA means the Financial Industry Regulatory Authority.
Free Writing Prospectus means a free-writing prospectus, as defined in Rule 405.
Holdback Period has the meaning set forth in Section 3(a).
Holder means a holder of Registrable Securities who is a party to this Agreement (including by way of Joinder).
Indemnified Parties has the meaning set forth in Section 6(a).
Investors has the meaning set forth in the recitals.
Investor Registrable Securities means (i) any Common Equity held (directly or indirectly) by an Investor or any of its Affiliates, and (ii) any equity securities of the Company or any Subsidiary issued or issuable with respect to the securities referred to in clause (i) above by way of dividend, distribution, split or combination of securities, or any recapitalization, merger, consolidation or other reorganization.
Joinder has the meaning set forth in Section 9(a).
Long-Form Registrations has the meaning set forth in Section 1(a).
Losses has the meaning set forth in Section 6(c).
Majority Holders means the holders of a majority of all Investor Registrable Securities.
Other Holders has the meaning set forth in the recitals.
Other Registrable Securities means (i) any Common Equity held (directly or indirectly) by any Other Holders or any of their Affiliates, and (ii) any equity securities of the Company or any Subsidiary issued or issuable with respect to the securities referred to in clause (i) above by way of dividend, distribution, split or combination of securities, or any recapitalization, merger, consolidation or other reorganization.
Other Securities has the meaning set forth in Section 3(a).
Person means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.
Piggyback Registrations has the meaning set forth in Section 2(a).
Potential Participant has the meaning set forth in Section 1(d)(ii).
Public Offering means any sale or distribution by the Company, one of its Subsidiaries and/or Holders to the public of Common Equity or other securities convertible into or exchangeable for Common Equity pursuant to an offering registered under the Securities Act.
Qualified Independent Underwriter has the meaning set forth by FINRA in Section 5121(f)(12), or any successor provision thereto.
Registrable Securities means Investor Registrable Securities and Executive Registrable Securities. As to any particular Registrable Securities, such securities will cease to be Registrable Securities when they have been (a) sold or distributed pursuant to a Public Offering, (b) sold in compliance with Rule 144 following the consummation of the Companys initial Public Offering or (c) repurchased by the Company or a Subsidiary of the Company. For purposes of this Agreement, a Person will be deemed to be a holder of Registrable Securities, and the Registrable Securities will be deemed to be in existence, whenever such Person has the right to acquire, directly or indirectly, such Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected, and such Person will be entitled to exercise the rights of a holder of Registrable Securities hereunder (it being understood that a holder of Registrable Securities may only request that Registrable Securities in the form of Common Equity be registered pursuant to this Agreement). Notwithstanding the foregoing, following the consummation of an initial Public Offering, any Registrable Securities held by any Person (other than an Investor or its Affiliates) that may be sold under Rule 144(b)(1)(i) without limitation under any of the other requirements of Rule 144 will not be deemed to be Registrable Securities.
Registration Expenses has the meaning set forth in Section 5.
Rule 144, Rule 158, Rule 405, Rule 415, and Rule 430B mean, in each case, such rule promulgated under the Securities Act (or any successor provision) by the SEC, as the same will be amended from time to time, or any successor rule then in force.
Sale Transaction has the meaning set forth in Section 3(a).
SEC means the United States Securities and Exchange Commission.
Securities has the meaning set forth in Section 3(a).
Securities Act means the Securities Act of 1933, as amended from time to time, or any successor federal law then in force, together with all rules and regulations promulgated thereunder.
Shelf Offering has the meaning set forth in Section 1(d)(i).
Shelf Offering Notice has the meaning set forth in Section 1(d)(i).
Shelf Registration has the meaning set forth in Section 1(a).
Shelf Registrable Securities has the meaning set forth in Section 1(d)(i).
Shelf Registration Statement has the meaning set forth in Section 1(d).
Short-Form Registrations has the meaning set forth in Section 1(a).
Subsidiary means, with respect to the Company, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence 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 the Company or one or more of the other Subsidiaries of the Company or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the limited liability company, partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by the Company or one or more Subsidiaries of the Company or a combination thereof. For purposes hereof, a Person or Persons will be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons will be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or will be or control the managing director or general partner of such limited liability company, partnership, association or other business entity.
Suspension Event has the meaning set forth in Section 1(f)(ii).
Suspension Notice has the meaning set forth in Section 1(f)(ii).
Suspension Period has the meaning set forth in Section 1(f)(i).
Underwritten Block Trade has the meaning set forth in Section 1(d)(ii).
Violation has the meaning set forth in Section 6(a).
WKSI means a well-known seasoned issuer as defined under Rule 405.
EXHIBIT B
The undersigned is executing and delivering this Joinder pursuant to the Registration Rights Agreement dated as of , 20 (as amended, modified and waived from time to time, the Registration Agreement), among Ping Identity Holding Corp., a Delaware corporation (the Company), and the other persons named as parties therein (including pursuant to other Joinders). Capitalized terms used herein have the meaning set forth in the Registration Agreement.
By executing and delivering this Joinder to the Company, the undersigned hereby agrees to become a party to, to be bound by, and to comply with the provisions of, the Registration Agreement as a Holder in the same manner as if the undersigned were an original signatory to the Registration Agreement, and the undersigned will be deemed for all purposes to be a Holder, an [Investor//Executive thereunder] and the undersigneds shares of Common Equity will be deemed for all purposes to be [Investor // Executive] Registrable Securities under the Registration Agreement.
Accordingly, the undersigned has executed and delivered this Joinder as of the day of , 20 .
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INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this Agreement) is made and entered into as of [·], 2019 between Ping Identity Holding Corp., a Delaware corporation (the Company), and [ ] (Indemnitee).
WHEREAS, highly competent persons have become more reluctant to serve corporations as directors or officers or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;
WHEREAS, the Board of Directors of the Company (the Board) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the corporation or business enterprise itself. The Bylaws of the Company (as amended or restated, the Bylaws) require indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (DGCL). The Bylaws and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers of the Company and other persons with respect to indemnification;
WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;
WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company and its stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;
WHEREAS, this Agreement is a supplement to and in furtherance of the Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; [and]
WHEREAS, Indemnitee may not be willing to serve or continue to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve or continue
to serve in such capacity; Indemnitee is willing to serve, continue to serve and take on additional service for or on behalf of the Company on the condition that he be so indemnified[; and]
[WHEREAS, Indemnitee has certain rights to indemnification and/or insurance provided by Vista Equity Partners (Vista) or affiliates of Vista which Indemnitee and Vista intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided herein, with the Companys acknowledgment of and agreement to the foregoing being a material condition to Indemnitees willingness to serve on the Board.](1)
NOW, THEREFORE, in consideration of Indemnitees agreement to serve as a director or officer from and after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee. Subject to the provisions of Section 9, the Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time, if Indemnitee was or is, or is threatened to be made, a party to, or otherwise becomes involved in, any Proceeding (as hereinafter defined) by reason of Indemnitees Corporate Status (as hereinafter defined). In furtherance of the foregoing indemnification, and without limiting the generality thereof:
(a) Proceedings other than Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section l(a) if, by reason of his Corporate Status, Indemnitee is, or is threatened to be made, a party to or participant, or otherwise becomes involved in, in any Proceeding (as hereinafter defined) other than a Proceeding by or in the right of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him, or on his behalf, in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe Indemnitees conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of his Corporate Status, Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 1(b), Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee, or on Indemnitees behalf, in connection with such Proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided, however, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company unless and only to the extent that the court in which the Proceeding was brought shall determine that Indemnitee is fairly and reasonably entitled to indemnification.
(1) NTD: Bracketed language to be included in form for Vista directors.
(c) Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to or participant in and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, he shall be indemnified to the maximum extent permitted by law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section 1(c) and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
2. Additional Indemnity. In addition to, and without regard to any limitations on the indemnification provided for in Section 1 of this Agreement, the Company shall and hereby does, to the fullest extent permitted by applicable law, indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company). The only limitation that shall exist upon the Companys obligations pursuant to this Agreement, other than those set forth in Section 9 hereof, shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6 and 7 hereof) to be unlawful.
3. Contribution.
(a) Whether or not the indemnification provided in Sections 1 and 2 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), to the fullest extent permitted by applicable law, the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not, without the Indemnitees prior written consent, enter into any such settlement of any action, suit or proceeding (in whole or in part) unless such settlement (i) provides for a full and final release of all claims asserted against Indemnitee and (ii) does not impose any Expense, judgment, fine, penalty or limitation on Indemnitee.
(b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), to the fullest extent permitted by applicable law, the Company shall contribute to the amount of Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to
the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which the law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.
(c) To the fullest extent permitted by applicable law, the Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.
(d) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding, and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).
4. Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is, by reason of his Corporate Status, a witness, is made (or asked) to respond to discovery requests, or is otherwise asked to participate, in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.
5. Advancement of Expenses. Notwithstanding any other provision of this Agreement (other than Section 7(e) and Section 9), the Company shall advance, to the extent not prohibited by law, all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding (or part of any Proceeding) not initiated by Indemnitee or any Proceeding initiated by Indemnitee with the prior approval of the Board as provided in Section 9(d), within thirty (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee. Any advances pursuant to this Section 5 shall be unsecured and interest free. In accordance with Sections 7(d) and 7(e) of this Agreement, advances shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. This Section 5 shall not apply to claim by Indemnitee for expenses in a matter for which indemnity and advancement of expenses is excluded pursuant to Section 9.
6. Procedures and Presumptions for Determination of Entitlement to Indemnification. It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the DGCL and public policy of the State of Delaware. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. Notwithstanding the foregoing, any failure of Indemnitee to provide such a request to the Company, or to provide such a request in a timely fashion, shall not relieve the Company of any liability that it may have to Indemnitee unless, and to the extent that, such failure actually and materially prejudices the interests of the Company.
(b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 6(a) hereof, a determination with respect to Indemnitees entitlement thereto shall be made in the specific case by one of the following four methods, which shall be at the election of the Board: (1) by a majority vote of the Disinterested Directors (as hereinafter defined), even though less than a quorum; (2) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum; (3) if there are no Disinterested Directors, or if the Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee; or (4) if so directed by the Board, by the stockholders of the Company; provided, however, that if a Change in Control has occurred, the determination with respect to Indemnitees entitlement to indemnification shall be made by Independent Counsel. For purposes hereof, Disinterested Directors are those members of the Board who are not parties to the action, suit or proceeding in respect of which indemnification is sought by Indemnitee.
(c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel, the Independent Counsel shall be selected as provided in this Section 6(c). If a Change in Control has not occurred, the Independent Counsel shall be selected by the Board, and the Company shall give written notice to the Indemnitee advising him of the identity of the Independent Counsel so selected. Indemnitee may, within 10 days after such written notice of selection shall have been given, deliver to the Company a written objection to such selection; provided, however, that such objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel as defined in Section 12 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the Person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If a Change in Control has occurred, the Independent Counsel shall be selected by the Indemnitee (unless the Indemnitee shall request that such selection be made by the Board, in which event the preceding sentence shall apply), and approved by the Board within 20 days after notification by Indemnitee. If (i) an Independent Counsel is to make the determination of entitlement pursuant to this Section 6, and (ii) within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall have been selected (including as a result of an objection to the selected Independent Counsel), either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by Indemnitee to the Companys selection of Independent Counsel and/or for the appointment as Independent Counsel of a Person selected by the court or by such other Person as the court shall designate, and the Person with respect to whom all objections are so resolved or the Person so appointed shall act as Independent Counsel under Section 6(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 6(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 6(c), regardless of the manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to entitlement to indemnification hereunder, the Person making such determination shall to the fullest extent permitted by law presume that Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof to overcome such presumption. Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(e) Indemnitee shall be deemed to have acted in good faith if Indemnitees action is based on the records or books of account of the Enterprise (as hereinafter defined), including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 6(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
(f) If the Person empowered or selected under this Section 6 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall to the fullest extent permitted by law be deemed to have been made and Indemnitee shall be entitled to such indemnification absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the Person making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 6(f) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 6(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination, the Board or the Disinterested Directors, if appropriate, resolve to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat.
(g) Indemnitee shall cooperate with the Person making such determination with respect to Indemnitees entitlement to indemnification, including providing to such Person upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including reasonable attorneys fees and disbursements) incurred by Indemnitee in so cooperating with the Person making such determination shall be borne by the Company (irrespective of the determination as to Indemnitees entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall to the fullest extent permitted by law be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
(i) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.
7. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 6 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 5 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 6(b) of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification or (iv) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitees entitlement to such indemnification, contribution or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Company shall not oppose Indemnitees right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 7 shall be conducted in all respects as a de novo trial, or arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 6(b). In any judicial proceeding or arbitration commenced pursuant to this Section 7, Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 6(b) of this Agreement adverse to Indemnitee for any purpose other than to establish its compliance with the terms of this Agreement. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 7, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 5 until a final determination is made with respect to Indemnitees entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).
(c) If a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 7, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees misstatement not materially misleading, in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7, incurs costs, in a judicial or arbitration proceeding or otherwise, attempting to enforce his rights under, or to recover damages for breach of, this Agreement, or to recover under any directors and officers liability insurance policies maintained by the Company, the Company shall pay on his behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 12 of this Agreement) actually and reasonably incurred by him in such efforts, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery, to the fullest extent permitted by applicable law. It is the intent of the Company that, to the fullest extent permitted by applicable law, Indemnitee not be required to incur legal fees or other Expenses associated with the interpretation, enforcement or defense of Indemnitees rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to Indemnitee hereunder.
(e) The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 7 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.
(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.
8. Non-Exclusivity; Survival of Rights; [Primacy of Indemnification;] Insurance; Subrogation.
(a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation of the Company (as amended or restated, the Charter), the Bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise, of the Company. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the DGCL, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Charter, Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b) The Company shall, if commercially reasonable, obtain and maintain in effect during the entire period for which the Company is obligated to indemnify Indemnitee under this Agreement, one or more policies of insurance with reputable insurance
companies to provide the directors and officers of the Company with coverage for losses from wrongful acts and omissions and to ensure the Companys performance of its indemnification obligations under this Agreement. Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such officer or director under such policy or policies. In all such insurance policies, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee with the same rights and benefits as are accorded to the most favorably insured of the Companys directors and officers. At the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
(c) [The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by Vista and certain affiliates that, directly or indirectly, (i) are controlled by, (ii) control or (iii) are under common control with, Vista (collectively, the Fund Indemnitors). With respect to any amounts that are subject to indemnity under this Agreement and also subject to an indemnity obligation owed by Fund Indemnitors, the Company hereby agrees (i) that, as compared the Fund Indemnitors, it is the indemnitor of first resort with respect to any rights to indemnification provided to Indemnitee herein (i.e., its obligations to Indemnitee are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee is secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Charter or Bylaws of the Company (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Fund Indemnitors, and (iii) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 8(c).]
(d) [Except as provided in Section 8(c) above,] in the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee [(other than against the Fund Indemnitors)], who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(e) [Except as provided in Section 8(c) above,] the Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for which advancement of Expenses is provided) hereunder if and to the extent that Indemnitee has
otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
(f) [Except as provided in Section 8(c) above,] the Companys obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.
9. Exception to Right of Indemnification. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity or advancement of expenses in connection with any claim made against Indemnitee:
(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; [provided, that the foregoing shall not affect the rights of Indemnitee or the Fund Indemnitors set forth in Section 8(c) above;] or
(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act (as hereinafter defined), or similar provisions of state statutory law or common law; or
(c) for reimbursement to the Company of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company in each case as required under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) or Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act in connection with an accounting restatement of the Company or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act);
(d) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Company has joined in or the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation, (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law, or (iii) the Proceeding is one to enforce Indemnitees rights under this Agreement or;
(e) any reimbursement of the Company by Indemnitee of any compensation pursuant to any compensation recoupment or clawback policy adopted by the Board or the compensation committee of the Board, including but not limited to any such policy
adopted to comply with stock exchange listing requirements implementing Section 10D of the Exchange Act.
10. Non-Disclosure of Payments. Except as expressly required by the securities laws of the United States of America, neither party shall disclose any payments under this Agreement unless prior approval of the other party is obtained. If any payment information must be disclosed, the Company shall afford the Indemnitee an opportunity to review all such disclosures and, if requested, to explain in such statement any mitigating circumstances regarding the events to be reported.
11. Duration of Agreement. All agreements and obligations of the Company contained herein shall continue until and terminate upon the later of (i) twenty (20) years after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company, and (ii) one (1) year after the final termination of any Proceeding (including any rights of appeal thereto) in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 7 of this Agreement relating thereto (including any rights of appeal of any Section 7 Proceeding). Termination of this Agreement shall not adversely affect any right or protection hereunder of any Indemnitee in respect of any Proceeding (regardless of when such Proceeding is first threatened, commenced or completed) arising out of, or related to, any act or omission occurring prior to the time of such termination. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.
12. Definitions. For purposes of this Agreement:
(a) Beneficial Owner shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.
(b) Change in Control shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:
(i) Acquisition of Stock by Third Party. Any Person (as defined below), other than Vista and its affiliates and other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the Beneficial Owner (as defined above), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Companys then
outstanding securities, unless the change in relative Beneficial Ownership of the Companys securities by any Person results solely from a reduction in the aggregate number of outstanding securities entitled to vote generally in the election of directors;
(ii) Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in Section 12(b)(i), 12(b)(iii) or 12(b)(iv)) whose election by the Board or nomination for election by the Companys stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board;
(iii) Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity; and
(iv) Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Companys assets, or, if such approval is not required, the decision by the Board to proceed with such a liquidation, sale, or disposition in one transaction or a series of related transactions.
(c) Corporate Status describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company, any direct or indirect subsidiary of the Company, or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the express written request of the Company.
(d) Disinterested Director means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(e) Enterprise shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, employee, agent or fiduciary.
(f) Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
(g) Expenses shall include all reasonable attorneys fees, retainers, court costs, transcript costs, fees of experts and other professionals, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, ERISA excise taxes and penalties, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, or responding to, or objecting to, a request to provide discovery in any Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
(h) Independent Counsel means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any Person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement. The Company agrees to pay the reasonable fees and disbursements of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(i) Person shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(j) Proceeding includes any threatened, pending or completed action, suit, claim, counterclaim, cross claim, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was an officer or director of the Company, by reason of any action taken by him or of any inaction on his part while acting as an officer or director of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement, but excluding one initiated by an Indemnitee pursuant to Section 7 of this Agreement to enforce his rights under this Agreement.
13. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (i) the validity, legality, and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (ii) such provision or provisions shall be deemed reformed to the fullest extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (iii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws.
14. Enforcement and Binding Effect.
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving or continuing to serve as a director or officer of the Company.
(b) Without limiting any of the rights of Indemnitee under the Charter or Bylaws of the Company as they may be amended from time to time, this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.
(c) The indemnification and advancement of expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties
hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other Enterprise at the Companys request, and shall inure to the benefit of Indemnitee and his spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.
(d) The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
(e) The Company and Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which he may be entitled. The Company and Indemnitee further agree that Indemnitee shall be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertaking in connection therewith. The Company acknowledges that in the absence of a waiver, a bond or undertaking may be required of Indemnitee by the court, and the Company hereby waives any such requirement of such a bond or undertaking.
15. Modification and Waiver. No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
16. Notice By Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.
17. Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:
(a) To Indemnitee at the address set forth below Indemnitees signature hereto.
(b) To the Company at:
Ping Identity Holding Corp.
1001 17th Street, Suite 100
Attention: Chief Legal Officer
E-mail: lromer@pingidentity.com
or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
18. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
19. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
20. Usage of Pronouns. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate.
21. Governing Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict-of-laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 7 of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the Delaware Court), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first written above.
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SIGNATURE PAGE TO INDEMNIFICATION AGREEMENT
DIRECTOR NOMINATION AGREEMENT
THIS DIRECTOR NOMINATION AGREEMENT (this Agreement) is made and entered into as of [·], 2019, by and among Ping Identity Holding Corp., a Delaware corporation (the Company), Vista Equity Partners Fund VI, L.P., Vista Equity Partners Fund VI-A, L.P., VEPF VI FAF, L.P. (collectively referred to herein as the Vista Funds), Vista Equity Partners Fund VI GP, L.P. (Fund VI GP), VEPF VI GP, Ltd. (Fund VI UGP), VEPF Management, L.P. (the Management Company) and VEP Group, LLC (VEP Group and, together with the Vista Funds, Fund VI GP, Fund VI UGP, the Management Company and their Affiliates (as defined herein), Vista). This Agreement shall become effective (the Effective Date) upon the closing of the Companys initial public offering (the IPO) of shares of its common stock, par value $0.001 per share (the Common Stock).
WHEREAS, as of the date hereof, the Vista Funds collectively own all of the outstanding equity interests of the Company (apart from interests held by directors and officers of the Company and Rio Grande Fork Holdings, LLC, a co-investor in the Company) and whereas VEP Group is the indirect beneficial owner of the majority of such equity interests;
WHEREAS, Vista is contemplating causing the Company to effect the IPO;
WHEREAS, Vista currently has the authority to appoint all directors of the Company;
WHEREAS, in consideration of Vista agreeing to undertake the IPO, the Company has agreed to permit Vista to designate persons for nomination for election to the board of directors of the Company (the Board) following the Effective Date on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the parties to this Agreement agrees as follows:
1. Board Nomination Rights.
(a) From the Effective Date, VEP Group shall have the right, but not the obligation, to nominate to the Board a number of designees equal to at least: (i) 100% of the Total Number of Directors (as defined below), so long as Vista Beneficially Owns shares of Common Stock representing at least 40% of the Original Amount of VEP Group, (ii) 40% of the Total Number of Directors, in the event that Vista Beneficially Owns shares of Common Stock representing at least 30% but less than 40% of the Original Amount of VEP Group, (iii) 30% of the Total Number of Directors, in the event that Vista Beneficially Owns shares of Common Stock representing at least 20% but less than 30% of the Original Amount of VEP Group, (iv) 20% of the Total Number of Directors, in the event that Vista Beneficially Owns shares of Common Stock representing at least 10% but less than 20% of the Original Amount of VEP Group and (v) 1 Director (as defined below), in the event that Vista Beneficially Owns shares of Common Stock representing at least 5% of the Original Amount of VEP Group (such persons, the Nominees). For purposes of calculating the number of directors that VEP Group is entitled to designate pursuant to the
immediately preceding sentence, any fractional amounts shall automatically be rounded up to the nearest whole number (e.g., 1¼ Directors shall equate to 2 Directors) and any such calculations shall be made after taking into account any increase in the Total Number of Directors.
(b) In the event that VEP Group has nominated less than the total number of designees, VEP Group shall be entitled to nominate pursuant to Section 1(a), Vista shall have the right, at any time, to nominate such additional designees to which it is entitled, in which case, the Company and the Directors shall take all necessary corporation action, to the fullest extent permitted by applicable law (including with respect to fiduciary duties under Delaware law), to (x) enable VEP Group to nominate and effect the election or appointment of such additional individuals, whether by increasing the size of the Board, or otherwise and (y) to designate such additional individuals nominated by VEP Group to fill such newly created vacancies or to fill any other existing vacancies.
(c) In addition to the nomination rights set forth in Section 1(a) above, from the Effective Date, for so long as Vista Beneficially Owns shares of Common Stock representing at least 5% of the Original Amount of VEP Group, VEP Group shall have the right, but not the obligation, to designate a person (a Non-Voting Observer) to attend meetings of the Board (including any meetings of any committees thereof) in a non-voting observer capacity. Any such Non-Voting Observer shall be permitted to attend all meetings of the Board. VEP Group shall have the right to remove and replace its Non-Voting Observer at any time and from time to time. The Company shall furnish to any Non-Voting Observer (i) notices of Board meetings no later than, and using the same form of communication as, notice of Board meetings are furnished to directors and (ii) copies of any materials prepared for meetings of the Board that are furnished to the directors no later than the time such materials are furnished to the directors; provided that failure to deliver notice, or materials, to such Non-Voting Observer in connection with such Non-Voting Observers right to attend and/or review materials with respect to, any meeting of the Board shall not, by itself, impair the validity of any action taken by such Board at such meeting. Such Non-Voting Observer shall be required to execute or otherwise become subject to any codes of conduct or confidentiality agreements of the Company generally applicable to directors of the Company or as the Company reasonably requests.
(d) The Company shall pay all reasonable out-of-pocket expenses incurred by the Nominees and the Non-Voting Observer in connection with the performance of his or her duties as a director or a Non-Voting Observer and in connection with his or her attendance at any meeting of the Board.
(e) Beneficially Own shall mean that a specified person has or shares the right, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, to vote shares of capital stock of the Company. Affiliate of any person shall mean any other person controlled by, controlling or under common control with such person; where control (including, with its correlative meanings, controlling, controlled by and under common control with) means possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities, by contract or otherwise).
(f) Director means any member of the Board.
(g) Original Amount of VEP Group means the aggregate number of shares of Common Stock held, directly or indirectly, by VEP Group on the date hereof, as such number may be adjusted from time to time for any reorganization, recapitalization, stock dividend, stock split, reverse stock split or other similar changes in the Companys capitalization.
(h) Total Number of Directors means the total number of Directors comprising the Board.
(i) No reduction in the number of shares of Common Stock that Vista Beneficially Owns shall shorten the term of any incumbent director. At the Effective Date, the Board shall be comprised of eight members and the initial Nominees shall be Andre Durand, Brian N. Sheth, Rod Aliabadi, David A. Breach, Michael Fosnaugh, Yancey L. Spruill, John McCormack and Clifford Chiu.
(j) In the event that any Nominee shall cease to serve for any reason, VEP Group shall be entitled to designate such persons successor in accordance with this Agreement (regardless of Vistas beneficial ownership in the Company at the time of such vacancy) and the Board shall promptly fill the vacancy with such successor nominee; it being understood that any such designee shall serve the remainder of the term of the director whom such designee replaces.
(k) If a Nominee is not appointed or elected to the Board because of such persons death, disability, disqualification, withdrawal as a nominee or for other reason is unavailable or unable to serve on the Board, VEP Group shall be entitled to designate promptly another nominee and the director position for which the original Nominee was nominated shall not be filled pending such designation.
(l) So long as VEP Group has the right to nominate Nominees under Section 1(a) or any such Nominee is serving on the Board, the Company shall use its reasonable best efforts to maintain in effect at all times directors and officers indemnity insurance coverage reasonably satisfactory to Vista, and the Companys Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws (each as may be further amended, supplemented or waived in accordance with its terms) shall at all times provide for indemnification, exculpation and advancement of expenses to the fullest extent permitted under applicable law.
(m) If the size of the Board is expanded, VEP Group shall be entitled to nominate a number of Nominees to fill the newly created vacancies such that the total number of Nominees serving on the Board following such expansion will be equal to that number of Nominees that VEP Group would be entitled to nominate in accordance with Section 1(a) if such expansion occurred immediately prior to any meeting of the stockholders of the Company called with respect to the election of members of the Board, and the Board shall appoint such Nominees to the Board.
(n) At such time as the Company ceases to be a controlled company and is required by applicable law or the NASDAQ Global Select Market (the Exchange) listing standards to have a majority of the Board comprised of independent directors (subject in each case to any applicable phase-in periods), Vistas Nominees shall include a number of persons that qualify as
independent directors under applicable law and the Exchange listing standards such that, together with any other independent directors then serving on the Board that are not Nominees, the Board is comprised of a majority of independent directors.
(o) At any time that VEP Group shall have any nomination rights under Section 1, the Company shall not take any action, including making or recommending any amendment to the Certificate of Incorporation or the Companys bylaws that could reasonably be expected to adversely affect VEP Groups rights under this Agreement, in each case without the prior written consent of VEP Group.
2. Company Obligations. The Company agrees to use its reasonable best efforts to ensure that prior to the date that Vista and its Affiliates cease to Beneficially Own shares of Common Stock representing at least 5% of the total voting power of the then outstanding Common Stock, (i) each Nominee is included in the Boards slate of nominees to the stockholders (the Boards Slate) for each election of directors; and (ii) each Nominee is included in the proxy statement prepared by management of the Company in connection with soliciting proxies for every meeting of the stockholders of the Company called with respect to the election of members of the Board (each, a Director Election Proxy Statement), and at every adjournment or postponement thereof, and on every action or approval by written consent of the stockholders of the Company or the Board with respect to the election of members of the Board. VEP Group will promptly provide reporting to the Company after Vista ceases to Beneficially Own shares of Common Stock representing at least 5% of the total voting power of the then outstanding Common Stock, such that Company is informed of when this obligation terminates. The calculation of the number of Nominees that VEP Group is entitled to nominate to the Boards Slate for any election of directors shall be based on the percentage of the total voting power of the then outstanding Common Stock then Beneficially Owned by Vista (Vista Voting Control) immediately prior to the mailing to shareholders of the Director Election Proxy Statement relating to such election (or, if earlier, the filing of the definitive Director Election Proxy Statement with the U.S. Securities and Exchange Commission). Unless VEP Group notifies the Company otherwise prior to the mailing to shareholders of the Director Election Proxy Statement relating to an election of directors, the Nominees for such election shall be presumed to be the same Nominees currently serving on the Board, and no further action shall be required of VEP Group for the Board to include such Nominees on the Boards Slate; provided, that, in the event VEP Group is no longer entitled to nominate the full number of Nominees then serving on the Board, VEP Group shall provide advance written notice to the Company, of which currently servicing Nominee(s) shall be excluded from the Board Slate, and of any other changes to the list of Nominees. If VEP Group fails to provide such notice prior to the mailing to shareholders of the Director Election Proxy Statement relating to such election (or, if earlier, the filing of the definitive Director Election Proxy Statement with the U.S. Securities and Exchange Commission), a majority of the independent directors then serving on the Board shall determine which of the Nominees of VEP Group then serving on the Board will be included in the Boards Slate. Furthermore, the Company agrees for so long as the Company qualifies as a controlled company under the rules of the Exchange the Company will elect to be a controlled company for purposes of the Exchange and will disclose in its annual meeting proxy statement that it is a controlled company and the basis for that determination. The Company and Vista acknowledge and agree that, as of the Effective Date, the Company is a controlled company.
3. Committees. From and after the Effective Date hereof until such time as Vista and its Affiliates cease to Beneficially Own shares of Common Stock representing at least 5% of the total voting power of the then outstanding Common Stock, Vista shall have the right to designate a number of members of each committee of the Board equal to the nearest whole number greater than the product obtained by multiplying (a) the percentage of the total voting power of the then outstanding Common Stock then Beneficially Owned by Vista and (b) the number of positions, including any vacancies, on the applicable committee, provided that any such designee shall be a director and shall be eligible to serve on the applicable committee under applicable law or listing standards of the Exchange, including any applicable independence requirements (subject in each case to any applicable exceptions, including those for newly public companies and for controlled companies, and any applicable phase-in periods). Any additional members shall be determined by the Board. Nominees designated to serve on a Board committee shall have the right to remain on such committee until the next election of directors, regardless of the level of Vista Voting Control following such designation. Unless VEP Group notifies the Company otherwise prior to the time the Board takes action to change the composition of a Board committee, and to the extent Vista has the requisite Vista Voting Control for VEP Group to nominate a Board committee member at the time the Board takes action to change the composition of any such Board committee, any Nominee currently designated by VEP Group to serve on a committee shall be presumed to be re-designated for such committee.
4. Amendment and Waiver. Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by the Company and Vista, or in the case of a waiver, by the party against whom the waiver is to be effective. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. VEP Group shall not be obligated to nominate all (or any) of the Nominees it is entitled to nominate pursuant to this Agreement for any election of directors but the failure to do so shall not constitute a waiver of its rights hereunder with respect to future elections; provided, however, that in the event VEP Group fails to nominate all (or any) of the Nominees it is entitled to nominate pursuant to this Agreement prior to the mailing to shareholders of the Director Election Proxy Statement relating to such election (or, if earlier, the filing of the definitive Director Election Proxy Statement with the U.S. Securities and Exchange Commission), the Compensation and Governance Committee of the Board shall be entitled to nominate individuals in lieu of such Nominees for inclusion in the Boards Slate and the applicable Director Election Proxy Statement with respect to the election for which such failure occurred and VEP Group shall be deemed to have waived its rights hereunder with respect to such election. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.
5. Benefit of Parties. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective permitted successors and assigns. Notwithstanding the foregoing, the Company may not assign any of its rights or obligations hereunder without the prior written consent of Vista. Except as otherwise expressly provided in Section 6, nothing herein
contained shall confer or is intended to confer on any third party or entity that is not a party to this Agreement any rights under this Agreement.
6. Assignment. Upon written notice to the Company, VEP Group may assign to any of the Vista Funds or any Affiliate of VEP Group (other than a portfolio company) all of its rights hereunder and, following such assignment, such assignee shall be deemed to be VEP Group for all purposes hereunder.
7. Headings. Headings are for ease of reference only and shall not form a part of this Agreement.
8. Governing Law. This Agreement shall be construed in accordance with and governed by the law of the State of Delaware without giving effect to the principles of conflicts of laws thereof.
9. Jurisdiction. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement may be brought against any of the parties in any federal court located in the State of Delaware or any Delaware state court, and each of the parties hereby consents to the exclusive jurisdiction of such court (and of the appropriate appellate courts) in any such suit, action or proceeding and waives any objection to venue laid therein. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each of the parties agrees that service of process upon such party at the address referred to in Section 16, together with written notice of such service to such party, shall be deemed effective service of process upon such party.
10. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT.
11. Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings and negotiations, both written and oral among the parties with respect to the subject matter hereof.
12. Counterparts; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be deemed an original. This Agreement shall become effective when each party shall have received a counterpart hereof signed by each of the other parties. An executed copy or counterpart hereof delivered by facsimile shall be deemed an original instrument.
13. Severability. If any provision of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
14. Further Assurances. Each of the parties hereto shall execute and deliver such further instruments and do such further acts and things as may be required to carry out the intent and purpose of this Agreement.
15. Specific Performance. Each of the parties hereto agree that irreparable damage would occur if any provision of this Agreement were not performed in accordance with the terms hereof and that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement or to enforce specifically the performance of the terms and provisions hereof in any federal or state court located in the State of Delaware, in addition to any other remedy to which they are entitled at law or in equity.
16. Notices. All notices, requests and other communications to any party or to the Company shall be in writing (including telecopy or similar writing) and shall be given,
If to the Company:
Ping Identity Holding Corp.
1001 17th Street, Suite 100
Denver, Colorado 80202
Attention: Chief Legal Officer
If to any member of Vista or any Nominee:
c/o Vista Equity Partners
4 Embarcadero Center
20th Floor
San Francisco, California 94111
Attention: David Breach
Christina Lema
Facsimile: (415) 765-6666
With a copy to (which shall not constitute notice):
Kirkland & Ellis LLP
300 N. LaSalle
Chicago, IL 60654
Attention: Robert M. Hayward, P.C.
Robert E. Goedert, P.C.
Facsimile: (312) 862-2200
or to such other address or telecopier number as such party or the Company may hereafter specify for the purpose by notice to the other parties and the Company. Each such notice, request or other communication shall be effective when delivered at the address specified in this Section 16 during regular business hours.
17. Enforcement. Each of the parties hereto covenant and agree that the disinterested members of the Board have the right to enforce, waive or take any other action with respect to this Agreement on behalf of the Company.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written.
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PING IDENTITY HOLDING CORP. | |
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VISTA EQUITY PARTNERS FUND VI, L.P. | |
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Vista Equity Partners Fund VI GP, L.P. |
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General Partner |
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VEPF VI GP, Ltd. |
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General Partner |
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By: |
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Name: |
Robert F. Smith |
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Director |
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VISTA EQUITY PARTNERS FUND VI-A, L.P. | |
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Vista Equity Partners Fund VI GP, L.P. |
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General Partner |
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VEPF VI GP, Ltd. |
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Its: |
General Partner |
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By: |
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Name: |
Robert F. Smith |
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Title: |
Director |
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VEPF VI FAF, L.P. | |
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Vista Equity Partners Fund VI GP, L.P. |
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General Partner |
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VEPF VI GP, Ltd. |
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General Partner |
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By: |
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Name: |
Robert F. Smith |
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Director |
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VEPF MANAGEMENT, L.P. | |
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VEP Group, LLC |
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Exhibit 10.10
LEASE AGREEMENT
between
MG-1005, LLC, a Colorado limited liability company
(as Landlord)
and
PING IDENTITY CORPORATION, a Delaware corporation
(as Tenant)
Section |
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Page |
|
|
|
1. |
PRINCIPAL TERMS |
3 |
2. |
GENERAL COVENANTS |
5 |
3. |
TERM |
5 |
4. |
RENT |
5 |
5. |
COMPLETION OR REMODELING OF THE PREMISES |
6 |
6. |
OPERATING EXPENSES |
6 |
7. |
SERVICES |
6 |
8. |
QUIET ENJOYMENT |
8 |
9. |
DEPOSIT |
9 |
10. |
CHARACTER OF OCCUPANCY |
9 |
11. |
MAINTENANCE, ALTERATIONS AND REENTRY BY LANDLORD |
10 |
12. |
ALTERATIONS AND REPAIRS BY TENANT |
11 |
13. |
CONSTRUCTION LIENS |
13 |
14. |
SUBLETTING AND ASSIGNMENT |
13 |
15. |
DAMAGE TO PROPERTY |
15 |
16. |
INDEMNITY |
16 |
17. |
SURRENDER AND NOTICE |
16 |
18. |
INSURANCE, CASUALTY, AND RESTORATION OF PREMISES |
16 |
19. |
CONDEMNATION |
18 |
20. |
DEFAULT BY TENANT |
19 |
21. |
DEFAULT BY LANDLORD |
22 |
22. |
SUBORDINATION AND ATTORNMENT |
22 |
23. |
REMOVAL OF TENANTS PROPERTY |
23 |
24. |
HOLDING OVER: TENANCY MONTH-TO-MONTH |
23 |
25. |
PAYMENTS AFTER TERMINATION |
23 |
26. |
STATEMENT OF PERFORMANCE |
24 |
27. |
MISCELLANEOUS |
24 |
28. |
AUTHORITIES FOR ACTION AND NOTICE |
29 |
29. |
PARKING |
30 |
30. |
SUBSTITUTE PREMISES |
30 |
31. |
BROKERAGE |
31 |
32. |
COUNTERPARTS |
31 |
33. |
ADDENDUM/EXHIBITS |
31 |
LEASE AGREEMENT
THIS LEASE AGREEMENT (Lease), dated as of January 21, 2011, is by and between MG-1005, LLC, a Colorado limited liability company (Landlord), and PING IDENTITY CORPORATION, a Delaware corporation (Tenant).
WITNESSETH:
1. PRINCIPAL TERMS. Capitalized terms, first appearing in quotations in this Section, elsewhere in the Lease or any Exhibits, are definitions of such terms as used in the Lease and Exhibits and shall have the defined meaning whenever used.
1.1. |
BUILDING: |
Buildings located at 1001 17th Street, Denver, Colorado 80202 consisting of approximately 655,565 rentable square feet | |||||||||
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1.2. |
PREMISES: |
Approximately 20,225 rentable square feet located in Suite 100 of the Building | |||||||||
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1.3. |
INITIAL TERM: |
66 whole calendar months
Commencement Date: the earlier to occur of: (a) May 15, 2011, as extended for each day of Net Landlord Delay (as defined in the Work Letter); or (b) the date Tenant commences the Permitted Use in any portion of the Premises but in no event sooner than April 15, 2011
Expiration Date: The last day of the 66th whole calendar month following the Commencement Date: | |||||||||
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1.4. |
BASE RENT: |
Period |
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RSF Rate |
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Applicable |
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Monthly |
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Months 1-12 |
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$ |
5.85 |
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16,000 |
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$ |
7,800.00 |
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Months 13-18 |
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$ |
18.25 |
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16,000 |
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$ |
24,333.33 |
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Months 19-30 |
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$ |
18.25 |
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20,225 |
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$ |
32,444.27 |
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Months 31-42 |
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$ |
18.25 |
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20,225 |
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$ |
34,129.69 |
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Months 43-54 |
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$ |
18.25 |
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20,225 |
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$ |
35,815.10 |
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Months 55-66 |
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$ |
18.25 |
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20,225 |
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$ |
37,500.52 |
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Notwithstanding anything in this Lease to the contrary, the first month of Base Rent that Tenant is obligated to pay hereunder shall be paid in advance at the time Tenant executes this Lease. | |||||||||
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1.5. |
OPERATING EXPENSES: |
Pro Rata Share: 3.0851% |
1.6. |
DEPOSIT: |
None; See Addendum re required Letter of Credit |
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1.7. |
PERMITTED USE: |
General office use |
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1.8. |
GUARANTOR: |
None |
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1.9. |
PARKING ALLOTMENT: |
20 unreserved parking spaces (based on one (1) parking space per 1,000 rentable square feet of the Premises), the use of which shall be subject to and in accordance with Section 29 of the Lease |
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1.10. |
LANDLORDS NOTICE ADDRESS: |
MG-1005, LLC, c/o Miller Global Properties, LLC |
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1.11. |
RENT PAYMENT: |
If by check, mailed to:
If by ACH electronic payment, to:
Colorado Capital Bank, Account #: [***] ABA#[***] |
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1.12. |
LANDLORDS TAX I.D.: |
[***] |
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1.13. |
TENANTS NOTICE ADDRESS: |
1099 18th St., Suite 2950 |
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Post Commencement Address: |
1001 17th Street, Suite 100
With required copies to:
Jones Lang LaSalle Brokerage, Inc.
and to: |
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Brownstein Hyatt Farber Schreck LLP |
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1.14. |
TENANTS TAX I.D.: |
[***] |
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1.15. |
LANDLORDS BROKER: |
Cushman & Wakefield of Colorado, Inc. |
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1.16. |
COOPERATING BROKER: |
Jones Lang LaSalle |
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1.17. |
ATTACHMENTS: |
[check if applicable] |
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x Addendum |
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x Exhibit A-1 - The Premises |
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x Exhibit A-2 - The Patio Area |
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x Exhibit B - Real Property |
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x Exhibit C - Operating Expenses |
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x Exhibit D - Commencement Certificate |
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x Exhibit E - Rules and Regulations |
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x Exhibit F - Letter of Credit |
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x Exhibit G - Subordination, Non-Disturbance And Attornment Agreement |
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x Work Letter |
2. GENERAL COVENANTS. Tenant covenants and agrees to pay Rent and perform the obligations hereafter set forth and in consideration therefor Landlord leases to Tenant the Premises as depicted on the floor plate attached as Exhibit A-1, together with (a) an exclusive license to use the outdoor patio area adjacent to the Premises as depicted on Exhibit A-2 (the Patio Area), and (b) a non-exclusive right, subject to the provisions hereof, to use Common Areas, as herein defined, or other areas on the real property legally described on Exhibit B (the Real Property). The Building, Real Property, Common Areas, and appurtenances are hereinafter collectively sometimes called the Building Complex.
3. TERM. The Initial Term of the Lease commences at 12:01 a.m. on the Commencement Date and terminates at 12:00 midnight on the Expiration Date (the Initial Term together with any extensions thereof is herein referred to as the Term.).
4. RENT. Subject to the provisions below, commencing on the Commencement Date and on the first day of each month thereafter, Tenant shall pay Base Rent in the amount stated in Section 1.4, in advance without notice (all amounts, including Base Rent, to be paid by Tenant pursuant to this Lease as the context requires are sometimes referred to collectively as Rent(s)). Except as otherwise set forth in this Lease, Rents shall be paid without set off, abatement, or diminution, at the address set forth in Section 1.11, or at such other place as Landlord from time to time designates in writing.
5. COMPLETION OR REMODELING OF THE PREMISES.
5.1. Provisions regarding remodeling or tenant finish work in the Premises, if any, are set forth in a work letter attached to this Lease (the Work Letter). Initial Tenant Finish means the Premises in its as-is condition with the base Building systems in good working order on the date Landlord delivers the Premises (Delivery Date) to Tenant for Tenants completion of the Finish Work in accordance with the Work Letter. Landlord has no obligation for the completion or remodeling of the Premises, and Tenant accepts the Premises in its as is condition on the Delivery Date which is anticipated to occur on the date of mutual execution of this Lease by Landlord and Tenant provided, however, Tenants acceptance of the Premises shall not in any way diminish or otherwise affect Landlords warranty, maintenance or repair obligations set forth elsewhere in this Lease. From the Delivery Date until the Commencement Date (the Beneficial Occupancy Period), Tenant shall have access to the Premises during the Beneficial Occupancy Period for purposes of constructing the Finish Work but shall not be required to pay Base Rent or Operating Expenses, nor shall Tenants rights to parking be in effect or the obligation to pay parking fees at any time prior to April 15, 2011. Landlord shall provide all Services (as defined below) during the Beneficial Occupancy Period at no cost to Tenant. Tenants occupancy of the Premises and the Patio Area during the Beneficial Occupancy Period shall otherwise be subject to all other terms and obligations of the Lease. As soon as the Term commences, Landlord and Tenant agree to execute a commencement agreement in the form attached as Exhibit D, setting forth the exact Commencement Date and Expiration Date, Delivery Date and commencement and ending dates of the Abated Rent Period.
5.2. Taking possession of the Premises by Tenant for construction purposes is, except as otherwise set forth in Section 5.1 above, conclusive evidence that the Premises are in the condition agreed between Landlord and Tenant.
6. OPERATING EXPENSES. Tenant shall pay additional Rent in accordance with Exhibit C attached hereto.
7. SERVICES.
7.1. Subject to the provisions below, Landlord agrees in accordance with standards determined by Landlord from time to time for the Building at least equivalent to services provided by first class office buildings of similar size and quality in the Denver central business district (Minimum Standard): (1) to furnish, at all times, running water at those points of supply for general use of tenants of the Building and at those points of supply within the Premises approved by Landlord as part of the Approved Drawings (as defined below); (2) during Ordinary Business Hours to furnish to interior Common Areas heated or cooled air (as applicable), electrical current, janitorial services, and maintenance; (3) during Ordinary Business Hours to furnish heated or cooled air to the Premises for standard office use provided the reasonable recommendations of Landlords engineer regarding occupancy and use of the Premises are complied with by Tenant; (4) to furnish, subject to availability and capacity of building systems (and Landlords right to charge for such services as provided below), unfiltered treated condenser water for use in Tenants packaged HVAC systems provided that such systems are approved by Landlord, including strainers, pumping systems and controls; (5) to provide, during Ordinary Business Hours, the general use of passenger elevators for ingress and egress to and from the
Premises (at least one such elevator shall be available at all times except in the case of emergencies or repair) and access to the Building on a 24-hours per day, 7-days. per week basis (by, key card during periods outside of Ordinary Business Hours), subject to emergencies and required repairs and maintenance; (6) to provide janitorial services for the Premises customarily provided for office use in similar class A office buildings in downtown Denver, Colorado (including window washing of the outside of exterior windows); (7) to cause electric current to be supplied to the Premises for Tenants Standard Electrical Usage; and (8) to furnish telephone lines at those points of supply for general use of tenants of the Building and at those points of supply within the Premises approved by Landlord as part of the Approved Drawings (items (1) through (8) are collectively called Services). Tenants Standard. Electrical Usage means 7.0 watts of electricity per square foot, including electricity for fluorescent and incandescent lighting (including task and task ambient lighting systems) and for normal office equipment, including duplicating (reproduction) machines and personal computers (provided they do not require any additional voltage, special electrical or HVAC requirements beyond the systems existing in the Premises), and internal communications systems (Normal Office Equipment). Ordinary Business Hours means 7:00 a.m. to 6:00 p.m. Monday through Friday and 9:00 a.m. to 1:00 p.m. on Saturdays, Legal Holidays excepted. Legal Holidays mean New Years Day, Martin Luther King Day, Presidents Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day, and such other national holidays hereafter established by the United States Government.
7.2. Excess Usage means any usage of electricity (1) during other than Ordinary Business Hours (except for occasional after-hours lighting and electrical usage consistent with similar use by other tenants in the Building Complex and 24-hour electrical usage for Normal Office Equipment); (2) in an amount in excess of Tenants Standard Electrical Usage (including the costs of providing condenser water to Tenants packaged HVAC system); or (3) for Special Equipment or for standard HVAC services during other than Ordinary Business Hours. Special Equipment means (a) any equipment consuming more than 0.5 kilowatts at rated capacity, (b) any equipment requiring a voltage other than 120 volts, single phase, or (c) equipment that requires the use of self-contained HVAC units. If Tenant desires Excess Usage, Landlord will use reasonable efforts to supply the same. Tenant shall reimburse Landlord for all of Landlords actual costs (without mark-up) of providing services for Excess Usage, including costs for materials, additional wear and tear on equipment, utilities, and labor (including, fringe and overhead costs). Computation of such costs will be made by Landlords engineer, based on his engineering survey of Tenants Excess Usage. Tenant shall also reimburse Landlord for all costs of supplementing the Building HVAC System and/or extending or supplementing any electrical service, as Landlord reasonably determines is necessary, as a result of Tenants Excess Usage. As of the date hereof Landlord has estimated that the per hour charge for air-conditioning outside Ordinary Business Hours will be $75.00 per floor served (all or any portion) subject to a 3 hour minimum use period at times when the services are required to be specifically turned on for Tenants sole use plus payment of the engineers hourly wages if such assistance is required; such charge is subject to increase based on increases in costs of utilities included in such costs. Prior to installation or use of Special Equipment or operation of the Premises for extended hours on an ongoing basis, Tenant shall notify Landlord of such intended installation or use and obtain Landlords consent, which shall not be unreasonably conditioned, delayed or withheld. Not less than 4 hours prior notice during Ordinary Business Hours (and not less than 12 hours prior notice outside of Ordinary Business Hours) shall be given Landlord of Tenants request for such services. Tenant may request that Landlord install at Tenants cost a check meter and/or flow meter to determine the cost of
Tenants Excess Usage. Tenant shall also pay the cost of replacing light bulbs and/or tubes and ballast used in all lighting in the Premises other than that provided by Landlord to all tenants of the Building.
7.3. If Tenant requires janitorial services other than those included as standard Services, Tenant shall separately pay for such services monthly upon billings by Landlord, or Tenant shall, at Landlords option, separately contract for such services with the same company used by Landlord to furnish janitorial services to the Building.
7.4. Landlord may discontinue, reduce, interrupt or curtail Services (either temporarily or permanently) when necessary due to accident, repairs, alterations, strikes, lockouts, Applicable Laws, or any other happening beyond Landlords reasonable control. Landlord is not liable for damages to Tenant or any other party as a result of any interruption, reduction, or discontinuance of Services (either temporary or permanent), including the failure of any power generator or backup power source, nor shall the occurrence of any such event be construed as an eviction of Tenant, cause or permit an abatement, reduction or setoff of Rent, or operate to release Tenant from Tenants obligations. Notwithstanding the foregoing, Landlord agrees that if there is an interruption within Landlords reasonable control (other than an interruption resulting from a fire or other casualty) of the Services which Landlord is to provide that renders all or any portion of the Premises unusable for Tenants normal operations and continues for a period of 5 or more consecutive business days after Landlord receives notice from Tenant, which notice may be by telephone or e-mail to Landlords property manager (each, an Unauthorized Interruption), Tenants Rent will, except as provided below, abate commencing at the end of said 5-business-day period until the Premises are tenantable (unless Landlord has commenced to cure such cause or remediate such interruption and it cannot be fully cured or reasonably remediated within such 5 business-day period). If the Unauthorized Interruption is the result of any misconduct or negligent acts of Tenant or Tenants Agents, Rent will not abate, except to the extent of Landlords recovery under its loss of rent insurance. If Tenant continues to use any part of the Premises to conduct its business, the Rent will only abate for the untenantable part not used.
7.5. Tenant shall promptly notify Landlord of any accidents or defects in the Building of which Tenant becomes aware, including defects in pipes, electric wiring, and HVAC equipment, and of any condition which may cause injury or damage to the Building or any person or property therein.
7.6. Landlord will, at Landlords sole cost and expense, provide Tenant one line of Building standard signage on Building lobby directory.
8. QUIET ENJOYMENT. So long as an Event of Default is not continuing, Tenant is entitled to the quiet enjoyment and peaceful possession of the Premises and the use of the Patio Area subject to the provisions of this Lease. Landlord shall under no circumstances be held responsible for restriction or disruption of access to the Building from public streets caused by construction work or other actions taken by governmental authorities or other tenants (their employees, agents, visitors, contractors or invitees) or any other cause not entirely within Landlords direct control, and such circumstances shall not constitute a constructive eviction of Tenant nor give rise to any right of Tenant against Landlord. This covenant of quiet enjoyment is
in lieu of any covenant of quiet enjoyment provided or implied by law, and Tenant waives any such other covenant to the extent broader than the covenant contained in this Section.
9. DEPOSIT. [Intentionally Omitted]
10. CHARACTER OF OCCUPANCY.
10.1. Tenant shall occupy the Premises for the Permitted Use and for no other purpose, and use it in a careful, safe, and proper manner and shall, subject to the terms of this Lease, pay on demand for any damage to the Premises caused by misuse or abuse by Tenant, Tenants agents or employees, or any other person entering upon the Premises under express or implied invitation of Tenant (collectively, Tenants Agents). Tenant, at Tenants expense, shall comply with all applicable federal, state, city, quasi-governmental and utility provider laws, codes, rules, and regulations now or hereafter in effect (Applicable Laws) which impose any duty upon Landlord or Tenant with respect to the occupation or alteration of the Premises; provided, however, Tenant shall not he required to make any changes, additions or improvements to the structural elements of the Building or to any mechanical systems of the Building to comply with Applicable Laws unless such required compliance arises from (A) Alterations by Tenant after the Commencement Date or (B) Tenants particular use of the Premises (as distinguished nom general office use) or in connection with making reasonable accommodation for a specific employee or employees. Landlord is responsible for complying with Applicable Laws relating to the Building (excluding the Premises following the date of delivery thereof) and its Common Areas existing as of the date hereof, including Title III of the Americans with Disabilities Act of 1990 (the ADA) and the costs of such compliance with existing Applicable Laws will be paid by Landlord and will not be charged back to Tenant. The method and timing of compliance will be within Landlords reasonable discretion. Landlord will include Landlords future compliance costs due to changes in or new Applicable Laws as an Operating Expense in accordance with Section 6 of this Lease. Tenant shall not commit or permit waste or any nuisance on or in the Premises. Tenant agrees not to store, keep, use, sell, dispose of or offer for sale in, upon or from the Premises any article or substance prohibited by any insurance policy covering the Building Complex nor shall Tenant keep, store, produce or dispose of on, in or from the Premises or the Building Complex any substance which may be deemed an infectious waste or hazardous substance under any Applicable Laws, except customary office and cleaning supplies.
10.2. Tenant shall be permitted, to the extent allowed by all governmental authorities exercising control over the Premises, to place, at Tenants cost and expense, outdoor seating in the Patio Area. The initial location of the outdoor seating in the Patio Area shall be as further depicted on the diagram attached hereto as Exhibit A-2. Tenant shall obtain Landlords approval of the appearance of table and chairs, any other furnishings, and any landscaping in the Patio Area prior to installation (including any permanently affixing the same to the ground) or during the continued placement of the same in the Patio Area, which approval shall be in Landlords reasonable determination. Tenant agrees to maintain and operate, at Tenants cost and expense, the Patio Area, as well as such outdoor seating, furnishings and landscaping in the Patio Area, in a clean first class manner and shall be responsible for insuring such outdoor seating and furnishings in the Patio Area. Use of the Patio Area shall be subject to the terms and conditions of the Lease. Tenant shall provide adequate trash receptacles, shall frequently clean (as Landlord may reasonably deem necessary), at Tenants cost and expense, the Patio Area and any outdoor seating
area and sidewalks located within the Patio Area, shall maintain, at Tenants cost and expense, the landscaping in the Patio Area, and shall not permit the Patio Area to become a nuisance. In the event Tenant fails to maintain the-Patio Area, the outdoor seating, other furnishings, sidewalks, and/or landscaping located therein in a first class manner, after notice and a reasonable opportunity to cure, Landlord shall have the right to revoke Tenants right to the Patio Area. If any plans, conditions, such as railing or lighting, or permits are required by the City and County of Denver or other appropriate governmental authority, such plans, conditional requirements or permits shall be subject to Landlords prior written approval, which approval shall be in Landlords reasonable determination, and Tenant shall be solely responsible for obtaining, at Tenants sole cost and expense, such conditional requirements and permits.
11. MAINTENANCE, ALTERATIONS AND REENTRY BY LANDLORD.
11.1. Landlord shall, at all times during the Term, repair, replace and maintain in a good order, condition and repair the Building systems (except for those portions to be maintained by Tenant pursuant to this Lease), including, without limitation: (i) making repairs and replacements to HVAC, mechanical, life safety and electrical systems in the Premises (to the extent such systems are Building standard); and (ii) provide upkeep, maintenance, and repairs to all Common Areas, including the parking facilities, driveways, sidewalks and all structural elements of the Building, including without limitation the roof, exterior walls (including windows and glass), interior bearing walls, foundations, footings, and all exterior surfaces of the Building. Landlord shall perform its obligations under this Section 11.1 in accordance with Applicable Laws, and in a manner consistent with the Minimum Standard. All work performed by Landlord pursuant to this Section 11.1 shall be performed in a good and workmanlike manner, using new or like-new materials and equipment at least equal in quality to those existing at the Building Complex as of the date hereof. Except as provided in this Section or otherwise expressly required in this Lease, Landlord is not required to make improvements or repairs to the Premises during the Term.
11.2. Landlord or Landlords agents may at any time enter the Premises after reasonable prior notice to Tenant (except in an emergency or during routine janitorial services or maintenance, when no notice is required) for examination and inspection, or to perform, if Landlord elects, any obligations of Tenant which Tenant fails to perform or such cleaning, maintenance, janitorial services, repairs, replacements, additions, or alterations as Landlord deems necessary for the safety, improvement, or preservation of the Premises or other portions of the Building Complex or as required by Applicable Laws. After reasonable prior notice to Tenant, Landlord or Landlords agents may also show the Premises to prospective purchasers and Mortgagees and during the last 9 months of the Term to prospective tenants. Any such reentry does not constitute an eviction or entitle Tenant to abatement of Rent. Landlord may make such alterations or changes in other portions of the Building Complex as Landlord desires so long as such alterations and changes do not unreasonably interfere with Tenants occupancy of the Premises. Landlord may use the Common Areas and one or more street entrances to the Building Complex as may be necessary in Landlords judgment to complete such work. Tenant shall have the right to designate areas within the Premises as secured areas by written notice to Landlord or as part of the Finish Work (Secured Areas), which Secure Areas may not be accessed at any time by Landlord (or anyone claiming by, through or under Landlord), without Tenants prior written consent, except in cases of emergency. Tenant may install locks or other security devices on the Secure Areas and shall not be required to provide Landlord with keys or codes to the same.
Any entry by Landlord to Secure Areas (except in the event of emergencies) shall be subject to reasonable rules and regulations established by Tenant from time-to-time. Entry by Landlord into the Secured Area shall be in the company of a duly authorized Tenant personnel except in an emergency, in which event, if no representative with a key to such. area is immediately available, Landlord shall have a right, accompanied by police, fire or rescue personnel, to break down the doors to such Secured Areas for the purpose of dealing with the emergency; Landlord shall inform Landlords onsite employees that a person on Tenants emergency response list should be notified in the event of such Emergency. In such event, Tenant shall be responsible for any damage caused by such entrance; after any such emergency situation has been ended, entry by Landlord shall be subject to the restrictions provided herein. Landlord shall use reasonable efforts, subject to causes beyond its reasonable control, during an entry into the Premises during Ordinary Business Hours not to unreasonably interrupt or interfere with Tenants use or occupancy of the Premises; provided, however, Tenant acknowledges that some interference and disruption of its business is inevitable, Landlord will not be liable for any loss of business due to such disruption, and such disruption will not constitute an eviction of Tenant or entitle Tenant to any abatement of Rent.
12. ALTERATIONS AND REPAIRS BY TENANT.
12.1. Alterations. Other than the Finish Work, which shall be governed by the Work Letter, Tenant shall not make any alterations to the Premises during the Term, including installation of equipment or machinery which requires modifications to existing electrical outlets or increases Tenants usage of electricity beyond Tenants Standard Electrical Usage (collectively Alterations) without in each instance first obtaining the written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however, Landlords consent shall not be required for any Alteration that satisfies all of the following criteria (a Minor Alteration): (a) is either cosmetic in nature (including, without limitation, painting, carpeting and wallcovering) or consists of an interior decorating improvement or alteration; (b) is not visible from the exterior of the Premises or Building; (c) will not affect the base Building systems; (d) does not require work to be performed inside the walls or above the ceiling of the Premises; (e) does not require a building permit; and (f) the cost of Alterations made at any one time does not exceed $50,000, so long as Tenant shall provide prior written notice to Landlord detailing the type and scope of any Minor Alterations prior to commencement of the same (a Minor Alterations Notice). Except as otherwise expressly provided herein, Minor Alterations shall be subject to all the other provisions of this Section 12.
Landlords consent or approval of the plans, specifications and working drawings for any Alterations shall not constitute any warranty or representation by Landlord (and shall not impose any liability on Landlord) as to their completeness, design sufficiency, or compliance with Applicable Laws. Tenant shall at its cost pay all engineering and design costs incurred by Landlord, if any, as to all Alterations, obtain all governmental permits and approvals required, and cause all Alterations to be completed in compliance with Applicable Laws and the reasonable requirements of Landlords insurance. All such work relating to Alterations shall be performed in a good and workmanlike manner, using materials and equipment at least equal in quality to the Initial Tenant Finish, and shall comply with the rules and regulations relating to construction activities m the Building promulgated from time to time by Landlord for the Building, a copy of which is attached to the Work Letter as Exhibit B (the Construction Rules). Tenant shall give Landlord notice at least 15 days prior to the commencement of any Alterations or Minor
Alterations in the Premises. Prior to starting work, Tenant shall furnish Landlord with: (1) plans and specifications for the Alterations, if applicable; (2) names of contractors, which contractors shall be reasonably acceptable to Landlord (provided that Landlord may designate specific contractors with respect to Base Building or mechanical systems); and (3) required permits and approvals from governmental authorities, if applicable. Tenant shall pay Landlord a supervisory fee for any work performed by someone other than Landlords employees or contractors (other than Minor Alterations, for which there shall be no fee) in an amount not to exceed one percent (1%) of labor, material, and all other so-called hard costs of the Alterations. Upon completion of any Alterations or maintenance work, Tenant shall provide Landlord with completion affidavits and full and final waivers of lien reasonably acceptable to Landlord and as-built plans for Alterations, if applicable, excluding Minor Alterations. Tenant shall deliver to Landlord prior to commencement of any Alterations, certificates issued by insurance companies qualified to do business in the state in which the Premises are located, evidencing that workers compensation, public liability insurance, and property damage insurance (in amounts, with companies and on forms reasonably satisfactory. to Landlord) are in force and maintained by all contractors and subcontractors engaged to perform such work. All liability policies shall name Landlord, Building Manager, and Mortgagee as additional insureds. Each certificate shall provide that the insurance may not be cancelled or modified without 30 days prior written notice to Landlord and Mortgagee. Landlord also has the right to post notices in the Premises in locations designated by Landlord stating that Landlord is not responsible for payment for such work and containing such other information as Landlord deems necessary. All such work shall be performed in a manner which does not unreasonably interfere with Landlord or other tenants of the Building, or impose additional expense upon Landlord in the operation of the Building Complex.
Landlord agrees to reasonably cooperate with Tenant at no cost or expense to Landlord (including execution of any necessary documents) in connection with Tenants submission of any applications for approvals, licenses and/or permits from any governmental authority as may be reasonably necessary or appropriate relating to Tenants construction of any Alterations, provided that Tenant pays all permit and inspection fees required under such approvals, licenses and/or permits.
12.2. Maintenance and Repairs. Tenant shall keep the Premises in as good order, condition, and repair and in an orderly state, as on the Commencement Date, damage by Landlord, loss by fire or other casualty and ordinary wear excepted.
12.3. Ownership and Removal of Alterations. All Alterations, including partitions, paneling, carpeting, drapes or other window coverings, and permanently installed light fixtures (but not including Tenants Property (as defined in Section 15 below), which shall at all times remain the property of Tenant, both during and upon expiration of the Term), are deemed a part of the real estate and the property of Landlord and remain upon and be surrendered with the Premises at the end of the Term, whether by lapse of time or otherwise, unless Landlord notifies Tenant no later than 15 days prior to the end of the Term that it elects to have Tenant remove all or part of such Alterations (unless Landlord elects not to require Tenant to remove such Alterations), and in such event, Tenant shall at Tenants expense promptly remove the Alterations specified and restore the Premises to its prior condition, reasonable wear and tear excepted. Notwithstanding the foregoing Landlord will make its election regarding removal of Alterations at the time Landlord approves such Alterations if such election by Landlord is expressly requested
by Tenant as to any Alterations requiring Landlords consent, and within 10 days of receipt of a Minor Alterations Notice if such election by Landlord is expressly requested by Tenant. If Landlord fails to timely make such election following receipt of a notice requesting such election, Tenant shall have no obligation to remove any such Alterations or Minor Alterations, as applicable.
13. CONSTRUCTION LIENS. Tenant shall pay for all work or services performed and materials and supplies furnished for the Premises by Tenant or at its request (other than the Initial Tenant Finish) and will keep the Premises free of construction and other liens on account of such work or services. Tenant indemnifies, defends, and saves Landlord and all Mortgagees harmless from all liability, loss, damage, or expenses, including attorneys fees, on account of claims of laborers, materialmen, professional service providers or others for work or services performed or materials or supplies furnished to Tenant or persons claiming under Tenant. If any lien is recorded against the Premises or Building or any suit affecting title thereto is commenced as a result of such work or services, Tenant shall cause it to be removed of record within 30 days after notice from Landlord or, if Tenant desires to contest it, Tenant shall furnish Landlord within such 30-day period adequate security of at least 150% of the amount of the claim, plus estimated costs and interest. If a final judgment establishing the validity of any lien is entered, Tenant shall immediately pay and satisfy the same. Tenants failure to act in accordance with the foregoing shall be an Event of Default and Landlord may, in addition to other remedies, pay such amounts, which together with reasonable attorneys fees incurred and interest, shall be immediately due Landlord upon notice.
14. SUBLETTING AND ASSIGNMENT.
14.1. Except as otherwise set forth in this Section 14, Tenant shall not sublet any part of the Premises nor assign or otherwise transfer this Lease or any interest herein (sometimes referred to as Transfer, and the subtenant or assignee may be referred to as Transferee) without the consent of Landlord first being obtained, which consent will not be unreasonably conditioned, delayed or withheld provided that: (1) Tenant complies with the provisions of Section 14.3; (2) Landlord declines to exercise its rights under Section 14.3; (3) the Transferee is engaged in a business and the portion of the Premises will be used for the Permitted Use in a manner which is in keeping with the Minimum Standard of the Building and does not conflict with any exclusive use rights granted to any other tenant of the Building Complex; (4) the Transferee has reasonable financial worth in light of the responsibilities involved; (5) an Event of Default is not continuing at the time Tenant makes its request; (6) the Transferee is not a governmental or quasi-governmental agency; and (7) the Transferee is not a tenant in the Building or currently negotiating a lease with Landlord 111 the Building within 120 days prior to Tenants Transfer Request (hereafter defined).
14.2. Except as otherwise set forth in this Section 14, Transfer includes a sale by Tenant of substantially all of its assets or stock if Tenant is a publicly traded corporation, a merger of Tenant with another corporation, the transfer of 49% or more of the stock in a corporate tenant whose stock is not publicly traded, or transfer of 49% or more of the beneficial ownership interests in a partnership or limited liability company tenant. Notwithstanding anything to the contrary in this Section 14, Tenant may, without obtaining Landlords consent, complete a Transfer to a Permitted Transferee subject to the following conditions: (i) the proposed use of the Premises shall be the same as Tenants use and Landlord shall not be required, as a result of Applicable Laws, to
make any renovations to the Building Complex or provide special services as a result of such Transfer; and (ii) not less than 30 days following the effective date of the Transfer, Tenant provides Landlord with documentation evidencing such transaction and such other evidence as Landlord may reasonably require to establish that such transaction complies with the provisions of this Section. Permitted Transferee means: (i) any subsidiary or affiliate in which Tenant owns a substantial interest; (ii) any parent of Tenant; (iii) any subsidiary or affiliate in which Tenants parent owns a substantial interest; or (iv) any corporation into which Tenant may be merged or consolidated or which purchases all or substantially all of the assets or stock of Tenant provided that the resulting corporation has a net worth at least equal to Tenants net worth as of the date hereof.
14.3. Except for a Transfer to a Permitted Transferee, Tenant must notify Landlord at least 30 days prior to the desired date of a proposed Transfer (Transfer Request). The Transfer Request shall describe the terms and conditions of the proposed Transfer. Within 15 days following receipt of a Transfer Request, Landlord shall notify Tenant (Landlords Notice) of its election of the following as applicable:
(1) Landlord shall have the right to identify a proposed Transferee to accept the Transfer Request and Tenant shall not unreasonably withhold consent to a Transfer to the identified party, in which event the rent and. other sums due from the Transferee will be paid to Tenant directly. Landlord has no responsibility for such Transferees performance of its obligations to Tenant; or
(2) If a Transfer Request involves 49% or more of the Premises., Landlord may recapture such space by terminating Tenants Lease obligations as to the applicable portion of the Premises; provided, however, if Landlord makes such election, Tenant may, within 15 days after Landlords Notice, withdraw a Transfer Request. If such termination occurs, it shall be effective on the date designated in Landlords Notice, which date shall not be more than 30 days following such notice; or
(3) Landlord may waive Landlords rights under (1) and (2) above, as applicable, in which case Tenant shall be free to make a Transfer substantially identical to that described in the Transfer Request to any third party, subject to Landlords consent as provided in Section 14.1. If Tenant does not complete the Transfer within 60 days following Landlords Notice or materially modifies terms from those in the Transfer Request, then, prior to a Transfer to a third party, Tenant must resubmit a modified Transfer Request to Landlord and repeat the process in accordance with the provisions hereof.
14.4. All documents utilized by Tenant to evidence a Transfer are subject to approval by Landlord. Tenant shall pay Landlords expenses, including reasonable attorneys fees, of determining whether to consent and in reviewing and approving the documents; provided, however, such fees shall not exceed $1,000 for any sublease using; Landlords standard sublease and consent form without substantive modification. Tenant shall provide Landlord with such information as Landlord reasonably requests regarding a proposed Transferee, including financial information.
14.5. Following any Transfer in accordance with this Section 14, Landlord may, after the happening of an Event of Default by Tenant, collect rent from the Transferee or occupant and apply the net amount collected to the Rent, but no such collection will be deemed an acceptance of the Transferee or occupant as Tenant or release Tenant from its obligations. Consent to a Transfer shall not relieve Tenant from obtaining Landlords consent to any other Transfer. Notwithstanding a Transfer, even if consented to by Landlord, Tenant will not be released and continues to be primarily liable for its obligations; provided, however, if Landlord consents to a Transfer by assignment of the entirety of Tenants interest in this Lease, such assigning Tenant shall not be liable for obligations arising during any extension or renewal of this Lease exercised by such assignee under Section 3 of the Addendum. If Tenant collects any rent or other amounts from a Transferee in excess of the Rent for any monthly period, after deduction of Tenants reasonable costs for tenant finish allowances and commissions related to the Transfer, Tenant shall pay Landlord 50% of such monthly excess, as and when received, after deduction of Tenants reasonable transaction costs incurred for such Transfer amortized monthly on a straight-line basis over the term of such Transfer.
14.6. If a trustee or debtor in possession in bankruptcy is entitled to assume control over Tenants rights under this Lease and assigns such rights to any third party notwithstanding the provisions hereof; the rent to be paid by such party shall be increased to the current Base Rent (if greater than that being paid for the Premises) which Landlord charges for comparable space in the Building as of the date of such third partys occupancy. If Landlord is entitled under the Bankruptcy Code to Adequate Assurance of future performance of this Lease, the parties agree that such term includes the following:
(1) Any assignee must demonstrate to Landlords reasonable satisfaction a net worth (as defined in. accordance with generally accepted accounting principles consistently applied) at least as large as the net worth of Tenant on the Commencement Date increased by 7%, compounded annually, for each year thereafter through the date of the proposed assignment. Tenants financial condition was a material inducement to Landlord in executing this Lease.
(2) The assignee must assume and agree to be bound by the provisions of this Lease.
15. DAMAGE TO PROPERTY.
15.1. Tenant agrees Landlord is not liable for any injury or damage, either proximate or remote, occurring through or caused by fire, water, steam, or any repairs, alterations, injury, accident, or any other cause to the Premises, to any furniture, fixtures, Tenant improvements, or other personal property of Tenant (Tenants Property) kept or stored in. the Premises, or in other parts of the Building Complex, whether by reason of the negligence or default of Landlord, other occupants, any other person, or otherwise; and the keeping or storing of all property of Tenant in the Premises and Building Complex is at the sole risk of Tenant.
15.2. Landlord agrees Tenant is not liable for any injury or damage, either proximate or remote, occurring through or caused by fire, water, steam, or any repairs, alterations, injury, accident, or any other cause to any, furniture, fixtures, or other personal property of
Landlord kept or stored in the Building Complex, whether by reason of the negligence or default of Tenant, other occupants, any other person, or otherwise; and the keeping or storing of all property of Landlord in the Building Complex is at the sole risk of Landlord.
15.3. Except in connection with Landlords indemnification obligations hereunder, Tenant hereby waives any consequential damages, compensation or claims for inconvenience or loss of business, rents, or profits, whether or not caused by the willful and wrongful act of Landlord. Except in connection with Tenants indemnification obligations hereunder, Landlord hereby waives any consequential damages, compensation or claims for inconvenience or loss of business, rents, or profits, whether or not caused by the willful and wrongful act of Tenant.
16. INDEMNITY.
16.1. Tenant agrees to indemnify, defend, and hold Landlord and Building Manager harmless from all liability, costs, or expenses, including attorneys fees, on. account of damage to the person or property of any third party, including any other tenant in the Building Complex, to the extent caused by the negligence or breach of this Lease by the Tenant or Tenants Agents.
16.2. Landlord agrees to indemnify, defend, and hold Tenant (together with officers, directors, members, managers, partners, shareholders, affiliates, employees, agents and representatives, and each of their respective successors and assigns) harmless from all liability, costs, or expenses, including attorneys fees, on account of damage to the person or property of any third party (excluding Tenants Agents), including any other tenant in the Building Complex, to the extent caused by the intentional misconduct, negligence or breach of this Lease by Landlord or Landlords agents or employees.
16.3. The indemnifications in this Section 16 (a) shall survive the expiration or earlier termination of this Lease, (b) shall not operate to relieve the indemnified party of liability to the extent such liability is caused by the negligence or willful and wrongful act of the indemnified party and (c) are subject to and shall not diminish any waivers in effect in accordance with Sections 15 above and 18.3 below.
17. SURRENDER AND NOTICE. Upon the expiration or other termination of this Lease, Tenant shall immediately quit and surrender to Landlord the Premises broom clean, in good order and condition, ordinary wear and tear, damage by Landlord and loss by fire or other casualty excepted, and Tenant shall remove all of its movable furniture and other effects, all telephone cable and related equipment m the Building installed for Tenant, and such Alterations, as Landlord requires to be removed pursuant to Section 12.3 above. If Tenant fails to timely vacate the Premises as required, Tenant is responsible to Landlord for all resulting costs and damages of Landlord, including any amounts paid to third parties who are delayed in occupying the Premises.
18. INSURANCE, CASUALTY, AND RESTORATION OF PREMISES.
18.1. Tenant shall maintain throughout the Term insurance coverage at least as broad as ISO Causes of Loss - Special Form Coverage and Equipment Breakdown Protection
Coverage against risks of direct physical loss or damage (commonly known as all risk and boiler and machinery) for the full replacement cost of Tenants Property located at the Premises.
18.2. Tenant shall maintain throughout the Term a commercial general liability and if necessary a commercial umbrella policy, including protection against bodily injury, personal injury and property damage with a single limit of not less than $3,000,000.00 each occurrence. Such policy shall name Landlord Building Manager, and Mortgagee as additional insureds, be primary to any other similar insurance of such additional insureds, and provide that it may not be cancelled or modified without at least 20 days prior notice to Landlord and Mortgagee. The minimum limits of such insurance do not limit the liability of Tenant hereunder.
18.3. Tenant shall purchase and maintain workers compensation and employers liability insurance as follows: Workers Compensation Coverage A - Statutory Coverage in an amount required by the state m which the Building Complex is located; Workers Compensation Coverage B - Employers Liability Coverage in the amounts of $500,000 Each Accident, $500,000 Disease, Policy Limit, and $500,000 Disease, Each Employee
18.4. Prior to the occupancy of the Premises and prior to expiration of the then-current insurance coverage, Tenant shall furnish a certificate from the issuing insurance company or companies evidencing that insurance required under this Lease is in effect. The words endeavor to and but failure to mail such notice shall impose no obligation or liability of any kind upon the company, its agents or representatives shall be deleted from the certificate forms cancellation provision. Any insurance required to be maintained by Tenant hereunder shall be written by companies having an A.M. Best rating of A or better and a financial category of X or better, and be legally qualified to issue such insurance in the state in which the Building Complex is located.
18.5. Landlord shall maintain liability, property and equipment breakdown protection insurance including insurance for loss of Rent for the Building Complex, and insurance for shell and core, fixtures, equipment and improvements located in the Building and the Premises in such amounts, from such companies, and on such. terms and conditions, as Landlord deems appropriate, from time to time; provided, however, all insurance maintained by Landlord shall be consistent with the Minimum Standard.
18.6. If the Building is damaged by fire or other casualty which renders the Premises wholly untenantable and the damage is so extensive that an architect selected by Landlord certifies in writing to Landlord and Tenant within 60 days of said casualty that the Premises cannot, with the exercise of reasonable diligence, be made fit for occupancy within 180 working days from the happening thereof, then, at the option of Landlord or Tenant exercised in writing to the other within 30 days of such determination, this Lease shall terminate as of the occurrence of such damage. In the event of termination, Tenant shall pay Rent duly apportioned up to the time of such casualty and forthwith surrender the Premises and all interest. If Tenant fails to do so, Landlord may reenter and take possession of the Premises and remove Tenant. If, however, the damage is such that the architect certifies that the Premises can be made tenantable within such 180-day period or neither Landlord nor Tenant elects to terminate the Lease despite the extent of damage, then the provisions below apply.
18.7. Rent shall abate during any period of repair and restoration in the same proportion that the part of the Premises rendered untenantable bears to the whole; provided, however, if the casualty is the result of the negligence or intentional or criminal acts of Tenant or Tenants Agents, then the Rent will abate during any such period of repair and restoration but only to the extent of any recovery by Landlord under its rental insurance related to the Premises.
18.8. If the Building is damaged (though the Premises may not be affected, or if affected, can be repaired within 180 days) and within 60 days after the damage Landlord decides not to reconstruct or rebuild the Building, then, notwithstanding anything contained herein, upon notice to that effect from Landlord within said 60 days, Tenant shall pay the Rent apportioned to such date, this Lease shall terminate from the date of such notice, and both parties discharged from further obligations except as otherwise expressly provided.
18.9. Landlord and Tenant waive all rights of recovery against the other and its respective officers, partners, members, agents, representatives, and employees for loss or damage to its real and personal property kept in the Building Complex or tor loss of business revenue or extra expense which is capable of being insured against for perils covered by ISO Causes of Loss Special Form and Equipment Breakdown Protection Coverage and to the extent of damages and coverage under workers compensation and employers liability insurance required under this Lease. Tenant also waives all such rights of recovery against Building Manager. Each party shall, upon. obtaining the insurance required by this Lease, notify the insurance carrier that the foregoing waiver is contained in this Lease and use reasonable efforts to obtain an appropriate waiver of subrogation provision in the policies.
18.10. Rent shall abate during any period of repair and restoration to the extent of any recovery by Landlord under its loss of rent insurance related to the Premises in the same proportion that the part of the Premises rendered untenantable bears to the whole.
18.11. In the event Landlord is required to rebuild and repair the Premises pursuant to this Section 18, Landlord shall: (i) commence such rebuilding and repair within 180 days after the date of the casualty and (ii) pursue diligently such rebuilding and repair to completion.
19. CONDEMNATION. If the Premises or substantially all of it or any portion of the Building Complex which renders the Premises untenantable is taken by right of eminent domain, or by condemnation (which includes a conveyance in lieu of a taking), this Lease, at the option of either Landlord or Tenant exercised by notice to the other within 30 days after the taking, shall terminate and Rent shall be apportioned as of the date of the taking. Tenant shall forthwith surrender the Premises and all interest in this Lease, and, if Tenant fails to do so, Landlord may reenter and take possession of the Premises. If less than all the Premises is taken, Landlord shall promptly repair the Premises as nearly as possible to its condition immediately prior to the taking, unless Landlord elects not to rebuild under Section 18.8. Landlord shall receive the entire award or consideration for the taking; except Tenant may claim and prove in any such proceeding and receive any award made to Tenant specifically for damages for loss of movable trade fixtures, equipment and moving expenses so long as such award does not reduce Landlords award.
20. DEFAULT BY TENANT.
20.1. Each of the following events is an Event of Default:
(1) Any failure by Tenant to pay Rent on the due date (provided, however, that Tenant shall have a right to cure such Event of Default not later than 5 business days after notice of such non-payment by Landlord; however, Tenant is not entitled to such notice and cure period more than 1 time during any calendar year);
(2) Tenant vacates or abandons the Premises or fails to continually operate its Permitted Use in the Premises except to the extent permitted pursuant to Section 27.21;
(3) This Lease or Tenants interest is transferred whether voluntarily or by operation of law except as permitted in Section 14;
(4) This Lease or any part of the Premises is taken by process of law and is not released within 15 days after a levy;
(5) Commencement by Tenant of a proceeding under any provision of federal or state law relating to insolvency, bankruptcy, or reorganization (Bankruptcy Proceeding);
(6) Commencement of a Bankruptcy Proceeding against Tenant, unless dismissed within 60 days after commencement;
(7) The insolvency of Tenant or execution by Tenant of an assignment for the benefit of creditors; the convening by Tenant of a meeting of its creditors or any significant class thereof for purposes of effecting a moratorium upon or extension or composition of its debts; or the failure of Tenant generally to pay its debts as they mature, or the occurrence of any of the foregoing with respect to any Guarantor, if any, of Tenants obligations;
(8) The admission in writing by Tenant (or any general partner of Tenant if Tenant is a partnership), that it is unable to pay its debts as they mature or it is generally not paying its debts as they mature;
(9) Tenant fails to take possession of the Premises within 60 days after the Commencement Date;
(10) Tenant fails to perform any of its other obligations and non-performance continues for 30 days after notice by Landlord or, if such performance cannot be reasonably had within such 30 day period, Tenant does not in good faith commence performance within such 30 day period and diligently proceed to completion; provided, however, Tenants right to cure shall not exceed the period provided by Applicable Law;
(11) Any event which is expressly defined as or deemed an Event of Default under this Lease.
20.2. Remedies of Landlord. If an Event of Default occurs, Landlord may then or at any time thereafter, either:
(1) (a) Without further notice except as required by Applicable Laws, reenter and repossess the Premises or any part and. expel Tenant and those claiming through or under Tenant and remove the effects of both without being deemed guilty of any manner of trespass and without prejudice to any remedies for arrears of Rent or preceding breach of this Lease. Should Landlord reenter or take possession pursuant to legal proceedings or any notice provided for by Applicable Law, Landlord may, from time to time, without terminating this Lease, relet the Premises or any part, either alone or in conjunction with other portions of the Building Complex, in Landlords or Tenants name but for the account of Tenant, for such periods (which may be greater or less than the period which would otherwise have constituted the balance of the Term) and on such conditions and upon such other terms (which may include concessions of free rent and alteration and repair of the Premises) as Landlord, in its sole discretion, determines and Landlord may collect the rents therefor. Landlord is not in any way responsible or liable for failure to relet the Premises, or any part thereof, or for any failure to collect any rent due upon such reletting. Landlord agrees to use commercially reasonable efforts in order to mitigate its damages following any default by Tenant under the Lease; provided, however, nothing shall require Landlord to (i) attempt to re-lease the Premises unless and until Landlord obtains possession of the Premises, or (ii) lease less than all of the Premises or lease the Premises in smaller increments than the entire Premises. If there is other unleased space in the Building, Landlord may lease such other space without prejudice to its remedies against Tenant. No such reentry, repossession or notice from Landlord, or any other acts or omissions of Landlord, including maintenance, preservation, efforts to relet the Premises, or appointment of a receiver, shall be construed as an election by Landlord to terminate this Lease finless specific notice of such intention is given Tenant. Landlord reserves the right following any reentry and/or reletting to exercise its right to terminate this Lease by giving Tenant notice, in which event this Lease will terminate as specified in the notice.
(b) If Landlord takes possession of the Premises without terminating this Lease, Tenant shall pay Landlord (i) the Rent which would be payable if repossession had not occurred, less (ii) the net proceeds, if any, of any reletting of the Premises after deducting all of Landlords reasonable expenses incurred in connection with such reletting, including all repossession costs, brokerage commissions, attorneys fees, expenses of employees, alteration, and repair costs (collectively Reletting Expenses). If, in connection with any reletting, the new lease term extends beyond the Term or the premises covered thereby include other premises not part of the Premises, a fair apportionment of the rent received from such reletting and the Reletting Expenses, will be made in determining the net proceeds received from the reletting. In determining such net proceeds, rent concessions will also be apportioned over the term of the new lease. Tenant shall pay such amounts to Landlord monthly on the days on which the Rent would have been payable if possession had not been retaken, and Landlord is entitled to receive the same from Tenant on each such day; or
(2) Give Tenant notice of termination of this Lease on the date specified and, on such date, Tenants right to possession of the Premises shall cease and the Lease will terminate except as to Tenants liability as hereafter provided as if the expiration of the term fixed in such notice were the end of the Term. If this Lease terminates pursuant to this Section, Tenant
remains liable to Landlord for damages in an amount equal to the Rent which would have been owing by Tenant for the balance of the Term had this Lease not terminated, less the net proceeds, if any, of reletting of the Premises by Landlord subsequent to termination after deducting Reletting Expenses. Landlord may collect such damages from Tenant monthly on the days on which the Rent would have been payable if this Lease had not terminated and Landlord shall be entitled to receive the same from Tenant on each such day. Alternatively, if this Lease is terminated, Landlord at its option may recover forthwith against Tenant as damages for loss of the bargain and not as a penalty an amount equal to the worth at the time of termination of the excess, if any, of the Rent reserved in this Lease for the balance of the Term over the then Reasonable Rental Value of the Premises for the same period plus all Reletting Expenses. Reasonable Rental Value is the amount of rent Landlord can obtain for the remaining balance of the Term.
20.3. Cumulative Remedies. Suits to recover Rent and damages may be brought by Landlord, from time to time, and nothing herein requires Landlord to await the date the Term would expire had there been no Event of Default or termination, as the case may be. Each right and remedy provided for in this Lease is cumulative and non-exclusive and in addition to every other right or remedy now or hereafter existing at law or equity, including suits for injunctive relief and specific performance. The exercise or beginning of the exercise by Landlord of one or more rights or remedies shall not preclude the simultaneous or later exercise by Landlord of other rights or remedies. All costs incurred by Landlord to collect any Rent and damages or to enforce this Lease are also recoverable from Tenant. If any suit is brought because of an alleged breach of this Lease, the prevailing party shall recover from the other party all reasonable attorneys fees and costs incurred in connection therewith.
20.4. No Waiver. No failure by Landlord to insist upon strict performance of any provision or to exercise any right or remedy upon a breach thereof; and no acceptance of full or partial Rent during the continuance of any breach constitutes a waiver of any such breach or such provision, except by written instrument executed by Landlord. No waiver shall affect or alter this Lease but each provision hereof continues in effect with respect to any other then existing or subsequent breach thereof.
20.5. Bankruptcy. Nothing contained in this Lease limits Landlords right to obtain as liquidated damages in any bankruptcy or similar proceeding the maximum amount allowed by law at the time such damages are to be proven, whether such amount is greater, equal to, or less than the amounts recoverable, either as damages or Rent, referred to in any of the preceding provisions of this Section. Notwithstanding anything in this Section to the contrary, any proceeding described in Section 20.1(5),(6),(7) and (8) is an Event of Default only when such proceeding is brought by or against the then holder of the leasehold estate under this Lease.
20.6. Late Payment Charge. Any Rent not paid within 5 days after the due date shall thereafter bear interest at 5 percentage points above the Prime Rate or the highest rate permitted by law, whichever is lower (the Default Rate), until paid; provided, however, that Landlord will not assess interest on the first instance of late payment by Tenant in the Term so long as the payment is received by Landlord within 5 days after the due date. Further, if such Rent is not paid within 5 days after notice, Tenant agrees Landlord will incur additional administrative expenses, the amount of which will be difficult to determine; Tenant therefore shall also pay Landlord a late charge for each late payment of 5% of such payment; provided, however, that
Landlord shall permit Tenant one late payment per each calendar year with no late charge provided that such amount is paid in full within 5 days of Tenants receipt of Landlords notice. Any amounts paid by Landlord to cure a default of Tenant which Landlord has the right but not the obligation to do, shall, if not repaid by Tenant within 5 days of demand by Landlord, thereafter bear interest at 5 percentage points above the Prime Rate until paid. Prime Rate means that rate announced by Wells Fargo Bank, N.A. as its prime rate on the date closest to the date interest commences.
20.7. Waiver of Jury Trial. Tenant and Landlord waive any right to a trial by jury in suits arising out of or concerning the provisions of this Lease.
21. DEFAULT BY LANDLORD. Landlord shall be in default hereunder if Landlord fails to perform any of its obligations hereunder and non-performance continues for 30 days after notice by Tenant or, if such performance cannot be reasonably had within such 30-day period, Landlord does not in good faith commence performance within such 30-day period and diligently proceed to completion (such period hereinafter referred to as the Landlord Cure Period); provided, however, Landlords Cure Period shall not exceed the period provided by Applicable Law. Such notice shall be ineffective unless a copy is simultaneously also delivered in the manner required in this Lease to any holder of a mortgage and/or deed of trust affecting all or any portion of the Building, Complex (collectively, Mortgagee), provided that prior to such notice Tenant has been notified (by way of notice of Assignment of Rents and Leases, or otherwise), of the address of a Mortgagee. If Landlord fails to cure such default within the time provided, then Mortgagee shall have an additional 30 days following a second notice from Tenant or, if such default cannot be cured within that time, such additional time as may be necessary provided within such 30 days, Mortgagee commences and diligently pursues a cure (including commencement of foreclosure proceedings if necessary to effect such cure). Tenants sole remedy will be equitable relief or actual damages but in no event is Landlord or any Mortgagee responsible for consequential damages or lost profit incurred by Tenant as a result of any default by Landlord. If a Mortgagee, or transferee under such Mortgage (hereafter defined), succeeds to Landlords interest as a result of foreclosure or otherwise, such party shall not be: (i) liable for any default, nor subject to any setoff or defenses that Tenant may have against Landlord; (ii) bound by any amendment (including an agreement for early termination) without its consent made at any time after notice to Tenant that such Mortgage requires such consent; and (iii) bound by payment of Rent in advance for more than 30 days. Tenant agrees to pay Rent (and will receive credit under this Lease) as directed in any Mortgagees notice of Landlords default under the Mortgage reciting that Mortgagee is entitled to collect Rent.
22. SUBORDINATION AND ATTORNMENT.
22.1. Subject to Section 22.5 below, this Lease will be subordinate to the lien and terms of any mortgage, deed of trust and related documents now or hereafter placed upon the Building Complex (including all advances made thereunder), and to all amendments, renewals, replacements, or restatements thereof (collectively, Mortgage) unless any Mortgagee elects to have this Lease superior to the lien and terms of its Mortgage pursuant to Section 22.2. Subject to Section 22.5 below, Tenant agrees that no documentation other than this Lease is required to evidence such subordination.
22.2. If any Mortgagee elects to have this Lease superior to the lien of its Mortgage and gives notice to Tenant, this Lease will be deemed prior to such Mortgage whether this Lease is dated prior or subsequent to the date of such Mortgage or the date of recording thereof
22.3. In confirmation of subordination or superior position, as the case may be, Tenant will execute such documents as may be required by Mortgagee and if it fails to do so within 10 days after demand, Tenant hereby irrevocably appoints Landlord as Tenants attorney-in-fact and in Tenants name, place, and stead, to do so.
22.4. Tenant hereby attorns to all successor owners of the Building, whether such ownership is acquired by sale, foreclosure of a Mortgage, or otherwise.
22.5. Landlord shall, at Landlords sole cost and expense, obtain a non-disturbance agreement from Landlords present Mortgagee in the form attached hereto as Exhibit G following execution of the Lease (an SNDA). If Landlord fails to obtain an SNDA from the present Mortgagee on or before the date that is 30 days after the date hereof, Tenant shall have the right to terminate this Lease by notice to Landlord within 5 days after such 30 day period has expired. If Tenant fails to give such notice within such 5 day period, Tenants right to terminate shall be waived and this Lease shall continue in full force and effect. Landlord agrees to use reasonable efforts to obtain a non-disturbance agreement from any future Mortgagee of the Real Property and/or the Building on such Mortgagees standard form for such purposes, however, such efforts shall not require Landlord to expend any costs or expenses, including attorneys fees, in doing so, unless such costs and expenses are paid by Tenant, nor shall Landlord be required to commence litigation; provided, however, Tenants subordination to such a future Mortgagee shall be subject to such future Mortgagee executing such non-disturbance agreement on such Mortgagees standard form as provided above.
23. REMOVAL OF TENANTS PROPERTY.
23.1. All movable personal property of Tenant not removed from the Premises upon vacation, abandonment, or termination of this Lease shall be conclusively deemed abandoned and may be sold, or otherwise disposed of by Landlord without notice to Tenant and without obligation to account; Tenant shall pay Landlords expenses in connection with such disposition.
23.2. [Intentionally deleted]
24. HOLDING OVER: TENANCY MONTH-TO-MONTH. If, after the expiration or termination of this Lease, Tenant remains in possession of the Premises without a written agreement as to such holding over and continues to pay rent and Landlord accepts such rent, such possession is a tenancy from month-to-month, subject to all provisions hereof but at a monthly rent equivalent to 150% of the monthly Rent paid by Tenant immediately prior to such expiration or termination. Rent shall continue to be payable in advance on the first day of each calendar month. Such tenancy may be terminated by either party upon 10 days notice prior to the end of any monthly period. Nothing contained herein obligates Landlord to accept rent tendered after the expiration of the Term or relieves Tenant of its liability under Section
25. PAYMENTS AFTER TERMINATION. No payments by Tenant after expiration or termination of this Lease or after any notice (other than a demand for payment of money) by
Landlord to Tenant reinstates, continues, extends the Term, or affects any notice given to Tenant prior to such payments. After notice, commencement of a suit, or final judgment granting Landlord possession of the Premises, Landlord may collect any amounts due or otherwise exercise Landlords remedies without waiving any notice or affecting any suit or judgment.
26. STATEMENT OF PERFORMANCE. Tenant agrees at any time upon not less than 10 days notice to execute and deliver to Landlord a written statement certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified stating the modifications); that there have been no defaults by Landlord or Tenant and no event which with the giving of notice or passage of time, or both, would constitute such a default (or, if there have been defaults, setting forth the nature thereof); the date to which Rent has been paid in advance and such other information as Landlord requests. Such statement may be relied upon by a prospective purchaser of Landlords interest or Mortgagee. Tenants failure to timely deliver such statement is conclusive upon Tenant that: (i) this Lease is in full force and effect without modification except as may be represented by Landlord; (n) there are no uncured defaults in Landlords performance; and (iii) not more than 1 months Rent has been paid in advance. Upon request, Tenant will furnish Landlord an appropriate resolution confirming that the party signing the statement is authorized to do so.
27. MISCELLANEOUS.
27.1. Transfer by Landlord. The term Landlord means so far as obligations of Landlord are concerned, only the owner of the Building at the time in question and, if any transfer of the title occurs and the transferee assumes, in a written instrument delivered to Tenant, the Lease and all of Landlords obligations thereafter to be performed, Landlord herein named (and in the case of any subsequent transfers, the then grantor) is automatically released from and after the date of such transfer of all liability as respects performance of any obligations of Landlord thereafter to be performed. Any funds in Landlords possession at the time of transfer in which Tenant has an interest will be turned over to the grantee and any amount then due Tenant under this Lease will be paid to Tenant.
27.2. No Merger. The termination or mutual cancellation of this Lease will not work a merger, and such termination or cancellation will at the option of Landlord either terminate all subleases or operate as an automatic assignment to Landlord of such subleases.
27.3. Common Area Use. The Common Areas as used herein shall mean and refer to all of the following: Building entryways and lobbies, outdoor plaza areas, including the plaza located between 17th Street and the Building, service and delivery corridors; parking areas; sidewalks; canopies; mall; driveways; passenger vehicle roadways; truck roadways; loading platforms and docks, and stairs not contained in the Building; public and common washrooms; lounges and shelters; fitness centers; and any other facilities available for common use by all tenants and occupants of space on the Real Property and their employees, agents, customers, licensees, and invitees, as they may from time to time exist during the Term. Landlord reserves the right for itself and the owners, from time to time, of portions of the Real Property to prevent the acquisition of public rights in such areas, or to discourage non-customer parking. The Common Areas shall be maintained and operated by Landlord in good, clean, and orderly condition. The manner in which Common Areas shall be maintained and operated and the expenditures therefor
shall be at the sole discretion of Landlord. Landlord may use any of the Common Areas for the purposes of completing or making repairs or alterations in any portion of the Building Complex, provided that Landlord does not unreasonably interfere with Tenants access to or use of the Premises or the Patio Area for the Permitted Use. Subject to the provisions hereof, Landlord shall have the right from time to time to construct other temporary and permanent buildings or improvements in the Common Areas, to change the location or character of, to make alterations of or additions to the Common Areas, to repair and reconstruct the Common Areas, and to do any such other acts in and to the Common Areas as they may deem desirable to improve the convenience thereof and in so doing Landlord shall not unreasonably interfere with Tenants access to or use of the Premises for the Permitted Use. Landlord hereby grants to Tenant the right to use the Common Areas, as hereinafter defined, subject to the conditions hereinafter stated and in any covenants placed of record with respect to the Real Property. Tenants use of such Common Areas shall be subject to the following: (i) The Common Areas shall be used by Tenant, Tenants Agents, customers, and invitees, in common with agents, employees, customers, and invitees of Landlord and the other owners, occupants, and tenants from time to time in the Building Complex; (ii) Tenants right to use the Common Areas shall terminate upon the termination of this Lease by lapse of tune or otherwise; (iii) Tenant shall make no use of the Common Areas which shall interfere in any way with the use of the Common Areas by others; (iv) Tenants use of the Common Areas shall be subject to the Rules and Regulations (as defined below); and (v) Tenants use of any fitness center in the Building Complex shall be in common with agents, employees, customers, and invitees of Landlord and the other owners, occupants, and tenants from time to time in the Building Complex without additional charge except for charges imposed by Landlord in order to accommodate special needs of specific employees of Tenant or for a separate particular use of any fitness center. The Rules and Regulations are binding upon Tenant, and any failure to adhere thereto shall, after any applicable notice and cure period, constitute a default hereunder by Tenant and shall entitle Landlord to exercise its rights and remedies hereunder as set forth herein. The Rules and Regulations may be reasonably amended by Landlord, from time to time, with or without advance notice to Tenant, and all amendments shall be effective upon delivery of a copy of them to Tenant at the Premises, but such amendments shall not adversely affect the rights expressly granted to Tenant under this Lease; provided, however, Tenant shall not be bound by any modifications to the Rules and Regulations that (a) materially and adversely impact Tenants access to or use of the Premises, the Patio Area, the Common Areas or the Buildings parking facilities or (b) increase the Rent due hereunder. The Rules and regulations will be applied by Landlord in an uniform and non-discriminatory mariner. In the event of any conflict between this Lease and the Rules and Regulations, this Lease shall control.
27.4. Independent Covenants. This Lease is to be construed as though the covenants between Landlord and Tenant are independent and not dependent and, except as expressly set forth in this Lease, Tenant is not entitled to any setoff of the Rent against Landlord if Landlord fails to perform its obligations; provided, however, the foregoing does not impair Tenants right to commence a separate suit against Landlord. for any default by Landlord so long as Tenant complies with Section 21.
27.5. Validity of Provisions. If any provision is invalid under present or future laws, then it is agreed that the remainder of this Lease is not affected and that in lieu of each provision that is invalid, there will be added as part of this Lease a provision as similar to such invalid provision as may be possible and is valid and enforceable.
27.6. Captions. The caption of each Section is added for convenience only and has no effect in the construction of any provision of this Lease.
27.7. Construction. The .parties waive any rule of construction that ambiguities are to be resolved against the drafting party. Any words following the words include, including, such as, for example, or similar words or phrases shall be illustrative only and are not intended to be exclusive, whether or not language of non-limitation is used. This Lease has been prepared to reflect additions and deletions negotiated between Landlord and Tenant from Landlords standard form for the Building. All provisions and terms that are stricken are deletions and shall not be a part of this Lease; provided, however, a deletion from this Lease shall not be construed to create the opposite intent of the deleted provisions. All provisions and terms which are underlined (other than headings, titles and captions) are additions and shall be a part of this Lease.
27.8. Applicability. Except as otherwise provided, the provisions of this Lease are applicable to and are binding upon Landlords and Tenants respective heirs, successors and assigns. Such provisions are also considered to be covenants running with the land to the fullest extent permitted by law.
27.9. Authority. Tenant and the party executing this Lease on. behalf of Tenant represent to Landlord that such party is authorized to do so by requisite action of Tenant and agree, upon request, to deliver to Landlord a resolution, or similar document to that effect.
27.10. Severability. If there is more than one party which is the Tenant, the obligations imposed upon Tenant are joint and several.
27.11. Acceptance of Keys, Rent or Surrender. No act of Landlord or its representatives during the Term, including any agreement to accept a surrender of the Premises or amend this Lease, is binding on Landlord unless such act is by a partner, member or officer of Landlord, as the case may be, or other party designated in writing by Landlord as authorized to act. The delivery of keys to Landlord or its representatives will not operate as a termination of this Lease or a surrender of the Premises. No payment by Tenant of a lesser amount than the entire Rent owing is other than on account of such Rent nor is any endorsement or statement on any check or letter accompanying payment an accord and satisfaction. Landlord may accept payment without prejudice to Landlords right to recover the balance or pursue any other remedy available to Landlord.
27.12. Building Name and Size. Landlord may as it relates to the Building and Building Complex: change the name, increase the size by adding additional real property, construct other buildings or improvements, change the location and/or character, or make alterations or additions. If additional buildings are constructed or the size is increased, Landlord shall, at Landlords sole cost and expense, re-measure the Building Complex in accordance with The Standard for Measuring Floor Area of the Building Owners and Managers Association, ANSI/BOMA Z65.1-1996 (the BOMA Standard), and Landlord and Tenant shall execute an amendment which incorporates any necessary modifications to Tenants Pro Rata Share. Tenant may not use the Buildings name for any purpose other than as part of its business address. Notwithstanding anything to the contrary contained in this Section, (a) in the event Landlord,
changes the name of the Building, Landlord shall reimburse Tenant for all reasonable costs of reprinting replacement stationery, business cards and other printed material bearing Tenants address to the extent affected by the change in name of the Building, in an amount not to exceed $5,000.00, and (b) in no event shall Tenants Base Rent or Tenants Pro Rata Share of Operating Expenses ever increase as a result of any changes by Landlord to Building size or any alterations or improvements to the Building or Building Complex.
27.13. Diminution of View. Tenant agrees that no diminution of light, air, or view from the Building entitles Tenant to any reduction of Rent under this Lease, results in any liability of Landlord, or in any way affects Tenants obligations.
27.14. Limitation of Liability. Notwithstanding anything to the contrary contained in this Lease, Landlords liability is limited to Landlords interest in the Building and Landlord shall never be personally liable for recovery of any judgment.
27.15. Non-Reliance. Tenant confirms it has not relied on any statements, representations, or warranties by Landlord or its representatives except as set forth herein.
27.16. Written Modification. No amendment or modification of this Lease is valid or binding unless in writing and executed by the parties.
27.17. Mortgagees Requirements. [Intentionally deleted]
27.18. Effectiveness. Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option to lease and it is not effective unless and until execution and delivery by both Landlord and Tenant.
27.19. Survival. This Lease, notwithstanding expiration or termination, continues in effect as to any provisions requiring observance or performance subsequent to termination or expiration.
27.20. Time of Essence. Time is of the essence herein.
27.21. Rules and Regulations. The rules and regulations attached hereto as Exhibit E (the Rules and Regulations) are a part of this Lease and Tenant agrees that Tenant and Tenants Agents shall at all times abide by such rules and regulations. Notwithstanding Rule 6 of Exhibit E attached hereto, Landlord shall furnish Tenant with 81 key cards. Rule 15 shall not be deemed to prohibit the installation of customary first-class office carpeting or flooring and as otherwise approved by Landlord shall not be prohibited. It is understood and agreed that the use of the Premises and character of Tenant are of concern to Landlord because of the location of the Premises and visibility on the lobby level of the Building, which as result may add to or detract from the first-class appearance and image of the Building. Landlord has entered into this Lease in consideration of Tenants use of the Premises described in Section 10 of the Lease as the Permitted Use. Therefore, Tenants failure to continually occupy the Premises for such Permitted Use (except for temporary closures due to casualties or temporary closures of not more than two consecutive weeks after notice thereof to Landlord) shall be deemed an Event of Default under this Lease and Landlord shall have the right to exercise all remedies available to it as a result of such Event of Default. It is further understood and agreed that any area of the interior of the
Premises that is visible from outside the Premises, including without limitation any signage and window display areas, are of concern to Landlord because they may add to or detract from the first-class appearance of the Building. Landlord retains the right to reasonably approve any items placed in areas of the Premises visible from outside the Premises, including, without limitation, furniture, fixtures, wall hangings, equipment, signage or window displays, and Landlord shall have the right, from time to time, to request that Tenant make changes in or remove any items in such areas to better adapt the same to the character of the Building Complex (as reasonably determined appropriate by Landlord), and Tenant agrees to alter or remove the same in accordance with Landlords requests. Any improvements approved as a part of the Finish Work described in the Work Letter are deemed approved by Landlord, except for changes by Tenant that Landlord has not approved.
27.22. Recording. Tenant will not record this Lease. Recording of the Lease by or on behalf of Tenant is an Event of Default.
27.23. Financial Information. Tenant acknowledges that the financial capability of Tenant and Guarantor, if any, to perform obligations hereunder is material to Landlord and Landlord would not enter into this Lease but for its belief, based on its review of financial statements, that such parties are capable of performing such financial obligations. Tenant hereby represents to Landlord that the financial statements previously furnished Landlord with respect to Tenant and any Guarantor were true and correct in all material respects and there have been no material adverse changes subsequent thereto. Unless Tenant (or Guarantor, respectively) is a publicly traded entity with financial statements publicly available, Tenant will furnish Tenants or any Guarantors financial statements to Landlord within 10 days after Landlords written request from time to time, but not more frequently than once every 12 months or if required by Landlord in connection with a proposed sale or refinancing. Such statements shall include at least a balance sheet, income statement and statement of changes in financial position for the most current month end, year to date and prior year-end certified by a duly authorized representative to be an accurate representation of the financial condition. Such statements shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant (or Guarantor, respectively) as to annual statements, audited by an independent certified public accountant for the period covered. Notwithstanding anything in this Section 27.23 to the contrary, Tenant may condition its delivery of any financial information upon Tenants receipt of a reasonable confidentiality agreement from all parties that will have access to such financial information.
27.24. Patriot Act Compliance Provision. Tenant represents and warrants that:
(a) no action, proceeding, investigation, charge, claim, report or notice (collectively, Action) has been commenced, threatened or to its knowledge filed against Tenant (which, for purposes of this Section, includes its affiliates) alleging any violation of any laws relating to terrorism or money laundering, including Executive Order No. 13224 on Terrorist Financing (effective September 24, 2001) (the Executive Order) and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56) (the Patriot Act).
(b) to Tenants knowledge, Tenant has not taken or omitted to take any action which could reasonably be expected to result in any Action against Tenant alleging any violation of the Executive Order or the Patriot Act.
(c) Tenant is not a Prohibited Person. Prohibited Person shall mean: (i) a person (which for purposes of this Section includes any entity) that is listed in the Annex to, or is otherwise subject to the provisions of the Executive Order and relating to blocking property and prohibiting transactions with persons who commit, threaten to commit, or support terrorism; (ii) a person owned or controlled by, or acting for or on behalf of, any person that is listed in the Annex to, or is otherwise subject to the provisions of; the Executive Order; (iii) a person with whom Landlord is prohibited from dealing or otherwise engaging in any transaction by any terrorism or money laundering law, including the Executive Order and the Patriot Act; (iv) a person who commits, threatens, or conspires to commit or supports terrorism as defined in the Executive Order; (v) a person that is named as a specially designated national and blocked person on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control at its official website, http://www.treas.gov/ofac/t11sdn.pdf or at any replacement website or other replacement official publication of such list; and (vi) a person who is affiliated with a person listed above.
(d) Tenant is not violating and will not violate, any of the prohibitions set forth in any terrorism or money laundering law, including the Executive Order and Patriot Act.
Tenant agrees to promptly hereafter deliver to Landlord (but in any event within 10 days following Landlords written request) any evidence, including a certification, reasonably requested from time to time by Landlord confirming Tenants compliance with this Section.
27.25. Governing Law; Venue; Jurisdiction. This Lease shall be construed in accordance with the laws of the State of Colorado, without giving effect to conflict of laws principles. Each party hereto (which includes any assignee, successor, heir or personal representative of a party) hereby waives any objection to venue in the County in which the Premises are located, and agrees and consents to personal jurisdiction of the courts of the State of Colorado, in any action or proceeding or counterclaim brought by any party hereto against the other on any matter whatsoever arising out of or in any way connected with this Lease.
27.26. Reasonable Consent. Wherever pursuant to this Lease the consent or approval of one party is required or requested with respect to the performance by the other party of any term, covenant, condition or provision of this Lease or the doing of any act in connection therewith or in connection with the Premises, it is agreed and understood that, unless otherwise expressly provided herein, such consent or approval shall not be unreasonably withheld, conditioned or delayed.
28. AUTHORITIES FOR ACTION AND NOTICE.
28.1. Unless otherwise provided, Landlord may act through Landlords Building Manager or other designated representatives from time to time.
28.2. All notices or other communications required or desired to be given to Landlord must be in writing and shall be deemed received when delivered personally to any officer, partner, or member of Landlord (depending upon the nature of Landlord) or the manager of the Building (the Building Manager) whose office is in the Building, or when deposited in the United States mail, postage prepaid, certified or registered, return receipt requested, or when deposited with a nationally-recognized overnight courier service with delivery verification service, addressed as set forth in Section 1.10. All notices or communications required or desired to be given to Tenant shall be in writing and deemed duly served when delivered personally to any officer, employee, partner, or member of Tenant (depending upon the nature of Tenant), individually if a sole proprietorship, or manager of Tenant whose office is in the Building, or when deposited in the United States mail, postage prepaid, certified or registered, return receipt requested, or when deposited with a nationally-recognized overnight courier service with delivery verification service, addressed to the appropriate address set forth in Section 1.13. Either party may designate in writing served as above provided a different address to which notice is to be mailed. The foregoing does not prohibit notice from being given as provided in the rules of civil procedure, as amended from time to time, for the state in which the Real Property is located.
29. PARKING. Tenant shall have the right, by notice to Landlord within 90 days following the Commencement Date, to license from Landlord directly or through the operator of the parking garage, if applicable, the number of garage parking spaces set forth in Section 1.9 (Tenants Parking Allotment). Tenant shall forfeit its right to any parking spaces of Tenants Parking Allotment not initially licensed by Tenant and Landlord is relieved of its obligation to make such spaces available thereafter for Tenants use; provided, however, so long as parking spaces are available, in Landlords sole determination, upon Tenants written request, Tenant shall have the right to license available parking spaces to the extent of Tenants Parking Allotment. Use of licensed parking spaces shall be on an in and out basis in the parking structure. Tenant shall pay to Landlord or the garage operator, if applicable, the current monthly rate charged for each space Tenant licenses in an amount equal to the monthly charge per parking space established by Landlord from time to time (Parking Rate), which monthly Parking Rate for each parking space initially is $175.00 for each unreserved parking space and $225.00 for each reserved parking space. Tenant will be billed monthly and Tenant shall pay the parking rents to Landlord (or Landlords designated representative or agent). Notwithstanding the above, the right granted to Tenant to use any parking spaces is a license only and Landlords inability to make spaces available at any time for reasons beyond Landlords reasonable control is not a material breach by Landlord of its obligations hereunder. If Tenant fails to pay any portion of the parking fee in a timely manner, Landlord, at its election and in addition to its other remedies under this Lease for an Event of Default, may cancel Tenants right to use the number of parking spaces for which Tenant has failed to pay. Tenant has no rights to use the parking facilities on the Real Property except as provided in this Section. The abatement of Tenants obligation to pay for unavailable spaces during any period of unavailability constitutes Tenants sole remedy. All vehicles parked in the parking facilities and the personal property therein shall be at the sole risk of Tenant, Tenants Agents and the users of such spaces and Landlord shall have no liability for loss or damage thereto for whatever cause.
30. SUBSTITUTE PREMISES. [Intentionally Omitted]
31. BROKERAGE. Tenant represents it has not employed any broker with respect to this Lease and has no knowledge of any brokers involvement in this transaction except those listed in Sections 1.15 and 1.16 (collectively, the Brokers). Tenant shall indemnify Landlord against any expense incurred by Landlord as a result of any claim for commissions or fees by any other broker, finder, or agent, whether or not meritorious, employed by Tenant or claiming by, through, or under Tenant, other than the Brokers. Tenant acknowledges Landlord is not liable for any representations by the Brokers regarding the Premises, Building, Building Complex, or this Lease.
32. COUNTERPARTS. This Lease may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Any one or more counterpart signature pages may be removed from one counterpart of the Lease and annexed to another counterpart of the Lease to form a completely executed original instrument without impairing the legal effect of the signature thereon.
33. ADDENDUM/EXHIBITS. Any Addenda and/or Exhibits referred to herein and attached hereto are incorporated herein by reference.
IN WITNESS WHEREOF, the parties have executed this Lease as of the day and year first above written and it is effective upon delivery of a filly-executed copy to Tenant.
PING IDENTITY CORPORATION, a Delaware corporation |
MG-1005, LLC, a Colorado limited company | |||||
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/s/ Jeremy Rudel |
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Jeremy Rudel |
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VP-Finance |
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Landlord | |||
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ATTEST: |
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By: |
/s/ Lauren Romer |
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Lauren Romer |
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Director of Legal Affairs |
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Tenant |
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ADDENDUM
THIS ADDENDUM is to that certain lease agreement (the Lease) by and between MG-1005, LLC, a Colorado limited liability company (Landlord), and PING IDENTITY CORPORATION, a Delaware corporation (Tenant), with respect to approximately 20,225 rentable square feet of space (the Premises) in the Building. In the event of any conflict between the terms and provisions of the Lease and the terms and provisions of this Addendum, the terms and provisions of this Addendum shall control.
1. Letter of Credit. Tenant shall deliver to Landlord, at the time of execution hereof by Tenant, a clean, unconditional, irrevocable letter of credit from a lending institution acceptable to Landlord, in Landlords sole discretion, in the form attached hereto as Schedule 1 or other form approved by Landlord (the Letter of Credit) as financial assurance for the performance of Tenants obligations under this Lease on the following terms and conditions:
A. The Letter of Credit, or a renewal or substitute therefor approved by Landlord, shall be kept in effect from the date of execution of this Lease through the 60th day following the Expiration Date of the then current Term (the LC Termination Date). The Letter of Credit shall be in the initial amount of $600,000.00 and thereafter, so long as no Event of Default is continuing under the Lease prior to a reduction date, the amount of the Letter of Credit may be reduced at the request of Tenant by: (i) $200,000 at the end of Month 36 of the Initial Term, (ii) $200,000 at the end of Month 48 of the Initial Term, and (iii) $200,000 at the end of the 3rd month of the Option Term, if applicable. If the Letter of Credit would otherwise expire prior to the LC Termination Date, Tenant shall deliver to Landlord an extension or renewal of the Letter of Credit, or a substitute Letter of Credit in the same form as Schedule 1 attached to this Exhibit F or other form approved by Landlord, no later than 30 days prior to the expiration date of such Letter of Credit, from a lending institution subject to Landlords reasonable approval; such extension, renewal or substitute Letter of Credit shall be effective no later than 10 days prior to the expiration of the existing Letter of Credit and shall be in the amount provided above. If, following issuance of the Letter of Credit, Tenant receives notice that (i) the net worth of the lending institution issuing the Letter of Credit shall at any time be less than $500,000,000.00, or (ii) the lending institution shall cease to operate, shall be declared insolvent by the Federal Deposit Insurance Corporation, or any successor thereto (the FDIC) or shall be placed into receivership by the FDIC (each an Issuing Bank Default), then within 10 days following Tenants receipt of such notice, Tenant shall deliver to Landlord written notice of such Issuing Bank Default and within 30 days following such Issuing Bank Default and demand from Landlord, Tenant shall deliver to Landlord either (a) a replacement Letter of Credit satisfying the requirements herein and issued by a lending institution subject to Landlords reasonable approval; or (b) a cash security deposit in an amount equal to the then current letter of Credit. Upon an Event of Default (as defined in the default section of the Lease), Landlord may present the Letter of Credit (or the renewal, extension or substitute) for payment one or more times up to the entire amount of the Letter of Credit, with amounts received to be held and applied by Landlord in accordance with subparagraph B below. If Tenant fails to timely provide Landlord with an extension, renewal or substitute Letter of Credit, as required hereunder, such failure shall automatically and without notice be deemed an Event of Default under the Lease and Landlord shall have a right to present the Letter of Credit in accordance with the foregoing provision. If the Letter of Credit has not been presented for payment on or before the LC Termination Date, Landlord shall return the Letter of Credit to the issuer
within 30 days after the LC Termination Date. If Landlord transfers the Real Property, Landlord shall have the right to transfer the Letter of Credit or substitute to the transferee (and Tenant shall pay any costs or fees charged by the issuer to permit such transfer), and if the Letter of Credit has been transferred, Tenant shall look solely to such transferee for the return of the Letter of Credit (or substitute). If there is a Mortgagee, Tenant shall execute such documents as the Mortgagee may reasonably require to secure the Mortgagees interest in the Letter of Credit and proceeds, subject to this Section. Landlord shall give written notice to Tenant of transfer of Landlords interest resulting in transfer of the Letter of Credit Landlord shall deliver the then-current effective Letter of Credit to the issuer marked for cancellation upon receipt of any conforming renewal or substitute Letter of Credit provided in accordance with this Section and cooperate with the issuing bank to effect the release of such then-current effective Letter of Credit as soon as the renewal or substitute Letter of Credit is in effect pursuant to its terms. Tenant agrees to pay all fees charged by the lending institution issuing the Letter of Credit (or any reduction, renewal, extension, or substitute therefor).
B. If an Event of Default occurs or this Lease is terminated as a result of an Event of Default, Landlord may use, apply or retain all or any portion of the amounts received under the Letter of Credit, if any, for the payment of any rent or other charge in default or for the payment of any other sum to which Landlord may become obligated by reason of Tenants Event of Default, or to compensate Landlord for any loss or damage which Landlord may suffer thereby in accordance with Section 20 of the Lease. Neither the Letter of Credit nor the amounts received under the Letter of Credit shall be deemed a security deposit under the Lease.
2. Option to Extend. Landlord grants Tenant an option (the Option) to extend the term of the Lease for one additional term of 5 years (the Option Term). Such Option applies only to the Premises and is on the following conditions:
A. Notice of Tenants interest in exercising the Option must be given to Landlord no earlier than 15 months and no later than 12 months prior to the Expiration Date of the Term (Tenants Notice). Within 30 days after being given Tenants Notice, Landlord will notify Tenant of the Base Rent applicable during the Option Term and any allowances that Landlord will make available to Tenant (Landlords Notice).
B. Tenant has 15 days after having been given Landlords Notice to exercise an Option or dispute the rental rate quoted by Landlord by delivering notice of exercise or dispute to Landlord. If Tenant exercises the Option, the Term will be deemed extended on the terms as set forth in Landlords Notice and the parties will execute an amendment evidencing the extension. If Tenant disputes Landlords determination of the Base Rent rate, Tenant shall give notice of such dispute (Dispute Notice) within the 15-day period and the Base Rent rate shall thereafter be determined in accordance with Paragraph F below.
C. Unless Landlord is timely notified by Tenant in accordance with subparagraphs A or B above, it will be conclusively deemed that Tenant has not exercised the Option and the Lease will expire in accordance with its terms on the Expiration Date.
D. Unless expressly waived by Landlord, Tenants right to exercise the Option is conditioned on: (i) no Event of Default existing at the time of exercise or at the time of
commencement of the Option Term; (ii) Tenant not having subleased or vacated more than 25% of the Premises or assigned its interest under the Lease (except to a Permitted Transferee or otherwise consent to by Landlord) as of the commencement of the Option Term; and (iii) Tenants financial condition not having materially adversely changed, as determined in Landlords reasonable discretion, since the Commencement Date, or if Landlord has consented to a Transfer by assignment of the entirety of Tenants interest in this Lease, such assignee demonstrating, in Landlords sole and absolute determination, a net worth and financial condition (as of the time of exercise and at the time of commencement of the Option Term) sufficient to evidence such assignees ability to perform and meet the obligations under the Lease for the Option Term. Tenants rights pursuant to this paragraph are personal and upon an assignment of the Lease (except to a Permitted Transferee or otherwise consented to by Landlord), this paragraph is null and void.
E. The provisions of the Lease shall be applicable during any Option Term, except that the base to be used for determination of Additional Rent and any allowances shall be as set forth in Landlords Notice and the Base Rent shall be as set forth in Landlords Notice, unless determined in accordance with paragraph F below.
F. Following giving of Tenants Dispute Notice, Landlord and Tenant shall promptly negotiate to determine a mutually acceptable Base Rent. If the parties mutually agree upon a new Base Rent rate, such agreed rate shall be the Base Rent rate applicable during the particular Option Term. If the parties have not agreed within 20 days after the giving of Tenants Dispute Notice, then within such 20-day period Landlord and Tenant shall endeavor to agree upon a qualified commercial real estate broker of good reputation, having at least five (5) years experience in the real estate market in which the Building is located, to act as arbitrator (Arbitrator); otherwise, they shall each select, within the foregoing 20-day period, a real estate broker who meets the above qualifications and together such brokers will then select a real estate broker who meets the above qualifications and who shall be deemed the Arbitrator. Within 10 days after designation of the Arbitrator, Landlord and Tenant each shall give notice of its determination of the Prevailing Market Rental Rate supported by the reasons therefor by delivering copies to each other and the Arbitrator, under an arrangement for simultaneous exchange of such determinations. The Arbitrator will review each partys determination and select the one which most accurately reflects such Arbitrators determination of the Prevailing Market Rental Rate. Such selection shall be final and binding on both parties and the Base Rent to be paid during the particular Option Term shall be the greater of such determination or the Base Rent in effect immediately prior to commencement of the particular Option Term. The Arbitrator shall have no right to propose a middle ground or any modifications of either partys determination. The Arbitrators costs incurred in this procedure shall be shared equally by Landlord and Tenant and shall be fixed when the Arbitrator is selected. For purposes of this paragraph, Prevailing Market Rental Rate means the annual amount per square foot that a willing tenant would pay and a willing landlord would accept for Base Rent following arms-length negotiations with respect to an Assumed Lease (defined below) under the circumstances then obtaining. Assumed Lease means (i) a lease or renewal having a commencement date within 6 months of Tenants Notice for space of approximately the same size as the Premises, located in a portion of the Building or a Comparable Building (defined below), and with a view and floor height similar to the portion of the Premises for which Prevailing Market Rental Rate is being determined, for a term equal in length to the Option Term; (ii) a real estate commission is payable with respect to such extension
to the extent a third-party commission with respect to extension is agreed or obligated to be paid by Landlord; and (iii) taking into consideration and making adjustments to reflect that Additional Rent is paid with the base as set forth in Landlords Notice and allowances, if any, as provided in Landlords Notice; and (iv) taking into consideration any and all concessions, if any, being offered in Comparable Buildings. Comparable Building means any then-existing building in the Denver Central Business District office submarket that is of a size, location, quality and prestige comparable to, and with a size and efficiency of floor plate, amenities, and with tenants of a stature reasonably comparable with the Building, provided that appropriate adjustments shall be made to adjust for differences in the size, location, age, efficiency of floorplate, and quality of any Comparable Building and the Building.
G. After exercise, or failure to exercise the Option, Tenant shall have no further rights to extend the Term.
3. Riser Space. At no additional cost to Tenant, Tenant shall have access to and use of not less than two of the Buildings risers for its telecommunications requirements during the Term. Tenants use of riser space shall be based upon its Pro Rata Share and in accordance with the nature of the Permitted Use. Tenant shall remove, or pay for the removal of, all cabling and related equipment (but excluding conduit) from the riser space upon the expiration of the Term or earlier termination of the Lease (subject to the provisions of Section 17 of the Lease).
4. Generator. Tenant, at Tenants sole cost and expense, shall have the right to tie into the Building Generator (as hereafter defined) and use and pay for a proportionate share of the costs of operation of the Building Generator as hereafter more specifically provided. Tenant acknowledges that the Building is equipped diesel engine standby generator (Building Generator) located on the 21st floor of the Building with a 1,200KW/1,500KVA (Total Generator Load Capacity). A small portion of the Total Generator Load Capacity is utilized for existing base Building systems including condenser water pumps and telecommunication systems. The Building Generator is connected to the public utility system through an automatic transfer switch (ATS). Building Generator Costs mean any costs and expenses incurred by Landlord to maintain and operate the Building Generator, including but not limited to the costs incurred by Landlord for fuel, generator and related equipment maintenance, and periodic testing of the Building Generator, ATS and associated equipment. Landlord has elected to make available to a certain portion of the remaining capacity of the Building Generator for a limited number of tenants of the Building (each a User). Users who desire to connect to the Building Generator agree to share in the reimbursement to Landlord of the Building Generator Costs on a pro rata basis determined as follows:
A. A certain percentage of the available Building Generator Capacity shall be allocated to each User of the Building Generator (User Allocation). Each User shall be obligated to pay its percentage share of the sum of the Building Generator Costs, which share shall be determined based on its User Allocation divided by the Total Generator Load Capacity (Users Share). In addition, each user shall pay for their total energy usage costs, which will be measured via a building standard electronic meter installed at the Tenants cost.
B. Tenant acknowledges and agrees that its User Allocation shall be 38.4 kilowatts and based on such User Allocation, its User Share shall be 3.2% (38.4 divided by
1,200KW). Accordingly, Tenant shall pay as its Users Share 3.2% of the Total Generator Load Capacity, as well as 3.2% of the Generator Costs, as additional Rent under the Lease (at the same time and place as Rent is paid under the Lease) following Landlords invoice for such Users Share. Payment of such Users Shore of the Building Generator Costs and Total Generator Load Capacity shall be in addition to Tenants obligation to pay other amounts (including Tenants Pro Rata Share of Operating Expenses) payable under the Lease.
Notwithstanding that Landlord shall use reasonable efforts to maintain the Building Generator, ATS and associated equipment and appropriate fuel supplies, Landlord makes no guarantee of the Building Generator run time or availability. Tenants usage of the services from the Building Generator shall be without warranty of Landlord and Landlord shall have no liability for an interruption of Services due to the failure of the Building Generator.
If Tenant pays Landlord directly for Tenants use of the Generator, then all costs associated with the operation, maintenance and repair of the Generator shall be excluded from Operating Expenses.
5. Early Termination Option. Tenant may elect to terminate this Lease (Termination Option) effective as of last day of Month 48 of the Initial Term (the Early Termination Date), by giving Landlord written notice (Tenants Notice) on or before the last day of Month 39 of the Initial Term, provided that: (1) on or before the Early Termination Date, Tenant has paid Landlord all amounts due and owing under the Lease; and (2) Tenant pays to Landlord, within 30 days after Tenant receives the Termination Fee Calculations (as set forth below) a termination fee equal to: (i) $214,890.60 (representing Base Rent for Month 48 though Month 53 of the Initial Term), plus (ii) 6 months then estimated payments of Operating Expenses for Month 48 through Month 53 of the Initial Term, plus (iii) the unamortized portion of Landlords Costs calculated by amortizing Landlords Costs over the Initial Term with interest at the rate of 10% per annum. Landlords Costs means Landlords costs related to this Lease, including, but not limited to: Finish Work Costs (the Finish Work Allowance and other costs of the Finish Work paid by Landlord), reasonable legal costs, and leasing commissions. Promptly following Landlords receipt of Tenants notice, Landlord shall deliver to Tenant a calculation of the termination fee payable pursuant to this Section 5 (the Termination Fee Calculations), together with such supporting evidence as Tenant reasonably requires. Tenants right to exercise the Termination Option is conditioned on: (i) no Event of Default existing at the time of exercise of the Termination Option or on the Early Termination Date; and (ii) Tenant not having subleased or vacated more than 25% of the Premises or assigned its interest under the Lease as of the date of exercise of the Termination Option or on the Early Termination Date. If the Termination Option is timely exercised, Tenant will deliver possession of the Premises to Landlord on the Early Termination Date in accordance with the terms of the Lease and all other terms and provisions will apply as if the Lease had expired according to its terms, including Tenants obligation for payment of any increases in Operating Expenses attributable to periods prior to the Early Termination Date at such time as such obligation is determined. If Tenant fails to timely give notice or if Tenant fails to pay Landlord the termination fee described above within 30 days after Tenant receives the Termination Fee Calculations, then without further notice to Tenant, Tenant will be deemed to have waived its right to terminate under this Termination Option and the Termination Option will be deemed null and void and of no further force and effect. Tenants right to terminate the Lease pursuant to this Termination Option is personal to Tenant and may not be assigned (except to a
Permitted Transferee). In the event of an assignment of the Lease (except to a Permitted Transferee), this Termination Option is null and void.
IN WITNESS WHEREOF, the parties hereto execute this Addendum.
PING IDENTITY CORPORATION, a Delaware corporation |
MG-1005, LLC, a Colorado limited company | ||||
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Jeremy Rudel |
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VP-Finance |
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ATTEST: |
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By: |
/s/ Lauren Romer |
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Lauren Romer |
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Director of Legal Affairs |
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EXHIBIT B TO LEASE
REAL PROPERTY
Lots 1 through 32, inclusive, Block 96,
together with all of the platted, now vacated, alley in said Block,
East Denver, according to the recorded plat thereof
City and County of Denver, State of Colorado.
EXHIBIT C TO LEASE
OPERATING EXPENSES
6.1 Definitions. The additional terms below have the following meanings in this Lease:
(2) Landlords Accountants means that individual or firm employed by Landlord from time to time to keep the books and records for the Building Complex, and/or to prepare the federal and state income tax returns for Landlord with respect to the Building Complex, which books and records shall be certified to by a representative of Landlord. All determinations made hereunder shall be made on a reasonable basis by Landlords Accountants using generally accepted accounting principles (as consistently applied, GAAP).
(3) Rentable Area means 655,565 rentable square feet of space. If there is a significant change in the aggregate Rentable Area as a result of an addition, partial destruction, modification to building design, or similar cause which causes a reduction or increase in the Rentable Area on a permanent basis or, if Landlord remeasures the Building and a change in Rentable Area occurs, Landlords Accountants shall, in accordance with the BOMA Standard, make such adjustments in the computations as are necessary to provide for such change.
(4) Tenants Pro Rata Share means the percentage set forth in Section 1.5 of the Lease. If Tenant, at any time during the Term, leases additional space in the Building or if the Rentable Area is adjusted, Tenants Pro Rata Share shall, in accordance with the BOMA Standard, be recomputed by dividing the total rentable square footage of space then leased by Tenant (including any additional space) by the Rentable Area and the resulting figure shall become Tenants Pro Rata Share.
(5) Operating Expense Year means each calendar year during the Term, except that the first Operating Expense Year begins on the Commencement Date and ends on December 31 of such year and the last Operating Expense Year begins on January 1 of the calendar year in which this Lease expires or is terminated and ends on the date of such expiration or termination. If an Operating Expense Year is less than twelve (12) months, Operating Expenses for such year shall be prorated.
(6) Operating Expenses means all operating expenses of any kind or nature which are in Landlords reasonable judgment necessary, ordinary, or customarily incurred in connection with the operation and maintenance of the Building Complex. Operating Expenses include:
(a) All real property taxes and assessments levied against the Building Complex by any governmental or quasi-governmental authority or under any covenants, declarations, easements or restrictions, including taxes, assessments, surcharges, or service or other fees of a nature not presently in effect which are hereafter levied on the Building Complex as a result of the use, ownership or operation of the Building Complex or for any other reason, whether in lieu of or in addition to, any current real estate taxes and assessments. However, any taxes which are levied on the rent of the Building Complex will be determined as if the Building Complex were Landlords only real property. In no event do taxes and assessments include any
federal or state income taxes levied or assessed on Landlord. Expenses for tax consultants to contest taxes or assessments are also included as Operating Expenses (all of the foregoing are collectively referred to herein as Taxes). Taxes also include special assessments, license taxes, business license fees, business license taxes, commercial rental taxes, levies, charges, penalties or taxes, imposed by any authority against the Premises, Building Complex or any legal or equitable interest of Landlord. Special assessments are deemed payable in such number of installments permitted by law, whether or not actually so paid, and include any applicable interest on such installments. Taxes (other than special assessments) are computed on an accrual basis based on the year in which they are levied, even though not paid until the following Operating Expense Year;
(b) Costs of supplies, including costs of relamping and replacing ballasts in all Building standard tenant lighting;
(c) Costs of energy for the Building Complex, including costs of propane, butane, natural gas, steam, electricity, solar energy and fuel oils, coal or any other energy sources;
(d) Costs of water and sanitary and storm drainage services;
(e) Costs of janitorial and security services;
(f) Costs of general maintenance, repairs, and replacements including costs under HVAC and other mechanical maintenance contracts; and repairs and replacements of equipment used in maintenance and repair work;
(g) Costs of maintenance, repair and replacement of landscaping;
(h) Insurance premiums for the Building Complex, including all-risk or multi-peril coverage, together with loss of rent endorsement; the part of any claim paid under the deductible portion of any insurance policy carried by Landlord (which deductibles shall be consistent with the Minimum Standard); public liability insurance; and any other insurance carried by Landlord on any component parts of the Building Complex;
(i) All labor costs, including wages, costs of workers compensation insurance, payroll taxes, fringe benefits, including pension, profit-sharing and health, and legal fees and other costs incurred in resolving any labor dispute;
(j) Professional building management fees (not to exceed 3% of the gross income of the Building), costs and expenses, including costs of office space and storage space required by management for performance of its services;
(k) Legal, accounting, inspection, and other consulting fees (including fees for consultants for services designed to produce a reduction in Operating Expenses or improve the operation, maintenance or state of repair of the Building Complex);
(l) Costs of capital improvements and structural repairs and replacements to the Building Complex to conform to changes subsequent to the Delivery Date in
any Applicable Laws (herein Required Capital Improvements); and the costs of any capital improvements and structural repairs and replacements designed primarily to reduce Operating Expenses (herein Cost Savings Improvements). Expenditures for Required Capital Improvements and Cost Savings Improvements will be amortized at a market rate of interest over the useful life of such capital improvement (as determined by Landlords Accountants in accordance with GAAP); however, the amortized amount of any Cost Savings Improvement in any year will be equal to the estimated resulting reduction in Operating Expenses; and
(m) Costs incurred for Landlords Accountants including costs of any experts and consultants engaged to assist in making the computations;
Operating Expenses do not include:
(i) Costs of work, including painting and decorating, which Landlord performs for any tenant other than work of a kind and scope which Landlord is obligated to furnish to all tenants whose leases contain a rental adjustment provision similar to this one;
(ii) Costs of repairs or other work occasioned by fire, windstorm or other insured casualty (to the extent such casualty is required to be insured by Landlord pursuant to the Lease);
(iii) Leasing commissions, advertising expenses, and other costs incurred in leasing space in the Building;
(iv) Costs of repairs or rebuilding necessitated by condemnation;
(v) Interest on borrowed money or debt amortization, except as specifically set forth above;
(vi) Depreciation on the Building Complex;
(vii) All costs associated with the operation of the business of the entity which constitutes Landlord (as distinguished from the costs of Building or Project operations) including, but not limited to, Landlords or Landlords Managing Agents general corporate overhead and general administrative expenses or such costs that would be normally included in a management fee (e.g., placement/recruiting fees for employees, corporate accounting, health/sports club dues, employee parking and transportation charges, tickets to special events, bank charges, etc.);
(viii) Costs incurred by Landlord in connection with the correction of defects in design and construction of the Building, the Common Area or the Building Complex, and design or construction costs otherwise incurred in connection with the original design and construction of the Building, the Common Area or the Building Complex or any major changes to the same, including, without limitation, additions or deletions of floors;
(ix) Other than Required Capital Improvements and Cost Saving Improvements, costs of a capital nature for the Building Complex, including, but not limited to,
capital improvements, capital repairs, capital equipment, and capital tools, all as determined in accordance with generally accepted accounting principles and sound management practices;
(x) Any costs of any services sold or provided to tenants or other occupants for which Landlord or Managing Agent is entitled to be reimbursed by such tenants or other occupants as an additional charge or rental over and above the basic rent (and escalations thereof);
(xi) Expenses in connection with services or other benefits which are provided to another tenant or occupant and do not benefit Tenant;
(xii) Overhead or profits paid to Landlord or to subsidiaries or affiliates of Landlord, or to any party as a result of a non-competitive selection process, for management or other services to the Building and/or Project, or for supplies or other materials, to the extent that the costs of such services, supplies, or materials exceed the costs that would have been paid had the services, supplies or materials been provided by parties unaffiliated with the Landlord on a competitive basis and are consistent with those incurred by similar buildings in the same metropolitan area in which the Building is located;
(xiii) Wages, salaries and other compensation paid to any executive employee of Landlord above the grade of General Manager, and general overhead, general administrative expenses, accounting, record-keeping and clerical support of Landlord to the extent associated with maintaining the legal entity which constitutes Landlord;
(xiv) Costs or expenses related to the testing for, removal or remediation of Hazardous Materials in or about the Building Complex or which otherwise result from the presence in the Building Complex of any such substance (except to the extent that any such costs arise in the course of ordinary maintenance or result from Tenants acts or omissions);
(xv) Advertising and promotional costs including tenant relation programs and events, except costs for holiday programs and events that may be included in Operating Expenses;
(xvi) Landlords gross receipts taxes, personal and corporate income taxes, inheritance and estate taxes, other business taxes and assessments, franchise, gift and transfer taxes, and all other real estate taxes relating to a period or payable outside the term of the Lease;
(xvii) Any fines, costs, penalties or interest resulting from the negligence, misconduct or omission of the Landlord or its agents, contractors, or employees;
(xviii) Any rental payments and related costs pursuant to any ground lease of land underlying all or any portion of the Building, Building Complex and Common Areas or any costs related to any reciprocal agreement;
(xix) Any costs, fees, dues, contributions or similar political, charitable expenses;
(xx) Acquisition costs for sculptures, paintings, or other objects of art or the display of such items, to exclude plants from the lobby or any other location in the Building Complex;
(xxi) Costs incurred in connection with upgrading the Building to comply with disability or life insurance requirements in effect as of the date of the Lease, including penalties or damages incurred as a result of noncompliance;
(xxii) Costs for reserves of any kind;
(xxiii) Fines or penalties incurred because Landlord violated Applicable Law (including, without limitation, the ADA);
(xxiv) Utility expenses provided to the Premises and separately metered and paid directly by Tenant to a utility provider;
(xxv) Insurance deductibles in. excess of the amount permitted to be carried by Landlord pursuant to the Lease;
(xxvi) Any rental, either actual or not, for office space and/or storage space in excess of 3,000 rentable square feet for the Landlords management and/or leasing office;
(xxvii) Costs with respect to the creation of a mortgage, superior lease or any other financing with respect to the Building Complex or in connection with the sale of the Building Complex, including without limitation survey costs, legal fees, transfer and recordation taxes, costs of appraisals and engineering and inspection reports associated with the sale;
(xxviii) In addition to those exclusions from Taxes described in Section 5(a) above, all other Taxes relating to a period or payable outside the Term of the Lease except for Taxes attributable to tax years in which the Term commences or ends (but only that portion of such year included in the Term); and
(xxix) any expenses which under generally accepted accounting principles and sound management practices would not be considered an Operating Expense.
To the extent that employees, utilities or other services or costs are attributable to the Building and other buildings on. a common basis or are provided for Common Areas, such Operating Expenses shall be reasonably allocated by Landlord to the Building. If any lease entered into by Landlord with any tenant in the Building is on a so-called net basis, or provides for a separate basis of computation for any Operating Expenses with respect to its leased premises, Landlords Accountants may modify the computation of Rentable Area and Operating Expenses for a particular Operating Expense Year to eliminate or modify any expenses which are paid for in whole or in part by such tenant. If the Rentable Area is not fully occupied during any particular Operating Expense Year, Landlords Accountants may adjust those Operating Expenses which are affected by occupancy for the particular Operating Expense Year to reflect 100% occupancy. Furthermore, in making any computations contemplated hereby, Landlords Accountants may make such other modifications to the computations as are required in their judgment to achieve the intention of the parties hereto.
6.2 Estimated Payments. Commencing on the Commencement Date, and each month thereafter through and including Month 12 of the Initial Term, Tenant shall pay Landlord, at the same time as Base Rent is paid, an amount equal to $7,066.67 (1/12th of the product of $5.30 multiplied by 16,000 rentable square feet). Beginning with Month 13 of the Initial Term and continuing each month thereafter throughout the Term, Tenant shall pay Landlord, at the same time as Base Rent is paid, an amount equal to 1/12 of Landlords estimate of Tenants Pro Rata Share of Operating Expenses for the particular Operating Expense Year (Estimated Payment).
6.3 Annual Adjustments.
(1) Following the end of each Operating Expense Year, including the first Operating Expense Year, Landlord shall submit to Tenant a statement setting forth the exact amount of Tenants Pro Rata Share of the Operating Expenses for the Operating Expense Year just completed and the difference, if any, between Tenants actual Pro Rata Share of Operating Expenses for the Operating Expense Year just completed and the Estimated Payments paid for such year. Each statement shall also set forth the projected amount of Operating Expenses for the new Operating Expense Year and the new Estimated Payment.
(2) With the exception of the first Operating Expense Year in which Tenant shall pay the amount set forth in Section 6.2 above without any further adjustment, to the extent that Tenants Pro Rata Share of Operating Expenses for the period covered by a statement is different from the Estimated Payment during the Operating Expense Year just completed, Tenant shall pay Landlord the difference within 30 days following receipt by Tenant of the statement or receive a credit against the next due Estimated Payments, as the case may be. Until Tenant receives a statement, Tenants Estimated Payment for the new Operating Expense Year shall continue to be the amount of the prior Estimated Payment, but Tenant shall commence payment of the new Estimated Payment beginning on the first day of the month following the month in which Tenant receives the statement. Tenant shall also pay Landlord or deduct from the Rent, as the case may be, on the date required for the first payment, as adjusted, the difference, if any, between the Estimated Payment for the new Operating Expense Year set forth in the statement and the Estimated Payment actually paid during the new Operating Expense Year. If, during any Operating Expense Year, there is a change in the information on which Tenant is then making its Estimated Payments so that the prior estimate is no longer accurate, Landlord may revise the estimate and there shall be such adjustments made in the Estimated Payment on the first day of the month following notice to Tenant as shall be necessary by either increasing or decreasing, as the case may be, the amount of monthly Rent then being paid by Tenant for the balance of the Operating- Expense Year.
6.4 Miscellaneous. Delay by Landlord in submitting any statement for any Operating Expense Year does not affect the provisions of this Section or constitute a waiver of Landlords rights for such Operating Expense Year or any subsequent Operating Expense Years.
6.5 Dispute. If Tenant disputes an adjustment submitted by Landlord or a proposed increase or decrease in the Estimated Payment, Tenant shall give Landlord notice of such dispute within 30 days after Tenants receipt of the adjustment If Tenant does not give Landlord timely notice, Tenant waives its right to dispute the particular adjustment If Tenant timely objects, Tenant may engage its own certified public accountants (Tenants Accountants) to verify the accuracy
of the statement complained of or the reasonableness of the estimated increase or decrease. Tenants Accountants shall enter into a confidentiality agreement satisfactory to Landlord. If Tenants Accountants determine that an error has been made, Landlords Accountants and Tenants Accountants shall endeavor to agree upon the matter, failing which such matter shall be submitted to an independent certified public accountant selected by Landlord, with Tenants reasonable approval, for a determination which will be conclusive and binding upon Landlord and Tenant. All costs incurred by Tenant for Tenants Accountants shall be paid for by Tenant unless Tenants Accountants disclose an error, ,acknowledged by Landlords Accountants (or found to have occurred through the above independent determination), of more than 7% in the computation of the total amount of Operating Expenses, in which event Landlord shall pay the reasonable out-of-pocket costs incurred by Tenant to obtain such audit (excluding costs or fees paid on a contingency basis). Notwithstanding the pendency of any dispute, Tenant shall continue to pay Landlord the amount of the Estimated Payment or adjustment determined by Landlords Accountants until the adjustment has been determined to be incorrect If it is determined that any portion of the Operating Expenses were not properly chargeable to Tenant, then Landlord shall promptly credit or refund the appropriate sum to Tenant.
EXHIBIT D TO LEASE
COMMENCEMENT CERTIFICATE
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PING IDENTITY CORPORATION
RE: Lease Agreement dated as of (the Lease), by and between MG-1005, LLC, a Colorado limited liability company, as Landlord, and PING IDENTITY CORPORATION, a Delaware corporation, as Tenant
Dear Tenant:
With regard to the referenced Lease, Landlord and Tenant acknowledge the following (initially capitalized words not otherwise defined have the same meaning set forth in the Lease):
1. Landlord delivered the Premises consisting of square feet in their as is condition (subject to the terms of the Lease) on , which is Delivery Date under the Lease.
2. The Commencement Date of the Initial Term is and the Expiration Date is .
3. Landlords Costs referred to in Section 5 of the Addendum to the Lease are agreed to total .
Please acknowledge the foregoing by having an authorized officer sign in the space provided below and return to our office. This document may be executed in counterparts, each of which shall constitute the original. Facsimile signatures shall be binding as original signatures.
EXHIBIT E TO LEASE
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be installed or displayed on any part of the outside or inside of the Building without the prior written consent of Landlord. Landlord shall have the right to remove, at the violating tenants expense and without notice, any sign installed or displayed in violation of this rule. All approved signs or lettering on doors and walls shall be printed, painted, affixed or inscribed at the expense of the requesting tenant by a person or vendor approved by Landlord. In addition, Landlord reserves the right to change from time to tune the format of the signs or lettering and to require previously approved signs or lettering to be appropriately altered.
2. The coverings for all windows in each tenants premises shall be lowered and closed as reasonably required because of the position of the sun, during the operation of the Buildings air-conditioning system. All tenants whose premises are visible from one of the lobbies, or any other public portion of the Building, shall furnish and maintain their premises in a first-class manner, utilizing furnishings and other decorations commensurate in quality and style with the furnishings and decor in the public portions of the Building. If Landlord objects in writing to any curtains, blinds, shades or screens attached to or hung in or used in connection with any window or door of the premises, such tenant shall immediately discontinue such use. No awning shall be permitted on any part of the premises. A tenant shall not place anything or allow anything to be placed against or near any glass partitions or doors or windows which may appear unsightly, in the opinion of Landlord, from outside the premises.
3. A tenant shall not obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators or stairways of the Building.
4. The directory of the Building will be provided exclusively for the display or the name and location of tenants only and Landlord reserves the right to exclude any other names therefrom.
5. Unless otherwise approved by Landlord, all cleaning and janitorial services for the Building and all premises shall be provided exclusively through Landlord. A tenant shall not cause any unnecessary labor by carelessness or indifference to the good order and cleanliness of its premises. Landlord shall not in any way be responsible to any tenant for any loss to property on the premises, however occurring, or for any damage to any tenants property by the janitor or any other employee or any other person.
6. At initial occupancy, each tenant shall be furnished free of charge two keys or other access devices to each locking entry or exit door to or from its premises. A tenant shall not make or have made additional access devices and a tenant shall not alter any lock or install a new or additional locks or bolts on any door of its premises. After initial occupancy, if replacement access devices or a change of locks is necessary, tenant shall make such requests through the management office. A tenant shall be charged a reasonable fee for any change in locks or replacement access devices requested. A tenant, upon the termination of its tenancy, shall deliver to Landlord the
access devices of all doors which have been furnished to it, and shall pay Landlord for any unreturned access devices.
7. If a tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain and comply with Landlords then-existing installation instructions and in compliance with the Building construction rules, including replacing or installing fire stopping in any floor penetrations when the wiring/cabling is installed and when removed. Landlord, or its agents, will direct the electricians as to where and how the wires may be introduced, and without such direction, no boring or cutting for wires will be permitted. Any such installation and connection shall be made at the tenants expense. Each tenant shall be responsible for removing, at its expense prior to moving from the Building, all telephone, data,, cable television, or other cabling extending from its premises to the telephone closet located on that floor which was used. by tenant or installed by it or for its benefit.
8. No equipment, materials, furniture, packages, supplies, merchandise or other property will be received in the Building or carried in the elevators except between such hours and in such elevators as may be designated by Landlord. Parties employed to move furnishings, fixtures and equipment in and out of the Building shall be subject to Landlords approval and, if required by law, properly licensed. Any moving company shall provide a certificate of insurance naming Landlord and the Building manager as additional insureds prior to initiating its moving services in the Building. Landlord shall have the right to condition approval upon payment of an additional security deposit. A tenant must make arrangements in advance with Landlord for moving large quantities of furniture and equipment into or out of the Building.
9. A tenant shall not place a load upon any floor which exceeds the load per square foot which such floor was designed to carry and which is allowed by law. Landlord shall have the right to prescribe the weight, size and position to all equipment, materials, furniture or other property brought into the Building. Heavy objects shall stand on such platforms as reasonably determined by Landlord to be necessary to properly distribute such weight. A tenant shall, at its cost and expense, place and maintain any of its business machines and mechanical equipment which causes unreasonable or objectionable noise or vibration to the structure of the Building or to any space in the Building on vibration eliminators or other devices sufficient to eliminate the noise or vibration. The parties employed to remove such equipment in or about the Building must be acceptable to Landlord. Landlord will not be responsible for loss of or damage to any such equipment or other property from any cause, and all damage done to the Building by maintaining or moving such equipment or other property shall be repaired at the expense of the tenant.
10. A tenant shall not have the ability to adjust temperature control thermostats. A tenant shall not use any method of heating or air conditioning, other than that supplied. by Landlord. A tenant is encouraged to not waste electricity, water or air conditioning. A tenant shall keep corridor doors closed for security purposes.
11. Landlord reserves the right to exclude from the Building outside Ordinary Business Hours any person unless that person has an access device such as a key, entry card, combination code, pass or is properly identified. A tenant shall be responsible for all persons for whom it requests passes and shall be liable to Landlord for all acts of such persons. Any person whose presence in the Building at any time shall, in the judgment of Landlord, be prejudicial to the safety,
character, reputation, or interests of the Building or the Buildings tenants may be denied access or may be ejected therefrom, including any person who in the reasonable judgment of Landlord is intoxicated or under the influence of liquor or drugs or who acts in violation of these Rules and Regulations. During any public excitement or other commotion, Landlord may prevent all access to the Building during the continuance of the same, by closing the doors or otherwise, for the safety and protection of tenants, the Building, and property in the Building. Landlord may require any person leaving the Building with a package or other object to exhibit authorization from the tenant of the premises from which the package or object is removed, but enforcement of such requirement shall not impose any responsibility on Landlord to protect any tenant against removal of property from its premises. Landlord shall m no way be liable to any tenant for damages or loss arising from the admission, exclusion or ejection of any person to or from a tenants premises or the Building under the provisions of this rule.
12. Each tenant and its employees shall close and lock the doors of its premises and entirely shut off all water faucets or other water apparatus and gas outlets before leaving the premises. A tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building or by Landlord for noncompliance with this rule.
13. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, no foreign substance or any kind whatsoever shall be thrown into any of them, and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused it.
14. Except as otherwise provided in the Lease, a tenant shall not install an cellular, radio or television antenna, satellite dish, loudspeaker or other device on the roof or exterior walls of the Building. A tenant shall not interfere with cellular, radio or television broadcasting or reception from or in the Building or elsewhere.
15. Except as otherwise provided in the Lease and except for the installation of customary first-class office artwork and as otherwise approved by Landlord, a tenant shall not mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the premises. A tenant shall not cut or bore holes for wires. A tenant shall not affix any floor covering to the floor of the premises in any manner except as approved by Landlord. A tenant shall repair any damage resulting from non-compliance with this rule.
16. A tenant shall not install, maintain or operate in public sight upon its premises any vending machine, however, a tenant may place standard soft drink and vending machines in its break room(s) for the convenience and use of its employees and their guests.
17. A tenant shall store all its trash and garbage within its premises. A tenant shall not place in any trash box or receptacle any material which cannot be disposed of in the ordinary and customary manner of trash and garbage disposal. Some electronic equipment, such as computer monitors, contain hazardous materials and must be disposed of properly and arrangements for such disposal must be made through the Building manager. All garbage and refuse disposal shall be made in accordance with directions and via a route designated from time to time by Landlord. A tenant is encouraged to participate in the Buildings recycling program.
18. Smoking is prohibited at all times in all areas of the Building, including offices, restrooms, corridors, stairwells, lobbies and elevators, and may be prohibited (or restricted by Landlord to designated areas) in all outside Common Areas of the Building Complex. A tenant shall not cause or permit any noise (including playing of musical instruments, radio or television) or unreasonable or objectionable odors to emanate from its premises which would annoy other tenants or create a public or private nuisance. Unless otherwise specifically provided in the Lease, no cooking shall be done or permitted by any tenant in its premises, except by use of a microwave oven approved by Underwriters Laboratory. Brewing coffee, tea, hot chocolate, and similar beverages shall be permitted provided that such equipment and use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations. A tenant shall not conduct or permit any auction at its premises. Canvassing, soliciting and peddling in the Building are prohibited.
19. No animals, other than service animals, shall be allowed in the Building.
20. A tenant shall not use in any space or in the public halls of the Building any hand trucks except those equipped with the rubber tires and side guards or such other material-handling equipment as Landlord may approve. Bicycles shall be used or stored only in areas designated by Landlord. No other vehicles of any kind are permitted in the Building.
21. A tenant shall not use the name of the Building in connection with or in promoting or advertising its business except as its address.
22. The requirements of a tenant will be attended to only upon appropriate application to the office of the Building, by an authorized individual. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instruction from Landlord, and no employee of Landlord will admit any person (the tenant or otherwise) to any office without specific instructions from Landlord. All contractors hired by a tenant for any purpose permitted in its Lease shall comply with the provisions of the Lease, these Rules and Regulations, and such separate rules and regulations as Landlord may reasonably adopt for contractors.
23. Each tenant and its employees shall cooperate fully with the life safety plans of the Building established by Landlord, including participation in exit drills, fire inspections, life safety orientations and other programs relating to life safety that may be promulgated by Landlord.
24. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Building.
25. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of premises in the Building.
26. Landlord reserves the right to make such other reasonable rules and regulations as in its judgment may from time to time be needed for safety and security, for care and cleanliness
of the Building, and for the preservation of good order in and about the Building, including, without limitation, maintaining the Buildings status as an environmentally responsible, profitable and sustainable building system. Each tenant agrees to abide by all such rules and regulations in this Exhibit stated and any additional rules and regulations which are adopted.
27. Each tenant shall be responsible for the observance of all of the foregoing rules by its employees, agents, clients, customers, invitees and guests.
EXHIBIT F TO LEASE
FORM OF LETTER OF CREDIT
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MG-1005, LLC
4643 South Ulster Street, Suite 1500
Denver, Colorado 80237
RE: Letter of Credit No.
Gentlemen:
We hereby issue in your favor, at the request and for the account of PING IDENTITY CORPORATION, a Delaware corporation, our irrevocable Letter of Credit in the amount of $600,000.00 which is available against presentation of your sight draft. The draft must be accompanied by:
1. This Letter of Credit No. ; and
2. A notarized certification signed as Authorized Signatory on behalf of MG-1005, LLC, a Colorado limited liability company, or an officer (or partner, if such entity is a partnership or member if a limited liability company) of its transferee or assignee, stating essentially as follows:
The undersigned Beneficiary is the owner of the property described in the Lease Agreement dated , 201 by and between MG-1005, LLC, a Colorado limited company, as Landlord, and, as Tenant (the Lease). The amount requested by the draft accompanying this statement is the amount to which Beneficiary is entitled under the terms of the Lease as a result of an Event of Default under the Lease and Beneficiary requests payment of the enclosed draft under the enclosed Letter of Credit.
This Letter of Credit shall be subject to the Special Conditions set forth on Schedule 1, such exhibit being considered a part hereof and incorporated herein by reference.
We hereby agree that all drafts drawn under and in compliance with the terms of this credit shall meet with honor upon presentation and delivery of documents on or before 5:00 p.m., Mountain time, [DATE] (the Expiry Date), as specified to the drawee. This Letter of Credit may be presented one or more times; partial drawings are allowed. It is a condition of this Letter of Credit that the Expiry Date shall be automatically extended for periods of at least one year from the initial Expiry Date and each future Expiry Date unless, at least 60 days prior to the relevant expiration date, we notify you, by certified mail, return receipt requested, that we elect not to extend this Letter of Credit for any additional period.
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EXHIBIT 1
To Letter of Credit No.
The Letter of Credit shall be governed by the following Special Conditions:
1. This Letter of Credit is subject to the International Standby Practices 1998, International Chamber of Commerce Publication No. 590.
2. Issuer agrees that it may not defer honor beyond the close of the first banking day after presentment of a sight draft drawn hereunder and accompanying documents.
3. This Letter of Credit shall be transferable and assignable, without charge, to any person or entity who is the successor or assignee of Beneficiarys interest under the Lease entered into on or about , 201 between MG-1005, LLC, a Colorado limited liability company, and PING IDENTITY CORPORATION, a Delaware corporation. Such transfer shall be accomplished by providing [BANK] with the appropriate transfer form and the original letter of credit for endorsement; provided, however, that such transfer shall not be subject to the approval of [BANK] .
EXHIBIT G TO LEASE
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (Agreement) is entered into as of , 201 (the Effective Date) by and between HSH NORDBANK AG, HAMBURG, a German banking corporation, in its capacity as agent for certain lenders (together with its successors and assigns in such capacity, the Mortgagee), and PING IDENTITY CORPORATION, a Delaware corporation (hereinafter, collectively the Tenant), with reference to the following facts:
A. MG-1005, LLC, a Colorado limited liability company, whose address is MG-1005, LLC, Miller Global Properties, LLC, 4643 S. Ulster Street, Suite 1500, Denver, CO 80237, Attn: Paul Hogan (the Landlord) owns fee simple title or a leasehold interest in the real property described in Exhibit A attached hereto (the Property).
B. Mortgagee has made or intends to make a loan to Landlord (the Loan).
C. To secure the Loan, Landlord has encumbered the Property by entering into a Deed of Trust, Security Agreement, Financing Statement Fixture Filing and Assignment of Rents dated December 4, 2006 for the benefit of Mortgagee recorded in the Official Records in and for Denver County, Colorado, on December 4, 2006 as Reception No. 2006192947.
D. Pursuant to the Lease Agreement effective , 201 (the Lease), Landlord demised to Tenant a portion of the Property (the Leased Premises).
E. Tenant and Mortgagee desire to agree upon the relative priorities of their interests in the Property and their rights and obligations if certain events occur.
NOW, THEREFORE, for good and sufficient consideration, Tenant and Mortgagee agree:
1. Definitions. The following terms shall have the following meanings for purposes of this Agreement.
a. Foreclosure Event. A Foreclosure Event means: (i) foreclosure or exercise of power of sale under the Mortgage; (ii) any other exercise by Mortgagee of rights and remedies (whether under the Mortgage or under applicable law, including bankruptcy law) as holder of the Loan and/or the Mortgage, as a result of which a Mortgagee becomes owner of the Property; or (iii) delivery by Landlord to Mortgagee (or its designee or nominee) of a deed or other conveyance of Landlords interest in the Property in lieu of any of the foregoing.
b. Former Landlord. A Former Landlord means Landlord and any other party that was landlord under the Lease at any time before the occurrence of any attornment under this Agreement.
c. Offset Right. An Offset Right means any right or alleged right of Tenant to any offset, defense (other than one arising from actual payment and performance, which payment and performance would bind a Successor Landlord pursuant to this Agreement), claim, counterclaim,
reduction, deduction, or abatement against Tenants payment of Rent or performance of Tenants other obligations under the Lease, arising (whether under the Lease or under applicable law) from Landlords breach or default under the Lease.
d. Rent. The Rent means any fixed rent, base rent or additional rent under the Lease.
e. Successor Landlord. A Successor Landlord means any party that becomes owner of the Property as the result of a Foreclosure Event.
f. Termination Right. A Termination Right means any right of Tenant to cancel or terminate the Lease or to claim a partial or total eviction arising (whether under the Lease or under applicable law) from Landlords breach or default under the Lease.
g. Other Capitalized Terms. If any capitalized term is used in this Agreement and no separate definition is contained in this Agreement, then such term shall have the same respective definition as set forth in the Lease.
2. Subordination. The Lease, as the same may hereafter be modified, amended or extended, shall be, and shall at all times remain, subject and subordinate to the terms conditions and provisions of the Mortgage, the lien imposed by the Mortgage, and all advances made under the Mortgage. Notwithstanding the foregoing, Mortgagee may elect, in its sole and absolute discretion, to subordinate the lien of the Mortgage to the Lease.
3. Nondisturbance, Recognition and Attornment.
a. No Exercise of Mortgage Remedies Against Tenant. So long as the Tenant is not in default under this Agreement or under the Lease beyond any applicable grace or cure periods (an Event of Default), Mortgagee (i) shall not terminate or disturb Tenants possession of the Leased Premises under the Lease, except in accordance with the terms of the Lease and this Agreement and (ii) shall not name or join Tenant as a defendant in any exercise of Mortgagees rights and remedies arising upon a default under the Mortgage unless applicable law requires Tenant to be made a party thereto as a condition to proceeding against Landlord or prosecuting such rights and remedies. In the latter case, Mortgagee may join Tenant as a defendant in such action only for such purpose and not to terminate the Lease or otherwise adversely affect Tenants rights under the Lease or this Agreement in such action.
b. Recognition and Attornment. Upon Successor Landlord taking title to the Property (i) Successor Landlord shall be bound to Tenant under all the terms and conditions of the Lease (except as provided in this Agreement); (ii) Tenant shall recognize and atom to Successor Landlord as Tenants direct landlord under the Lease as affected by this Agreement; and (iii) the Lease shall continue in full force and effect as a direct lease, in accordance with its terms (except as provided in this Agreement), between Successor Landlord and Tenant. Tenant hereby acknowledges notice that pursuant to the Mortgage and assignment of rents, leases and profits, Landlord has granted to the Mortgagee an absolute, present assignment of the Lease and Rents which provides that Tenant continue making payments of Rents and other amounts owed by Tenant under the Lease to the Landlord and to recognize the rights of Landlord under the Lease until notified otherwise in writing by the Mortgagee. After receipt of such notice from Mortgagee, the Tenant shall thereafter make all such payments directly to the Mortgagee or as the Mortgagee may otherwise direct, without
any further inquiry on the part of the Tenant. Landlord consents to the foregoing and waives any right, claim or demand which Landlord may have against Tenant by reason of such payments to Mortgagee or as Mortgagee directs.
c. Further Documentation. The provisions of this Article 3 shall be effective and self-operative without any need for Successor Landlord or Tenant to execute any further documents. Tenant and Successor Landlord shall, however, confirm the provisions of this Article 3 in writing upon request by either of them within ten (10) days of such request.
4. Protection of Successor Landlord. Notwithstanding anything to the contrary in the Lease or the Mortgage, Successor Landlord shall not be liable for or bound by any of the following matters:
a. Claims Against Former Landlord. Any Offset Right that Tenant may have against any Former Landlord relating to any event or occurrence before the date of attornment, including any claim for damages of any kind whatsoever as the result of any breach by Former Landlord that occurred before the date of attornment; provided, however, Successor Landlord shall be bound by Former Landlords obligation to provide the Finish Allowance (as defined in the Lease) to Tenant in accordance with the terms of the Lease. The foregoing shall not limit either (i) Tenants right to exercise against Successor Landlord any Offset Right otherwise available to Tenant because of events occurring after the date of attornment or (ii) Successor Landlords obligation to correct any conditions that existed as of the date of attornment and violate Successor Landlords obligations as landlord under the Lease.
b. Prepayments. Any payment of Rent that Tenant may have made to Former Landlord more than thirty (30) days before the date such Rent was first due and payable under the Lease with respect to any period after the date of attornment other than, and only to the extent that, the Lease expressly required such a prepayment.
c. Payment; Security Deposit; Work. Any obligation: (i) to pay Tenant any sum(s) that any Former Landlord owed to Tenant unless such sums, if any, shall have been actually delivered to Mortgagee by way of an assumption of escrow accounts or otherwise; (ii) with respect to any security deposited with Former Landlord, unless such security was actually delivered to Mortgagee; (iii) to reconstruct or repair improvements following a fire, casualty or condemnation; or (iv) arising from representations and warranties related to Former Landlord.
d. Modification, Amendment or Waiver. Any modification or amendment of the Lease, or any waiver of the terms of the Lease, made without Mortgagees written consent.
e. Surrender, Etc. Any consensual or negotiated surrender, cancellation, or termination of the Lease, in whole or in part, agreed upon between Landlord and Tenant, unless effected unilaterally by Tenant pursuant to the express terms of the Lease.
f. Exceptions. Notwithstanding anything to the contrary in the Lease or the Mortgage, Successor Landlord shall be liable for and bound by Landlords obligation to pay and otherwise comply with the terms and conditions of the Lease regarding the Finish Allowance.
5. Exculpation of Successor Landlord. Notwithstanding anything to the contrary in this Agreement or the Lease, Successor Landlords obligations and liability under the Lease shall never extend beyond Successor Landlords (or its successors or assigns) interest, if any, in the Leased Premises from time to time, including insurance and condemnation proceeds, security deposits, escrows, Successor Landlords interest in the Lease, and the proceeds from any sale, lease or other disposition of the Property (or any portion thereof) by Successor Landlord (collectively, the Successor Landlords Interest). Tenant shall look exclusively to Successor Landlords Interest (or that of its successors and assigns) for payment or discharge of any obligations of Successor Landlord under the Lease as affected by this Agreement. If Tenant obtains any money judgment against Successor Landlord with respect to the Lease or the relationship between Successor Landlord and Tenant, then Tenant shall look solely to Successor Landlords Interest (or that of its successors and assigns) to collect such judgment Tenant shall not collect or attempt to collect any such judgment out of any other assets of Successor Landlord.
6. Mortgagees Right to Cure. Notwithstanding anything to the contrary in the Lease or this Agreement, before exercising any Offset Right or Termination Right:
a. Notice to Mortgagee. Tenant shall provide Mortgagee with notice of the breach or default by Landlord giving rise to same (the Default Notice) and, thereafter, the opportunity to cure such breach or default as provided for below.
b. Mortgagees Cure Period. After Mortgagee receives a Default Notice, Mortgagee shall have a period of thirty (30) days beyond the time available to Landlord under the Lease in which to cure the breach or default by Landlord. Mortgagee shall have no obligation to cure (and shall have no liability or obligation for not curing) any breach or default by Landlord, except to the extent that Mortgagee agrees or undertakes otherwise in writing. In addition, as to any breach or default by Landlord the cure of which requires possession and control of the Property, provided that Mortgagee undertakes by written notice to Tenant to exercise reasonable efforts to cure or cause to be cured by a receiver such breach or default within the period permitted by this paragraph, Mortgagees cure period shall continue for such additional time as Mortgagee may reasonably require to either: (i) obtain possession and control of the Property with due diligence and thereafter cure the breach or default with reasonable diligence and continuity; or (ii) obtain the appointment of a receiver and give such receiver a reasonable period of time in which to cure the default.
7. Miscellaneous.
a. Notices. Any notice or request given or demand made under this Agreement by one party to the other shall be in writing, and may be given or be served by hand delivered personal service, or by depositing the same with a reliable overnight courier service or by deposit in the United States mail, postpaid, registered or certified mail, and addressed to the party to be notified, with return receipt requested or by telefax transmission, with the original machine-generated transmit confirmation report as evidence of transmission. Notice deposited in the mail in the manner hereinabove described shall be effective from and after the expiration of three (3) days after it is so deposited; however, delivery by overnight courier service shall be deemed effective on the next succeeding business day after it is so deposited and notice by personal service or telefax transmission shall be deemed effective when delivered to its addressee or within two (2) hours after its transmission unless given after 3:00 p.m. on a business day, in which case it shall be
deemed effective at 9:00 a.m. on the next business day. For purposes of notice, the addresses and telefax number of the parties shall, until changed as herein provided, be as follows:
i. If to the Mortgagee, at:
HSH Nordbank AG
Gerhart-Hauptmann-Platz 50,
20095 Hamburg, Germany
Attention: Tanja Brickwedde & Elke Hamann
Telecopy No.: 49-40-3333-613721 & 49-40-3333-613322
with copies similarly delivered to:
Kaye Scholer LLP
425 Park Avenue
New York, New York 10022
Attention: Warren T. Bernstein, Esq.
Telecopy No.: (212) 836-8689
ii. If to Tenant, at:
Ping Identity Corporation
1001 17th Street, Suite 100
Denver, CO 80202
Attn: Finance/Contracts
Telecopy No.: (303) 468-2909
with required copies to:
Jones Lang LaSalle Brokerage, Inc.
1225 17th Street Suite 1900
Denver Colorado 80202
Attn: Lindsay Brown
Telecopy No.: (303) 572-0914
b. Successors and Assigns. This Agreement shall bind and benefit the parties, their successors and assigns, any Successor Landlord, and its successors and assigns. If Mortgagee assigns the Mortgage, then upon delivery to Tenant of written notice thereof accompanied by the assignees written assumption of all obligations under this Agreement, all liability of the assignor shall terminate.
c. Entire Agreement. This Agreement constitutes the entire agreement between Mortgagee and Tenant regarding the subordination of the Lease to the Mortgage and the rights and obligations of Tenant and Mortgagee as to the subject matter of this Agreement.
d. Interaction with Lease and with Mortgage. If this Agreement conflicts with the Lease, then this Agreement shall govern as between the parties and any Successor Landlord, including upon any attornment pursuant to this Agreement This Agreement supersedes, and
constitutes full compliance with, any provisions in the Lease that provide for subordination of the Lease to, or for delivery of nondisturbance agreements by the holder of the Mortgage.
e. Mortgagees Rights and Obligations. Except as expressly provided for in this Agreement, Mortgagee shall have no obligations to Tenant with respect to the Lease. If an attornment occurs pursuant to this Agreement, then all rights and obligations of Mortgagee under this Agreement shall terminate, without thereby affecting in any way the rights and obligations of Successor Landlord provided for in this Agreement.
f. Interpretation; Governing Law. The interpretation, validity and enforcement of this Agreement shall be governed by and construed under the internal laws of the State in which the Leased Premises are located, excluding such States principles of conflict of laws.
g. Amendments. This Agreement may be amended, discharged or terminated, or any of its provisions waived, only by a written instrument executed by the party to be charged.
h. Due Authorization. Tenant represents to Mortgagee that it has full authority to enter into this Agreement, which has been duly authorized by all necessary actions. Mortgagee represents to Tenant that it has full authority to enter into this Agreement, which has been duly authorized by all necessary actions.
i. Execution. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Mortgagee and Tenant have caused this Agreement to be executed as of the date first above written.
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LANDLORDS CONSENT
Landlord consents and agrees to the foregoing Agreement, which was entered into at Landlords request. The foregoing Agreement shall not alter, waive or diminish any of Landlords obligations under the Mortgage or the Lease. The above Agreement discharges any obligations of Mortgagee under the Mortgage and related loan documents to enter into a nondisturbance agreement with Tenant. Landlord is not a party to the above Agreement.
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Dated: , 201
MORTGAGEES ACKNOWLEDGMENT
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On the day of in the year 201 before me, the undersigned, a Notary Public in and for said state, personally appeared , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
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TENANTS ACKNOWLEDGMENT
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On the day of in the year 201 before me, the undersigned, a Notary Public in and for said state, personally appeared , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
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LIST OF EXHIBITS
If any exhibit is not attached hereto at the time of execution of this Agreement, it may thereafter be attached by written agreement of the parties, evidenced by initialing said exhibit.
Exhibit A - Legal Description of the Land
Exhibit A - Legal Description of the Land
Lots 1 through 32, inclusive, Block 96,
together with all of the platted, now vacated, alley in said Block,
East Denver, according to the recorded plat thereof
City and County of Denver, State of Colorado.
WORK LETTER
[Tenant Constructs]
January 21, 2011
PING IDENTITY CORPORATION
Re: Tenant: PING IDENTITY CORPORATION, a Delaware corporation
Premises: Approximately 20,225 rentable square feet of space on the first floor (the Premises)
Gentlemen:
Concurrently herewith, you (Tenant) and the undersigned (Landlord) have executed a Lease Agreement (the Lease) covering the Premises (the provisions of the Lease are hereby incorporated by reference as if fully set forth herein and initially capitalized words not defined have the same meaning set forth in the Lease). In consideration of the execution of the Lease, Landlord and Tenant mutually agree as follows:
1. Space Planning and Engineering
1.1 Landlord has provided to Tenant the architectural and engineering drawings for the base building improvements for the Building completed or to be completed by Landlord and architectural and engineering drawings for the tenant improvements existing (if any) in the Premises (Landlords Drawings).
1.2 Tenant retained DLR Group (Tenants Architect) as Tenants architect. Tenant shall retain design engineers for electrical, plumbing and life safety as Tenants engineer (Tenants Engineer) to perform electrical, plumbing, and life safety engineering, which Tenants Engineers shall be subject to Landlords prior written approval (not to be unreasonably withheld). In addition, Tenant shall retain Landlords designated structural engineers to provide engineering design review pertaining to structural design issues and Tenant shall retain Landlords designated mechanical engineer to perform all design review and construction coordination related to all mechanical elements of the Premises. Tenant shall provide to Landlord the Tenant-approved space plans for the Premises (collectively referred to herein as Space Plans) prepared by Tenants Architect within 20 days of the date of the parties mutual execution of the Lease. The Space Plans shall contain information specified in Exhibit B and shall be sufficiently complete to permit Landlord to review such drawings for the purpose of determining conformity with the base building specifications for the Building and for the purposes described in Section 1.3 below.
1.3 Within 10 business days of receipt by Landlord of the Space Plans, Landlord and its engineers (Landlords Engineers) will review the Space Plans and Tenant is responsible for the costs of Landlords Engineers to review the Space Plans up to $1,000.00; provided, however, Tenant shall not be obligated to pay such review costs if Tenant retains Landlords Engineers as Tenants Engineers. Tenants Architect will advise Landlord and Landlords Engineers whether
the Building HVAC System and/or the electrical service will have to be supplemented to allow installation of work shown on the Space Plans. Landlord shall approve the Space Plan unless the same (i) are inconsistent with the base building specifications for the Building, including the HVAC system and electrical system; (ii) do not contain all of the information specified in Exhibit B or are not sufficiently complete to permit Landlord to review them for the purposes set forth herein; or (iii) indicate space usages inconsistent with the Lease, Landlord will advise Tenant and Tenant will revise the Space Plans accordingly, resubmit them to Landlord, and the review procedure and time frames set forth above will be repeated. Failure by Landlord to advise Tenant of such determination within such 10-day period shall be deemed to be a Landlord Delay but such failure shall not be deemed to be approval by Landlord. When approved by Landlord and Tenant, the Space Plans will be signed or initialed by Landlord and Tenant; such approved drawings will be deemed the Approved Space Plans. Landlords approval of the Space Plans creates no responsibility or liability on the part of Landlord for completeness, design sufficiency, or compliance with all Applicable Laws.
1.4 Within 30 days of the Approved Space Plans, Tenant shall provide Landlord with architectural working drawings prepared by Tenants Architect (the Architectural Working Drawings) and structural, plumbing, fire protection, mechanical, controls, electrical and life safety engineering drawings (collectively, the Engineering Working Drawings) prepared by Tenants Engineer, all of which shall be prepared substantially in the form provided in Exhibit B. The Architectural Working Drawings shall be coordinated by Tenants Architect with Landlords Drawings and the Approved Space Plans. The Architectural Working Drawings and the Engineering Working Drawings shall be approved by Tenant and shall be logical extensions of the Approved Space Plans for the Premises. Tenant and Tenants Architect shall be responsible for the consistency between the Architectural Working Drawings and the Engineering Working Drawings, conflicts with base building specifications and field conditions (unless such field conditions materially vary from Landlords Drawings, as modified) and for the Architectural Working Drawings and the Engineering Working Drawings complying with building code provisions. Landlord shall notify Tenants Architect of changes in Landlords Drawings affecting the Finish Work within 5 business days of an actual change in such drawings (not just a proposed change), so as to minimize interference with or delay to completion of Tenants Working Drawings. Landlord shall identify items that Landlord will require Tenant to remove upon the expiration or earlier termination of the Lease in accordance with the Lease. If the review by Landlord or Landlords Engineers, if applicable, uncovers design errors or determines that the Finish Work or any improvements in the Premises visible from the exterior of the Premises do not meet Landlords reasonable design requirements, Landlord shall give notice thereof, including any review comments, within 10 business days after Landlords receipt of Tenants Architectural Working Drawings and the Engineering Working Drawings. If Landlord does not reply within such period, it shall be presumed that Landlord has no objection thereto, however, such approval shall not limit Landlords right to request changes in the future in the event design errors are discovered (which request shall be made as soon as practicable following such discovery) and Tenant shall not be obligated to make changes as to which notice is given beyond such 10 business day period unless the safety of the Finish Work is affected or that are required by Applicable Laws. If Landlord notifies Tenant of design errors pursuant to this Section (within the time period, as applicable), Tenant shall revise the Architectural Working Drawings and the Engineering Working Drawings accordingly, and resubmit them to Landlord only for review of those design issues noted by Landlord after Landlords initial review of the Working Drawings. Landlord shall provide
written approval or comments within 3 business days of Tenants resubmission and the review procedure set forth above shall be repeated. Delay caused by such revisions shall be deemed Tenant Delay. Tenant shall simultaneously submit its Working Drawings to Landlord for review, to Tenants contractor for final pricing, and for building permit review. Revisions required by Landlord as a result of its approval shall be incorporated by Tenant into pricing and permitting submittals and any delays shall be deemed Tenant Delay. When approved (or deemed approved) by Landlord and Tenant, such Working Drawings shall be deemed the Final Drawings.
1.5 Changes to the Final Drawings may be made only upon prior written approval of Landlord, which approval will not be unreasonably withheld. Landlord will respond to all written requests for changes within 5 business days of Landlords receipt. If Landlord does not respond within such period, Landlord will be deemed to have consented to the requested changes. Landlords review of the Space Plans or Tenants Working Drawings do not imply approval by Landlord as to the Final Drawings compliance with Applicable Laws.
2. Finish Work and Finish Allowance
2.1 Following Landlords approval of the Final Drawings, Tenant is responsible for the diligent completion of all finish work substantially in accordance with the Final Drawings (the Finish Work) and for all other work necessary for Tenant to commence operation of its business in the Premises, including installation of Tenants security system, phone and data systems, and other equipment. At the time of submittal of Working Drawings to Landlord, Tenant shall submit to Landlord, for approval, a list of all contractors from whom Tenant intends to request bids, as well as the proposed Contractor Bid Package (including the form of Contract) if available at such time; otherwise such Contract shall be submitted for review as soon as it is available) and within 3 business days of receipt Landlord will provide a determination as to such contractors (it being understood that a failure by Landlord to advise Tenant of such determination shall neither be deemed to be a Landlord Delay nor shall such failure be deemed to be approval by Landlord). Tenant shall submit bid responses and its recommendation to Landlord for approval prior to awarding the work. Tenants subcontractors with respect to all mechanical, electrical, fire protection and controls work in the Premises will be the subcontractors used by Landlord for such work in the Building or other subcontractors approved by Landlord.
2.2 Tenant agrees to execute a contract for construction services to complete the Finish Work (the Contract) with contractors and subcontractors reasonably satisfactory to Landlord (collectively, Tenants Contractors). Tenant and Tenants Contractors will be required to adhere to the requirements set forth on Exhibit C, the rules and regulations set forth on Exhibit D, and such other requirements as Landlord reasonably imposes (collectively, Requirements). The Contract will incorporate the provisions of the Requirements. Landlord will review the Contract for compliance with the Requirements within 3 business days thereafter; if Landlord does not respond within such period, Landlord shall be deemed to have approved such contract. Following approval, Tenant will promptly commence and proceed diligently to complete the Finish Work.
2.3 Landlord has no obligation to Tenants Contractors except for the provision of those services which Landlord provides to other tenant finish contractors in the Building without preference or privileges, and Landlord agrees to provide such services. Tenants Contractors will be obligated to cooperate with contractors employed by Landlord (Landlords Contractors) who
are completing work in the Building, including Landlords completion of any work in the Common Area corridors or construction for any other tenants of the Building, and such Contractors will each conduct its respective work in an orderly fashion and manner so as not to unreasonably interfere with the other.
2.4 Tenant assumes full responsibility for Tenants Contractors performance of all Finish Work including compliance with Applicable Laws, and for all Tenants Contractors property, equipment, materials, tools or machinery placed or stored in the Premises during the completion thereof. All such work is to be performed in a good and workmanlike manner consistent with first class standards.
2.5 Tenant will cause Tenants Contractors to: (i) conduct work so as not to unreasonably interfere with any other construction occurring in the Building or any other tenants of the Building, including Landlords completion of the any work in the Common Area corridors or construction for any other tenants of the Building; (ii) comply with the Requirements and all other rules and regulations relating to construction activities in the Building promulgated from time to time by Landlord for the Building; (iii) reach agreement with Landlords Contractors as to the terms and conditions for hoisting, systems interfacing, and use of temporary utilities; and (iv) deliver to Landlord such evidence of compliance with the provisions of this paragraph as Landlord may reasonably request.
2.6 Landlord shall pay the cost of the Finish Work completed in accordance with the Final Drawings up to a total maximum amount equal to $45.00 per rentable square foot of the Premises (the Finish Allowance), which Finish Allowance shall be used to pay for expenditures related to the Finish Work including but not limited to costs of all labor, materials, permits, fees, contractors and subcontractors charges and Tenants construction management fees, and payment of Landlords construction oversight fees in an amount of up to 1% of the so-called hard construction costs of the Finish Work. in addition, Landlord shall pay the costs of preparation of the Space Plans and Final. Drawings, (including, but not limited to, Landlords, Landlords Architects and Landlords Engineers costs of review) up to an amount equal to equal to $0.15 per rentable square foot of the Premises (the Plan Allowance). Costs of preparation and review of the Space Plans and Final Drawings in excess of the Plan Allowance and all costs of the Finish Work in excess of the Finish Allowance shall be at Tenants expense. Costs arising from Tenant Delay shall be at Tenants additional cost and expense and may not be deducted from the Finish Allowance. Tenant is responsible for and shall pay all costs and expenses payable under this Work Letter that are not allowable as expenditures from the Finish Allowance or the Plan Allowance as such amounts become due and payable. Should the cost of the Finish Work exceed the Finish Allowance (Excess Costs), such Excess Costs shall be at Tenants sole cost and expense. Tenant shall pay Excess Costs in full directly upon invoice as the Finish Work progresses. Tenant shall have a right to use a portion of the Finish Allowance (up to an. amount equal to $5.00 per square foot of the Premises) to offset the cost of moving, the purchase of furniture, fixtures and equipment, and the costs of installation of voice and data cabling (collectively, Moving and FF&E Items). Unless otherwise agreed by Landlord and Tenant in writing and subject to delays beyond Tenants reasonable control, if any portion of the Finish Allowance or Plan Allowance has not been requested by Tenant on or before December 31, 2011 (as extended by Net Landlord Delay) such amount will be forfeited by Tenant to Landlord.
2.7 Except for Moving and FF&E Items, the Finish Allowance is to be expended solely for the benefit of Landlord; that is the Finish Allowance will be expended only to pay for design, engineering, installation, and construction of the Finish Work (including installation of any cabling) which under the Lease becomes the property of Landlord upon installation and not for movable furniture, equipment, and trade fixtures not physically attached to the Premises. Landlord may deduct from the Finish Allowance any amounts due Landlord in accordance with Section 2.6. As design, engineering, and construction work is completed and Tenant receives invoices therefor, Tenant will submit requests for payment to Landlord not more frequently than monthly, along with appropriate lien waivers (substantially in the forms attached hereto as Exhibit E) and such other documentation as Landlord reasonably requires. On a monthly basis following receipt of such documentation (with such payment being made within 30 days if all required documentation is received by Landlord by the 5th of such month), Landlord will pay the amounts requested by delivery to Tenant of Landlords check(s) payable to Tenant or, at Landlords option, payable to Tenant and Tenants Contractors jointly. If the Finish Work is completed in phases, the Finish Allowance shall be disbursed on a per-square-foot basis, based on the square footage completed in the respective phase (ready for occupancy and use by Tenant).
2.8 During completion of the Finish Work and until the Commencement Date, Tenants Contractors shall balance the Building HVAC system serving the Premises, the cost and expense of which shall be part of the Finish Allowance; immediately after the Commencement Date, Landlord will reasonably cooperate with Tenant in the balancing of the Building HVAC system serving the Premises at Tenants sole cost and expense. Tenant will pay all such expenses within 30 days after billing from Landlord.
2.9 Tenant will indemnify, defend and hold harmless Landlord, Landlords Mortgagee, Building Manager, and Landlords Contractors from and against liability, costs or expenses, including attorneys fees on account of damage to the person or property of any third party arising out of, or resulting from the performance of the Finish Work, including, but not limited to, mechanics or other liens or claims (and all costs associated therewith). Tenant will also repair or cause to be repaired at its expense all damage caused to the Premises or the Building by Tenants Contractors or its subcontractors. Further, Landlord will have the right as described in Section 12.1 of the Lease to post and maintain notices of non-liability.
2.10 Tenant agrees to submit to Landlord upon completion of all work a final set of as-built Final Drawings (inclusive of three prints and three CAD disks) incorporating changes upon completion of the Finish Work.
2.11 Notwithstanding any provision herein or in the Lease to the contrary, the Commencement Date and Tenants Rent obligations and other obligations will not be delayed or extended by any delay in completion of the Finish Work unless such delay is caused by Net Landlord Delay. The term Landlord Delay means (i) any delay in the preparation, finalization or approval of the Approved Space Plans or Final Drawings or completion of the Finish Work caused by Landlords failure to perform its obligations under this Work Letter within the time limits set forth herein, (ii) each day that Landlord fails or refuses, after the Delivery Date, to permit Tenant, its agents and contractors access to and use of the Building or any Building facilities or services (including loading dock, hoists or freight elevators) required for the orderly and efficient performance of the work necessary to complete the Finish Work and move into the Premises in
accordance with Tenants critical path schedule therefor; (iii) each day that Landlord or Tenant encounters the presence of asbestos in the Building which affects Tenants ability to proceed with the construction of the Finish Work; or (iv) each day that Landlord fails or refuses to (A) meet any deadline in connection with the exercise of approval rights in connection with the construction of the Finish Work; (B) timely fund the Finish Allowance; or (C) provide any Services required to be provided under the Lease or this Work Letter. All delays other than Landlord Delay are deemed Tenant Delay. Net Landlord Delay means the number of days, if any, by which Landlord Delay exceeds Tenant Delay and the Commencement Date will be delayed by a number of days equal to the number of days of Net Landlord Delay, if any.
2.12 Tenant designates and authorizes Cathy Harris of Jones Lang LaSalle to act for Tenant in this Work Letter. Tenant has the right by written notice to Landlord to change its designated representative.
2.13 Landlord designates and authorizes Wendy Williams to act for Landlord in connection with this Work Letter (Landlords Representative). Landlord has the right by written notice to Tenant to change the Landlords Representative.
2.14 All notices required hereunder will be in writing in accordance with provision for notices in the Lease.
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Very truly yours, | |
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MG-1005, LLC, a Colorado limited liability company | |
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By: |
[unintelligible signature] |
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Authorized Signature | |
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Landlord |
ACCEPTED AND AGREED this 25th day of January, 2011. |
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PING IDENTITY CORPORATION, a Delaware corporation |
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/s/ Jeremy Rudel |
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Print Name: |
Jeremy Rudel |
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VP - Finance |
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ATTEST: |
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By.: |
/s/ Lauren Romer |
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Print Name: |
Lauren Romer |
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Print Title: |
Director of Legal Affairs |
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Tenant |
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LIST OF EXHIBITS
Exhibit A Space Plans and Architectural and Engineering Drawings Requirements
Exhibit B Landlords Requirements of Tenant the Contractors
Exhibit C Rules and Regulations
Exhibit D Form of Lien Waivers
EXHIBIT A TO WORK LETTER
SPACE PLANS AND ARCHITECTURAL AND ENGINEERING DRAWINGS REQUIREMENTS
I. Space Plans
Tenants Space Plans will comply with the following requirements, which are intended to assist Tenant and Tenants Architect in defining all information required for Landlords review of the space usages and evaluation of the improvements contemplated thereby.
1. All Space Plans will be drawn to 1/8 scale and may be produced on CAD equipment.
2. Tenant will submit three prints of all Space Plans with notes describing the general intent of the usage and the improvement requirements.
3. The Space Plans and notes thereon will depict the quality of the work that will not be less than the quality of the existing Building improvements.
4. The Space Plans and notes shall contain all information necessary to commence engineering and will include: (a) partition layout and door locations; (b) depiction of electrical and communication equipment requirements other than for normal office equipment, including modifications required to floor or main telephone or electric closets; (c) reflected ceiling plan showing all lighting and any non-standard lighting and ceiling construction or constraints which will affect mechanical, electrical, fire protection or life safety systems; (d) Tenants special mechanical and plumbing requirements; (e) Tenants special floor loading requirements; (f) Tenants requirements for floor penetrations with special dimensions, including but not limited to floor outlets, plumbing penetrations, special stairs, dumbwaiters, conveyors, pneumatic systems, elevators or architectural features; (g) areas of raised floor, (h) areas of special security (i) areas of special occupancy load beyond normal office (along with exiting calculations; and (j) approximate information regarding anticipated structural and mechanical, electrical, fire protection, controls and life safety system design requirements.
5. The Space Plans shall be expanded to include all areas outside the Premises that might be impacted, including, but not limited to any rooftop or ground-based dishes/antennas, supplemental HVAC, emergency generators, and/or UPS units. The Space Plans should define the proposed locations of any such areas outside the Premises.
II. Architectural and Engineering Working Drawings
1. Tenants submission of Architectural Working Drawings and Engineering Working Drawings (collectively the Working Drawings) shall include three prints of Architectural Drawings and specifications to Landlord and comply with the following requirements, which are intended to permit Landlord to review space usages and the quality and extent of the proposed construction and its effect upon the Building improvements.
2. The Working Drawings will depict the quality of Finish Work to be performed, including areas outside the Premises, and must provide for a quality level equal to or exceeding (as reasonably determined by Landlord) the requirements of the Building improvements (including Building standards, if they exist), consistent with similar Class A office space located in the area of the Building.
3. The Architectural Working Drawings and Engineering Working Drawings collectively will include (without limitation) but not be limited to: (a) partition layout and door locations; (b) electrical outlets, including the locations and panel schedules; (c) telephone outlets, including designation of type of switch or equipment and notes regarding conduit sizing to each outlet, power and mechanical requirements for system and any requirements affecting base building construction, including modifications required to floor or main telephone rooms; (d) reflected ceiling plan showing standard and non-standard lighting, switching requirements and ceiling construction or constraints which will affect mechanical, electrical, fire protection or life safety systems, and will include all necessary specifications and details of items or construction; (e) Tenants occupancy capacity, usage equipment loads for all spaces, particularly special usage rooms, including, but not limited to, conference rooms, lounges, coffee rooms, copy rooms, computer terminal or keypunch rooms, audio-visual rooms and reproduction or print rooms which require special heating, ventilating, air conditioning or fire protection (all specifications on usage or equipment therein, including a summary of BTU per hour output of all equipment and parameters as to extent of any special work required); (f) Tenants floor loading for above standard floor loading areas (all specifications, weight, vibration and vibration isolation for each item sufficiently complete for structural engineering design), particularly special usage rooms, such as file rooms, storage rooms, computer rooms and reproduction or print rooms; (g) floor and ceiling penetrations, including, but not limited to, special stairs, dumbwaiters, conveyors, skylights (if approved), pneumatic systems, elevators or architectural features; and (h) all structural, mechanical, electrical, fire protection, controls and life safety systems requirements.
4. The Working Drawings will include the following as well: (1) all millwork and equipment which will be part of the Finish Work and become part of the Premises; (2) complete finish designations for all floors, walls, ceilings, including millwork, door frames, etc.; (3) keying schedules; (4) special blocking requirements as may be required to support wall or ceiling hung furniture or equipment; and (5) all other information necessary to complete construction of the Premises, including the architects and engineers stamps if required by any applicable State or local law or otherwise required to permit construction under such law or applicable regulations.
5. Tenant shall deliver to Landlord a final set of as-built Final Drawings (inclusive of three prints and three CAD disks) incorporating changes upon completion of the Finish Work.
EXHIBIT B TO WORK LETTER
LANDLORD REQUIREMENTS OF THE CONTRACTS
The Contract will be subject to review and approval of Landlord and will fully incorporate the following provisions. In the event of any conflict between any provisions of the Contract and the provisions below, the provisions below will control.
1. The Contract will be in writing and will cover all aspects of the Finish Work. No Finish Work will be performed except pursuant to the Contract. Fully executed copies of the Contract and subcontracts will be delivered to Landlord. If Landlord determines that the Contract does not comply with the provisions hereof, it will immediately be corrected and no work will be commenced in the Premises until the deficiencies have been corrected. Any delays in completion resulting from modifications will be Tenant Delays. Following delivery of a copy of the Contract to Landlord and its approval, no modification will be effective unless and until a copy thereof has been delivered to Landlord for its review.
2. Changes in the Final Drawings will be made only upon prior written approval of Landlord which will be deemed given if Tenant has not been informed otherwise in writing or by oral communication confirmed in writing within 5 business days of Landlords receipt of the requested changes.
3. Scheduling of Finish Work: The Contract will obligate Tenants Contractor to perform Finish Work in accordance with time schedules acceptable to Tenant, Tenants Contractor and Landlord. Any schedule proposed by Tenants Contractor will be based upon Tenants Contractor applying its best efforts to the Finish Work.
4. Tenants Contractor will not knowingly perform Finish Work which will result in a lesser quality installation or provide inferior performance than that established by the base shell and core drawings and specifications covering similar work items. Landlord will have the right at any time during the performance of Finish Work or thereafter to require replacement and reconstruction at Tenants Expense of Finish Work not conforming to the standards and specifications in the Final Drawings.
5. Tenant and Tenants Contractor will give all notices and comply with all applicable codes, laws, ordinances, rules, regulations and orders of any public authority relating to the performance of the Finish Work (collectively, Applicable Laws). If either party observes that any Finish Work is at variance with any Applicable Laws, it will promptly notify the other party and Landlord in writing, and necessary changes will be made by Tenant. If Tenants Contractor performs any Finish Work that it knows is contrary to Applicable Laws, and fails to deliver prior notice to Tenant and Landlord, Tenants Contractor will assume full responsibility therefor and will bear all costs attributable to repair, replacement or correction. The obligations of Tenant, Tenants Contractor and its subcontractors under this paragraph shall include compliance with Federal, State and local tax laws, social security acts, and unemployment compensation acts.
6. All risk of loss to all property of Tenant, Tenants Contractor and its subcontractors will be the sole responsibility of Tenant, Tenants Contractor and its subcontractors, and Landlord will have no responsibility therefor.
7. Tenant and Tenants Contractor agree that in order to maintain Landlords warranties and guarantees for the mechanical, electrical, control life safety, and fire protection systems, all Finish Work affecting these systems will be completed by the base shell core subcontractors performing the respective base shell and core Work items; provided, however, at Landlords sole option, it may allow other subcontractors to perform work in the Building on special systems which may require connection into the foregoing base building systems.
8. The following insurance requirements will be complied with:
a. Minimum Coverage - Prior to any Finish Work being commenced by Tenants Contractor, it will obtain and maintain insurance with minimum coverage and limits to protect Tenant and Landlord from the claims hereafter set forth which may arise or result from Tenants Contractors performance of any Finish Work, whether such work is performed by Tenants Contractor, its subcontractors, or by anyone for whose acts such parties may be liable as follows (subject to the provisions below, such limits may be provided by an appropriate umbrella policy):
(1) Workmens Compensation and occupational disease insurance at the statutory limits provided for by the State of Colorado;
(2) Employers liability insurance in an amount not less than $100,000 for all damages arising from each accident or occupational disease;
(3) Commercial general liability insurance covering:
(i) Operations premises liability;
(ii) Owners and Contractors protective liability;
(iii) Completed operations;
(iv) Product liability;
(v) Contractual liability;
(vi) Broad form property damage endorsement and property damage caused by conditions otherwise subject to exclusion for explosion, collapse or underground damage.
(4) Insurance limits:
Bodily Injury:
$1,000,000 each occurrence; $1,000,000 aggregate completed operations products
Property Damage:
$500,000 each occurrence; $500,000 aggregate operations; $500,000
aggregate protective; $500,000 aggregate completed operations products
(5) Comprehensive automobile liability insurance covering all owned, hired or non-owned vehicles including the loading and unloading thereof with limits of no less than:
Automobile Bodily Injury:
$500,000 each person; $1,000,000 each occurrence;
Automobile Property Damage:
$500,000 each person
b. Physical damage insurance covering the completed value of the Finish Work which will afford coverage against all risks for physical loss or damage.
c. Cancellation - All such insurance will be carried with a company satisfactory to Landlord and Tenant and the liability policy will name Landlord, Landlords Mortgagee, and Tenant and their employees and agents as additional insured parties. Each policy will provide that it will not be cancelled or altered except after 15 days prior written notice to Tenant and Landlord, and the certificate of insurance will so state.
d. Policy Termination - Tenants Contractor and each subcontractor will maintain all insurance required hereunder during the term of the Contract and for a period ending one year after the date of completion of all Finish Work done pursuant to the Contract to the extent such insurance is written in a claims made basis.
e. Policies - Prior to commencement of work by Tenants Contractor, it will deliver one copy of the policies or certificates (in form approved by Landlord) evidencing such insurance to Tenant and Landlord. Such policies or certificates must be approved by Tenant and Landlord prior to commencement of work. Notwithstanding the above, Landlord may require greater coverage or larger limits by serving notice upon Tenant. Without the written consent of Landlord, Tenants Contractor agrees that it will not allow any subcontractor to commence work within the building until such subcontractor has obtained the required insurance.
f. Umbrella Liability Insurance - Umbrella liability insurance with limits of liability for claims of bodily injury, personal injury and property damage liability not less than $10,000,000 each occurrence and $10,000,000 aggregate.
g. Waiver of Subrogation - Tenant and Tenants Contractor will waive all rights against each other and the subcontractors, sub-subcontractors, agents and employees, for damages caused by fire or other perils available under the normal All Risk I.S.O. insurance policy on the work itself and the Building. After receipt of evidence satisfactory to Landlord that all insurance required to be carried hereunder has been obtained, upon request of Tenant, Landlord will execute a document evidencing its agreement to waive all rights it would otherwise have against Tenant or Tenants Contractor for damage covered by its property insurance on. the Building.
9. Tenants Contractor will indemnify, defend, and hold harmless Landlord, Landlords Mortgagee, and their respective representatives, agents and employees from and against all claims, damages, losses and expenses, including, but not limited to reasonable attorneys fees, arising out of or resulting from the performance of Finish Work or Tenants Contractors failure to perform in accordance with the Contract that are: a) caused in whole or in part by any negligent act or omission of Tenants Contractor, any subcontractor, anyone directly or indirectly employed by any of them or anyone for whose acts any of them may be liable, regardless of whether or not such claim, loss, damage or expense is caused in part by a party indemnified hereunder, and b) attributable to bodily injury, sickness, disease or death, or destruction of or damage to tangible property including loss of use resulting from any of the foregoing acts. Tenants indemnification obligation under this Paragraph 9 will not be limited by any limitation on the amount or type of damages, compensation or benefits payable by or for the Contractor or any subcontractor under workmens compensation acts, disability benefit acts or other employee benefit acts.
10. While Landlord may make available to Tenants Contractor for incorporation into the Finish Work materials previously purchased by Landlord, Landlord is not the manufacturer of such materials nor is it the commercial supplier of such materials. Accordingly, Tenant and Tenants Contractor agree that if either one or both of them have any claim with respect to any of such materials supplied by Landlord for incorporation into the Finish Work, whether such claims relate to any alleged breach of an express warranty or an implied warranty or otherwise, any claims against Landlord whether directly or by way of defense, counterclaim, cross claim or offset are waived and released and such claims will be brought exclusively against the person or entity from whom Landlord purchased such materials or against the manufacturer. Landlord will execute such documents as may be reasonably necessary to assign any rights (to the extent assignable) Landlord would otherwise have against a supplier or manufacturer.
11. Landlord or Tenant may require Tenants Contractor to provide payment and performance bonds for any or all Finish Work, such bonds to be provided at Tenants or Tenants Contractors expense. Any bond will be requested and provided prior to commencement of Finish Work.
12. If Tenants Contractor is adjudicated a bankrupt, or makes a general assignment for the benefit of its creditors, or if a receiver is appointed on account of Tenants Contractors insolvency, or if Tenants Contractor persistently or repeatedly refuses or fails, except in cases where delay is justified, to supply enough properly skilled workmen or proper materials or if Tenants Contractor persistently disregards Applicable Laws, or otherwise is guilty of a substantial violation of a provision of the Contract, Tenant may, without prejudice to any right or remedy and after giving Tenants Contractor and its surety, if any, 7 business days written notice, terminate the Contract and take possession of all materials, equipment, tools, construction equipment and machinery owned by Tenants Contractor and will thereafter complete the Finish Work by whatever method it may deem expedient In such case, Tenants Contractor will not be entitled to receive any further payments until completion of all Finish Work; provided, however, that Tenants actions will not release Tenants Contractor from any obligations to Tenant arising from its performance or nonperformance prior to the date of such termination. Following completion, Tenant will pay Tenants Contractor an amount equal to the aggregate of the amounts
actually due under the Contract at the time of the termination, less the cost to Tenant of completing the Finish Work.
13. Prior to commencement of any Finish Work in the Premises, Tenants Contractor will give written notice to Landlord and Tenant of the date work will commence. If a subcontractor or materialman files a mechanics lien as a result of performing Finish Work pursuant to the Contract, then, provided Tenants Contractor has been paid for such work, Tenants Contractor will indemnify and defend Tenant and Landlord from said lien and will, when requested by Tenant or Landlord, furnish (as Landlord or Tenant may specify) either a bond sufficient to discharge the lien, deposit in an escrow approved by Landlord and Tenant a sum equal to 150% of the amount of such lien or obtain for Landlord an endorsement through Landlords title policy insuring against loss or damage resulting from such lien. Subject to any restrictions of Landlords Mortgagee on the Building, Tenants Contractor may, in cooperation with Landlord and Tenant, contest the validity of a mechanics lien, including the right to prosecute any appeals so long as during the pendency of any contest, Tenants Contractor will effectively stay any official or judicial sale of the Building, upon execution or otherwise, and so long as Tenants Contractor immediately, pays any final judgment entered and procures record satisfaction thereof. If Tenant or Landlord is a party to any such contest, or any other action resulting from or arising out of the performance of the Finish Work, Tenants Contractor will pay all legal fees and other costs and expenses incurred by Landlord and Tenant in such action. If Tenants Contractor fails to provide a bond, cash escrow or title endorsement, or otherwise fails to fully satisfy and obtain the release of a lien in accordance with the provisions hereof, Tenants Contractor will be obligated to refund Tenant or Landlord, as the case may be, all monies that the latter may pay in discharging any such lien including costs and reasonable attorneys fees incurred in settling, defending against, appealing or in any other manner dealing with any such lien.
14. Tenants Contractor will warrant and agree at its expense to correct or cause to be corrected any defects in the Finish Work (including, but not limited to, defects due to defective workmanship or materials whether supplied, installed or performed by Tenants Contractor or any subcontractor or supplier) which occur within one year after Tenants Contractor has substantially completed the Finish Work, including completion of all punch list items, or for such longer period as may be set forth in the Final Drawings. Tenants Contractor will require a similar warranty in all subcontracts, and will deliver to Landlord and Tenant, together with appropriate assignments, if required, all warranties of -subcontractors and suppliers. All warranties will extend to both Landlord and Tenant, as their respective interests in such Finish Work exist pursuant to the Lease.
15. Tenants Contractor will: (a) comply with all reasonable rules relating to construction activities in the Building promulgated by Landlord or Landlords Contractor; (b) be responsible for reaching agreement with Landlord as to the conditions for use of the elevators, systems interfacing, use of temporary utilities, access to the Premises and use of truck docks and storage areas.
16. Landlord has no obligation to Tenants Contractor, except for the provision of those services that Landlord provides to other tenant finish contractors in the Building without preference or privilege.
17. Landlord and Landlords Contractor may, from time to time, inspect or perform work within the Premises. Such inspections or work will not conflict with Tenants Contractors work unless it is necessary for completion of Landlords Work, or is an emergency situation. Landlord may suspend Tenants Contractors work in the Premises if such work, in the opinion of Landlord or of Landlords Contractor, presents a danger to life, safety, or property, or in an emergency situation.
18. Tenant will give Landlord reasonable prior notice of all inspections, punchouts and other reviews during the course of construction so that Landlord may observe such events. Landlord will be likewise informed of all Building Department inspections and requirements for issuance of the certificate of occupancy or equivalent governmental approvals (Certificate of Occupancy) for the Premises. Landlords observation of any such events will not construed or interpreted as a review or approval by Landlord of any such work nor will it prevent Landlord, if it thereafter discovers any deficiency in such Work, from requiring correction. Tenants Contractor will be solely responsible for obtaining a Certificate of Occupancy and will submit to Landlord the original prior to Tenants occupancy of the Premises for the purpose of conducting business. All meetings with public entities (City or County Building Departments, Fire Marshall, etc.) will be to be coordinated with Landlord to allow for Landlords representative to attend. Meeting Minutes of all meetings and phone conferences with such officials should be copied to Landlord.
19. Landlords Engineer or other agent will have the option of reviewing all equipment and materials to be used in the construction of the Finish Work and all work prior to Tenant move-in. Such review will not constitute approval by Landlord.
20. Unless otherwise approved by Landlord, all services and work performed in the Premises and all materials and personal property delivered to the Premises will be performed or delivered, as the case may be, only by persons covered by a collective bargaining agreement with the trade having jurisdiction over the work.
21. Tenant will promptly furnish Landlord a copy of the building permit issued to Tenants Contractor after issuance.
22. Tenants Contractor will not store materials or supplies in or outside the Building (other than within the Premises) without the prior approval of Landlord or Landlords Contractor.
23. All deliveries except hand-held items must be taken to the floors via the freight elevator and not the passenger elevators. The passenger elevators are only for passenger use not for freight or handcarts.
24. Tenants Contractor will provide at all times direct supervision of all work being performed for Tenant.
25. Tenants Contractor will cooperate with Landlord in disposing refuse resulting from the Finish Work. This may include the use of Landlords dumpster and a proration of charges associated with such use or at Landlords option at Tenants expense the placement of Tenant Contractors dumpster at a location specified by Landlord.
26. Tenants Contractor will acknowledge that the work to be performed by it for Tenant is also for the direct benefit of Landlord. Landlord will have the right to pursue in its own name directly against Tenants Contractor any rights or remedies including, without limitation, claims for damages granted to Tenant.
27. If any legal action or arbitration proceeding is commenced to enforce the provisions of the Contract or to recover damages as a result of the alleged breach of the provisions thereof, the prevailing party will be entitled to recover all reasonable costs incurred in connection therewith, including attorneys fees.
28. The Contract will be construed in accordance with the laws of the State in which the Premises are located. Subject to Paragraph 27, any litigation or other proceeding will be decided by the District Court In. and For the County of the State in which the Building is located.
29. All claims, disputes and other matters in question between Tenant and Tenants Contractor arising out of, or relating to, the Contract, will be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association then obtaining unless the parties mutually agree otherwise. No such arbitration will include Landlord, its employees or consultants, except by written consent of Landlord and any other party sought to be joined.
EXHIBIT C TO WORK LETTER
RULES AND REGULATIONS
The following Rules and Regulations shall be read, agreed to and signed by each individual who enters the Building Complex to perform Finish Work. Each such signed copy of these Rules and Regulations shall be filed on site in Landlords management office along with a photocopy of the individuals drivers license, current address and phone number.
1. Access to the Building will only be permitted through the loading dock entrance. Those floors which the Premises is not a part of shall always be off limits. Landlord, Landlords Contractor and Building Manager shall be notified in writing when you anticipate having personnel in the Building Complex after hours. It will be considered trespassing if such prior notifications are not received.
2. Exact location of material hoist and method of support and weatherproofing will be at the discretion of the Landlord and Landlords Contractor.
3. No parking will be allowed in the loading dock at any time; the loading dock is for loading and unloading only. A designated off-loading area will be determined to allow site-work to be completed without interruption. Staging of materials will be approved in advance and relocated upon request of Landlords Contractor immediately. Vehicles which are not moved upon request will be towed at vehicle owners expense.
4. The Premises and Building Complex shall be maintained daily to ensure a safe and clean, workmanlike condition at all times. Tenants Contractors will remove trash and debris on a daily basis.
5. Prior to Tenants Contractors making any Building modifications, a notice of the intent of the scope of work to be performed will be provided to Landlords representative at least 72 hours in advance for coordination with the other trades and verification of authorization to proceed with the work. No X-raying of slabs will be allowed anytime the Building is occupied.
6. All tie-ins to power or lighting panels will be coordinated through Landlords Contractor and the Base Building Electrical Subcontractor. Any interfaces with Fire Life/Safety systems will be approved in advance.
7. Tenants Contractor shall maintain a daily log of work performed, deliveries and stocking schedules on site for review upon request.
8. Prior authorization will be required prior to access to the penthouse or roof area.
9. Tenants Contractors shall use toilet facilities in a location determined by Landlords Contractor.
10. Exposed flame or welding activities will require a yellow authorization card which will have a signature from Landlords Contractor prior to and after completion of operations. A 2-hour fire watch will be maintained after the work is complete.
11. Removal of any glazing will be performed by the Base Building Glazing Subcontractor to maintain the warranty. Landlord does not allow any mechanical attachments to or drilling of mullions or any part of the glazing system. The Building will be weather tight at the end of every day.
12. All roof repairs or remedial work to accommodate the Finish Work will be performed by the Base Building Roofing and Sealant Subcontractors.
13. Elevator cab protection will be maintained by Tenants Contractors and any additional work to recondition the service elevator will be at the Tenants cost.
14. Use of the service/passenger elevators will be scheduled through the Building Manager.
15. Tenants Fire/Life Safety subcontractors will be present at all Building inspections to secure the Certificate of Occupancy, including any premium time at the Tenants cost.
16. All Fire/Life Safety testing will be coordinated with Landlords Contractor . All testing and inspections will occur when the Building is not occupied and at the discretion of the Building Manager. Smoke detectors will be bagged during all smoke or dust generating activities and any such bags removed at the end of every day.
17. Trash removal will not be through the passenger elevators at any time. Trash removal may be by service elevator when approved by Landlord or Building Manager.
18. Building envelope will be maintained to ensure environmental control of an occupied building.
19. Base Building work such as blinds, etc. will be coordinated with Tenants Contractors and Landlords Contractor.
20. Additional work requested by the Tenant of Landlords Contractor regarding Base Building Work will be performed at the Tenants expense including premium costs as may be required to maintain the Base Building Work schedule.
21. Tenants Contractors shall provide their Safety Program for review by Landlords Contractor for compliance with established project specific safety requirements. Weekly tool box meeting notes will be kept on file on site for review upon request. Any safety violations will be reported immediately to the job-site safety director or Building Manager.
22. Trash dumpster locations and usage shall be at the discretion of the Building Manager.
23. Tenants Contractors shall provide temporary protection for all existing finished surfaces, whether within or outside of the Premises or the Building, during all loading, delivery, or work periods. Such protection shall be properly maintained and subject to the approval of Landlord. Temporary removal of such protection may be required from time to time, at Landlords discretion. Final removal of all temporary protection and repair of all existing finished surfaces shall be at Tenants Contractors cost.
24. All tie-ins to the tenant condenser water system shall be coordinated through Landlords Contractor and the Base Building Mechanical Subcontractor. Tie-ins shall not take place until after the tenant piping has been chemically cleaned and passivated. Tie-ins shall also be coordinated and scheduled in advance with the Building Manager.
25. Temporary construction air filtration shall be provided at the floor return fan inlets and all perimeter fan coil units in all areas subject to and throughout the duration of the Finish Work. If Landlords permanent filters are in place at the start of Finish Work, they shall be removed and stored in a secure location as directed by the Building Manager. At completion of Finish Work, the permanent filters shall be reinstalled. The costs for the foregoing shall be borne by Tenant.
26. Connections to the sanitary waste, vent and domestic cold water systems shall occur only at the designated wet column capped connections provided specifically for such purposes. Connections to plumbing systems serving base building toilet rooms, janitors closets, electric water coolers, etc. are prohibited.
27. Testing, adjusting and balancing (T&B) of Base Building air handling units and perimeter fan coil units, as well as all cooling-only VAV terminal units and air diffusion and collection devices installed as part of Finish Work, shall be performed as part of the Finish Work at Tenants expense. Tenant shall submit T&B plan and procedures for Landlords review and approval. Landlord reserves the right to monitor the T&B work in progress and to reject T&B work that does not comply with the approved plan and procedures and the standards of NEBB.
28. In addition to these Rules and Regulations, any work performed in connection with Finish Work shall comply with additional requirements that Landlord may impose for purposes of satisfying LEED program requirements, including, but not limited to, any air quality management plan or construction waste management plan.
EXHIBIT D TO WORK LETTER
FORM OF LIEN WAIVERS
Appropriate lien waivers substantially in the forms attached hereto as Exhibits D-1, D-2, D-3, and D-4, as the case may be, will accompany all requests for payment by Tenant.
EXHIBIT D-1 TO WORK LETTER
STATE OF |
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INTERIM CONTRACTORS AFFIDAVIT |
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RELEASE AND LIEN WAIVER |
COUNTY OF |
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TO WHOM IT MAY CONCERN:
The undersigned, being first duly sworn, deposes and says that:
1. He is of the who is the general Contractor for the project hereinafter identified (the Contractor), and that the undersigned is authorized to execute and deliver this document on behalf of the Contractor.
2. The Contractor is the contractor for the performance of certain work and/or the furnishing of certain materials or supplies (the Work) pursuant to a Contract between Contractor and , as Owner, for the improvements and project commonly known as (the Project) upon property legally described as: , County of , State of , hereinafter referred to as the Property.
3. This instrument is executed and delivered in consideration of and for the purpose of inducing (Construction Lender) and the Owner to make an interim payment of $ under the Contract, subject to collection of any check given as payment. The total amount of the Contract including change orders is $ , and the undersigned acknowledges that upon receipt of this interim payment, the Contractor has received interim payments totaling $ under the Contract.
4. The undersigned for the Contractor, subject to the receipt and collection of the interim payment herein requested, warrants and represents that: (i) all materials delivered to said project by or for the Contractor are for use therein only; (ii) title to all work, materials and equipment covered by said payment, whether or not incorporated in the improvement on the Property, has passed to the Owner, free and clear of all liens, claims, security or encumbrances (hereinafter all referred to as liens); (iii) all taxes applicable to the materials furnished for use in or on the Property and all taxes for the Work performed under the Contract have been fully paid; and (iv) all laborers, mechanics, subcontractors, materialmen and suppliers for all work done and for all materials, machinery, equipment, fixtures, tools, scaffolding and appliances furnished for the performance of the Contract and for any other indebtedness connected therewith for which the Owner of the Property might be responsible have been paid in full to the date hereof. Contractor, to the extent of the total of interim payments received, for itself, its successors, and on behalf of all persons able to claim through or under the Contractor: (a) waives, relinquishes and releases all liens and rights of claims to liens for labor or materials furnished in the construction, improvement, alteration or repair involved in performance under the Contract; (b) agrees (1) to save Owner and Construction Lender harmless from. all liability, costs and expenses, including reasonable attorneys fees, resulting from mechanics and/or materialmens liens for the performance of work or the furnishing of materials or supplies pursuant to the Contract, (2) to discharge (by bond or otherwise) or to defend suit to enforce any mechanics or materialmens lien, claim to or right of
action for any such lien which may be filed, and (3) to satisfy any claims or demands which arise out of, which are due to or which may be made for, any work performed or supplies furnished under the Contract or in furtherance of the construction or completion of the Contract, whether directly or indirectly attributable to the Contract; and (c) hereby releases the present and any future Owner of the Property, the Property, the Construction Lender and any lender who may now or hereafter have a security interest in the Property, from all claims, rights of action, liabilities and liens which may be filed or asserted in connection with the Contract.
Dated this day of , 20 .
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Authorized representative of Contractor |
SUBSCRIBED AND SWORN TO before me this day of , 20 .
My commission expires
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Notary Public |
EXHIBIT D-2 TO WORK LETTER
STATE OF |
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FINAL CONTRACTORS AFFIDAVIT, |
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RELEASE AND LIEN WAIVER |
COUNTY OF |
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TO WHOM IT MAY CONCERN:
The undersigned, being first duly sworn, deposes and says that:
1. He is of the , who is the general Contractor for the project hereinafter identified (the Contractor), and that the undersigned is authorized to execute and deliver this document on behalf of the Contractor.
2. The Contractor is the contractor for the performance of certain work and/or the furnishing of certain materials or supplies (the Work) pursuant to a Contract between Contractor and , , as Owner, for the improvements and project commonly known as (the Project) upon property legally described as: , County of , State of , hereinafter referred to as the Property.
3. This instrument is executed and delivered in consideration of and for the purpose of inducing (Construction Lender) and the Owner to make final payment of $ under the Contract, subject to collection of any check given as payment. The total amount of the Contract including change orders is $ and the undersigned acknowledges that upon receipt of this final payment, the Contractor has been paid in full the total contract price under the Contract.
4. The undersigned for the Contractor, subject to the receipt and collection of the final payment herein requested, warrants and represents that: (i) all materials delivered to said project by or for the Contractor are for use therein only; (ii) title to all work, materials and equipment covered by said payment, whether or not incorporated in the improvement on the Property, has passed to the Owner, free and clear of all liens, claims, security or encumbrances (hereinafter all referred to as liens); (iii) all taxes applicable to the materials furnished for use in or on the Property and all taxes for the Work performed under the Contract have been fully paid; and (iv) all laborers, mechanics, subcontractors, materialmen and suppliers for all work done and for all materials, machinery, equipment, fixtures, tools, scaffolding and appliances furnished for the performance of the Contract and for any other indebtedness connected therewith for which the Owner of the Property might be responsible have been paid in full. Contractor for itself, its successors, and on behalf of all persons able to claim through or under the Contractor: (a) waives, relinquishes and releases all liens and rights of claims to liens for labor or materials furnished in the construction, improvement, alteration or repair involved in performance under the Contract; (b) agrees (1) to save Owner and Construction Lender harmless from all liability, costs and expenses, including reasonable attorneys fees, resulting from mechanics and/or materialmens liens for the performance of work or the furnishing of materials or supplies pursuant to the Contract, (2) to discharge (by bond or otherwise) or to defend suit to enforce any mechanics or
materialmens lien, claim to or right of action for any such lien which may be filed, and (3) to satisfy any claims or demands which arise out of, which are due to or which may be made for, any work performed or supplies furnished under the Contract or in furtherance of the construction or completion of the Contract, whether directly or indirectly attributable to the Contract; and (c) hereby releases the present and any future Owner of the Property, the Property, the Construction Lender and any lender who may now or hereafter have a security interest in the Property, from all claims, rights of action, liabilities and liens which may be filed or asserted in connection with the Contract
Dated this day of , 20 .
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Authorized representative of Contractor |
SUBSCRIBED AND SWORN TO before me this day of , 20 .
My commission expires .
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Notary Public |
EXHIBIT D-3 TO WORK LETTER
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INTERIM SUBCONTRACTORS OR |
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MATERIAL SUPPLIERS AFFIDAVIT, |
Job Address |
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RELEASE AND LIEN WAIVER |
Job Number |
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STATE OF |
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COUNTY OF |
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The undersigned subcontractor or material supplier (herein referred to as Subcontractor), being first duly sworn, deposes and says that: He is over the age of 21 years and resides at: .
(IF SUBCONTRACTOR IS AN INDIVIDUAL:)
1. He is the Subcontractor referred to herein.
(IF SUBCONTRACTOR IS A PARTNERSHIP:)
1. He is a general partner in , a co-partnership composed of the undersigned and carrying on business at , City of . Said co-partnership is the Subcontractor referred to herein.
(SUBCONTRACTOR IS A CORPORATION:)
1. He holds the title of , in , a corporation organized under the laws of the State of , carrying on business at , City of , State of , which corporation is the Subcontractor referred to herein. The undersigned is authorized to execute this instrument on its behalf.
2. Subcontractor is a subcontractor or material supplier for the performance of certain work and/or the furnishing of certain materials or supplies pursuant to an agreement or purchase order, as the case may be (hereinafter called the Subcontract, which term will refer to the agreement or purchase order, as the case may be), under a general contract between , (hereinafter called Contractor), and (hereinafter called the Owner), for the improvements or project known as, , at , City of , County of , State of (hereinafter called the Property).
3. This instrument is delivered in consideration of and for the purpose of inducing Contractor to make interim payment of $ under the Subcontract, subject to collection of any check given as payment. Subcontractor acknowledges that upon receipt of this interim payment, Subcontractor has received from Contractor interim payments totaling $ under the Subcontract.
4. Subcontractor warrants and represents that: (i) all materials delivered to said project by or for Subcontractor are for use therein only; (ii) title to all work, material and equipment covered by said payment, whether or not incorporated in the Property, has passed to the Owner, free and clear of all liens, claims, security interests or encumbrances (hereinafter all referred to as liens); (iii) all taxes applicable to the materials furnished and the work performed under the Subcontract have been fully paid; and (iv) all laborers, mechanics, sub-subcontractors, materialmen and suppliers for all work done and for all materials, machinery, equipment, fixtures, tools, scaffolding and appliances furnished for the performance of the Subcontract and for any other indebtedness connected therewith for which the Owner of the Property might be responsible have been paid in full to the date hereof. Subcontractor, to the extent of the total of interim payments received, for itself, its successors, and on behalf of all persons able to claim through or under Subcontractor: (a) waives, relinquishes and releases all liens and right or claim to a lien for labor or materials furnished in the construction improvement, alteration or repair involved in performance under the Subcontract; (b) agrees to save Contractor harmless from all liability, costs and expenses, including reasonable attorneys fees, to: (1) discharge (by bond or otherwise) or to defend suit to enforce, any mechanics or materialmens lien, claim to or right of action for such lien, which may be filed and (2) satisfy any claims or demands arising out of, due or which may be made, directly or indirectly attributable to the Subcontract, any work performed or supplies furnished thereunder, or in furtherance of the construction or completion of the subcontract work; and (c) hereby releases Contractor, any money earned by Contractor, Contractors sureties, the present and any future Owner, the Property and any lender who may now or hereafter have a security interest therein, from all claim, right of action, liability and lien which may be filed or asserted in connection with the Subcontract.
Dated this day of , 20 .
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As Subcontractor, General Partner of |
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Subcontractor, or Authorized Officer of |
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Subcontractor, above described |
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STATE OF |
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COUNTY OF |
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Subscribed and sworn to before me this day of , 20 , by , known to me to be the above-named signatory, who personally appeared before me and acknowledged that the foregoing instrument was freely and voluntarily executed for the uses and purposes and on behalf of the Subcontractor therein mentioned.
My commission expires .
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Notary Public in and for |
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said County and State |
EXHIBIT D-4 TO WORK LETTER
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FINAL SUBCONTRACTORS OR |
Project |
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MATERIAL SUPPLIERS AFFIDAVIT, |
Job Address |
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RELEASE AND LIEN WAIVER |
Job Number |
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STATE OF |
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COUNTY OF |
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The undersigned subcontractor or material supplier (herein referred to as Subcontractor), being first duly sworn, deposes and says that: He is over the age of 21 years and resides at: .
(IF SUBCONTRACTOR IS AN INDIVIDUAL:)
1. He is the Subcontractor referred to herein.
(IF SUBCONTRACTOR IS A PARTNERSHIP:)
1. He is a general partner in a co-partnership composed of the undersigned and carrying on business at City of . Said co-partnership is the Subcontractor referred to herein.
(IF SUBCONTRACTOR IS A CORPORATION:)
1. He holds the title of , in a corporation organized under the laws of the State of , carrying on business at , City of , State of , which corporation is the Subcontractor referred to herein. The undersigned is authorized to execute this instrument on its behalf.
2. Subcontractor is a subcontractor or material supplier for the performance of certain work and/or the furnishing of certain materials or supplies pursuant to an agreement or purchase order, as the case may be (hereinafter called the Subcontract, which term will refer to the agreement or purchase order, as the case may be), under a general contract between (hereinafter called Contractor), and (hereinafter called the Owner), for the improvements or project known as at , City of , County of , State of (hereinafter called the Property).
3. This instrument is delivered in consideration of and for the purpose of inducing Contractor to make final payment of $ , subject to collection of any check given as payment. Subcontractor acknowledges that upon receipt of this final payment, Subcontractor has been paid in full the total subcontract price of $ , for all of the work performed under the Subcontract, including retainage, if any.
4. Subcontractor warrants and represents that (i) all materials delivered to said project by or for Subcontractor are for use therein only; (ii) title to all work, material and equipment covered by said payment, whether or not incorporated in the Property, has passed to the Owner, free and clear of all liens, claims, security interests or encumbrances (hereinafter all referred to as liens); (iii) all taxes applicable to the materials furnished and the work performed under the Subcontract have been fully paid; and (iv) all laborers, mechanics, sub-subcontractors, materialmen and suppliers for all work done and for all materials, machinery, equipment, fixtures, tools, scaffolding and appliances furnished for the performance of the Subcontract and for any other indebtedness connected therewith for which the Owner of the Property might be responsible have been paid in full. Subcontractor for itself, its successors, and on behalf of all persons able to claim through or under Subcontractor: (a) waives, relinquishes and releases all liens and right or claim to a lien for labor or materials furnished in the construction improvement, alteration or repair involved in performance under the Subcontract; (b) agrees to save Contractor harmless from all liability, costs and expenses, including reasonable attorneys fees, to: (1) discharge (by bond or otherwise) or to defend suit to enforce, any mechanics or materialmens lien, claim to or right of action for such lien, which may be filed and (2) satisfy any claims or demands arising out of, due or which may be made, directly or indirectly attributable to the Subcontract, any work performed or supplies furnished thereunder, or in furtherance of the construction or completion of the subcontract work; and (c) hereby releases Contractor, any money earned by Contractor, Contractors sureties, the present and any future Owner, the Property and any lender who may now or hereafter have a security interest therein, from all claim, right of action, liability and lien which may be filed or asserted in connection with the Subcontract.
Dated this day of , 20 .
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As Subcontractor, General Partner of |
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Subcontractor, or Authorized Officer of |
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Subcontractor, above described |
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STATE OF |
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COUNTY OF |
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Subscribed and sworn to before me this day of , 20 , by , known to me to be the above-named signatory, who personally appeared before me and acknowledged that the foregoing instrument was freely and voluntarily executed for the uses and purposes and on behalf of the Subcontractor therein mentioned.
My commission expires .
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Notary Public in and for said |
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County and State |
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