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As filed with the Securities and Exchange Commission on April 10, 2014.

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

 

 

UNDER

THE SECURITIES ACT OF 1933

 

 

Zendesk, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   7372   26-4411091

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

 

 

989 Market Street, Suite 300

San Francisco, California 94103

415.418.7506

 

 

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Mikkel Svane

Chief Executive Officer

Zendesk, Inc.

989 Market Street, Suite 300

San Francisco, California 94103

415.418.7506

 

 

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

William J. Schnoor Jr., Esq.

Bradley C. Weber, Esq.

Goodwin Procter LLP

135 Commonwealth Drive

Menlo Park, California 94025

650.752.3100

 

John M. Geschke, Esq.

Senior Vice President and General Counsel

Zendesk, Inc.

989 Market Street, Suite 300

San Francisco, California 94103

415.418.7506

 

Eric C. Jensen, Esq.

David G. Peinsipp, Esq.

Andrew S. Williamson, Esq.

Cooley LLP

101 California Street, 5 th  Floor

San Francisco, California 94111

415.693.2000

 

 

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, check the following box:   ¨

If this Form is filed to register 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.   ¨

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.   ¨

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.   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities to be Registered   Proposed Maximum Aggregate
Offering Price (1)(2)
  Amount of Registration Fee

Common Stock, $0.01 par value per share

  $150,000,000   $19,320

 

 

(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes the aggregate offering price of additional shares that the underwriters have the option to purchase.

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 the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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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 April 10, 2014.

             Shares

LOGO

Zendesk, Inc.

Common Stock

 

 

This is an initial public offering of shares of common stock of Zendesk, Inc.

Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $         and $        . We intend to apply to list our common stock on the New York Stock Exchange under the symbol “ZEN”.

We are an “emerging growth company” as defined under the federal securities laws and, as such, we are subject to reduced public company reporting requirements.

 

 

See “ Risk Factors ” beginning on page 11 to read about factors you should consider before buying shares of common stock.

 

 

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 us

   $         $     

 

(1) See “Underwriting” for a description of the compensation payable to the underwriters.

The underwriters have the option to purchase up to an additional              shares from us at the initial price to public less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on                     , 2014.

 

Goldman, Sachs & Co.   Morgan Stanley   Credit Suisse

 

Pacific Crest Securities    Canaccord Genuity

 

 

Prospectus dated                     , 2014.


Table of Contents

LOGO

zendesk
Bringing organizations and their customers closer together


Table of Contents

LOGO

zendesk


Table of Contents

TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1   

Risk Factors

     11   

Letter From the Founders

     42   

Special Note Regarding Forward-Looking Statements

     44   

Industry and Market Data

     46   

Use of Proceeds

     47   

Dividend Policy

     49   

Capitalization

     50   

Dilution

     52   

Selected Consolidated Financial Data

     55   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     57   

Business

     78   

Management

     98   

Executive Compensation

     106   

Certain Relationships and Related Party Transactions

     115   

Principal Stockholders

     119   

Description of Capital Stock

     121   

Shares Eligible for Future Sale

     127   

Material U.S. Federal Income Tax Consequences to Non-U.S. Holders of Our Common Stock

     130   

Underwriting

     134   

Legal Matters

     139   

Change in Accountants

     139   

Experts

     139   

Additional Information

     140   

Index to Consolidated Financial Statements

     F-1   

 

 

Neither we nor any of the underwriters have authorized anyone to provide any information or to make any representations other than as contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and provide no assurance as to the reliability of, any information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

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PROSPECTUS SUMMARY

This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless expressly indicated or the context requires otherwise, the terms “Zendesk,” “company,” “we,” “us,” and “our” in this prospectus refer to Zendesk, Inc., a Delaware corporation, and its consolidated subsidiaries.

Overview

Zendesk believes the fundamental relationship between organizations and their customers is changing, and a new customer service philosophy is emerging.

Zendesk was formed to help organizations capitalize on this profound shift. We are a software development company that provides a software-as-a-service, or SaaS, customer service platform. Our beautifully simple platform helps organizations engage with people in new ways that foster long-term customer loyalty and satisfaction. We empower organizations to better answer customers’ questions, and to solve their problems through the channels that people use every day when seeking help, such as email, chat, voice, social media, and websites. Our platform also helps people find answers on their own through knowledge bases and communities, capitalizing on the increasing customer preference for self-service. Our customer engagement capabilities allow organizations to proactively serve their customers, reaching out to those who may need help and soliciting feedback about their experience. The openness of our customer service platform makes it easy for organizations to integrate with their other applications. Our platform consolidates the data from customer interactions and provides organizations with powerful analytics and performance benchmarking.

Our business model is designed to drive organic growth, leverage positive word-of-mouth, and remove friction from the evaluation and purchasing process. The majority of our customers find us online and subscribe to our customer service platform directly from our website. Exemplifying the success of our sales and marketing strategy, during the quarter ended December 31, 2013, 70% of our qualified sales leads, which are largely comprised of prospects that commence a free trial of our customer service platform, came from organic search, customer referrals, and other unpaid sources. For larger organizations, our sales team focuses on a land and expand strategy, which leverages this grassroots adoption and seeks to expand our footprint within organizations.

We currently have more than 40,000 customer accounts on our customer service platform, which represent organizations across a broad array of sizes, industries, and geographies. Our customers are located in over 140 countries and provide customer service through our platform in over 40 languages.

In March 2014, we completed the acquisition of Zopim Technologies Pte Ltd., or Zopim, a software development company that provides a SaaS live chat service. Through Zopim, we provide live chat software as a standalone service and as an integrated service with our customer service platform for chat-enabled agents.

Our financial performance reflects our significant customer growth and strong customer retention and expansion. For the years ended December 31, 2012 and 2013, our total revenue was $38.2 million and $72.0 million, respectively, representing approximately 88% growth from 2012 to 2013. For the

 

 

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years ended December 31, 2012 and 2013, we derived $15.8 million, or 41%, and $29.6 million, or 41%, of our revenue from customers located outside of the United States, respectively. For the years ended December 31, 2012 and 2013, we also generated net losses of $24.4 million and $22.6 million, respectively. We intend to invest aggressively to drive continued growth and market leadership.

Industry Background

Over the last several years, the ways in which people research, purchase from, and communicate with organizations have evolved from a relatively simple set of interactions into a rapidly expanding network of information and communications. The result is people who are better informed about the products and services they buy; have more choices and potentially less loyalty; and can influence many others with their opinions. People have higher expectations about how an organization will relate to them and less patience for organizations that do not meet these expectations.

We believe this transformation creates tremendous opportunities for organizations of all sizes that make customer service a critical focus of their operations. We believe that many successful organizations today exemplify this new approach and have discovered that a deep understanding of the customer experience can be the foundation for building highly valuable customer relationships. While opportunities abound for organizations that recognize and capitalize on these trends, the penalties for failing to evolve to this changing landscape can be severe. Acting as brand advocates or adversaries, individuals can influence peers’ opinions and purchasing behavior.

Various software tools, delivered both “on-premise” and in the cloud, have attempted to address the difficult nature of customer support for many years. This legacy customer support software is costly and complex, causing the vast majority of small and medium-sized businesses, or SMBs, to rely primarily on tools like email, phones, and spreadsheets. Even larger organizations able to afford customer support software often adopt a piecemeal approach with the goal of minimizing support costs. The result is the inability to support multiple channels or expand to new channels, ultimately leading to customer frustration.

Legacy customer support software also limits employees’ effectiveness in responding to customer inquiries and offers few, if any, analytics, recommendations, or performance benchmarks. Familiar with consumer web software like Facebook, Twitter, and Gmail, employees desire tools with similar ease-of-use and sophistication. Most enterprise software, particularly customer support software, has not progressed to embrace consumer design tactics including optimized user experience, availability on personal devices, and ease-of-deployment.

We believe that effective customer service requires a purpose-built platform that embraces the new landscape of omni-channel communication and the empowered and informed customer, and places an emphasis on well-designed experiences.

According to International Data Corporation, or IDC, a global market intelligence firm, in 2012 the worldwide customer relationship management, or CRM, software market comprised $20.7 billion. Our customer service platform primarily addresses the customer service and contact center segments which comprised a total of $10.2 billion in 2012 worldwide. In addition, IDC has estimated that between 2012 and 2017 SaaS solutions in the overall CRM applications market will grow over ten times faster than legacy on-premise solutions. In a 2013 report, IDC also estimated that there were approximately 76 million SMBs worldwide. We believe that many of these organizations have not been able to implement or afford legacy customer support software and therefore represent a substantial greenfield market opportunity for our customer service platform.

 

 

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The Zendesk Approach

Zendesk’s mission is to help organizations build successful long-term relationships with their customers. Our intuitive platform facilitates listening to the customer, finding the best possible answer, communicating through the appropriate channel, and sharing the knowledge gained with the whole organization.

 

    Beautifully Simple.     We have an overarching philosophy to be beautifully simple. We take intuitive design elements that people have grown to expect from consumer software and incorporate them into our platform. We also offer a free trial and a transparent purchase process with numerous self-service options that are suitable for SMBs and enterprise departments as well as assisted options for larger clients.

 

    Omni-Channel and Contextual.     Our customer service platform is built to support customers across a wide variety of integrated channels—email, voice, social media, and websites. Through Zopim, we offer live chat as a standalone service and as an integrated service with our customer service platform for chat-enabled agents. In addition, our customer service platform provides important contextual information around customer issues by encouraging employee collaboration and enabling real-time information sharing.

 

    Affordable.     We believe our subscription plans are significantly less expensive and offer greater pricing transparency than many legacy customer support software applications (especially when software updates, ongoing maintenance, and consultant fees required for integration, installation, customization, and training are taken into account).

 

    Natively Mobile.     Through native mobile apps, employees can access our platform anywhere with robust product functionality, an elegant interface, and performance analytics.

 

    Cloud-Based Architecture.     Our architecture automates frequent software updates and introduction of new features while also allowing our platform to easily scale within organizations. Configurations made with simple tools tailor the functionality and design of our platform to an organization’s particular needs and keep customer service efforts of any size organized.

 

    Open Platform.     Our customer service platform includes over 120 pre-built integrations with CRM, e-commerce, telephony, live chat, and other apps. Developed with our open application programming interfaces, or APIs, our customer service platform can also be customized, integrated, or expanded upon with private apps.

 

    Proactive Engagement.     Organizations are equipped to proactively communicate with customers at the most relevant and critical moments. For example, organizations can automatically trigger workflow to proactively reach out to customers that may signal they have had a bad experience or need particular attention.

 

    Strategic Analytics.     Our customer service platform provides analytics that are mission critical for an organization’s operations. In all subscription plans, managers have access to real-time operational efficiency and customer satisfaction analytics at the interaction, agent, and organizational level.

Growth Strategy

We are focused on the following key areas of growth:

 

    Introducing new products and broadening our platform functionality;

 

    Furthering our data-driven approach;

 

 

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    Maintaining our leadership in the SMB market;

 

    Expanding our enterprise customer base;

 

    Continuing to increase our global customer footprint;

 

    Broadening our integrations and partnerships; and

 

    Developing our brand.

Risk Factors Summary

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. These risks include, but are not limited to, the following:

 

    We may fail to adapt our customer service platform, from which we derive substantially all of our revenue and cash flows, to changing market dynamics and customer preferences or achieve increased market acceptance of our platform;

 

    We have a history of losses and we expect our revenue growth rate to decline; as our costs increase, we may not be able to generate sufficient revenue to achieve or sustain profitability;

 

    We have a limited operating history, which makes it difficult to evaluate our prospects and future operating results;

 

    We may not be able to develop enhancements to our customer service platform and live chat software that achieve market acceptance or that keep pace with technological developments;

 

    We may fail to effectively manage our growth and organizational change in a manner that preserves the key aspects of our culture;

 

    The market in which we participate is intensely competitive, and we may not compete effectively;

 

    The market for SaaS business software applications may develop more slowly than we expect or decline;

 

    If we are not successful in selling live chat software as a standalone service or more fully integrating our Zopim live chat software with our customer service platform, our business could be harmed;

 

    Our security measures may be breached or unauthorized access to customer data may otherwise be obtained, causing our platform to be perceived as insecure;

 

    We may experience service interruptions or performance problems associated with our technology and infrastructure;

 

    Real or perceived errors, failures, or bugs in our customer service platform or live chat software may occur;

 

    We depend substantially on our customers renewing their subscriptions and purchasing additional subscriptions from us and we may suffer declines in our customer retention or expansion;

 

    We may fail to effectively expand our sales capabilities; and

 

    Our stock price may be volatile or may decline regardless of our operating performance.

 

 

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General Corporate Information

We were founded in Copenhagen, Denmark in 2007. We reincorporated in Delaware in 2009. Our principal executive offices are located at 989 Market Street, Suite 300, San Francisco, California 94103, and our telephone number is (415) 418-7506. Our website address is www.zendesk.com . Information contained on or that can be accessed through our website does not constitute part of this prospectus and inclusions of our website address in this prospectus are inactive textual references only.

“Zendesk,” “Zopim,” the Lotus flower image, and other trademarks or service marks of Zendesk appearing in this prospectus are the property of Zendesk or its consolidated subsidiaries. This prospectus contains additional trade names, trademarks, and service marks of other companies. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

Implications of Being an Emerging Growth Company

As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise applicable generally to public companies. These provisions include:

 

    a requirement to have only two years of audited financial statements and only two years of related management’s discussion and analysis;

 

    an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal control over financial reporting;

 

    an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

    reduced disclosure about our executive compensation arrangements; and

 

    exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or a shareholder approval of any golden parachute arrangements.

We will remain an emerging growth company until the earliest to occur of: the last day of the fiscal year in which we have more than $1.0 billion in annual revenue; the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and the last day of the fiscal year ending after the fifth anniversary of our initial public offering. We may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. We are choosing to irrevocably “opt out” of the extended transition periods available under the JOBS Act for complying with new or revised accounting standards, but we intend to take advantage of the other exemptions discussed above. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

 

 

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THE OFFERING

 

Common stock offered by us

                  shares

Common stock to be outstanding after this offering

                  shares

Option to purchase additional shares from us

  We have granted the underwriters an option, exercisable for 30 days after the date of this prospectus, to purchase up to an additional                 shares from us.

Use of proceeds

  We estimate that the net proceeds from the sale of shares of our common stock that we are selling in this offering will be approximately $         million (or approximately $         million if the underwriters’ option to purchase additional shares in this offering is exercised in full), based upon 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 

We intend to use the net proceeds that we receive from this offering for working capital or other general corporate purposes, including the expansion of our sales organization, international expansion, further development of our platform, and general and administrative matters.

 

We may also use a portion of the net proceeds to:

 

•  satisfy all or a portion of the anticipated tax withholding and remittance obligations related to the settlement of our outstanding restricted stock units;

•  repay all or some of the outstanding principal and accrued interest on the equipment line of credit or the revolving line of credit under our existing credit facility; and

•  acquire complementary businesses, products, services, or technologies.

 

We also expect to contribute up to              of the net proceeds of this offering to the financial support of our global corporate responsibilities objectives. Among other matters, this may include the establishment and funding of a foundation to manage these efforts.

 

See the section titled “Use of Proceeds” for additional information.

 

 

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Concentration of ownership

  Upon the completion of this offering, our executive officers and directors and stockholders holding more than 5% of our capital stock, and their affiliates, will beneficially own, in the aggregate, approximately     % of our outstanding shares of common stock.

Proposed New York Stock Exchange trading symbol

 


“ZEN”

The number of shares of common stock that will be outstanding after this offering is based on 114,997,171 shares outstanding as of December 31, 2013, assuming the conversion of the redeemable convertible preferred stock outstanding as of December 31, 2013, and excludes:

 

    20,267,882 shares of common stock issuable upon the exercise of options to purchase common stock that were outstanding as of December 31, 2013, with a weighted-average exercise price of $1.41 per share;

 

    1,621,679 shares of our common stock subject to restricted stock units outstanding as of December 31, 2013;

 

    250,000 shares of common stock issuable upon the exercise of a warrant to purchase common stock outstanding as of December 31, 2013, with an exercise price of $0.96 per share;

 

    10,485,375 shares of common stock issuable upon the exercise of options to purchase common stock granted after December 31, 2013 and prior to the date of this prospectus, with a weighted-average exercise price of $4.77 per share;

 

    3,740,300 shares of our common stock subject to restricted stock units granted after December 31, 2013 and prior to the date of this prospectus;

 

    1,803,345 shares of our common stock issued in connection with our acquisition of Zopim completed in March 2014;

 

                       shares of common stock reserved for future issuance under our 2014 Stock Option and Incentive Plan, which will become effective immediately prior to the time that the registration statement of which this prospectus is a part is declared effective by the Securities and Exchange Commission, or the SEC, and includes shares of common stock that were reserved for future grants under our 2009 Stock Option and Grant Plan;

 

    7,250,000 shares of common stock reserved for future issuance under our 2014 Employee Stock Purchase Plan, which will become effective on the date the registration statement of which this prospectus is a part is declared effective by the SEC; and

 

    any shares of common stock that become available subsequent to this offering under our 2014 Stock Option and Incentive Plan and 2014 Employee Stock Purchase Plan pursuant to provisions thereof that automatically increase the share reserves under such plans each year, as more fully described in “Executive Compensation—Employee Benefit and Stock Plans.”

Except as otherwise indicated, all information in this prospectus assumes:

 

    the automatic conversion of all outstanding shares of our redeemable convertible preferred stock as of December 31, 2013 into an aggregate of 68,646,185 shares of common stock, the conversion of which will occur upon the completion of this offering;

 

 

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    the automatic conversion of all outstanding shares of our Series B common stock as of December 31, 2013 into an aggregate of 26,588,610 shares of Series A common stock, the conversion of which will occur upon the completion of this offering;

 

    the amendment of our certificate of incorporation in connection with the completion of this offering to redesignate our outstanding Series A common stock (following the conversion noted above) as common stock;

 

    the filing and effectiveness of our amended and restated certificate of incorporation in Delaware and the adoption of our amended and restated bylaws, each of which will occur upon the completion of this offering; and

 

    no exercise by the underwriters of their option to purchase up to an additional                 shares of common stock from us in this offering.

 

 

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SUMMARY CONSOLIDATED FINANCIAL DATA

The following tables summarize our consolidated financial data. We have derived the consolidated statements of operations data for the years ended December 31, 2012 and 2013 and the consolidated balance sheet data as of December 31, 2013 from our audited consolidated financial statements appearing elsewhere in this prospectus. The consolidated statements of operations data for the year ended December 31, 2011 are derived from unaudited consolidated financial statements that are not included in this prospectus. Our historical results are not necessarily indicative of the results that should be expected in the future. The following summary of consolidated financial data should be read in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     Year Ended December 31,  
             2011                     2012                     2013          
     (In thousands, except per share data)  
     (Unaudited)              

Consolidated Statements of Operations Data:

      

Revenue

   $ 15,598      $ 38,228      $ 72,045   

Cost of revenue (1)

     4,679        13,253        24,531   
  

 

 

   

 

 

   

 

 

 

Gross profit

     10,919        24,975        47,514   

Operating expenses: (1)

      

Research and development

     4,474        14,816        15,288   

Sales and marketing

     9,794        22,749        37,622   

General and administrative

     3,726        11,558        16,437   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     17,994        49,123        69,347   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (7,075     (24,148     (21,833

Other expense, net

     (37     (96     (517
  

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (7,112     (24,244     (22,350

Provision for income taxes

     46        121        221   
  

 

 

   

 

 

   

 

 

 

Net loss

     (7,158     (24,365     (22,571

Accretion of redeemable convertible preferred stock

     (51     (50     (49

Deemed dividend to investors in relation to tender offer

            (8,326       
  

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

     (7,209     (32,741     (22,620

Net loss per share attributable to common stockholders, basic and diluted (2)

   $ (0.23   $ (0.83   $ (0.52
  

 

 

   

 

 

   

 

 

 

Weighted-average shares used to compute net loss per share attributable to common stockholders (2)

     31,182        39,258        43,349   
  

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited) (2)

       $ (0.20
      

 

 

 

Weighted-average shares used to compute pro forma net loss per share attributable to common stockholder (unaudited) (2)

         112,050   
      

 

 

 

 

 

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(1) Includes share-based compensation expense as follows:

 

     Year Ended December 31,  
     2011      2012      2013  
     (In thousands)  
     (Unaudited)                

Cost of revenue

   $ 12       $ 129       $ 254   

Research and development

     50         4,117         635   

Sales and marketing

             1,313         1,210   

General and administrative

     184         4,081         2,755   

 

(2) See Note 10 of the Notes to our Consolidated Financial Statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted net loss per share and pro forma net loss per share attributable to common stockholders and the weighted-average number of shares used in the computation of the per share amounts.

 

     As of December 31, 2013  
     Actual     Pro Forma (1)      Pro Forma as
Adjusted (2)(3)
 
     (In thousands)  

Consolidated Balance Sheet Data:

       

Cash and cash equivalents

   $ 53,725      $ 53,725       $                

Marketable securities

     9,889        9,889      

Working capital

     31,706        31,706      

Property and equipment, net

     15,431        15,431      

Total assets

     92,736        92,736      

Deferred revenue

     29,048        29,048      

Credit facility

     23,760        23,760      

Total liabilities

     67,643        67,643      

Redeemable convertible preferred stock

     71,369             

Total stockholders’ equity (deficit)

     (46,276     25,093      

 

(1) The pro forma column in the consolidated balance sheet data table above reflects the automatic conversion of all outstanding shares of our redeemable convertible preferred stock as of December 31, 2013 into an aggregate of 68,646,185 shares of common stock which conversion will occur upon the completion of this offering, as if such conversion had occurred on December 31, 2013.
(2) The pro forma as adjusted column in the consolidated balance sheet data table above gives effect to the pro forma adjustments set forth in footnote 1 above and the sale and issuance by us of                 shares of common stock in this offering at 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, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(3) Each $1.00 increase or decrease in the 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, would increase or decrease, as applicable, the cash and cash equivalents, working capital, total assets, and total stockholders’ equity by $         million, 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, the cash and cash equivalents, working capital, total assets, and total stockholders’ equity by $         million, assuming an 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. Before you invest in our common stock, you should carefully consider the following risks, together with all of the other information contained in this prospectus, including our financial statements and related notes, before making a decision to invest in our common stock. Any of the following risks could have a material adverse effect on our business, operating results, and financial condition and could cause the trading price of our common stock to decline, which would cause you to lose all or part of your investment.

Risks Related to Our Business

We derive, and expect to continue to derive, substantially all of our revenue and cash flows from our customer service platform. If we fail to adapt this platform to changing market dynamics and customer preferences or to achieve increased market acceptance of our customer service platform, our business, results of operations, financial condition, and growth prospects would be harmed.

We derive, and expect to continue to derive, substantially all of our revenue and cash flows from sales of subscriptions to our customer service platform. As such, the market acceptance of this platform is critical to our success. Demand for our customer service platform is affected by a number of factors, many of which are beyond our control, such as continued market acceptance of our platform by customers for existing and new use cases, the timing of development and release of new products, features, and functionality introduced by our competitors, technological change, and growth or contraction in our addressable market. We expect that an increasing focus on customer satisfaction and the growth of various communications channels will profoundly impact the market for customer support software and blur distinctions between traditionally separate systems for customer support, marketing automation, and customer relationship management, enabling new competitors to emerge. If we are unable to meet customer demands to manage customer experiences through flexible solutions designed to address all these needs or otherwise achieve more widespread market acceptance of our customer service platform, our business, results of operations, financial condition, and growth prospects will be adversely affected.

We have a history of losses and we expect our revenue growth rate to decline. As our costs increase, we may not be able to generate sufficient revenue to achieve and sustain our profitability.

We have incurred net losses in each year since our inception, including net losses of $24.4 million and $22.6 million in the years ended December 31, 2012 and 2013, respectively. We had an accumulated deficit of $64.5 million at December 31, 2013. From the year ended December 31, 2012 to the year ended December 31, 2013, our revenue grew from $38.2 million to $72.0 million, which represents an annual growth rate of 88%. We expect that our revenue growth rate will decline over time. We may not be able to generate sufficient revenue to achieve and sustain profitability as we also expect our costs to increase in future periods. We expect to continue to expend substantial financial and other resources on:

 

    development of our customer service platform, including investments in our research and development team, the development or acquisition of new products, features and functionality, and improvements to the scalability, availability, and security of our customer service platform;

 

    our technology infrastructure, including expansion of our activities in third-party data centers in which we lease space and where we manage our own hosting and network equipment, or self-managed colocation data centers, enhancements to our network operations and infrastructure, and hiring of additional employees for our operations team;

 

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    sales and marketing, including a significant expansion of our direct sales organization;

 

    additional international expansion in an effort to increase our customer base and sales; and

 

    general administration, including legal, accounting, and other expenses related to being a public company.

These investments may not result in increased revenue or growth of our business. If we fail to continue to grow our revenue, our operating results, and business would be harmed.

We have a limited operating history, which makes it difficult to evaluate our prospects and future operating results.

We incorporated and first launched our customer service platform in 2007. As a result of our limited operating history, our ability to forecast our future operating results is limited and subject to a number of uncertainties, including our ability to plan for and model future growth. Our historical revenue growth has been inconsistent, and should not be considered indicative of our future performance. Further, in future periods, our revenue could decline for a number of reasons, including any reduction in demand for our customer service platform or live chat software, increase in competition, contraction of our overall market, or our failure, for any reason, to capitalize on growth opportunities. We have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as the risks and uncertainties described herein. If our assumptions regarding these risks and uncertainties, which we use to plan our business, are incorrect or change, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations, and our business could suffer.

If we are not able to develop enhancements to our customer service platform or live chat software that achieve market acceptance and that keep pace with technological developments, our business would be harmed.

Our ability to attract new customers and increase revenue from existing customers depends in large part on our ability to enhance and improve our existing platform and live chat software and to introduce new products and services. In order to grow our business, we must develop products and services that reflect the changing nature of customer service, and expand beyond customer service to other areas of managing relationships with customers. The success of any enhancement to our customer service platform or live chat software depends on several factors, including timely completion, adequate quality testing, and market acceptance. Any new product or service that we develop may not be introduced in a timely or cost-effective manner, may contain defects, or may not achieve the market acceptance necessary to generate sufficient revenue. If we are unable to successfully develop new products or services, enhance our existing customer service platform and live chat software to meet customer requirements, or otherwise gain market acceptance, our business and operating results will be harmed.

Because our customer service platform and live chat software are available over the Internet, we need to continuously modify and enhance them to keep pace with changes in Internet-related hardware, software, communications, and database technologies and standards. If we are unable to respond in a timely and cost-effective manner to these rapid technological developments and changes in standards, our customer service platform and live chat software may become less marketable, less competitive, or obsolete, and our operating results will be harmed.

 

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If we fail to effectively manage our growth and organizational change in a manner that preserves the key aspects of our culture, our business and operating results could be harmed.

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, operational, and financial resources. For example, our headcount has grown from 287 employees on December 31, 2012 to 473 employees on December 31, 2013. In addition, we have established subsidiaries in Denmark, the United Kingdom, Australia, Ireland, Japan, the Philippines, and Brazil since our inception in 2007, and, as a result of the acquisition of Zopim, we also have a subsidiary in Singapore. We may continue to expand our international operations into other countries in the future. We have also experienced significant growth in the number of customers, end users, transactions, and data that our customer service platform and our associated hosting infrastructure support. Finally, our organizational structure is becoming more complex and we may need to scale and adapt our operational, financial, and management controls, as well as our reporting systems and procedures to manage this complexity. We will require significant capital expenditures and the allocation of valuable management resources to grow and change in these areas without undermining our corporate culture of rapid innovation, simplicity in design, and attention to customer satisfaction that has been critical to our growth so far. If we fail to manage our anticipated growth and change in a manner that preserves the key aspects of our culture, the quality of our products and services may suffer, which could negatively affect our brand and reputation and harm our ability to retain and attract customers.

The market in which we participate is intensely competitive, and if we do not compete effectively, our operating results could be harmed.

The market for customer service solutions is fragmented, rapidly evolving, and highly competitive, with relatively low barriers to entry. Among the small to medium sized organizations that make up a large proportion of our customers, we often compete with general use computer applications and other tools, which these organizations use to provide support and which can be deployed for little or no cost. These include shared accounts for email communication, phone banks for voice communication, and pen and paper, text editors, and spreadsheets for tracking and management. With respect to larger organizations and enterprises seeking to deploy a customer service software system, we have many competitors that are larger and which have greater name recognition, much longer operating histories, more established customer relationships, larger marketing budgets, and significantly greater resources, than we do.

Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or customer requirements. With the introduction of new technologies, the evolution of our platform, and new market entrants, we expect competition to intensify in the future. Pricing pressures and increased competition generally could result in reduced sales, reduced margins, losses, or the failure of our platform to achieve or maintain more widespread market acceptance, any of which could harm our business.

We face competition from in-house software systems, large integrated systems vendors, and smaller companies offering alternative SaaS applications. Our competitors vary in size and in the breadth and scope of the products and services they offer. We face substantial competition from salesforce.com, Inc., Oracle Corporation, and Microsoft Corporation, each of which can bundle competing products and services with other software offerings, or offer them at a low price as part of a larger sale. In addition, we compete with a number of other SaaS providers with focused customer support applications, including desk.com (a salesforce.com service), Kayako Helpdesk Pvt. Ltd., Freshdesk, Inc., Brightwurks, Inc. (Help Scout), SupportBee, Inc., and Tenmiles Technologies Pvt. Ltd. (Happy Fox), many of which offer free or significantly discounted prices for their services. Further, other established SaaS providers not currently focused on customer support may expand their services to compete with us. Many of our current and potential competitors have established marketing

 

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relationships, access to larger customer bases, pre-existing customer relationships, and major distribution agreements with consultants, system integrators, and resellers. Additionally, some potential customers, particularly large organizations, have elected, and may in the future elect, to develop their own internal customer support software system. Certain of our competitors have partnered with, or have acquired, and may in the future partner with or acquire, other competitors to offer services, leveraging their collective competitive positions, which makes, or would make, it more difficult to compete with them. For all of these reasons, we may not be able to compete successfully against our current and future competitors, which would harm our business.

If the market for SaaS business software applications develops more slowly than we expect or declines, our business would be adversely affected.

The market for SaaS business software applications is less mature than the market for on-premise business software applications, and the adoption rate of SaaS business software applications may be slower among subscribers in industries with heightened data security interests or business practices requiring highly customizable application software. Our success will depend to a substantial extent on the widespread adoption of SaaS business applications in general, and of SaaS customer service applications in particular. Many organizations have invested substantial personnel and financial resources to integrate traditional on-premise business software applications into their businesses, and therefore may be reluctant or unwilling to migrate to SaaS applications. It is difficult to predict customer adoption rates and demand for our customer service platform and live chat software, the future growth rate and size of the SaaS business applications market or the entry of competitive applications. The expansion of the SaaS business applications market depends on a number of factors, including the cost, performance, and perceived value associated with SaaS, as well as the ability of SaaS providers to address data security and privacy concerns. Additionally, government agencies have adopted, or may adopt, laws and regulations regarding the collection and use of personal information obtained from consumers and other individuals, or may seek to access information on our platform, either of which may reduce the overall demand for our platform. If we or other SaaS providers experience data security incidents, loss of customer data, disruptions in delivery, or other problems, the market for SaaS business applications, including our customer service platform and live chat software, may be negatively affected. If SaaS business applications do not continue to achieve market acceptance, or there is a reduction in demand for SaaS business applications caused by a lack of customer acceptance, technological challenges, weakening economic conditions, data security or privacy concerns, governmental regulation, competing technologies and products, or decreases in information technology spending, it would result in decreased revenue and our business would be adversely affected.

If we are not successful in selling our live chat software as a standalone service or more fully integrating our Zopim live chat software with our customer service platform, our business could be harmed.

As a result of the acquisition of Zopim, we now sell the Zopim live chat software as a standalone service. The Zopim live chat software can also be integrated with our customer service platform as a means to enable live chat functionality for agents and we expect this integration to be the primary means by which we offer chat functionality on our customer service platform in the future.

We have limited experience selling separate products in general or live chat software in particular, and as a result, our live chat software may not gain acceptance with our customers and potential customers.

Our expected reliance on the Zopim live chat software as a primary means of enabling chat functionality in connection with our customer service platform may not be successful. In particular, we

 

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expect to charge a separate subscription fee per chat-enabled agent. While we believe the Zopim live chat software represents a substantial upgrade in functionality over the chat functionality currently embedded in our customer service platform, our current or prospective customers may resist paying for functionality that, to some degree, was previously available to all agents under a single subscription to our customer service platform. If our customers do not purchase the Zopim live chat software as a standalone service or as integrated with customer service platform, our business, revenue, and operating results could be harmed.

If our security measures are breached or unauthorized access to customer data is otherwise obtained, our customer service platform and live chat software may be perceived as insecure, we may lose existing customers or fail to attract new customers, and we may incur significant liabilities.

Use of our customer service platform and live chat software involve the storage, transmission, and processing of our customers’ proprietary data, including personal or identifying information regarding their customers or employees. Unauthorized access or security breaches of our customer service platform or live chat software could result in the loss of data, loss of business, severe reputational damage adversely affecting customer or investor confidence, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, and significant costs for remediation that may include liability for stolen assets or information and repair of system damage that may have been caused, incentives offered to customers or other business partners in an effort to maintain business relationships after a breach, and other liabilities. We have incurred and expect to incur significant expenses to prevent security breaches, including deploying additional personnel and protection technologies, training employees, and engaging third-party experts and consultants. Our errors and omissions insurance coverage covering certain security and privacy damages and claim expenses may not be sufficient to compensate for all liability.

We have experienced significant breaches of our security measures and our customer service platform and live chat software are at risk for future breaches as a result of third-party action, employee, vendor, or contractor error, malfeasance, or other factors. For example, in February 2013, we experienced a security breach involving unauthorized access to three of our customers’ accounts and personal information of consumers maintained in those customer accounts.

We have only been offering the Zopim live chat software since the completion of our acquisition of Zopim in March 2014. We are aware that Zopim experienced breaches of its security measures prior to the acquisition. The systems, networks, personnel, equipment, and vendors utilized to provide our live chat software are entirely separate from those utilized in connection with our customer service platform and have not been subject to the same security reviews and assessments as those used to provide our customer service platform. Our failure to complete these assessments and implement improvements to the security measures deployed to protect our live chat software in a timely manner could increase our risk of a security breach with respect to this service, which would harm our business as a whole.

Because the techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period.

Because data security is a critical competitive factor in our industry, we make numerous statements in our privacy policies and terms of service, through our certifications to privacy standards, and in our marketing materials, providing assurances about the security of our customer service platform and live chat software including detailed descriptions of security measures we employ. Should

 

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any of these statements be untrue or become untrue, even through circumstances beyond our reasonable control, we may face claims of misrepresentation or deceptiveness by the U.S. Federal Trade Commission, state and foreign regulators, and private litigants.

Interruptions or performance problems associated with our technology and infrastructure may adversely affect our business and operating results.

Our continued growth depends in part on the ability of our existing and potential customers to access our customer service platform and live chat software at any time and within an acceptable amount of time. Our customer service platform and live chat software are proprietary, and we rely on the expertise of members of our engineering, operations, and software development teams for their continued performance. We have experienced, and may in the future experience, disruptions, outages, and other performance problems due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints due to an overwhelming number of users accessing our customer service platform or live chat software simultaneously, denial of service attacks, or other security related incidents. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve our performance, especially during peak usage times and as our customer service platform and live chat software become more complex and our user traffic increases. If our customer service platform or live chat software is unavailable or if our users are unable to access our customer service platform or live chat software within a reasonable amount of time or at all, our business would be negatively affected. In addition, our infrastructure does not currently include the real-time mirroring of data. Therefore, in the event of any of the factors described above, or certain other failures of our infrastructure, customer data may be permanently lost. Moreover, some of our customer agreements include performance guarantees and service level standards that obligate us to provide credits or termination rights in the event of a significant disruption in our platform. To the extent that we do not 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 business and operating results may be adversely affected.

Real or perceived errors, failures, or bugs in our customer service platform or live chat software could adversely affect our operating results and growth prospects.

Because our customer service platform and live chat software are complex, undetected errors, failures, vulnerabilities, or bugs may occur, especially when updates are deployed. Our customer service platform and live chat software are 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 our customer service platform, our live chat software, or other aspects of the computing environment into which they are deployed. In addition, deployment of our customer service platform or live chat software into complicated, large-scale computing environments may expose undetected errors, failures, vulnerabilities, or bugs in our customer service platform or live chat software. Despite testing by us, errors, failures, vulnerabilities, or bugs may not be found in our customer service platform or live chat software until after they are deployed to our customers. We have discovered and expect will continue to discover software errors, failures, vulnerabilities, and bugs in our customer service platform and live chat software and anticipate that certain of these errors, failures, vulnerabilities, and bugs will only be discovered and remediated after deployment to customers. Real or perceived errors, failures, or bugs in our customer service platform or live chat software could result in negative publicity, loss of or delay in market acceptance of our customer service platform or live chat software, loss of competitive position, or claims by customers for losses sustained by them. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem.

 

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Incorrect or improper implementation or use of our customer service platform or live chat software could result in customer dissatisfaction and negatively affect our business, results of operations, financial condition, and growth prospects.

Our customer service platform and live chat software are deployed in a wide variety of technology environments and into a broad range of complex workflows. Increasingly, our customer service platform and live chat software have been integrated into large-scale, complex technology environments, and specialized use cases, and we believe our future success will depend on our ability to increase use of our customer service platform and live chat software in such deployments. We often assist our customers in implementing our customer service platform and live chat software, but many customers attempt to implement even complex deployments themselves. If we or our customers are unable to implement our customer service platform or live chat software successfully, or unable to do so in a timely manner, customer perceptions of our customer service platform, our live chat software, and company may be impaired, our reputation and brand may suffer, and customers may choose not to renew or expand the use of our customer service platform or live chat software.

Our customers and third-party partners may need training in the proper use of our customer service platform or live chat software to maximize its potential. If our customer service platform or live chat software is not implemented or used correctly or as intended, inadequate performance may result. Because our customers rely on our customer service platform to manage a wide range of operations, the incorrect or improper implementation or use of our customer service platform, our failure to train customers on how to efficiently and effectively use our customer service platform, or our failure to provide adequate product support to our customers, may result in negative publicity or legal claims against us. Also, as we continue to expand our customer base, any failure by us to properly provide these services will likely result in lost opportunities for additional subscriptions to our customer service platform and live chat software.

Any failure to offer high-quality product support may adversely affect our relationships with our customers and our financial results.

In deploying and using our customer service platform and live chat software, our customers depend on our product support team to resolve complex technical and operational issues. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for product support. We also may be unable to modify the nature, scope, and delivery of our product support to compete with changes in product support services provided by our competitors. Increased customer demand for product support, without corresponding revenue, could increase costs and adversely affect our operating results. Our sales are highly dependent on our business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality product support, or a market perception that we do not maintain high-quality product support, could adversely affect our reputation, our ability to sell our customer service platform and live chat software to existing and prospective customers, our business, operating results, and financial position.

We depend on our executive officers and other key employees and the loss of one or more of these employees or an inability to attract and retain highly skilled employees could adversely affect our business.

Our success depends largely upon the continued services of our executive officers and other key employees. We rely on our leadership team in the areas of research and development, operations, security, marketing, sales, support, general and administrative functions, and on individual contributors in our research and development and operations. 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

 

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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 of our executive officers, especially our Chief Executive Officer, or key employees could have an adverse effect on our business.

In addition, to execute our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel in the San Francisco Bay Area, where our headquarters is located, and in other locations where we maintain offices, is intense, especially for engineers experienced in designing and developing software and SaaS applications and experienced sales professionals. 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 their legal obligations, resulting in a diversion of our time and resources. In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, it may adversely affect our ability to recruit and retain highly skilled employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be adversely affected.

We are highly dependent upon free trials of our customer service platform and live chat software and other inbound lead generation strategies to drive our sales and revenue. If these strategies fail to continue to generate sales opportunities or do not convert into paying customers, our business and results of operations would be harmed.

We are highly dependent upon our marketing strategy of offering free trials of our customer service platform and live chat software and other inbound lead generation strategies to generate sales opportunities. These strategies may not be successful in continuing to generate sufficient sales opportunities necessary to increase our revenue. Many users never convert from the trial version to the paid version of our customer service platform or live chat software. Further, we often depend on individuals within an organization who initiate the trial versions of our customer service platform and live chat software being able to convince decision makers within their organization to convert to a paid version. Many of these organizations have complex and multi-layered purchasing requirements. To the extent that these users do not become, or are unable to convince others to become, paying customers, we will not realize the intended benefits of this marketing strategy and our ability to grow our revenue will be adversely affected.

We employ a pricing model that subjects us to various challenges that could make it difficult for us to derive sufficient value from our customers.

We charge our customers for their use of our customer service platform based on the number of users they enable as “agents” to provide customer service under their customer account. At the same time, we provide features and functionality within our customer service platform that enable our customers to promote customer self-service and otherwise efficiently and cost-effectively address product support requests without the need for substantial human interaction. As a result of these features, customer agent staffing requirements may be minimized and our revenue may be adversely impacted.

We separately charge on a per agent basis for the use of our live chat software. Historically, we have provided limited chat functionality for all agents within our customer service platform for no additional charge. In the future, we expect to require a separate subscription to enable chat functionality in connection with our customer service platform. We do not know whether our customers or the market in general will accept this change in our pricing model and if it fails to gain acceptance our business and results of operations could be harmed.

 

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Our terms of service prohibit the sharing of user logins and passwords. These restrictions may be improperly circumvented or otherwise bypassed by certain users and, if they are, we may not be able to capture the full value for the use of our customer service platform. We license access and use of our customer service platform and live chat software exclusively for our customers’ internal use only. If customers improperly resell or otherwise make our customer service platform or live chat software available to their customers, it may cannibalize our sales or commoditize our customer service platform and live chat software in the market. Additionally, if a customer that has received a volume discount from us offers our customer service platform to its customers in violation of our terms of service, we may experience price erosion and be unable to capture sufficient value from the use of our customer service platform or live chat software by those customers.

While our terms of service provide us the ability to enforce our terms, our customers may resist or refuse to allow us to audit their usage, in which case we may have to pursue legal recourse to enforce our rights. Any such enforcement action would require us to spend money, distract management, and potentially adversely affect our relationship with our customers.

We do not have the history with our subscription or pricing models necessary to accurately predict optimal pricing necessary to attract new customers and retain existing customers.

We have limited experience with respect to determining the optimal prices for our customer service platform and live chat software and as a result, we have in the past and expect in the future that we will need to change our pricing model from time to time. For example, in September 2013, we changed the way we price subscription plans for our customer service platform and have not yet determined the long-term impact of this change. As the market for our customer service platform and live chat software matures, or as new competitors introduce new products or services that compete with ours, we may be unable to attract new customers at the same price or based on the same pricing models as we have used historically. Pricing decisions may also impact the mix of adoption among our subscription plans and negatively impact our overall revenue. Moreover, larger organizations, which are a primary focus of our direct sales efforts, may demand substantial price concessions. As a result, in the future we may be required to reduce our prices, which could adversely affect our revenue, gross margin, profitability, financial position, and cash flow.

Our financial results may fluctuate due to increasing variability in our sales cycles.

We plan our expenses based on certain assumptions about the length and variability of our sales cycle. These assumptions are based upon historical trends for sales cycles and conversion rates associated with our existing customers, many of whom to date have been small to medium-sized organizations that make purchasing decisions without interacting with our sales or other personnel. As we continue to focus on and become more dependent on sales to larger organizations, we expect our sales cycles to lengthen and become less predictable. This may adversely affect our financial results. Factors that may influence the length and variability of our sales cycle include:

 

    the need to educate prospective customers about the uses and benefits of our customer service platform and live chat software;

 

    the discretionary nature of purchasing and budget cycles and decisions;

 

    the competitive nature of evaluation and purchasing processes;

 

    evolving functionality demands;

 

    announcements or planned introductions of new products, features, or functionality by us or our competitors; and

 

    lengthy purchasing approval processes.

 

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Our increasing dependence on sales to larger organizations may increase the variability of our financial results. If we are unable to close one or more expected significant transactions with these customers in a particular period, or if an expected transaction is delayed until a subsequent period, our operating results for that period, and for any future periods in which revenue from such transaction would otherwise have been recognized, may be adversely affected.

Our quarterly results may fluctuate for various other reasons, and if we fail to meet the expectations of analysts or investors, our stock price and the value of your investment could decline substantially.

Our quarterly financial results may fluctuate as a result of a variety of other factors, many of which are outside of our control. If our quarterly financial results fall below the expectations of investors or any securities analysts who follow our stock, the price of our common stock could decline substantially. Some of the important factors that may cause our revenue, operating results, and cash flows to fluctuate from quarter to quarter include:

 

    our ability to attract new customers, retain and increase sales to existing customers, and satisfy our customers’ requirements;

 

    the number of new employees added;

 

    the rate of expansion and productivity of our sales force;

 

    changes in our or our competitors’ pricing policies;

 

    the amount and timing of operating costs and capital expenditures related to the operations and expansion of our business;

 

    new products, features, or functionalities introduced by our competitors;

 

    significant security breaches, technical difficulties, or interruptions to our customer service platform or live chat software;

 

    the timing of customer payments and payment defaults by customers;

 

    general economic conditions that may adversely affect either our customers’ ability or willingness to purchase additional subscriptions, delay a prospective customer’s purchasing decision, reduce the value of new subscription contracts, or affect customer retention;

 

    changes in the relative and absolute levels of professional services we provide;

 

    changes in foreign currency exchange rates;

 

    extraordinary expenses such as litigation or other dispute-related settlement payments;

 

    the impact of new accounting pronouncements; and

 

    the timing of the grant or vesting of equity awards to employees.

Many of these factors are outside of our control, and the occurrence of one or more of them might cause our revenue, operating results, and cash flows to vary widely. As such, we believe that quarter-to-quarter comparisons of our revenue, operating results, and cash flows may not be meaningful and should not be relied upon as an indication of future performance.

 

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Unfavorable conditions in our industry or the global economy or reductions in information technology spending could limit our ability to grow our business and negatively affect our operating results.

Our operating results may vary based on the impact of changes in our industry or the global economy on us or our customers. The revenue growth and potential profitability of our business depend on demand for business software applications and services generally and for customer service systems in particular. In addition, our revenue is entirely dependent on the number of users of our customer service platform or live chat software at each of our customers, which in turn is influenced by the employment and hiring patterns of our customers. To the extent that weak economic conditions cause our customers and prospective customers to freeze or reduce their hiring for personnel providing service and support, demand for our customer service platform and live chat software may be negatively affected. Historically, during economic downturns there have been reductions in spending on information technology and customer service systems as well as pressure for extended billing terms and other financial concessions. If economic conditions deteriorate, our customers and prospective customers may elect to decrease their information technology and customer service budgets, which would limit our ability to grow our business and negatively affect our operating results.

Our business depends substantially on our customers renewing their subscriptions and purchasing additional subscriptions from us. Any decline in our customer retention or expansion would harm our future operating results.

In order for us to maintain or improve our operating results, it is important that our customers renew their subscriptions when the initial contract term expires and add additional authorized users to their customer accounts. Even though the majority of our revenue is derived from subscriptions to our customer service platform that have terms longer than one month, a significant portion of the subscriptions to our customer service platform have monthly terms. Our customers have no obligation to renew their subscriptions, and our customers may not renew subscriptions with a similar contract period or with the same or a greater number of agents. Some of our customers have elected not to renew their agreements with us and we do not have enough history to accurately predict long-term customer retention.

Our customer retention may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our customer service platform or live chat software, our product support, our prices, the prices of competing software systems, mergers and acquisitions affecting our customer base, the effects of global economic conditions, or reductions in our customers’ spending levels. Our future success is also substantially dependent on our ability to sell more subscriptions to our current customers. If our customers do not renew their subscriptions, renew on less favorable terms or fail to add more agents, our revenue may decline, and we may not realize improved operating results from our customer base.

We face a number of risks in our strategy to increasingly target larger organizations for sales of our customer service platform and live chat software and, if we do not manage these efforts effectively, our business and results of operations could be adversely affected.

As we target more of our sales efforts to larger organizations, we expect to incur higher costs and longer sales cycles and we may be less effective at predicting when we will complete these sales. In this market segment, the decision to subscribe to our customer service platform or live chat software may require the approval of more technical personnel and management levels within a potential customer’s organization than we have historically encountered, and if so, these types of sales would require us to invest more time educating these potential customers. In addition, larger organizations may demand more features and integration services. We have limited experience in developing and managing sales channels and distribution arrangements for larger organizations. As a result of these

 

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factors, these sales opportunities may require us to devote greater research and development, sales, product support, and professional services resources to individual customers, resulting in increased costs and reduced profitability, and would likely lengthen our typical sales cycle, which could strain our resources. Moreover, these larger transactions may require us to delay recognizing the associated revenue we derive from these customers until any technical or implementation requirements have been met, and larger customers may demand discounts to the subscription prices they pay for our customer service platform or live chat software. Furthermore, because we have limited experience selling to larger organizations, our investment in marketing our customer service platform to these potential customers may not be successful, which could harm our results of operations and our overall ability to grow our customer base. Following sales to larger organizations, we may have fewer opportunities to expand usage of our customer service platform or sell additional functionality, and we may experience increased subscription terminations as compared to our experience with smaller organizations, any of which could harm our results of operations.

Failure to effectively expand our sales capabilities could harm our ability to increase our customer base and achieve broader market acceptance of our platform.

Increasing our customer base and achieving broader market acceptance of our customer service platform and live chat software will depend, to a significant extent, on our ability to effectively expand our sales and marketing operations and activities. We are substantially dependent on our online marketing efforts and on our direct sales force to obtain new customers. From December 31, 2012 to December 31, 2013, our sales and marketing organizations increased from 85 to 165 employees. We plan to continue to expand our direct sales force both domestically and internationally and to increase the proportion of our sales professionals that have experience in selling to larger organizations. We believe that there is significant competition for experienced sales professionals with the sales skills and technical knowledge that we require. Our ability to achieve significant revenue growth in the future will depend, in part, on our success in recruiting, training, and retaining a sufficient number of experienced sales professionals. New hires require significant training and time before they achieve full productivity, particularly in new sales segments and territories. Our recent hires and planned hires may not become as productive as quickly as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the future in the markets where we do business. Because we do not have a long history of expanding our sales force, we cannot predict whether, or to what extent, our sales will increase as we expand our sales force or how long it will take for sales personnel to become productive. Our business will be harmed if our sales expansion efforts do not generate a significant increase in revenue.

If we are unable to develop and maintain successful relationships with channel partners, our business, operating results, and financial condition could be adversely affected.

To date, we have been primarily dependent on word-of-mouth, online marketing, and our direct sales force to sell subscriptions to our customer service platform and live chat software. Although we have developed certain channel partners, such as referral partners, resellers, and integration partners, these channels have resulted in limited revenue to date. We believe that continued growth in our business is dependent upon identifying, developing, and maintaining strategic relationships with additional channel partners that can drive substantial revenue. Our agreements with our existing channel partners are non-exclusive, meaning our channel partners may offer customers the products of several different companies, including products that compete with ours. They may also cease marketing our customer service platform and live chat software with limited or no notice and with little or no penalty. We expect that any additional channel partners we identify and develop will be similarly non-exclusive and not bound by any requirement to continue to market our customer service platform or live chat software. If we fail to identify additional channel partners, in a timely and cost-effective manner, or at all, or are unable to assist our current and future channel partners in independently

 

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selling and deploying our customer service platform or live chat software, our business, results of operations, and financial condition could be adversely affected. If our channel partners do not effectively market and sell our customer service platform or live chat software, or fail to meet the needs of our customers, our reputation and ability to grow our business may also be adversely affected.

Sales by channel partners are more likely than direct sales to involve collectability concerns, in particular sales by our channel partners into developing markets, and accordingly, variations in the mix between revenue attributable to sales by channel partners and revenue attributable to direct sales may result in fluctuations in our operating results.

If we are not able to maintain and enhance our brand, our business, operating results, and financial condition may be adversely affected.

We believe that maintaining and enhancing our reputation as a differentiated and category-defining company in customer service is critical to our relationships with our existing customers and to our ability to attract new customers. The successful promotion of our brand attributes will depend on a number of factors, including our marketing efforts, our ability to continue to develop high-quality software, and our ability to successfully differentiate our customer service platform from competitive products and services. We are highly dependent upon “consumer” tactics, including an emphasis on simplicity and a sense of humor in our advertising, to build our brand and develop brand loyalty. We do not have sufficient history to know if such brand promotion activities will ultimately be successful or yield increased revenue relative to traditional enterprise software marketing strategies. In addition, independent industry analysts often provide reviews of our customer service platform, as well as products and services offered by our competitors, and perception of our platform in the marketplace may be significantly influenced by these reviews. If these reviews are negative, or less positive as compared to those of our competitors’ products and services, our brand may be adversely affected. It may also be difficult to maintain and enhance our brand in connection with sales through channel or strategic partners.

The promotion of our brand requires us to make substantial expenditures, and we anticipate that the expenditures will increase as our market becomes more competitive, as we expand into new markets, and as more sales are generated through our channel partners. To the extent that these activities yield increased revenue, this revenue may not offset the increased expenses we incur. If we do not successfully maintain and enhance our brand, our business may not grow, we may have reduced pricing power relative to competitors, and we could lose customers or fail to attract potential customers, all of which would adversely affect our business, results of operations, and financial condition.

Our international sales and operations subject us to additional risks that can adversely affect our business, operating results, and financial condition.

In each of the years ended December 31, 2012 and 2013, we derived 41% of our revenue from customers outside the United States, and we are continuing to expand our international operations as part of our growth strategy. We currently have sales personnel and sales and product support operations in the United States and certain countries across Europe, Australia, Asia, and South America. Our sales organization outside the United States is substantially smaller than our sales organization in the United States and to date a very limited portion of our sales has been driven by resellers or other channel partners. We believe our ability to convince new customers to subscribe to our platform or to convince existing customers to renew or expand their use of our platform is directly correlated to the level of engagement we obtain with the customer. To the extent we are unable to effectively engage with non-U.S. customers due to our limited sales force capacity and limited channel partners, we may be unable to effectively grow in international markets.

 

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Our international operations subject us to a variety of additional risks and challenges, including:

 

    increased management, travel, infrastructure, and legal compliance costs associated with having multiple international operations;

 

    longer payment cycles and difficulties in enforcing contracts, collecting accounts receivable, or satisfying revenue recognition criteria, especially in emerging markets;

 

    increased financial accounting and reporting burdens and complexities;

 

    requirements or preferences for domestic products;

 

    differing technical standards, existing or future regulatory and certification requirements and required features and functionality;

 

    economic conditions in each country or region and general economic uncertainty around the world;

 

    compliance with foreign privacy and security laws and regulations and the risks and costs of non-compliance;

 

    compliance with laws and regulations for foreign operations, including anti-bribery laws (such as the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. Travel Act, and the U.K. Bribery Act 2010), import and export control laws, tariffs, trade barriers, economic sanctions, and other regulatory or contractual limitations on our ability to sell our customer service platform or live chat software in certain foreign markets, and the risks and costs of non-compliance;

 

    heightened risks of unfair or corrupt business practices in certain geographies and of improper or fraudulent sales arrangements that may impact our financial results and result in restatements of our consolidated financial statements;

 

    fluctuations in currency exchange rates and related effect on our operating results;

 

    difficulties in repatriating or transferring funds from or converting currencies in certain countries;

 

    communication and integration problems related to entering new markets with different languages, cultures, and political systems;

 

    differing labor standards, including restrictions related to, and the increased cost of, terminating employees in some countries;

 

    the need for localized software and licensing programs;

 

    the need for localized language support;

 

    reduced protection for intellectual property rights in some countries and practical difficulties of enforcing rights abroad; and

 

    compliance with the laws of numerous foreign taxing jurisdictions, including withholding obligations, and overlapping of different tax regimes.

Any of these risks could adversely affect our international operations, reduce our international revenue, or increase our operating costs, adversely affecting our business, operating results, financial condition, and growth prospects.

Compliance with laws and regulations applicable to our international operations substantially increases our cost of doing business in foreign jurisdictions. We may be unable to keep current with changes in government requirements as they change from time to time. Failure to comply with these regulations could have adverse effects on our business. In many foreign countries it is common for others to engage in business practices that are prohibited by our internal policies and procedures or

 

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U.S. or other regulations applicable to us. Although we have implemented policies and procedures designed to ensure compliance with these laws and policies, there can be no assurance that all of our employees, contractors, partners, and agents will comply with these laws and policies. Violations of laws or key control policies by our employees, contractors, partners, or agents could result in delays in revenue recognition, financial reporting misstatements, enforcement actions, disgorgement of profits, fines, civil and criminal penalties, damages, injunctions, other collateral consequences, or the prohibition of the importation or exportation of our platform and services and could adversely affect our business and results of operations.

We are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate the controls.

We are subject to U.S. export controls, and we incorporate encryption technology into our customer service platform that is enabled through mobile applications and other software we may be deemed to export. These encryption products and the underlying technology may be exported outside of the United States only with the required export authorizations, including by license, a license exception or other appropriate government authorizations, including the filing of an encryption registration. We previously deployed mobile applications prior to obtaining the required export authorizations. Accordingly, we have not fully complied with applicable encryption controls in U.S. export administration regulations. As discussed further below, in 2013, we filed Final Voluntary Disclosures to relevant U.S. enforcement authorities regarding our failure to obtain required export authorizations.

Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products and services to countries, governments, and persons targeted by U.S. sanctions. While we are currently taking precautions to prevent our customer service platform and live chat software from being enabled by persons targeted by U.S. sanctions, including IP blocking and periodic customer screening against U.S. government lists of prohibited persons, such measures may be circumvented.

We are aware that trials of and subscriptions to our customer service platform have been initiated by persons and organizations in countries that are the subject of U.S. embargoes. Our provision of service in these instances was likely in violation of U.S. export control and sanctions laws. We have terminated the accounts of such organizations as we have become aware of them, and in April 2013, we filed Final Voluntary Self Disclosures with the U.S. Department of Commerce’s Bureau of Industry and Security, or BIS, and the U.S. Department of Treasury’s Office of Foreign Assets Control, or OFAC, concerning prior potential violations. In May 2013, OFAC notified us that it had completed its review of these matters and closed its review with the issuance of a cautionary letter. In July 2013, BIS notified us that it had completed its review with the issuance of a warning letter. No monetary penalties or other sanctions were imposed by either agency in connection with their investigations.

Prior to our acquisition of the Singapore-based company Zopim, Zopim’s service was provided from servers based in the United States to a number of persons and organizations located in Iran, a country that is subject to U.S. economic sanctions. Zopim also made available for download from the United States certain encryption-functionality software without first having obtained U.S. government authorization to export such software. In these instances, Zopim may have acted in violation of U.S. export controls and sanctions laws. Prior to and as a condition of the completion of our acquisition, Zopim terminated the subscriptions of those customers believed to be located in Iran, screened its customers against applicable U.S. government lists of prohibited persons, implemented measures designed to prevent future unauthorized access to the service, and obtained U.S. government authorization to export its software. Zopim also filed initial voluntary disclosures with OFAC and BIS on March 18, 2014 to alert these agencies of the apparent violations, and will supplement those disclosures with final reports after completing its investigation.

 

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If we are found to be in violation of U.S. sanctions or export control laws, it could result in fines or penalties for us and for individuals, including civil penalties of up to $250,000 or twice the value of the transaction, whichever is greater, per violation, and in the event of conviction for a criminal violation, fines of up to $1 million and possible incarceration for responsible employees and managers for willful and knowing violations. Each instance in which we provide service through our customer service platform or live chat software or in which unlicensed encryption functionality software is downloaded may constitute a separate violation of these laws.

We also note that if our channel partners fail to obtain appropriate import, export or re-export licenses or permits, we may also be adversely affected, through reputational harm as well as other negative consequences including government investigations and penalties. We presently incorporate sanctions compliance requirements in our channel partner agreements for our customer service platform. Complying with export control and sanctions regulations for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities. Failure to comply with export control and sanctions regulations for a particular sale may expose us to government investigations and penalties, which could have an adverse effect on our business, operating results, and financial condition.

In addition, various countries regulate the import of certain encryption technology, including import permitting and licensing requirements, and have enacted laws that could limit our ability to offer our platform or distribute our platform or could limit our customers’ ability to implement our platform in those countries. Changes in our customer service platform or live chat software or future changes in export and import regulations may create delays in the introduction of our customer service platform or live chat software in international markets or prevent our customers with international operations from deploying our platform globally. Any change in export or import regulations, economic sanctions or related legislation, or change in the countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our customer service platform or live chat software by, or in our decreased ability to export or sell our customer service platform or live chat software to, existing or potential customers with international operations. Any decreased use of our customer service platform or live chat software or limitation on our ability to export or sell our customer service platform or live chat software would likely adversely affect our business operations and financial results.

We recognize revenue over the term of our customer contracts. Consequently, downturns or upturns in new sales may not be immediately reflected in our operating results and may be difficult to discern.

We generally recognize subscription revenue from customers ratably over the terms of their contracts and a majority of our revenue is derived from subscriptions that have terms longer than one month. As a result, a portion of the revenue we report in each quarter is derived from the recognition of deferred revenue relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewed subscriptions with terms that are longer than monthly in any single quarter may have a small impact on our revenue results for that quarter. However, such a decline will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our customer service platform or live chat software, and potential changes in our pricing policies or rate of expansion or retention, may not be fully reflected in our results of operations until future periods. We may also be unable to reduce our cost structure in line with a significant deterioration in sales. In addition, because the majority of subscriptions to our customer service platform and live chat software are shorter than most comparable SaaS companies and because we have many variations of billing cycles, our deferred revenue may be a less meaningful indicator of our future financial results than for other SaaS companies. In addition, a significant majority of our costs are expensed as incurred, while revenue is recognized over the life of the agreement with our customer. As a result, increased growth in the number of our customers could continue to result in our recognition of more costs than revenue in the earlier periods of the terms of our agreements. Our subscription model also makes it

 

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difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from new customers must be recognized over the applicable subscription term.

Certain of our operating results and financial metrics may be difficult to predict as a result of seasonality.

Although we have not historically experienced significant seasonality in terms of the number of subscriptions for our customer service platform throughout the year, we may be impacted by seasonal trends in the future, particularly as our business matures. We do not have sufficient experience in selling our live chat software to determine if demand for this service is or will be subject to seasonality. Since a large percentage of our subscriptions are monthly, customers are able to rapidly increase and decrease the number of authorized agents for whom they require a subscription quickly and easily, thereby potentially increasing the impact of seasonality on our revenue. This seasonality may be reflected to a much lesser extent, and sometimes may not be immediately apparent, in our revenue, due to the fact that we recognize subscription revenue over the term of our agreement. To the extent we experience this seasonality, it may cause fluctuations in our operating results and financial metrics, and make forecasting our future operating results and financial metrics difficult.

Our ongoing and planned investments in self-managed colocation data centers are expensive and complex, have resulted, and will result, in a negative impact on our cash flows and may negatively impact our financial results.

We have made and will continue to make substantial investments in new equipment at our self-managed colocation data centers to support our growth and provide enhanced levels of service to our customers. We have and are continuing to transition from primarily a managed-service hosting model, where a third party manages most aspects of our hosting operations, to a self-managed colocation model, where we have more direct control over the hosting infrastructure and its operation. This has and may continue to have a negative impact on our cash flows and gross profit as we invest in capital assets to establish and expand our use of these self-managed colocation data centers and scale these facilities to expected demand. For purchases of equipment for use in our self-managed colocation data centers, we made capital expenditures of $3.6 million and $7.1 million in the years ended December 31, 2012 and 2013, respectively. If it takes longer than we expect to fully complete this transition, the negative impact on our operating results would likely exceed our initial expectations.

Our business and growth depend in part on the success of our strategic relationships with third parties, including technology partners, channel partners, and professional services partners.

We depend on, and anticipate that we will continue to depend on, various third-party relationships in order to sustain and grow our business. We are highly dependent upon third-party technology partners for certain critical features and functionality of our platform. For example, the advanced analytics features of the higher end subscription plans of our customer service platform are highly dependent on our technology integration with GoodData, Inc. Failure of this or any other technology provider to maintain, support, or secure its technology platforms in general, and our integrations in particular, or errors or defects in its technology, could materially and adversely impact our relationship with our customers, damage our reputation and brand, and harm our business and operating results. Any loss of the right to use any of this hardware or software could result in delays or difficulties in our ability to provide our platform until equivalent technology is either developed by us or, if available, identified, obtained, and integrated.

For deployments of our customer service platform into complex technology environments and workflows, we are highly dependent on third-party implementation consultants to provide professional services to our customers. The failure of these third-party consultants to perform their services adequately may disrupt or damage the relationship between us and our customer, damage our brand, and harm our business.

 

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Identifying, negotiating, and documenting relationships with strategic third parties such as technology partners and implementation providers require significant time and resources. In addition, integrating third-party technology is complex, costly, and time-consuming. Our agreements with technology partners and implementation providers are typically limited in duration, non-exclusive, and do not prohibit them from working with our competitors or from offering competing services. Our competitors may be effective in providing incentives to third parties to favor their products or services or to prevent or reduce subscriptions to our platform.

If we are unsuccessful in establishing or maintaining our relationships with these strategic third parties, our ability to compete in the marketplace or to grow our revenue could be impaired and our operating results would suffer. Even if we are successful, we cannot assure you that these relationships will result in improved operating results.

If we fail to integrate our customer service platform and live chat software with a variety of operating systems, software applications, and hardware that are developed by others, our customer service platform and live chat software may become less marketable, less competitive, or obsolete, and our operating results would be harmed.

Our customer service platform and live chat software must integrate with a variety of network, hardware, and software platforms, and we need to continuously modify and enhance our customer service platform and live chat software to adapt to changes in cloud-enabled hardware, software, networking, browser, and database technologies. In particular, we have developed our platform to be able to easily integrate with third-party SaaS applications, including the applications of software providers that compete with us, through the interaction of application platform interfaces, or APIs. In general, we rely on the fact that the providers of such software systems, including salesforce.com, continue to allow us access to their APIs to enable these customer integrations. To date, we have not relied on a long-term written contract to govern our relationship with these providers. Instead, we are subject to the standard terms and conditions for application developers of such providers, which govern the distribution, operation, and fees of such software systems, and which are subject to change by such providers from time to time. Our business may be harmed if any provider of such software systems:

 

    discontinues or limits our access to its APIs;

 

    modifies its terms of service or other policies, including fees charged to, or other restrictions on us or other application developers;

 

    changes how customer information is accessed by us or our customers;

 

    establishes more favorable relationships with one or more of our competitors; or

 

    otherwise favors its own competitive offerings over ours.

We believe a significant component of our value proposition to customers is the ability to optimize and configure our customer service platform to communicate with these third-party SaaS applications through our respective APIs. If we are not permitted or able to integrate with these and other third-party SaaS applications in the future, demand for our customer service platform could be adversely impacted and business and operating results would be harmed. In addition, an increasing number of individuals within organizations are utilizing mobile devices to access the Internet and corporate resources and to conduct business. We have designed mobile applications to provide access to our customer service platform through these devices. If we cannot provide effective functionality through these mobile applications as required by organizations and individuals that widely use mobile devices, we may experience difficulty attracting and retaining customers. Failure of our customer service platform or live chat software to operate effectively with future infrastructure platforms and technologies could also

 

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reduce the demand for our platform, resulting in customer dissatisfaction and harm to our business. If we are unable to respond to changes in a cost-effective manner, our platform may become less marketable, less competitive, or obsolete and our operating results may be negatively impacted.

We may acquire or invest in companies, which may divert our management’s attention and result in additional dilution to our stockholders. We may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions.

We may evaluate and consider potential strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products, and other assets in the future. We also may enter into relationships with other businesses to expand our products and services, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing, or investments in other companies.

Any acquisition, including our recent acquisition of Zopim, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel, or operations of the acquired companies, particularly if the key personnel of the acquired company choose not to work for us, their software is not easily adapted to work with our platform, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management, or otherwise. For example, we only recently completed our acquisition of Zopim, and substantially all of the acquisition and integration risks remain. Acquisitions, including our acquisition of Zopim, may also disrupt our business, divert our resources, and require significant management attention that would otherwise be available for development of our existing business. Moreover, the anticipated benefits of any acquisition, including our acquisition of Zopim, investment, or business relationship may not be realized or we may be exposed to unknown risks or liabilities.

Negotiating these transactions can be time-consuming, difficult, and expensive, and our ability to complete these transactions may often be subject to approvals that are beyond our control. Consequently, these transactions, even if announced, may not be completed. For one or more of those transactions, we may:

 

    issue additional equity securities that would dilute our existing stockholders;

 

    use cash that we may need in the future to operate our business;

 

    incur large charges or substantial liabilities;

 

    incur debt on terms unfavorable to us or that we are unable to repay;

 

    encounter difficulties retaining key employees of the acquired company or integrating diverse software codes or business cultures; and

 

    become subject to adverse tax consequences, substantial depreciation, or deferred compensation charges.

Because our customer service platform and live chat software can be used to collect and store personal information, domestic and international privacy and data security concerns could result in additional costs and liabilities to us or inhibit sales of our customer service platform or live chat software.

Personal privacy and data security have become significant issues in the United States, Europe, and in many other jurisdictions where we offer our customer service platform or live chat software. The regulatory framework for privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Many federal, state, and foreign government bodies and

 

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agencies have adopted, or are considering adopting, laws and regulations regarding the collection, use, and disclosure of personal information. In the United States, these include rules and regulations promulgated under the authority of federal agencies and state attorneys general and consumer protection agencies. Internationally, virtually every jurisdiction in which we operate has established its own data security and privacy legal framework with which we or our customers must comply, including the Directive 95/46/EC on the protection of individuals with regard to the processing of personal data and on the free movement of such data, or the Data Protection Directive, established in the European Union and data protection legislation of the individual member states subject to the Directive. The Data Protection Directive will likely be replaced in time with the pending European General Data Protection Regulation which may impose additional obligations and risk upon our business. In many jurisdictions enforcement actions and consequences for non-compliance are also rising.

We certify adherence to the U.S. Department of Commerce’s Safe Harbor Privacy Principles and comply with the U.S.-EU and U.S.-Swiss Safe Harbor Frameworks with respect to our customer service platform, however, it is not clear whether or for how long applicable data protection authorities in the European Union will continue to recognize such certification as a valid method of compliance with restrictions set forth in the Data Protection Directive and data protection legislation of individual member states restricting the transfer of data outside of the European Economic Area. Since our live chat software is provided by Zopim, a company organized under the laws of Singapore, certification to the U.S. Department of Commerce’s Safe Harbor Privacy Principles and compliance with the U.S.-EU and U.S.-Swiss Safe Harbor Frameworks with respect to our live chat software is not available (to the extent such safe harbor processes are still recognized). The inability to certify such compliance means that the EU Privacy Directive and other privacy regimes may impose additional obligations to obtain consent from data subjects to transfer personally identifiable information, or PII, outside of the European Union on the part of our EU-based customers that use our live chat software. Additionally, the inability to certify such compliance or otherwise provide acceptable privacy assurances may inhibit the sale and use of our live chat software in the European Union and certain other markets, which could, were it to occur, harm our business and operating results.

In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to us. Further, our customers may require us to comply with more stringent privacy and data security contractual requirements.

Because the interpretation and application of many privacy and data protection laws are uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our customer service platform or live chat software. If so, in addition to the possibility of fines, lawsuits, and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our customer service platform or live chat software, which could have an adverse effect on our business. Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and security or data security laws, regulations and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business.

Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our customer service platform or live chat software. Privacy and data security concerns, whether valid or not valid, may inhibit market adoption of our customer service platform or live chat software, particularly in certain industries and foreign countries.

 

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We may be sued by third parties for alleged infringement of their proprietary rights.

There is considerable patent and other intellectual property development activity in our industry. Our future success depends in part on not infringing upon the intellectual property rights of others. From time to time, our competitors or other third parties may claim that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. We may receive claims from third parties, including our competitors, that our customer service platform or live chat software and underlying technology infringe or violate a third party’s intellectual property rights, and we may be found to be infringing upon such rights. We may be unaware of the intellectual property rights of others that may cover some or all of our technology. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our customer service platform or live chat software, or require that we comply with other unfavorable terms. We may also be obligated to indemnify our customers or business partners in connection with any such litigation and to obtain licenses, modify our customer service platform or live chat software, or refund subscription fees, which could further exhaust our resources. In addition, we may incur substantial costs to resolve claims or litigation, whether or not successfully asserted against us, which could include payment of significant settlement, royalty or license fees, modification of our customer service platform or live chat software, or refunds to customers of subscription fees. Even if we were to prevail in the event of claims or litigation against us, any claim or litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and other employees from our business operations. Such disputes could also disrupt our customer service platform or live chat software, adversely impacting our customer satisfaction and ability to attract customers.

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 or otherwise be liable to them for losses suffered or incurred as a result of claims of intellectual property infringement, damages caused by us to property or persons, or other liabilities relating to or arising from our customer service platform or live chat software or other acts or omissions. The term of these contractual provisions often survives termination or expiration of the applicable agreement. Large indemnity payments or damage claims from contractual breach could harm our business, operating results, and financial condition. From time to time, customers require us to indemnify or otherwise be liable to them for breach of confidentiality or failure to implement adequate security measures with respect to their data stored, transmitted, or processed by our customer service platform or live chat software. Although we normally contractually limit our liability with respect to such obligations, we may still incur substantial liability related to them. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other current and prospective customers, reduce demand for our customer service platform, and harm our business and operating results.

Our use of “open source” software could negatively affect our ability to sell our customer service platform and live chat software and subject us to possible litigation.

We use open source software in our customer service platform and live chat software and expect to continue to use open source software in the future. We may face claims from others claiming ownership of, or seeking to enforce the terms of, an open source license, including by demanding release of the open source software, derivative works or our proprietary source code that was developed using such software. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our customer service platform or live chat software, any of which would have a negative effect on our business and operating results. In addition, if the license terms for the open source software we utilize

 

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change, we may be forced to reengineer our customer service platform or live chat software or incur additional costs. Although we have implemented policies to regulate the use and incorporation of open source software into our customer service platform and live chat software, we cannot be certain that we have not incorporated open source software in our customer service platform or live chat software in a manner that is inconsistent with such policies.

Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.

Our success and ability to compete depend in part upon our intellectual property. We currently have one issued patent and have a limited number of patent applications, none of which may result in an issued patent. We primarily rely on copyright, trade secret and trademark laws, trade secret protection, and confidentiality or license agreements with our employees, customers, partners, and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate.

In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights. Litigation brought to protect and enforce our intellectual property rights 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 failure to secure, protect, and enforce our intellectual property rights could adversely affect our brand and adversely impact our business.

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.

We have funded our operations since inception primarily through equity financings, capital lease arrangements, loans for equipment, and subscription payments by our customers for use of our customer service platform. We do not know when or if our operations will generate sufficient cash to fund our ongoing operations. In the future, we may require additional capital to respond to business opportunities, challenges, acquisitions, a decline in the level of subscriptions for our customer service platform, or unforeseen circumstances. We may not be able to timely secure additional debt or equity financing on favorable terms, or at all. Any debt financing obtained by us could involve restrictive covenants relating to financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.

We face exposure to foreign currency exchange rate fluctuations.

We conduct transactions, particularly intercompany transactions, in currencies other than the U.S. dollar. While we have primarily transacted with customers and vendors in U.S. dollars, we have transacted in foreign currencies for subscriptions to our customer service platform and expect to significantly expand the number of transactions with customers for our customer service platform and live chat software that are denominated in foreign currencies in the future. In addition, our international subsidiaries maintain net assets that are denominated in currencies other than the functional operating currencies of these entities. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar can affect our revenue and operating results due to transactional and translational

 

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remeasurements that are reflected in our results of operations. As a result of such foreign currency exchange rate fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our common stock could be adversely affected.

We do not currently maintain a program to hedge transactional exposures in foreign currencies. 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.

Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value added or similar taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our results of operations.

We do not collect sales and use, value added and similar taxes in all jurisdictions in which we have sales, based on our understanding that such taxes are not applicable. Sales and use, value added, and similar tax laws and rates vary greatly by jurisdiction. Certain jurisdictions in which we do not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penalties, and interest, and we may be required to collect such taxes in the future. Such tax assessments, penalties, and interest, or future requirements may adversely affect our results of operations.

Our international operations subject us to potentially adverse tax consequences.

We generally conduct our international operations through subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Our intercompany relationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant taxing authorities may disagree with our determinations as to the value of assets sold or acquired or income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our position were 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. We believe that our financial statements reflect adequate reserves to cover such a contingency, but there can be no assurances in that regard.

Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.

As of December 31, 2013, we had federal and state net operating loss carryforwards, or NOLs, of $52.9 million and $33.3 million, respectively, due to prior period losses. In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. Our existing NOLs may be subject to limitations arising from previous ownership changes, and if we undergo an ownership change in connection with or after this offering, our ability to utilize NOLs could be further limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise be unavailable to offset future income tax liabilities. For these reasons, we may not be able to realize a tax benefit from the use of our NOLs, whether or not we attain profitability.

 

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The estimates of market opportunity and forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.

Market opportunity estimates and growth forecasts 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 the CRM market may prove to be inaccurate. Even if the market in which we compete meets the size estimates and growth forecasted in this prospectus, our business could fail to grow at similar rates, if at all. For more information regarding the estimates of market opportunity and the forecasts of market growth included in this prospectus, see the section titled “Industry and Market Data.”

We may not be able to generate sufficient cash to service our indebtedness.

As of December 31, 2013, we owed an aggregate principal and accrued interest amount of $23.8 million pursuant to a credit facility. Unless we elect to immediately repay this indebtedness with the proceeds of this offering, all of this outstanding indebtedness will remain outstanding following completion of this offering. Our ability to make scheduled payments or to refinance our debt obligations depends on numerous factors, including the amount of our cash balances and our actual and projected financial and operating performance. We may be unable to maintain a level of cash balances or cash flows sufficient to permit us to pay the principal, premium, if any, and interest on our existing or future 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 or operations, seek additional capital, or restructure or refinance our indebtedness. We may not be able to take any of these actions, and even if we are, these actions may be insufficient to permit us to meet our scheduled debt service obligations. In addition, in the event of our breach of the credit facility, we may be required to repay any outstanding amounts earlier than anticipated.

Our credit facility contains restrictive and financial covenants that may limit our operating flexibility.

Our credit facility contains certain restrictive covenants that either limit our ability to, or require a mandatory prepayment in the event we, incur additional indebtedness and liens, merge with other companies or consummate certain changes of control, acquire other companies, engage in new lines of business, make certain investments, pay dividends, transfer or dispose of assets, amend certain material agreements, and enter into various specified transactions. We, therefore, may not be able to engage in any of the foregoing transactions unless we obtain the consent of our lender or prepay the outstanding amount under the credit facility. The credit facility also contains certain financial covenants, including minimum revenue and cash balance requirements, and financial reporting requirements. Our obligations under the credit facility are secured by all of our property, with limited exceptions. We may not be able to generate sufficient cash flow or sales to meet the financial covenants or pay the principal and interest under the credit facility. Furthermore, our future working capital, borrowings, or equity financing could be unavailable to repay or refinance the amounts outstanding under the credit facility. In the event of a liquidation, our lender would be repaid all outstanding principal and interest prior to distribution of assets to unsecured creditors, and the holders of our common stock would receive a portion of any liquidation proceeds only if all of our creditors, including our lender, were first repaid in full.

We depend and rely upon SaaS technologies from third parties to operate our business and interruptions or performance problems with these technologies may adversely affect our business and operating results.

We rely heavily on hosted SaaS applications from third parties in order to operate critical functions of our business, including billing and order management, enterprise resource planning, and financial

 

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accounting services. If these services become unavailable due to extended outages, interruptions, or because they are no longer available on commercially reasonable terms, our expenses could increase, our ability to manage finances could be interrupted and our processes for managing sales of our platform and supporting our customers could be impaired until equivalent services, if available, are identified, obtained, and implemented, all of which could adversely affect our business.

Changes in laws and regulations related to the Internet or changes in the Internet infrastructure itself may diminish the demand for our platform, and could have a negative impact on our business.

The future success of our business depends upon the continued use of the Internet as a primary medium for commerce, communication, and business applications. Federal, state, or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the Internet as a commercial medium. Changes in these laws or regulations could require us to modify our platform in order to comply with these changes. In addition, government agencies or private organizations have imposed and may impose additional taxes, fees, or other charges for accessing the Internet or commerce conducted via the Internet. These laws or charges could limit the growth of Internet-related commerce or communications generally, or result in reductions in the demand for Internet-based platforms and services such as ours. In addition, the use of the Internet as a business tool could be adversely affected due to delays in the development or adoption of new standards and protocols to handle increased demands of Internet activity, security, reliability, cost, ease-of-use, accessibility, and quality of service. The performance of the Internet and its acceptance as a business tool has been adversely affected by “viruses,” “worms,” and similar malicious programs and the Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If the use of the Internet is adversely affected by these issues, demand for our customer service platform and live chat service could decline.

Catastrophic events may disrupt our business.

Our corporate headquarters are located in San Francisco, California and we operate or utilize data centers that are located in North America, Europe, and Asia. Key features and functionality of our customer service platform are enabled by third parties that are headquartered in California and operate or utilize data centers in the United States and Europe. Additionally, we rely on our network and third-party infrastructure and enterprise applications, internal technology systems, and our website for our development, marketing, operational support, hosted services, and sales activities. The west coast of the United States contains active earthquake zones. In the event of a major earthquake, hurricane, or catastrophic event such as fire, power loss, telecommunications failure, cyber-attack, 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 platform, breaches of data security, and loss of critical data, all of which could have an adverse effect on our future operating results.

Risks Related to Ownership of Our Common Stock and this Offering

There has been no prior market for our common stock and an active market may not develop or be sustained and investors may not be able to resell their shares at or above the initial public offering price.

There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock was determined through negotiations between the underwriters and us and may vary from the market price of our common stock following this offering. If you purchase shares of our common stock in this offering, you may not be able to resell those shares at or above the initial public offering price, if at all. An active or liquid market in our common stock may not develop following this offering or, if it does develop, it may not be sustainable.

 

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Our stock price may be volatile or may decline regardless of our operating performance resulting in substantial losses for investors purchasing shares in this offering.

The trading price of our common stock is likely to be volatile and could fluctuate widely regardless of our operating performance. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

    actual or anticipated fluctuations in our operating results;

 

    the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

 

    failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

 

    ratings changes by any securities analysts who follow our company;

 

    announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;

 

    changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;

 

    price and volume fluctuations in the overall stock market from time to time, including as a result of trends in the economy as a whole;

 

    changes in accounting standards, policies, guidelines, interpretations, or principles;

 

    actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;

 

    developments or disputes concerning our intellectual property or our products, or third-party proprietary rights;

 

    announced or completed acquisitions of businesses or technologies by us or our competitors;

 

    new laws or regulations or new interpretations of existing laws, or regulations applicable to our business;

 

    any major change in our board of directors or management;

 

    sales of shares of our common stock by us or our stockholders;

 

    lawsuits threatened or filed against us; and

 

    other events or factors, including those resulting from war, incidents of terrorism, or responses to these events.

In addition, the stock markets, and in particular the market on which our common stock will be listed, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from operating our business, and adversely affect our business, results of operations, financial condition, and cash flows.

 

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Our directors, officers, and principal stockholders beneficially own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

As of December 31, 2013, our directors, officers, five percent or greater stockholders, and their respective affiliates beneficially owned in the aggregate approximately 62.9% of our outstanding voting stock and, upon the completion of this offering, that same group will beneficially own in the aggregate approximately     % of our outstanding voting stock (assuming no exercise of the underwriters’ option to purchase additional shares). Therefore, after this offering these stockholders will continue to have the ability to influence us through this ownership position. These stockholders may be able to determine all matters requiring stockholder approval. For example, these stockholders will be able to control elections of directors, amendments of our organizational documents, and approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interest as one of our stockholders.

Substantial future sales of shares of our common stock could cause the market price of our common stock to decline.

The market price of our common stock could decline as a result of substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, a large number of shares of our common stock becoming available for sale or the perception in the market that holders of a large number of shares intend to sell their shares. After this offering, we will have outstanding                 shares of our common stock, based on the number of shares outstanding as of December 31, 2013. This includes the shares included in this offering, which may be resold in the public market immediately. The remaining                 shares are currently restricted as a result of market stand-off agreements restricting their sale for 180 days after the date of this prospectus. In addition, certain of these shares are also subject to lock-up agreements with the underwriters. Goldman, Sachs & Co. and Morgan Stanley & Co. LLC may, in their sole discretion, permit our officers, directors, employees and current stockholders who are subject to lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

Additionally, the shares of common stock subject to outstanding options and restricted stock unit awards under our equity incentive plans and the shares reserved for future issuance under our equity incentive plans will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. See “Shares Eligible for Future Sale” for a more detailed description of sales that may occur in the future.

After this offering, the holders of an aggregate of 68,646,185 shares of our common stock as of December 31, 2013 will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our stockholders. We also intend to register shares of common stock that we may issue under our employee equity incentive plans. Once we register these shares, they will be able to be sold freely in the public market upon issuance, subject to certain market stand-off or lock-up agreements.

 

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Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

Provisions in our certificate of incorporation and bylaws, as amended and restated in connection with this offering, may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and bylaws include provisions that:

 

    authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our common stock;

 

    require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;

 

    specify that special meetings of our stockholders can be called only by our board of directors, the Chair of our board of directors, or our Chief Executive Officer;

 

    establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;

 

    establish that our board of directors is divided into three classes, Class I, Class II, and Class III, with each class serving three-year staggered terms;

 

    prohibit cumulative voting in the election of directors;

 

    provide that our directors may be removed only for cause;

 

    provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and

 

    require the approval of our board of directors or the holders of at least seventy-five percent (75%) of our outstanding shares of capital stock to amend our bylaws and certain provisions of our certificate of incorporation.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder. Any delay or prevention of a change of control transaction or changes in our management could cause the market price of our common stock to decline.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the federal securities laws, and 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 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a

 

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nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We will remain an “emerging growth company” until the last day of the fiscal year following the five-year anniversary of the completion of this offering, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the end of the second quarter of a fiscal year prior to the five-year anniversary, we would cease to be an “emerging growth company” as of the following December 31.

The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain executive management and qualified board members.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of the exchanges and other markets upon which our common stock is listed, 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, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. We will be required to disclose changes made in our internal control and procedures on a quarterly basis and we will be required to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the first fiscal year beginning after the effective date of this offering. However, our independent registered public accounting firm will not be required to formally audit and attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 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 a result of the complexity involved in complying with the rules and regulations applicable to public companies, our management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. Although we have already hired additional employees to assist us in complying with these requirements, we may need to hire more employees in the future or engage outside consultants, which will increase our operating expenses.

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 substantial resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from business operations 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 our business may be adversely affected.

 

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We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.

We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return.

Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be used for corporate purposes that do not increase the value of our business, which could cause our stock price to decline.

We do not intend to pay dividends on our common stock so any returns will be limited to changes in the value of our common stock.

We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business, and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, our ability to pay cash dividends on our common stock is restricted by our current credit facility and may be prohibited or limited by the terms of our current and future debt financing arrangements. Any return to stockholders will therefore be limited to the increase, if any, of our stock price, which may never occur.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. If few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.

 

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Our charter documents designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or other employees.

Our certificate of incorporation and bylaws, as amended and restated in connection with this offering provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (A) any derivative action or proceeding brought on our behalf, (B) 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 stockholders, (C) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws, or (D) any action asserting a claim against us governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the provisions of our certificate of incorporation described above. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees. Alternatively, if a court were to find these provisions of our certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition, or results of operations.

 

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LETTER FROM THE FOUNDERS

There are many underserved industries. In 2007, customer support software was one of them.

At the time, we were three friends who wanted to build something new for an industry that hadn’t seen much innovation over the previous ten years. The goal sounded simple enough: build a user-friendly, well-designed product for an industry in need of change. But underneath that goal, we harbored more ambitious plans. We wanted to democratize customer service by making the tools available to any organization, big or small. We wanted to focus on the employees that are the actual users of the product and make something that could be simple and enjoyable to use. We wanted to help organizations rethink what customer service means to them and to reveal the opportunities that seamless and delightful customer experiences could provide. And we wanted the whole experience—not just the software experience, but the actual customer service experiences themselves—to be “beautifully simple.” That phrase guided us then and it guides us now.

As with a lot in life and business, customer service is a simple thing that is complex and hard to do. The basic ideas—treat people like people, solve issues quickly, build relationships—aren’t rocket science. But when an organization attempts customer service at a large scale, or thinks only about how to do it as cheaply as possible, those simple ideas get buried under complex and often painful processes: phone trees, automation, outsourced call centers. Those things aren’t necessarily bad, but they obscure the beautiful simplicity at the heart of every organization: the relationship with the customer. When we started Zendesk, we wanted to refocus the customer service experience on that simplicity—for organizations, for their employees, and for their customers.

In many ways we were lucky. Putting software in the cloud and offering your software as a service were still new practices when we launched, but since then we’ve seen an ever growing trend of organizations moving their enterprise software out of the basement and embracing subscription models. As new technological trends have subsequently developed—mobile and social being the most impactful—Zendesk has been well positioned to embrace and incorporate them into our platform.

More important than these technological changes, though, have been the changes in attitude toward customer service and its value for every organization. Since 2007, the “voice of the customer” has grown exponentially. Not coincidentally, we think organizational attitudes toward customer service are changing just as rapidly. We believe the view that customer service is just a “necessary cost” of running a business is disappearing. Today, more and more organizations are realizing that customer service can be critical in managing brands, maintaining loyalty, containing crises, and expanding business.

We didn’t create these technological or cultural transformations, but we embrace them, design our platform and company around them, and promote them to whoever will listen.

Through it all, we try our best to maintain our focus on “beautifully simple.” Our brand and voice come from many of the same values of good customer service that we champion: communicate like a human being; be transparent and honest; don’t take yourself too seriously.

When we started this company, we were focused almost entirely on the product, not on the business plan. We operated largely from instinct. But we knew three things that successful businesses do really well, and these three things continue to drive us:

 

    Have great products

 

    Care for your customers

 

    Attract a great team

Seems so simple. But again, they disguise a deep complexity.

 

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Having a great product today requires constant evolution and reengineering. The best and most interesting consumer technologies today look and behave completely differently than they did just a few years ago. We believe the same will be true for enterprise software. We intend to be the first ones to challenge and disrupt our own business, for our own benefit and, more importantly, the benefit of our customers.

Business software has become both easier and less expensive to replace than ever before. This presents both a challenge and an opportunity. Rather than fight this trend, we embrace it. We believe the longevity of our customer relationships will come from our ability to properly serve them and not by our ingenuity in locking them in. We want the relationships we build with our customers to provide a model for how they think about serving their own customers, and an example for what it means to be customer focused.

Truly caring for your customers is hard. The traditional notion of “having customers” doesn’t apply today. The customer relationship is something that must be earned every day, by building trust and authentic relationships between people. Team matters, customers matter, relationships matter. Understanding that and operating with that in mind is how we define success.

We’re excited about what we have started here and are pleased to invite you to join in the continuing journey.

Sincerely,

Morten, Alex, and Mikkel

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “might,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

    our future financial performance, including our revenue, cost of revenue, gross profit, operating expenses, ability to generate positive cash flow, and ability to achieve and maintain profitability;

 

    the sufficiency of our cash and cash equivalents, and marketable securities to meet our liquidity needs;

 

    our ability to attract and retain customers to use our customer service platform and live chat software, and to optimize the pricing for our customer service platform and live chat software;

 

    the evolution of technology affecting our platform, services, and markets;

 

    our ability to innovate and provide a superior customer experience;

 

    our ability to successfully expand in our existing markets and into new markets;

 

    the attraction and retention of qualified employees and key personnel;

 

    worldwide economic conditions and their impact on information technology spending;

 

    our ability to effectively manage our growth and future expenses;

 

    our ability to successfully offer Zopim live chat software as a standalone service or further integrate it with our customer service platform;

 

    our ability to maintain, protect, and enhance our intellectual property;

 

    our ability to comply with modified or new laws and regulations applying to our business, including privacy and data security regulations;

 

    the increased expenses and administrative workload associated with being a public company; and

 

    our use of the net proceeds of this offering.

We caution you that the foregoing list does not contain all of the forward-looking statements made in this prospectus.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

 

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The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

 

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INDUSTRY AND MARKET DATA

This prospectus contains statistical data, estimates, and forecasts that are based on independent industry publications, such as those published by IDC, or other publicly available information, as well as other information based on our internal sources. Although we believe that the third-party sources referred to in this prospectus are reliable, neither we nor the underwriters have independently verified the information provided by these third parties. While we are not aware of any misstatements regarding any third-party information presented in this prospectus, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties, and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in this prospectus.

 

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USE OF PROCEEDS

We estimate that the net proceeds from the sale of shares of our common stock that we are selling in this offering will be approximately $         million, based upon 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares from us is exercised in full, we estimate that our net proceeds would be approximately $         million, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $         per share would increase or decrease the net proceeds that we receive from this offering by $         million, 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of 1.0 million shares of common stock offered by us would increase or decrease the net proceeds that we receive from this offering by $         million, assuming the assumed initial public offering price remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to increase our financial flexibility, create a public market for our common stock, and facilitate our future access to the public equity markets. We intend to use the net proceeds that we receive from this offering for working capital or other general corporate purposes, including the expansion of our sales organization, international expansion, further development of our customer service platform and live chat software, and general and administrative matters. We may also use a portion of the net proceeds to:

 

    satisfy the anticipated tax withholding and remittance obligations related to the initial settlement of our outstanding restricted stock units, which we expect to be approximately $            , based on the number of restricted stock units for which service conditions have been satisfied as of December 31, 2013 and 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;

 

    satisfy all or a portion of anticipated tax withholding and remittance obligations with respect to future settlement of outstanding restricted stock units, the amount of which will depend on the value of our common stock at the time of settlement;

 

    repay all or some of the outstanding principal and accrued interest on the equipment line of credit or the revolving line of credit under our existing credit facility with our lender; and

 

    acquire complementary businesses, products, services, or technologies.

We also expect to contribute up to              of the net proceeds of this offering to the financial support of our global corporate responsibilities objectives. Among other matters, this may include the establishment and funding of a foundation to manage these efforts. We expect that we will continue to use a portion of our available capital to support these efforts on an ongoing basis.

As of December 31, 2013, the outstanding balance on our equipment line of credit was $3.8 million and such amount bore interest at a rate of 2.5% per annum. The outstanding balance under our equipment line of credit as of September 14, 2014 is payable in equal monthly installments for 30 months thereafter, with the last payment due on March 14, 2017. As of December 31, 2013, the outstanding balance on our revolving line of credit was $20.0 million and such amount bore interest at the prime rate plus 2.0% per annum, which shall be reduced to the prime rate upon the consummation of this offering, provided that net cash proceeds from this offering are at least $100.0 million. The outstanding balance under our revolving line of credit is due on January 1, 2016.

 

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The amount and timing of our actual use of the net proceeds that we will receive from this offering will depend on numerous factors, including the cash used in or generated by our operations, the activities of our sales organization, the level of our international expansion efforts, the results of our product development efforts, and our technology acquisitions. Our management has discretion over many of these factors. Therefore, except as specified above, we are unable estimate the amount of the net proceeds from this offering that will be used for any of the purposes described above. Accordingly, we will have broad discretion in using these proceeds. Pending the use of proceeds from this offering as described above, we plan to invest the net proceeds that we receive in this offering in short-term and intermediate-term interest-bearing obligations, investment-grade investments, certificates of deposit, or direct or guaranteed obligations of the U.S. government.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividend on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws, and will depend on a number of factors, including our financial condition, operating results, capital requirements, contractual restrictions, general business conditions, and other factors that our board of directors may deem relevant. Currently, our credit facility prohibits the payment of any dividends without obtaining the lender’s prior written consent, other than dividends payable solely in our common stock.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents, and marketable securities, as well as our capitalization, as of December 31, 2013:

 

    on an actual basis;

 

    on a pro forma basis, giving effect to the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into an aggregate of 68,646,185 shares of common stock, which conversion will occur upon the completion of this offering, as if such conversion had occurred on December 31, 2013, and a share-based compensation expense of approximately $1.8 million associated with performance awards for which the service condition was satisfied as of December 31, 2013, and which we expect to record upon the completion of this offering, as further described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Share-Based Compensation”; and

 

    on a pro forma as adjusted basis, giving effect to the pro forma adjustments set forth above and the sale and issuance by us of                  shares of common stock in this offering, 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma 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 final terms of this offering. You should read this table together with our financial statements and related notes, and the sections titled “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are included elsewhere in this prospectus.

 

     As of December 31, 2013  
       Actual       Pro Forma     Pro Forma as
  Adjusted  
 
     (In thousands, except share and per share data)  

Cash and cash equivalents

   $ 53,725      $ 53,725      $                
  

 

 

   

 

 

   

 

 

 

Marketable securities

     9,889        9,889     
  

 

 

   

 

 

   

 

 

 

Redeemable convertible preferred stock, par value $0.01 per share: 24,016,041 shares authorized, 23,598,062 shares issued and outstanding, actual; no shares issued and outstanding, pro forma and pro forma as adjusted

     71,369                 

Stockholders’ equity (deficit):

      

Preferred stock, par value $0.01 per share: no shares authorized, issued, and outstanding, actual and pro forma; 10,000,000 shares authorized, no shares issued and outstanding, pro forma as adjusted

                     

Common stock, par value $0.01 per share: 220,000,000 shares authorized, 46,885,663 shares issued, 46,350,986 shares outstanding, actual; 400,000,000 shares authorized, 115,729,626 shares issued and 115,194,949 outstanding, pro forma; 400,000,000 shares authorized,             shares issued and outstanding, pro forma as adjusted

     453        1,139     

Additional paid-in capital

     18,367        90,859     

Accumulated other comprehensive income

     10        10     

Accumulated deficit

     (64,454     (66,263  

Treasury stock at cost; 534,677 shares actual, pro forma, and pro forma as adjusted

     (652     (652  
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (46,276     25,093     
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 25,093      $ 25,093      $     
  

 

 

   

 

 

   

 

 

 

 

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If the underwriters’ option to purchase additional shares from us were exercised in full, pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity, and shares issued and outstanding as of December 31, 2013 would be $         million, $         million, $         million, and                 shares, respectively.

Each $1.00 increase or decrease in the 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, would increase or decrease, as applicable, our cash and cash equivalents, additional paid-in capital, and total stockholders’ equity by $         million, 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, our cash and cash equivalents, additional paid-in capital, and total stockholders’ equity by $         million assuming an 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma and pro forma as adjusted columns in the table above exclude the following:

 

    20,267,882 shares of common stock issuable upon the exercise of options to purchase common stock that were outstanding as of December 31, 2013, with a weighted-average exercise price of $1.41 per share;

 

    1,621,679 shares of our common stock subject to restricted stock units outstanding as of December 31, 2013;

 

    250,000 shares of common stock issuable upon the exercise of a warrant to purchase common stock outstanding as of December 31, 2013, with an exercise price of $0.96 per share;

 

    10,485,375 shares of common stock issuable upon the exercise of options to purchase common stock granted after December 31, 2013 and prior to the date of this prospectus, with a weighted average exercise price of $4.77 per share;

 

    3,740,300 shares of our common stock subject to restricted stock units granted after December 31, 2013 and prior to the date of this prospectus;

 

    1,803,345 shares of our common stock issued in connection with our March 2014 acquisition of Zopim;

 

                     shares of common stock reserved for future issuance under our 2014 Stock Option and Incentive Plan, which will become effective immediately prior to the time that the registration statement of which this prospectus is a part is declared effective by the SEC, and includes shares of common stock that were reserved for future grants under our 2009 Stock Option and Grant Plan;

 

    7,250,000 shares of common stock reserved for future issuance under our 2014 Employee Stock Purchase Plan, which will become effective on the date the registration statement of which this prospectus is a part is declared effective by the SEC; and

 

    any shares of common stock that become available subsequent to this offering under our 2014 Stock Option and Incentive Plan and 2014 Employee Stock Purchase Plan pursuant to provisions thereof that automatically increase the share reserves under such plans each year, as more fully described in “Executive Compensation—Employee Benefit and Stock Plans.”

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after the completion of this offering.

Net tangible book value per share is determined by dividing our total tangible assets less our total liabilities by the number of shares of common stock outstanding. Our historical net tangible book value as of December 31, 2013 was $18.3 million, or $0.40 per share. Our pro forma net tangible book value as of December 31, 2013 was $18.3 million, or $0.16 per share, based on the total number of shares of our common stock outstanding as of December 31, 2013, after giving effect to the automatic conversion of all outstanding shares of our redeemable convertible preferred stock as of December 31, 2013 into an aggregate of 68,646,185 shares of common stock, which conversion will occur upon the completion of this offering.

After giving effect to the sale by us of                 shares of common stock in this offering at the 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2013 would have been $         million, or $         per share. This represents an immediate increase in pro forma net tangible book value of $         per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $         per share to investors purchasing shares of common stock in this offering at the assumed initial public offering price. The following table illustrates this dilution:

 

Assumed initial public offering price per share

      $                

Pro forma net tangible book value per share as of December 31, 2013

   $ 0.16      

Increase in pro forma net tangible book value per share attributable to new investors in this offering

     
  

 

 

    

Pro forma as adjusted net tangible book value per share immediately after this offering

     
     

 

 

 

Dilution in pro forma net tangible book value share to new investors in this offering

      $                
     

 

 

 

Each $1.00 increase or decrease in the 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, would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to new investors by $            , and would increase or decrease, as applicable, dilution per share to new 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, our pro forma as adjusted net tangible book value per share to new investors by $            , and would increase or decrease, as applicable, dilution per share to new 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us. In addition, to the extent any outstanding options to

 

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purchase common stock are exercised, new investors would experience further dilution. If the underwriters exercise their option to purchase additional shares from us in full, the pro forma net tangible book value per share of our common stock immediately after this offering would be $         per share, and the dilution in pro forma as adjusted net tangible book value per share to new investors in this offering would be $         per share.

The following table presents, on a pro forma as adjusted basis as of December 31, 2013, after giving effect to the conversion of all outstanding shares of redeemable convertible preferred stock into common stock upon the completion of this offering, the differences between the existing stockholders and the new investors purchasing shares of our common stock in this offering with respect to the number of shares purchased from us, the total consideration paid or to be paid to us, which includes net proceeds received from the issuance of common stock and redeemable convertible preferred stock, cash received from the exercise of stock options, and the average price per share paid or to be paid to us at an assumed offering price of $         per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:

 

     Shares Purchased     Total Consideration     Average Price
per Share
 
     Number      Percent     Amount      Percent    

Existing stockholders

     114,997,171                $ 75,433,968                $ 0.66   

New investors

             $     
  

 

 

    

 

 

   

 

 

    

 

 

   

Totals

        100   $           100   $     
  

 

 

    

 

 

   

 

 

    

 

 

   

Each $1.00 increase or decrease in the 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, would increase or decrease, as applicable, the total consideration paid by new investors and total consideration paid by all stockholders by $         million, 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of 1.0 million shares in the number of shares offered by us would increase or decrease, as applicable, the total consideration paid by new investors and total consideration paid by all stockholders by $         million, 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 estimated underwriting discounts and commissions and estimated offering expenses payable by us. In addition, to the extent any outstanding options to purchase common stock are exercised, new investors will experience further dilution.

Except as otherwise indicated, the above discussion and tables assume no exercise of the underwriters’ option to purchase additional shares. If the underwriters exercise their option to purchase additional shares from us in full, the total consideration paid by new investors and total consideration paid by all stockholders would increase by $         million. Following such exercise, our existing stockholders would own     % and our new investors would own     % of the total number of shares of our common stock outstanding upon the completion of this offering.

The number of shares of our common stock to be outstanding after this offering is based on the number of shares of our common stock outstanding as of December 31, 2013 and excludes:

 

    20,267,882 shares of common stock issuable upon the exercise of options to purchase common stock that were outstanding as of December 31, 2013, with a weighted-average exercise price of $1.41 per share;

 

    1,621,679 shares of our common stock subject to restricted stock units outstanding as of December 31, 2013;

 

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    250,000 shares of common stock issuable upon the exercise of a warrant to purchase common stock outstanding as of December 31, 2013, with an exercise price of $0.96 per share;

 

    10,485,375 shares of common stock issuable upon the exercise of options to purchase common stock granted after December 31, 2013 and prior to the date of this prospectus, with a weighted-average exercise price of $4.77 per share;

 

    3,740,300 shares of our common stock subject to restricted stock units granted after December 31, 2013 and prior to the date of this prospectus;

 

    1,803,345 shares of our common stock issued in connection with our March 2014 acquisition of Zopim;

 

                     shares of common stock reserved for future issuance under our 2014 Stock Option and Incentive Plan, which will become effective immediately prior to the time that the registration statement of which this prospectus is a part is declared effective by the SEC, and includes shares of common stock that were reserved for future grants under our 2009 Stock Option and Grant Plan;

 

    7,250,000 shares of common stock reserved for future issuance under our 2014 Employee Stock Purchase Plan, which will become effective on the date the registration statement of which this prospectus is a part is declared effective by the SEC; and

 

    any shares of common stock that become available subsequent to this offering under our 2014 Stock Option and Incentive Plan and 2014 Employee Stock Purchase Plan pursuant to provisions thereof that automatically increase the share reserves under such plans each year, as more fully described in “Executive Compensation—Employee Benefit and Stock Plans.”

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated statements of operations data for the years ended December 31, 2012 and 2013 and the consolidated balance sheet data as of December 31, 2012 and 2013 are derived from the audited consolidated financial statements that are included elsewhere in this prospectus. The selected consolidated statements of operations data for the year ended December 31, 2011 as well as the consolidated balance sheet data as of December 31, 2011, are derived from unaudited consolidated financial statements that are not included in this prospectus. Our historical results are not necessarily indicative of the results to be expected in the future. You should read the following selected consolidated financial data below in conjunction with the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     Year Ended December 31,  
     2011     2012     2013  
     (In thousands, except per share data)  
     (Unaudited)              

Consolidated Statements of Operations Data:

      

Revenue

   $ 15,598      $ 38,228      $ 72,045   

Cost of revenue (1)

     4,679        13,253        24,531   
  

 

 

   

 

 

   

 

 

 

Gross profit

     10,919        24,975        47,514   
  

 

 

   

 

 

   

 

 

 

Operating expenses: (1)

      

Research and development

     4,474        14,816        15,288   

Sales and marketing

     9,794        22,749        37,622   

General and administrative

     3,726        11,558        16,437   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     17,994        49,123        69,347   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (7,075     (24,148     (21,833

Other expense, net

     (37     (96     (517
  

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (7,112     (24,244     (22,350

Provision for income taxes

     46        121        221   
  

 

 

   

 

 

   

 

 

 

Net loss

     (7,158     (24,365     (22,571

Accretion of redeemable convertible preferred stock

     (51     (50     (49

Deemed dividend to investors in relation to the tender offer

            (8,326       
  

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

     (7,209     (32,741     (22,620

Net loss per share attributable to common stockholders, basic and diluted (2)

   $ (0.23   $ (0.83   $ (0.52
  

 

 

   

 

 

   

 

 

 

Weighted-average shares used to compute net loss per share attributable to common stockholders (2)

     31,182        39,258        43,349   
  

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited) (2)

       $ (0.20
      

 

 

 

Weighted-average shares used to compute pro forma net loss per share attributable to common stockholders (unaudited) (2)

         112,050   
      

 

 

 

 

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(1) Includes share-based compensation expense as follows:

 

     Year Ended December 31,  
     2011      2012      2013  
     (In thousands)  
     (Unaudited)                

Cost of revenue

   $ 12       $ 129       $ 254   

Research and development

     50         4,117         635   

Sales and marketing

             1,313         1,210   

General and administrative

     184         4,081         2,755   

 

(2) See Note 10 of the Notes to our Consolidated Financial Statements included elsewhere in this prospectus for an explanation of the method used to calculate basic and diluted net loss per share and pro forma net loss per share attributable to common stockholders and the weighted-average number of shares used in the computation of the per share amounts.

 

     As of December 31,  
     2011     2012     2013  
     (In thousands)  

Consolidated Balance Sheet Data:

     (Unaudited)       

Cash and cash equivalents

   $ 14,238      $ 48,688      $ 53,725   

Marketable securities

                   9,889   

Working capital

     6,486        33,524        31,706   

Property and equipment, net

     3,683        8,472        15,431   

Total assets

     21,336        64,058        92,736   

Deferred revenue

     7,460        15,130        29,048   

Credit facility

                   23,760   

Total liabilities

     11,545        22,943        67,643   

Redeemable convertible preferred stock

     26,385        71,320        71,369   

Total stockholders’ deficit

     (16,594     (30,205     (46,276

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled “Selected Consolidated Financial Data” and consolidated financial statements and related notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included elsewhere in this prospectus.

Overview

Zendesk’s mission is to help organizations build successful long-term relationships with their customers. We are a software development company that provides a SaaS customer service platform. Our beautifully simple platform helps organizations engage with people in new ways that foster long-term customer loyalty and satisfaction. We empower organizations to better answer customers’ questions, and to solve their problems through the channels that people use every day when seeking help, such as email, chat, voice, social media and websites. Our platform also helps people find answers on their own through knowledge bases and communities, capitalizing on the increasing customer preference for self-service. Our customer engagement capabilities allow organizations to proactively serve their customers, reaching out to those who may need help and soliciting feedback about their experience. The openness of our customer service platform makes it easy for organizations to integrate with their other applications. Our customer service platform consolidates the data from customer interactions and provides organizations with powerful analytics and performance benchmarking.

Our business model is designed to drive organic growth, leverage positive word-of-mouth, and remove friction from the evaluation and purchasing process. We offer a range of subscription account plans for our customer service platform that vary in pricing per agent based on functionality and the type and amount of product support we offer. The majority of our customers find us online and subscribe to our customer service platform directly from our website. Exemplifying the success of our sales and marketing strategy, during the quarter ended December 31, 2013, 70% of our qualified sales leads, which are largely comprised of prospects that commence a free trial of our customer service platform, came from organic search, customer referrals, and other unpaid sources. For larger organizations, our sales team focuses on a land and expand strategy, which leverages this grassroots adoption and seeks to expand our footprint within organizations. More recently we have begun to develop a field sales team responsible for lead discovery, qualification, and account management for larger organizations. Many of our existing customers to date have been small to medium sized organizations that make purchasing decisions without interacting with our sales or other personnel; as we continue to focus on and become more dependent on sales to larger organizations, we expect our sales cycles to lengthen and become less predictable.

Since our founding in 2007, we have achieved the following significant milestones:

 

    In 2007, we released the first version of our customer service platform.

 

    In 2009, we moved our corporate headquarters to San Francisco, California.

 

    By the end of 2009, there were over 1,000 customer accounts on our customer service platform.

 

    In 2010, we introduced our Zendesk app for iPhone and Android.

 

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    By April 2011, there were over 10,000 customer accounts on our customer service platform.

 

    In 2012, we launched our new platform interface.

 

    By the end of 2012, there were over 25,000 customer accounts on our customer service platform.

 

    In 2013, we launched our new Help Center functionality.

 

    By February 2014, there were over 40,000 customer accounts on our customer service platform.

 

    In March 2014, we completed the acquisition of Zopim, a software development company that provides a SaaS live chat service.

Our financial performance reflects our significant customer growth and strong customer retention and expansion. For the years ended December 31, 2012 and 2013, our total revenue was $38.2 million and $72.0 million, respectively, representing approximately 88% growth from 2012 to 2013. For the years ended December 31, 2012 and 2013, we derived $15.8 million, or 41%, and $29.6 million, or 41%, of our revenue from customers located outside of the United States, respectively. We expect that the rate of growth in our revenue will decline as our business scales, even if our revenue continues to grow in absolute terms. For the years ended December 31, 2012 and 2013, we also generated net losses of $24.4 million and $22.6 million, respectively. We intend to invest aggressively to drive continued growth and market leadership.

The growth of our business and our future success depends on many factors, including our ability to continue to innovate, maintain our leadership in the SMB market, expand our enterprise customer base, and increase our global customer footprint. While these areas represent significant opportunities for us, we also face significant risks and challenges that we must successfully address in order to sustain the growth of our business and improve our operating results. We anticipate that we will expand our operations and headcount in the near term. The expected addition of new personnel and the investments that we anticipate will be necessary to manage our anticipated growth will make it more difficult for us to achieve profitability. Many of these investments will occur in advance of experiencing any direct benefit and will make it difficult to determine if we are allocating our resources efficiently.

We have focused on rapidly growing our business and plan to continue to invest for long-term growth. We expect to continue to make significant upfront investments in our self-managed colocation data center infrastructure and additional personnel to support our growth. The amount and timing of these upfront infrastructure investments will vary based on our estimates of projected growth and the scale of such deployments. We also expect to continue to make significant investments in our customer support organization including expanding our product support and professional services teams. Over time, we anticipate that we will gain economies of scale by utilizing added capacity within our self-managed colocation data centers and reducing the need for direct incremental personnel costs resulting from growth in our number of customers. As a result, we expect our gross margin to improve in the future.

We expect our operating expenses to continue to increase in absolute dollars in future periods. We have invested, and expect to continue to invest, in our software development efforts to introduce new products and broaden our customer service platform’s functionality. We plan to continue to expand our sales and marketing organizations, particularly in connection with our efforts to expand our enterprise customer base. We also expect to incur additional general and administrative costs in order to support the growth of our business and meet increased compliance requirements associated with our transition to, and operation as, a public company.

 

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Key Business Metrics

We review a number of operating 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. We do not currently incorporate operating metrics associated with the Zopim live chat software into our measurement of customer accounts or dollar-based net expansion rate.

Number of Customer Accounts.     We believe that our ability to increase our number of accounts on our customer service platform is an indicator of our market penetration, the growth of our business, and our potential future business opportunities. We define the number of customer accounts at the end of any particular period as the number of accounts on our customer service platform, exclusive of free trials, at the end of the period as identified by a unique account identifier. Use of our customer service platform by new customers requires activation of a customer account on our platform. Existing customers may also expand their utilization of our customer service platform by adding new customer accounts and a single consolidated organization or customer may have multiple customer accounts to service separate subsidiaries, divisions, or work processes. Each of these is treated as a separate customer account. An increase in the number of customer accounts generally correlates to an increase in the number of authorized agents licensed to use our platform, which directly affects our revenue and results of operations. We view this metric as a measure of our success in converting new sales opportunities. We had 26,023 and 38,951 customer accounts as of December 31, 2012 and 2013, respectively. As the total number of customer accounts increases, we expect the rate of growth in the number of customer accounts to decline.

Dollar-Based Net Expansion Rate.     Our ability to generate revenue is dependent upon our ability to maintain our relationships with our customers and to increase their utilization of our customer service platform. We can achieve this by focusing on delivering value and functionality that retains our existing customers, expands the number of authorized agents associated with an existing customer account, and results in upgrades to higher-priced subscription plans. Maintaining customer relationships allows us to sustain and increase revenue to the extent customers maintain or increase the number of authorized agents licensed to use our customer service platform. We assess our performance in this area by measuring our dollar-based net expansion rate. Our dollar-based net expansion rate provides a measurement of our ability to increase revenue across our existing customer base through expansion of authorized agents associated with a customer account, and upgrades in subscription plan, as offset by churn, contraction in authorized agents associated with a customer account, and downgrades in subscription plan.

Our dollar-based net expansion rate is based upon our monthly recurring revenue for a set of customer accounts. Monthly recurring revenue for a customer account is a legal and contractual determination made by assessing the contractual terms of each customer account, as of the date of determination, as to the revenue we expect to receive in the next monthly period for that customer account, assuming no changes to the subscription and without taking into account any one-time discounts, if any, that may be applicable to such subscription. Monthly recurring revenue is not determined by reference to historical revenue, deferred revenue or any other GAAP financial measure over any period. It is forward-looking and contractually derived as of the date of determination.

We calculate our dollar-based net expansion rate by dividing our retained revenue net of contraction and churn by our base revenue. We define our base revenue as the aggregate monthly recurring revenue of our customer base as of the date one year prior to the date of calculation. We define our retained revenue net of contraction and churn as the aggregate monthly recurring revenue

 

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of the same customer base included in our measure of base revenue at the end of the annual period being measured. Our dollar-based net expansion rate is also adjusted to eliminate the effect of certain activities that we identify involving the transfer of agents between customer accounts, consolidation of customer accounts, or the split of a single customer account into multiple customer accounts. While not material, we believe the failure to account for these activities would otherwise skew our dollar-based net expansion metrics associated with customers that maintain multiple customer accounts. Our dollar-based net expansion rate was 126% and 123% as of December 31, 2012 and 2013, respectively. We expect our dollar-based net expansion rate to decline over time as our aggregate monthly recurring revenue grows.

Prior to the implementation of a new subscription billing system in July 2013, we calculated monthly recurring revenue for a customer account based on the aggregate payment for the subscription to our platform for such customer account, including one-time discounts, and the number of months in the term of the subscription, assuming a 30-day month for the purpose of such calculation. We believe that the impact of the change in our methodology of calculating monthly recurring revenue on our dollar-based net expansion rate is immaterial.

Components of Results of Operations

Revenue

We derive substantially all of our revenue from subscription services, which are comprised of subscription fees from customer accounts on our customer service platform and live chat software. Each subscription may have multiple authorized agents, and we refer to each such user as an “agent.” The number of agents ranges from one to thousands for various customer accounts. Our pricing is generally established on a per agent basis. We offer a range of subscription account plans that vary in pricing per agent based on functionality and the type and, for our customer service platform, amount of product support we offer. We sell subscription services under contractual agreements that vary in length, ranging between one month and multiple years, with the majority of subscriptions having a term of either one month or one year.

Subscription fees are generally non-refundable regardless of the actual use of the service. Subscription revenue is affected by the number of customer accounts, number of agents, and the type of plan purchased by our customers, and is recognized ratably over the contractual term of the arrangement beginning on the date that our services are made available to our customers. Subscription services purchased online are typically paid for via a credit card on the date of purchase while subscription services purchased through our internal sales organization are generally billed with monthly, quarterly, or annual payment frequency. Due to our mixed contract lengths and billing frequencies, the annualized value of the arrangements we enter into with our customers may not be fully reflected in deferred revenue at any single point in time. Accordingly, we do not believe that the change in deferred revenue for any period is an accurate indicator of future revenue for a given period of time.

We derive an immaterial amount of revenue from implementation, voice, and training services, for which we recognize revenue upon completion.

Cost of Revenue, Gross Margin, and Operating Expenses

Cost of Revenue .    Cost of revenue consists primarily of personnel costs (including salaries, benefits, and share-based compensation) for employees associated with our platform infrastructure and our product support organizations, data center costs related to hosting our platform, depreciation expense associated with the equipment purchased for our self-managed colocation data centers,

 

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amortization expense associated with capitalized internal-use software, payment processing fees, and allocated shared costs. We allocate shared costs such as rent, shared information technology costs, and employee benefit costs to all departments based on headcount. As such, allocated shared costs are reflected in cost of revenue and each operating expense category.

We currently utilize third-party managed hosting facilities located in North America, Europe, and Asia and self-managed colocation data centers in which we manage our own network equipment and systems. We currently operate out of two such self-managed colocation data centers located in California and Ireland. In order to improve our long-term cost efficiency, we intend to expand our operations in these and other self-managed colocation data centers over time. We also intend to consolidate hosting of our live chat software into our self-managed colocation data centers and conform the live chat software to the technical and other operational and security measures applicable to our customer service platform. In certain markets and for certain products, we may elect to not pursue this self-managed colocation strategy depending on individual market dynamics.

We intend to continue to invest additional resources in our platform infrastructure and our product support organizations. As we continue to invest in technology innovation, we expect to have increased capitalized internal-use software costs and related amortization. We expect that the investment in technology should not only expand the capability of our customer service platform and live chat software but also increase the efficiency of how we deliver our customer service platform and live chat software, enabling us to improve our gross margin over time. The level and timing of investment in these areas could affect our cost of revenue in the future.

Gross Margin.     Gross margin is gross profit expressed as a percentage of total revenue. Our gross margin may fluctuate from period to period as our revenue fluctuates and as a result of the timing and amount of investments to expand our product support team, investments in additional personnel, equipment, and facilities to support our platform architecture, as well as the amortization of costs associated with capitalized internal-use software.

Research and Development.     Research and development expenses consist primarily of personnel costs (including salaries, benefits, and share-based compensation) for employees associated with our research and development organization, professional fees paid to third-party development resources, and allocated shared costs.

We focus our research and development efforts on the continued development of our customer service platform and live chat software, including the development and deployment of new features and functionality and enhancements to our software architecture. We expect that, in the future, research and development expenses will increase in absolute dollars, partially offset by an increase in the amount of capitalized internal-use software costs. However, we expect our research and development expenses to decrease modestly as a percentage of our revenue over time, although this may fluctuate from period to period depending on fluctuations in revenue and the timing and extent of our research and development expenses.

Sales and Marketing.     Sales and marketing expenses consist of personnel costs (including salaries, commissions, benefits, share-based compensation, and travel-related expenses) for employees associated with our sales and marketing organizations, costs of marketing activities, and allocated shared costs. Marketing activities include online lead generation, advertising, promotional events, and public and community relations, as well as product design activities designed to improve the adoption of our customer service platform and live chat software. Sales commissions and other incremental costs to acquire contracts are expensed as incurred.

We focus our sales and marketing efforts on generating awareness of our company, creating sales leads, establishing and promoting our brand, and cultivating a community of successful and vocal

 

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customers. We plan to continue investing in sales and marketing by increasing the number of direct sales employees, developing our field sales team, expanding our indirect sales channels, building brand awareness, and sponsoring additional marketing events, which we believe will enable us to add new customers and increase penetration within our existing customer base. Because we do not have a long history of expanding our sales force, we cannot predict whether, or to what extent, our revenue will increase as we expand our sales force or how long it will take for new sales personnel to become productive. We expect our sales and marketing expenses to continue to increase in absolute dollars and continue to be our largest operating expense category for the foreseeable future. We expect our sales and marketing expenses to increase modestly as a percentage of our revenue over time, although this may fluctuate from period to period depending on fluctuations in revenue and the timing and extent of our sales and marketing expenses.

General and Administrative .    General and administrative expenses consist primarily of personnel costs (including salaries, benefits and share-based compensation) for our executive, finance, legal, security, human resources, and other administrative employees. In addition, general and administrative expenses include fees for third-party professional services, including consulting, legal, and accounting services, and other corporate expenses and allocated shared costs.

We expect to incur incremental costs associated with supporting the growth of our business, both in terms of size and geographic expansion, and to meet the increased compliance requirements associated with our transition to, and operation as, a public company. Such costs include increases in our accounting, legal, and human resources personnel, additional consulting, legal, and audit fees, insurance costs, board of directors’ compensation and the costs of achieving and maintaining compliance with Section 404 of the Sarbanes-Oxley Act and other costs associated with being a public company. As a result, we expect our general and administrative expenses to continue to increase in absolute dollars for the foreseeable future. However, we expect our general and administrative expenses to decrease modestly as a percentage of our revenue over time, although this may fluctuate from period to period depending on fluctuations in revenue and the timing and extent of our general and administrative expenses.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest expense associated with our credit facility and transaction gains or losses on foreign currency.

Provision for Income Taxes

Provision for income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions. See Note 9 of the Notes to our Consolidated Financial Statements included elsewhere in this prospectus.

 

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Results of Operations

The following tables set forth our results of operations for the periods presented in dollars and as a percentage of our revenue:

 

     Year Ended December 31,  
           2012                 2013        
                       (In thousands)                     

Revenue

   $ 38,228      $ 72,045   

Cost of revenue (1)

     13,253        24,531   
  

 

 

   

 

 

 

Gross profit

     24,975        47,514   

Operating expenses: (1)

    

Research and development

     14,816        15,288   

Sales and marketing

     22,749        37,622   

General and administrative

     11,558        16,437   
  

 

 

   

 

 

 

Total operating expenses

     49,123        69,347   
  

 

 

   

 

 

 

Operating loss

     (24,148     (21,833

Other expense, net

     (96     (517
  

 

 

   

 

 

 

Loss before provision for income taxes

     (24,244     (22,350

Provision for income taxes

     121        221   
  

 

 

   

 

 

 

Net loss

   $ (24,365   $ (22,571
  

 

 

   

 

 

 

 

(1) Includes share-based compensation expense as follows:

 

     Year Ended December 31,  
         2012              2013      
                   (In thousands)                

Cost of revenue

   $ 129       $ 254   

Research and development

     4,117         635   

Sales and marketing

     1,313         1,210   

General and administrative

     4,081         2,755   

 

     Year Ended December 31,  
     2012     2013  
     (As a percentage of revenue)  

Revenue

     100.0     100.0

Cost of revenue

     34.7        34.0   
  

 

 

   

 

 

 

Gross profit

     65.3        66.0   

Operating expenses:

    

Research and development

     38.8        21.2   

Sales and marketing

     59.5        52.2   

General and administrative

     30.2        22.8   
  

 

 

   

 

 

 

Total operating expenses

     128.5        96.3   
  

 

 

   

 

 

 

Operating loss

     (63.2     (30.3

Other expense, net

     (0.3     (0.7
  

 

 

   

 

 

 

Loss before provision for income taxes

     (63.4     (31.0

Provision for income taxes

     0.3        0.3   
  

 

 

   

 

 

 

Net loss

     (63.7 )%      (31.3 )% 
  

 

 

   

 

 

 

 

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Years Ended December 31, 2012 and 2013

Revenue

 

     Year Ended December 31,      2012 to 2013
Change
     2012 to 2013
% Change
 
           2012                  2013              
     (In thousands)         

Revenue

   $ 38,228       $ 72,045       $ 33,817         88

Revenue increased $33.8 million, or 88%, in 2013 compared to 2012. Of the total increase in revenue, $13.5 million, or 35%, was attributable to revenue from new customer accounts acquired from January 1, 2013 through December 31, 2013, net of churn and contraction, and $20.3 million, or 53%, was attributable to revenue from customer accounts existing on or before December 31, 2012, net of churn and contraction.

Cost of Revenue and Gross Margin

 

     Year Ended December 31,     2012 to 2013
Change
     2012 to 2013
% Change
 
           2012                 2013             
     (In thousands)         

Cost of Revenue

   $ 13,253      $ 24,531      $ 11,278         85

Gross Margin

     65     66     

Cost of revenue increased $11.3 million, or 85%, in 2013 compared to 2012. The overall increase was due to increased employee compensation-related costs of $4.4 million, increased depreciation expense and other costs associated with our self-managed colocation data centers of $2.1 million, and increased hosting fees of $1.2 million. The increase in employee compensation-related costs was due to our substantial increase in headcount during the year ended December 31, 2013. The increase in depreciation expense and other costs associated with our self-managed colocation data centers was driven by our investments in building out and increasing capacity within our self-managed colocation data centers. Hosting fees for our platform infrastructure also increased as we increased data center capacity to support our growth. Further contributing to the increase was $0.9 million in amortization expense associated with capitalized internal-use software, an increase of $0.4 million in payment processing fees and an increase in allocated shared costs of $0.9 million.

Our gross margin increased from 65% in 2012 to 66% in 2013. The increase in gross margin was primarily driven by economies of scale in our operations during the period reflected by our ability to maintain growth in costs of revenue at a level lower than our revenue growth.

Operating Expenses

In November 2012, in connection with a prior purchase of shares of our Series D redeemable convertible preferred stock, the purchasers of the Series D redeemable convertible preferred stock, including certain existing investors, completed a tender offer to acquire approximately 8.0 million shares of outstanding vested common stock from employees, former employees, and other existing investors. In connection with the tender offer, we waived any rights of first refusal or other transfer restrictions applicable to such shares. The shares were repurchased from the stockholders at a purchase price of $4.81 per share. As a result of this transaction, we recorded a total of $8.6 million in share-based compensation expense in the three months ended December 31, 2012 for the difference between the price paid for shares purchased from our employee and former employee stockholders and the estimated fair market value of our common stock on the date of the transaction of $2.69 per share. Of the total share-based compensation expense, we recorded $20,000, $3.9 million, $1.0 million, and $3.7 million in

 

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cost of revenue, research and development, sales and marketing, and general and administrative expenses, respectively, based on the job functions of the employee and former employee stockholders who participated in the tender offer. The difference between the price paid for shares held by stockholders that were not employees or former employees and the estimated fair market value on the date of the transaction was recorded as deemed dividend.

Research and Development Expenses

 

     Year Ended December 31,      2012 to 2013
Change
     2012 to 2013
% Change
 
           2012                  2013              
     (In thousands)         

Research and Development

   $ 14,816       $ 15,288       $ 472         3

Research and development expenses increased $0.5 million, or 3% in 2013 compared to 2012. The increase was primarily due to an increase of $3.3 million in employee compensation-related costs, net of costs capitalized associated with the development of internal-use software, due to our substantial increase in headcount and an increase of $1.2 million in allocated shared costs. The 2013 increase was largely offset by the $3.9 million charge recorded in connection with the 2012 tender offer described above.

Sales and Marketing Expenses

 

     Year Ended December 31,      2012 to 2013
Change
     2012 to 2013
% Change
 
           2012                  2013              
     (In thousands)         

Sales and Marketing

   $ 22,749       $ 37,622       $ 14,873         65

Sales and marketing expenses increased $14.9 million, or 65%, in 2013 compared to 2012. The overall increase was primarily due to increased employee compensation-related costs of $9.4 million and increased marketing program costs of $3.3 million. The 2013 increase in employee compensation-related costs, mainly consisting of salaries, sales commissions, and share-based compensation expense, was driven by the substantial increase in our sales force. The 2013 increase in marketing program costs was primarily driven by increases in online lead generation marketing programs to drive the adoption of our customer service platform. Additionally, allocated shared costs increased $2.1 million. The 2013 increase was partially offset by the $1.0 million charge recorded in connection with the 2012 tender offer described above.

General and Administrative Expenses

 

     Year Ended December 31,      2012 to 2013
Change
     2012 to 2013
% Change
 
           2012                  2013              
     (In thousands)         

General and Administrative

   $ 11,558       $ 16,437       $ 4,879         42

General and administrative expenses increased $4.9 million, or 42%, in 2013 compared to 2012. The increase was primarily due to an increase in employee compensation-related costs of $7.1 million due to a substantial increase in headcount and an increase of $1.6 million in professional and outside services costs, comprised primarily of fees related to legal and accounting services. In addition, in May 2013, we recorded $1.7 million in share-based compensation expense related to the accelerated vesting of certain stock options. The 2013 increase was partially offset by the $3.7 million charge recorded in connection with the 2012 tender offer described above.

 

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Provision for Income Taxes

 

     Year Ended December 31,      2012 to 2013
Change
     2012 to 2013
% Change
 
           2012                  2013              
     (In thousands)         

Provision for Income Taxes

   $ 121       $ 221       $ 100         83

Provision for income taxes increased by $0.1 million, or 83%, in 2013 compared to 2012 as a result of profits generated in foreign jurisdictions by our consolidated subsidiaries.

Quarterly Results of Operations

The following unaudited quarterly results of operations data for each of the eight quarters in the two-year period ended December 31, 2013 have been prepared on a basis consistent with our audited consolidated annual financial statements and include, in management’s opinion, all normal recurring adjustments necessary for the fair presentation of the results of operations data for these periods, in accordance with generally accepted accounting principles in the United States. These quarterly results of operations are not necessarily indicative of our results of operations for a full year or any future period. The following quarterly financial data should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus.

 

    Three Months Ended  
    Mar 31,
2012
    Jun 30,
2012
    Sep 30,
2012
    Dec 31,
2012
    Mar 31,
2013
    Jun 30,
2013
    Sep 30,
2013
    Dec 31,
2013
 
    (In thousands)  

Consolidated Statements of Operations Data:

 

Revenue

  $ 6,958      $ 8,550      $ 10,415      $ 12,305      $ 13,911      $ 16,396      $ 19,237      $ 22,501   

Cost of revenue (1)

    2,425        2,790        3,367        4,671        4,870        5,681        6,327        7,653   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    4,533        5,760        7,048        7,634        9,041        10,715        12,910        14,848   

Operating expenses: (1)

               

Research and development

    2,293        2,736        2,904        6,883        3,349        3,528        3,860        4,551   

Sales and marketing

    3,670        5,109        5,944        8,026        7,995        8,208        10,015        11,404   

General and administrative

    1,418        1,863        2,063        6,214        2,958        5,140        3,646        4,693   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    7,381        9,708        10,911        21,123        14,302        16,876        17,521        20,648   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

    (2,848     (3,948     (3,863     (13,489     (5,261     (6,161     (4,611     (5,800

Other income (expense), net

    36        (27     (35     (70     (77     (133     (102     (205
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

    (2,812     (3,975     (3,898     (13,559     (5,338     (6,294     (4,713     (6,005

Provision for income taxes

    10        24        38        49        20        58        42        101   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

  $ (2,822   $ (3,999   $ (3,936   $ (13,608   $ (5,358   $ (6,352   $ (4,755   $ (6,106
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Share-based compensation expense was allocated as follows:

 

     Three Months Ended  
     Mar 31,
2012
     Jun 30,
2012
     Sep 30,
2012
     Dec 31,
2012
     Mar 31,
2013
     Jun 30,
2013
     Sep 30,
2013
     Dec 31,
2013
 
     (In thousands)  

Cost of revenue

   $ 6       $ 11       $ 14       $ 98       $ 39       $ 61       $ 77       $ 77   

Research and development

     35         46         66         3,970         71         155         196         213   

Sales and marketing

     59         80         121         1,053         159         229         338         484   

General and administrative

     72         81         111         3,817         133         2,022         264         336   

 

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     Three Months Ended  
     Mar 31,     Jun 30,     Sep 30,     Dec 31,     Mar 31,     Jun 30,     Sep 30,     Dec 31,  
     2012     2012     2012     2012     2013     2013     2013     2013  
     (As a percentage of revenue)  

Consolidated Statements of Operations Data:

  

Revenue

     100.0     100.0     100.0     100.0     100.0     100.0     100.0     100.0

Cost of revenue

     34.9        32.6        32.3        38.0        35.0        34.6        32.9        34.0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     65.1        67.4        67.7        62.0        65.0        65.4        67.1        66.0   

Operating expenses:

                

Research and development

     33.0        32.0        27.9        55.9        24.1        21.5        20.1        20.2   

Sales and marketing

     52.7        59.8        57.1        65.2        57.5        50.1        52.1        50.7   

General and administrative

     20.4        21.8        19.8        50.5        21.3        31.3        19.0        20.9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     106.1        113.5        104.8        171.7        102.8        102.9        90.8        91.8   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (40.9     (46.2     (37.1     (109.6     (37.8     (37.6     (24.0     (25.8

Other income (expense), net

     0.5        (0.3     (0.3     (0.6     (0.6     (0.8     (0.5     (0.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before provision for income taxes

     (40.4     (46.5     (37.4     (110.2     (38.4     (38.4     (24.5     (26.7

Provision for income taxes

     0.1        0.3        0.4        0.4        0.1        0.4        0.2        0.4   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (40.6 )%      (46.8 )%      (37.8 )%      (110.6 )%      (38.5 )%      (38.7 )%      (24.7 )%      (27.1 )% 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Quarterly Trends in Revenue

Our quarterly revenue increased sequentially for each period presented, primarily due to sales of new subscriptions to our customer service platform and net expansion by our existing customers. We cannot assure you that this pattern of sequential growth in revenue will continue. In future periods, as our rate of revenue growth declines, seasonality in our revenue may become more apparent.

Quarterly Trends in Costs and Expenses

With the exception of the quarter ended March 31, 2013, our quarterly costs and expenses increased sequentially for each period presented, primarily due to increased compensation-related costs related to an increase in headcount in connection with the expansion of our business. In the three months ended December 31, 2012, as a result of the tender offer described above, we recorded a total of $8.6 million of share-based compensation expense. Of the total share-based compensation expense, we recorded $20,000, $3.9 million, $1.0 million, and $3.7 million in cost of revenue, research and development, sales and marketing, and general and administrative expenses, respectively. In addition, in the three months ended June 30, 2013, we recorded $1.7 million in share-based compensation expense as a component of general and administrative expense, related to the accelerated vesting of certain outstanding shares subject to repurchase by us.

Credit Facility

In June 2012, we entered into a loan and security agreement, or credit facility, with Silicon Valley Bank. The credit facility consisted of a $10.0 million revolving line of credit and a $5.0 million mezzanine loan. The mezzanine loan was not drawn upon and expired in June 2013, and none of the revolving line of credit was utilized in 2012.

In June 2013, we entered into a first amendment to the credit facility, adding a $10.0 million equipment line of credit bearing interest at a rate of 2.5% per annum. We had $3.8 million of equipment loan advances outstanding under the equipment line of credit as of December 31, 2013. For each equipment advance under the equipment line of credit, we make interest-only payments until September 14, 2014, when the last draw against the equipment line of credit can be made. The

 

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outstanding balance as of September 14, 2014 will be payable in equal monthly installments for 30 months thereafter, with the last payment due on March 14, 2017. We are also required to make a final payment fee of 4.0% of the aggregate principal amount of all historical advances made under the equipment line of credit on March 14, 2017.

In December 2013, we entered into a second amendment to the credit facility, increasing the revolving line of credit to $20.0 million. We borrowed $20.0 million under the revolving line of credit during 2013, all of which was outstanding as of December 31, 2013. Borrowings on the revolving line of credit are subject to a borrowing base limit determined monthly based on our recurring revenue metrics from the previous month and the ratio of certain current assets to current liabilities as of the previous month end. Borrowings on the revolving line of credit bear interest at the prime rate plus 2.0% per annum. We will make interest-only payments until January 1, 2016, when the outstanding balance is due in full. The interest rate will be reduced to the prime rate upon the consummation of this offering, provided that net cash proceeds are at least $100.0 million.

We may use a portion of the net proceeds from this offering to repay all or some of the outstanding principal and accrued interest on the equipment line of credit or the revolving line of credit.

The credit facility is collateralized by substantially all of our assets, excluding our intellectual property. Our domestic subsidiary is a guarantor of the credit facility and we have pledged up to 65% of the equity in our international subsidiaries as collateral. The credit facility also imposes various covenants on us, including the delivery of financial and other information, the maintenance of our primary operating and securities accounts with the lender, the maintenance of minimum revenue targets and an agreed ratio of certain current assets to current liabilities, as well as limitations on dispositions, changes in business or management, certain mergers or consolidations, dividends and other corporate activities. As of December 31, 2012 and 2013, we were in compliance with all of the covenants contained in the credit facility.

Liquidity and Capital Resources

As of December 31, 2013, our principal sources of liquidity were cash, cash equivalents and marketable securities totaling $65.8 million, which were held for working capital purposes, as well as the available balance of our credit facility. Our cash, cash equivalents, and marketable securities are comprised primarily of money market funds and corporate bonds.

The following table summarizes our cash flows for the periods indicated:

 

     Year Ended December 31,  
           2012                 2013        
     (In thousands)  

Cash provided by (used in) operating activities

   $ (5,096   $ 4,005   

Cash used in investing activities

     (7,119     (24,186

Cash provided by financing activities

     46,705        25,216   

To date, we have financed our operations primarily through private sales of redeemable convertible preferred stock. From our inception through December 31, 2013, we have completed several rounds of equity financing through the issuance of shares of our redeemable convertible preferred stock with total cash proceeds of $71.3 million, net of issuance costs. We have also financed our operations through customer payments for subscription to our platform and borrowings under our credit facility. We believe that our existing cash, cash equivalents, and marketable securities balance together with cash generated from operations and the available balance of our credit facility will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.

 

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Our future capital requirements will depend on many factors including growth in our customer accounts and continued customer expansion, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, ongoing investments in our platform infrastructure, and the introduction of new and enhanced products, features and functionality. We may in the future enter into arrangements to acquire or invest in complementary businesses, services and technologies and intellectual property rights. We may be required to seek additional equity or debt financing in order to meet these future capital requirements. 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 when desired, our business, results of operations and financial condition would be adversely affected.

In March 2014, we completed an acquisition of Zopim. The purchase price of approximately $15.9 million ($5.0 million of cash and $10.9 million of our common stock) includes $1.1 million of cash and $2.4 million of common stock consideration held back between 12 and 18 months as partial security for standard indemnification obligations and which is payable in the future under terms specified in the stock purchase agreement. In connection with the acquisition of Zopim, we established a retention plan pursuant to which we will pay up to $13.9 million in cash and equity consideration over two and three years, respectively, to Zopim employees in connection with their continued employment.

Share-Based Awards With Both Service and Performance Conditions

In 2013, we granted 1.6 million restricted stock units, or RSUs, and 49,000 stock options to employees with both a service and a performance condition. The service condition for substantially all of these awards is satisfied over four years. The performance condition is satisfied upon the occurrence of a qualifying liquidity event (change in control or the completion of an initial public offering). These RSUs for which the service condition have been satisfied are not forfeited upon termination of employment provided the termination is within three years of the performance condition being satisfied.

On the date when these RSUs become taxable to their holders, we may choose to undertake a net settlement and withhold shares and remit income taxes on behalf of the holders of the RSU at the applicable minimum statutory rates. We expect the applicable minimum statutory rates to be approximately 40% on average, and the income taxes due would be based on the then-current value of the underlying shares of our common stock. Based on the number of these RSUs outstanding as of December 31, 2013 for which the service condition had been satisfied on that date, and assuming (A) the performance condition had been satisfied on that date and (B) that the price of our common stock at the time of settlement was equal to $        , which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, we estimate that this tax obligation on the initial settlement date would be approximately $         million in the aggregate. The amount of this obligation could be higher or lower, depending on the price of shares of our common stock, the actual number of these RSUs for which the service condition is satisfied, and the date upon which the RSUs become taxable to their holders. Assuming a 40% tax withholding rate, if we choose to undertake a net settlement of all of these awards, we would expect to deliver an aggregate of approximately                  shares of our common stock to the holders of the RSUs after withholding an aggregate of approximately                  shares of our common stock. In connection with these net settlements, we would remit the tax liabilities on behalf of the holders of the RSUs to the relevant tax authorities in cash.

If we choose to undertake a net settlement of these RSUs, then in order to fund the tax withholding and remittance obligations on behalf of the holders of the RSUs, we would expect to use our existing cash and cash equivalents, or, alternatively, we may choose to borrow funds or a combination of cash and borrowed funds to satisfy these obligations.

 

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Operating Activities

Our largest source of operating cash inflows is cash collections from our customers for subscription services. Our primary uses of cash from operating activities are for employee-related expenditures, hosting fees, and leased facilities.

Net cash provided by operating activities in 2013 was $4.0 million, reflecting our net loss of $22.6 million, adjusted by non-cash charges including depreciation and amortization of $5.2 million, share-based compensation expense of $4.9 million, and changes in our working capital. The changes in our working capital were primarily attributable to an increase in deferred revenue of $13.9 million due to the growth of our subscription services, an increase in accounts payable and accrued liabilities of $4.5 million due to timing of payments and a higher level of expenses consistent with the overall growth of our business, and an increase in accrued compensation liabilities of $1.7 million primarily due to a significant increase in headcount. These sources of cash flow were partially offset by an increase in accounts receivable of $3.6 million due to higher customer billings related to the increase in subscription services during the period and an increase in prepaid expenses and other current assets of $0.5 million primarily due to increases in prepaid rent.

Net cash used in operating activities in 2012 was $5.1 million, reflecting our net loss of $24.4 million, adjusted by non-cash charges including share-based compensation expense of $9.6 million and depreciation and amortization of $2.5 million, and changes in our working capital. The changes in our working capital were primarily attributable to an increase in deferred revenue of $7.7 million due to the growth of our subscription services, an increase in accrued compensation liabilities of $1.6 million, primarily due to increased headcount, and an increase in accounts payable and accrued liabilities of $1.1 million due to increased accrual for taxes and the timing of payments. These sources of cash flow were partially offset by an increase in prepaid expenses of $1.6 million primarily due to retention-related compensation, which are amortized as compensation expense over the required service period and an increase in accounts receivable of $1.4 million due to higher customer billings related to the increase in subscription services during the period.

Investing Activities

Net cash used in investing activities in 2013 of $24.2 million was primarily attributable to $12.4 million in purchases of marketable securities, purchases of property and equipment of $7.1 million primarily associated with hosting equipment to build out our self-managed colocation data centers, and capitalized software development costs of $4.7 million associated with the development of additional features and functionality of our platform.

Net cash used in investing activities in 2012 of $7.1 million was primarily attributable to capitalized software development costs of $3.5 million associated with an upgrade of our platform introduced in the third quarter of 2012 and the development of additional features and functionality, purchases of hosting equipment of $1.5 million associated with the build out of our self-managed colocation data centers, purchases of furniture and fixtures and computer equipment of $1.1 million associated with our headcount growth and leasehold improvements of $1.0 million relating to our corporate headquarters in San Francisco, California.

Financing Activities

During 2013, cash provided by financing activities of $25.2 million was primarily attributable to proceeds from borrowings under our credit facility of $23.8 million and proceeds from exercise of stock options of $1.8 million, partially offset by principal payments on capital lease obligations of $0.3 million.

 

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During 2012, cash provided by financing activities of $46.7 million was primarily attributable to net proceeds from issuance of our Series D redeemable convertible preferred stock of $44.9 million and proceeds from exercise of stock options of $2.1 million, partially offset by principal payments on capital lease obligations of $0.3 million.

Contractual Obligations and Other Commitments

Our principal commitments consist of obligations under our credit facility, capital leases for equipment and operating leases for office space, and contractual commitments for hosting and other support services. The following table summarizes our contractual obligations as of December 31, 2013:

 

     Payments Due by Period  
     Less Than
1 Year
     1 to 3
Years
     3 to 5
Years
     More Than
5 Years
     Total  
     (In thousands)  

Contractual Obligations:

  

Debt obligations

   $ 365       $ 23,008       $ 387       $       $ 23,760   

Capital lease obligations

     364         10                         374   

Operating lease obligations

     3,445         12,033         12,166         18,052         45,696   

Purchase obligations

     2,848         1,196                         4,044   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 7,022       $ 36,247       $ 12,553       $ 18,052       $ 73,874   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Off-Balance Sheet Arrangements

Through December 31, 2013, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange Risk

We conduct transactions, particularly intercompany transactions, in foreign currencies, primarily the British Pound Sterling, Euro, Australian Dollar, Danish Krone, Japanese Yen, and Singapore Dollar. Except for our Singapore subsidiary, our international subsidiaries maintain certain current asset and current liability balances that are denominated in currencies other than the functional currencies of these entities, which is the U.S. dollar. Our Singapore subsidiary’s functional currency is the Singapore Dollar. Changes in the value of foreign currencies relative to the U.S. dollar can affect our revenue and results of operations due to transactional and translational remeasurement that is reflected in our earnings. While we have primarily transacted with customers in the U.S. dollar, we have also historically transacted in foreign currencies for subscriptions to our platform and expect to significantly expand the number of transactions with customers that are denominated in foreign currencies in the near future.

Foreign currency gain and loss were not significant in 2012 or 2013. While we have not engaged in hedging of our foreign currency transactions to date, we are currently evaluating the costs and benefits of initiating such a program and may, in the future, hedge selected significant transactions denominated in currencies other than the U.S. dollar.

 

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Interest Rate Sensitivity

We had cash, cash equivalents and marketable securities totaling $65.8 million as of December 31, 2013, of which $23.0 million was invested in money market funds and corporate bonds. The cash and cash equivalents are held for working capital purposes. Our investments are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes.

Our cash equivalents and our portfolio of marketable securities are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates. Due in part to these factors, our future investment income may fall short of our expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However because we classify our debt securities as “available for sale,” no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.

As of December 31, 2013, we do not believe that an increase or decrease in interest rates of ten percent (10%) would have had a material effect on the value of our cash equivalents and portfolio of marketable securities. Fluctuations in the value of our cash equivalents and portfolio of marketable securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in other comprehensive income, and are realized only if we sell the underlying securities prior to maturity.

Critical Accounting Polices and Estimates

We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles, or GAAP. In the preparation of these consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss below.

Revenue Recognition

We generate substantially all of our revenue from subscription services, which are comprised of subscription fees from customer accounts on our customer service platform and live chat software. Arrangements with customers do not provide the customer with the right to take possession of the software supporting our customer service platform or live chat software at any time. Subscription service arrangements are generally non-cancelable and generally do not provide for refunds to customers in the event of cancellations. We record revenue net of any sales or excise taxes.

We commence revenue recognition when all of the following conditions are met:

 

    There is persuasive evidence of an arrangement;

 

    The service has been or is being provided to the customer;

 

    The collection of the fees is reasonably assured; and

 

    The amount of fees to be paid by the customer is fixed or determinable.

Subscription revenue is recognized on a straight-line basis over the contractual term of the arrangement beginning on the date that our service is made available to the customer. Payments received in advance of services being rendered are recorded as deferred revenue and recognized on a straight-line basis over the requisite service period.

 

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We derive an immaterial amount of revenue from implementation, voice, and training services, for which we recognize revenue upon completion.

Capitalized Internal-Use Software Costs

We capitalize certain development costs incurred in connection with software development for our platform and software used in operations. Costs incurred in the preliminary stages of development are expensed as incurred. Once software has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. We also capitalize costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized costs are recorded as part of property and equipment. Maintenance and training costs are expensed as incurred.

Capitalized internal-use software is amortized on a straight-line basis over its estimated useful life and recorded in cost of revenue within the consolidated statements of operations. The weighted-average useful life of our capitalized internal-use software was 3.4 years as of December 31, 2013. Management evaluates the useful lives of these assets and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. There were no impairments to internal-use software during the years ended December 31, 2012 and 2013.

Share-Based Compensation

We have granted share-based awards, including stock options, RSUs, and restricted stock awards, to our employees, certain consultants, and members of our board of directors. Share-based compensation is measured based on the fair value of the awards on the grant date and recognized in our consolidated statements of operations over the period during which the recipient is required to perform services in exchange for the award (generally the vesting period of the award). We record share-based compensation expense for service-based equity awards using the straight-line attribution method. We record share-based compensation expense for performance-based equity awards using the accelerated attribution method.

We estimate the fair value of stock options granted using the Black-Scholes option valuation model. Our option-pricing model requires the input of highly subjective assumptions, including the fair value of our underlying common stock, the expected term of stock options, the expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock. The assumptions used in our option-pricing model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our share-based compensation expense could be materially different in the future.

These assumptions are estimated as follows:

 

    Fair Value of Common Stock .    Because our common stock is not publicly traded, we must estimate the fair value of common stock, as discussed in more detail below.

 

    Risk-Free Interest Rate .    We base the risk-free interest rate used in the Black-Scholes valuation model on the implied yield available on U.S. Treasury zero-coupon bonds with an equivalent remaining term of the stock options for each stock option group.

 

    Expected Term .    We determine the expected term based on the average period the stock options are expected to remain outstanding generally calculated as the midpoint of the stock options vesting term and contractual expiration period, as we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.

 

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    Expected Volatility .    We determine the price volatility factor based on the historical volatility of publicly traded industry peers. To determine our peer group of companies, we consider public companies in the technology industry and select those that are similar to us in size, stage of life cycle, and financial leverage. We do not rely on implied volatilities of traded options in our industry peers’ common stock because the volume of activity is relatively low. We intend to continue to consistently apply this methodology using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.

 

    Dividend Yield .    We have not paid and do not anticipate paying any cash dividends in the foreseeable future and, therefore, use an expected dividend yield of zero.

The following table summarizes the assumptions, other than fair value of our common stock, relating to our stock options granted in the year ended December 31, 2012 and 2013:

 

     Year Ended
December 31,
     2012   2013

Expected term (in years)

   5.28 – 6.27   4.47 – 6.27

Expected volatility

   57% – 59%   50% – 63%

Risk-free interest rate

   0.68% – 1.47%   0.63% – 2.02%

Dividend rate

   0%   0%

In addition to the assumptions used in the Black-Scholes option-pricing model, we must also estimate a forfeiture rate to calculate the share-based compensation expense for our awards. Our forfeiture rate is based on an analysis of our actual forfeitures. We will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover, and other factors. Changes in the estimated forfeiture rate can have a significant impact on our share-based compensation expense as the cumulative effect of adjusting the rate is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the share-based compensation expense recognized in our financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the share-based compensation expense recognized in our financial statements.

We will continue to use judgment in evaluating the expected volatility, expected term, and forfeiture rate utilized in our share-based compensation expense calculations on a prospective basis. As we continue to accumulate additional data related to our common stock, we may refine our estimates of expected volatility, expected term, and forfeiture rates, which could materially impact our future share-based compensation expense.

As of December 31, 2013, no share-based compensation expense had been recognized for the RSUs and stock options with both a service and performance condition, or Performance Awards, because, prior to this offering, we have not deemed satisfaction of the performance condition to be probable. At the time of a qualifying liquidity event, we will recognize a cumulative share-based compensation expense for the portion of the Performance Awards that have met the service condition as of that date, following the accelerated attribution method. The remaining unrecognized share-based compensation expense related to the Performance Awards will be recorded over the remaining requisite service period, using the accelerated attribution method, net of estimated forfeitures. If this offering had closed on December 31, 2013, we would have recognized $1.8 million of share-based compensation expense on that date, net of estimated forfeitures, associated with the Performance

 

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Awards, and would have approximately $3.1 million of additional future period expense to be recognized over a weighted-average period of approximately 1.5 years, net of estimated forfeitures.

The following table summarizes, on an unaudited pro forma basis, the number of vested and unvested Performance Awards outstanding as of December 31, 2013 and the share-based compensation expense related to the Performance Awards, net of estimated forfeitures, that we would have incurred, assuming our initial public offering had occurred on December 31, 2013 (in thousands).

 

     As of December 31, 2013      Inception to December 31, 2013  
     “Vested” Performance
Awards (1)
     “Unvested” Performance
Awards (2)
     Pro Forma Share-Based
Compensation Expense
 

RSUs

     198         1,423       $ 1,784   

Options

             49         25   
  

 

 

    

 

 

    

 

 

 
     198         1,472       $ 1,809   
  

 

 

    

 

 

    

 

 

 

 

(1) For purpose of this table, “Vested” Performance Awards represent the shares underlying the Performance Awards for which the service condition had been satisfied as of December 31, 2013.
(2) For purpose of this table, “Unvested” Performance Awards represent the shares underlying the Performance Awards for which the service condition had not been satisfied as of December 31, 2013 and excludes estimated forfeitures of the Performance Awards.

In addition to share-based compensation expense associated with the Performance Awards, as of December 31, 2013, we had unrecognized share-based compensation expense of approximately $11.5 million related to other outstanding equity awards, which is expected to be recognized over an estimated weighted-average period of 2.8 years.

The following table estimates future share-based compensation expense related to all outstanding equity awards, net of estimated forfeitures. The table does not take into account any share-based compensation expense related to future awards that may be granted to employees, directors, or other service providers.

 

     2014      2015      2016      2017      Beyond
2017
     Total  
     (Unaudited, in thousands)  

Performance Awards

   $ 1,881       $ 826       $ 345       $ 45       $       $ 3,097   

Share-based awards with only service conditions

     3,772         3,479         2,877         1,229         94         11,451   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,653       $ 4,305       $ 3,222       $ 1,274       $ 94       $ 14,548   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Common Stock Valuations

Prior to this offering, the fair value of the common stock underlying our share-based awards was determined by our board of directors, which intended all options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant. The valuations of our common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid,  Valuation of Privately-Held-Company Equity Securities Issued as Compensation . The assumptions we used in the valuation model were based on future expectations combined with management judgment. In the absence of a public market for our common stock, our board of directors, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of our common stock as of the date of each option grant, including the following factors:

 

    contemporaneous valuations performed by unrelated third-party specialists;

 

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    rights, preferences, and privileges of our redeemable convertible preferred stock relative to those of our common stock;

 

    actual operating and financial performance;

 

    relevant precedent transactions involving our capital stock;

 

    likelihood of achieving a liquidity event, such as an initial public offering or a sale of our company given prevailing market conditions and the nature and history of our business;

 

    market multiples of comparable companies in our industry;

 

    stage of development;

 

    industry information such as market size and growth;

 

    illiquidity of share-based awards involving securities in a private company; and

 

    macroeconomic conditions.

The valuations performed by unrelated third-party specialists were just one factor used by our board of directors to assist with the valuation of the common stock and our management and board of directors have assumed full responsibility for the estimates. Our board of directors generally utilized the fair values of the common stock derived in the third-party valuations in determining the exercise price for options granted.

Information regarding share-based awards granted to our employees since January 1, 2013 is summarized as follows:

 

Grant Date

   Shares Underlying
Options
     Shares Underlying
RSUs
     Exercise Price Per
Share (Options)
     Grant-Date Fair
Value per Share
(RSUs)
 

January 23, 2013

     1,500,625               $ 2.69       $   

April 23, 2013

     905,075                 3.12           

May 3, 2013

     2,511,550         933,725         3.12         3.12   

May 22, 2013

     27,500         62,100         3.12         3.12   

July 17, 2013

     549,750         124,500         3.29         3.29   

September 3, 2013

     1,810,000                 3.29           

October 22, 2013

     45,750         309,625         3.89         3.89   

November 22, 2013

     5,000         168,900         3.89         3.89   

December 11, 2013

     40,000         36,865         3.89         3.89   

January 30, 2014

     1,306,875         335,450         4.58         4.58   

February 13, 2014

     8,922,500         1,224,750         4.76         4.76   

March 12, 2014

     256,000         374,400         6.04         6.04   

March 21, 2014

             1,805,700                 6.04   

The third-party valuations of our common stock determined the equity value of our business using the market-based approach and, within the market-based approach, the comparable company method and the recent transaction method. The market-based approach considers multiples of financial metrics based on both trading and acquisition multiples of a selected peer group of technology companies. The peer group of companies was selected based on their similarity to us relative to size, business model, industry, business description, and developmental stage.

A revenue multiple was used to determine our equity value under the market-based approach. A revenue multiple was deemed appropriate because it best reflected the fact that while our projected revenue growth was greater than the revenue growth of the peer group, our business was smaller in size compared to the peer group and remained unprofitable. The revenue multiple of publicly traded peer group companies was based on their trailing 12-month revenue. The revenue multiple of acquired

 

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peer group companies was based on their trailing 12-month revenue when such information was available. These revenue multiples of the peer group of companies were then applied to our revenue estimates for the trailing 12 months prior to the expected liquidity events to generate an equity value.

In allocating the estimated equity value to our common stock, the probability weighted expected return method, or PWERM, was utilized. PWERM considers the present value of the returns afforded to stockholders under various potential liquidity events at each valuation date. These scenarios varied over time as to timing and probability and generally consisted of:

 

    an initial public offering;

 

    an acquisition of our company or substantially all of our assets;

 

    continuing as a private going concern; and

 

    liquidation or dissolution.

The timing of the future liquidity event scenarios was determined based primarily on input from our board of directors and management. Under the initial public offering scenario, value was allocated on a fully diluted basis while the acquisition scenario took into account the liquidation preferences of our outstanding redeemable convertible preferred stock. Under each scenario the holders of outstanding options and warrants were assumed to exercise to the extent the exercise prices of these instruments were below the estimated fair value of the underlying securities. The resulting values were then adjusted to present value based on the estimated time to liquidity, discounted for lack of marketability and probability weighted based on our estimate of the likelihood and timing of each liquidity scenario considered at each valuation date.

Recently Issued and Adopted Accounting Pronouncements

Under the JOBS Act, we meet the definition of an “emerging growth company.” We have irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.

In February 2013, the Financial Accounting Statements Board, or FASB, issued Accounting Standards Update No. 2013-02 “ Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ,” which requires an entity to disaggregate the total change of each component of other comprehensive income either on the face of the statement of operations or as a separate disclosure in the notes. The new guidance became effective for reporting periods beginning after December 15, 2012 and is applied prospectively. We adopted this standard for the year ended December 31, 2013, and the adoption did not have any impact on our financial position, results of operations, or cash flows, as the amounts reclassified out of accumulated other comprehensive loss are not significant.

In July 2013, the FASB issued Accounting Standards Update No. 2013-11 “ Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ,” or ASU 2013-11, which provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss, or NOL, carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 supports the approach for companies to present an unrecognized tax benefit as a reduction of a deferred tax asset for a NOL or tax credit carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. This approach requires companies to assess whether to net the unrecognized tax benefit with a deferred tax asset as of the reporting date. The standard becomes effective for us on January 1, 2014, and it should be applied prospectively to unrecognized tax benefits that exist at the effective date with retrospective application permitted. We do not anticipate that the adoption of this standard will have a material effect on our financial position, results of operations, or cash flows.

 

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BUSINESS

Overview

Zendesk believes the fundamental relationship between organizations and their customers is changing. As consumers, we have more choices, have access to more information, and are more connected than ever before. We expect to be heard, engaged, and valued by the organizations we interact with. At the same time, organizations are increasingly recognizing the value of these deeper relationships. As a result, a new customer service philosophy is emerging.

Zendesk was formed to help organizations capitalize on this profound shift. We are a software development company that provides a SaaS customer service platform. Our beautifully simple platform helps organizations engage with people in new ways that foster long-term customer loyalty and satisfaction. We empower organizations to better answer customers’ questions, and to solve their problems through the channels that people use every day when seeking help, such as email, chat, voice, social media, and websites. Our platform also helps people find answers on their own through knowledge bases and communities, capitalizing on the increasing customer preference for self-service. Our customer engagement capabilities allow organizations to proactively serve their customers, reaching out to those who may need help and soliciting feedback about their experience. The openness of our customer service platform makes it easy for organizations to integrate with their other applications. Our platform consolidates the data from customer interactions and provides organizations with powerful analytics and performance benchmarking.

Our business model is designed to drive organic growth, leverage positive word-of-mouth, and remove friction from the evaluation and purchasing process. The majority of our customers find us online and subscribe to our customer service platform directly from our website. Exemplifying the success of our sales and marketing strategy, during the quarter ended December 31, 2013, 70% of our qualified sales leads, which are largely comprised of prospects that commence a free trial of our customer service platform, came from organic search, customer referrals, and other unpaid sources. For larger organizations, our sales team focuses on a land and expand strategy, which leverages this grassroots adoption and seeks to expand our footprint within organizations.

We currently have more than 40,000 customer accounts on our customer service platform, which represent organizations across a broad array of sizes, industries, and geographies. Our customers are located in over 140 countries and provide customer service through our platform in over 40 languages.

In March 2014, we completed the acquisition of Zopim, a software development company that provides a SaaS live chat service. Through Zopim, we provide live chat software as a standalone service and as an integrated service with our customer service platform for chat-enabled agents.

Our financial performance reflects our significant customer growth and strong customer retention and expansion. For the years ended December 31, 2012 and 2013, our total revenue was $38.2 million and $72.0 million, respectively, representing approximately 88% growth from 2012 to 2013. For the years ended December 31, 2012 and 2013, we derived $15.8 million, or 41%, and $29.6 million, or 41%, of our revenue from customers located outside of the United States, respectively. For the years ended December 31, 2012 and 2013, we also generated net losses of $24.4 million and $22.6 million, respectively. We intend to invest aggressively to drive continued growth and market leadership.

 

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Industry Background

Customer Relationships Are Changing

The relationship between organizations and their customers is changing rapidly. As consumers, we experience these changes in our everyday lives. Over the last several years, the ways in which people research, purchase from, and communicate with organizations have evolved from a relatively simple set of interactions into a rapidly expanding network of information and communications. The result is people who are better informed about the products and services they buy; have more choices and potentially less loyalty; and can influence many others with their opinions. People have higher expectations about how an organization will relate to them and less patience for organizations that do not meet these expectations. These expectations are not limited to the business-to-consumer relationship. The “customer relationship” is increasingly found anywhere an organization wants to maintain a connection with a set of individuals, including business-to-business, business-to-employee, government-to-citizen, and non-profit-to-benefactor realms.

Organizations Must Evolve Their Approach to Customer Service

We believe organizations build successful long-term customer relationships as people do elsewhere in life, with transparent communication, an ability to listen to and incorporate feedback, and a genuine interest in providing a satisfying experience. On a logistical level, an organization must learn to communicate consistently and contextually with customers across multiple channels, including email, chat, voice, social media, and other emerging means of communication. They also need to enable customers to resolve their problems when, where, and how they want, whether by interacting with an agent or through self-service. But perhaps more importantly, because people are more knowledgeable and vocal than ever, an organization must approach the customer experience in a more thoughtful way. Successful customer service is no longer just about handling customer complaints and questions. Instead, it requires that organizations understand and interact with customers as people. Organizations must listen to people when they are speaking and engage with them using empathy, personality, and transparency.

The Opportunity to Build Relationships Through Customer Service

The transformation to a customer-driven economy creates tremendous opportunities for organizations of all sizes that make customer service a critical focus of their operations. We believe that many successful organizations today exemplify this new approach. Whether it is an online brand that removes barriers to completing online purchases or a new entrant that innovates an industry’s customer communication methods, organizations are discovering that a deep understanding of the customer experience can be the foundation for building highly valuable customer relationships.

Failing to Adapt to This New Landscape Puts Organizations at Risk

While opportunities abound for organizations that recognize and capitalize on the customer-driven economy, the penalties for failing to evolve to this changing landscape can be severe. That is because there is an entirely new level of communication by and among people. While word-of-mouth and user opinions have always been a force in brand marketing, they now exist on a massive scale with much more efficiency and greater impact. Acting as brand advocates or adversaries, individuals can influence peers’ opinions and purchasing behavior. Their voices are amplified through popular community-based ways to research products ranging from social networks, including Facebook, Twitter, and Google+, to user-generated reviews, including Yelp, TripAdvisor, and Angie’s List. Today’s customers can communicate happiness or displeasure instantaneously at scale, exerting strong influence on brands.

 

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Organizations that continue with the traditional uncoordinated, uninformed, and reactive approach to customer service risk customer frustration and lost business. In a 2013 survey of approximately 13,000 consumers by Accenture plc, a consulting firm, 74% complained about having to contact an organization’s customer support multiple times for an answer and 66% complained about having to repeat the same information to multiple agents or through multiple channels. Furthermore, over 80% of these survey respondents said an organization could have retained their business with more effective customer service such as quick resolution and proactive engagement.

Legacy Customer Support Software Was Built for a Different Era

We believe organizations are increasingly aware of changing customer expectations and are looking for technology to help them address the opportunities and challenges this presents. Various software tools, delivered both “on-premise” and in the cloud, have attempted to address the difficult nature of customer support for many years. Unfortunately, this legacy customer support software was largely designed to solve discrete service problems and to minimize the cost of support, instead of fostering customer loyalty and successful long-term relationships. This presents challenges for organizations of all sizes.

Legacy customer support software is costly and complex, causing the vast majority of SMBs to rely primarily on tools like email, phones, and spreadsheets. Even larger organizations able to afford customer support software often adopt a piecemeal approach with the goal of minimizing support costs. The result is the inability to support multiple channels or expand to new channels, ultimately leading to customer frustration. This siloed approach reflects a view of support as a necessary burden rather than an opportunity to build customer loyalty.

Legacy customer support software also limits employees’ effectiveness in responding to customer inquiries and offers few, if any, analytics, recommendations, or performance benchmarks. Just as the expectations of the consumer have evolved, so too have the expectations of employees. Familiar with consumer web software like Facebook, Twitter, and Gmail, employees desire tools with similar ease-of-use and sophistication. Most enterprise software, particularly customer support software, has not progressed to embrace consumer design tactics including optimized user experience, availability on personal devices, and ease-of-deployment.

New Solutions Are Needed for the Customer-Driven Economy

Due to the emphasis on customer service in the new customer-driven economy, having the right technology is more important than ever and there are few options to effectively address that need. We believe that effective customer service requires a purpose-built platform that embraces the new landscape of omni-channel communication and the empowered and informed customer, and places an emphasis on well-designed experiences.

This is what Zendesk does. This is what Zendesk cares about.

Market Opportunity

We believe a new and expansive market opportunity exists for technology like our customer service platform that helps organizations navigate the new customer-driven economy and harness its power. With its simplicity, flexibility, scalability, and affordability, our customer service platform can be used by organizations of all sizes. Compared to legacy customer support software, our customer service platform coordinates more extensive customer conversations across more channels, informed by all prior interactions, and integrated with other business applications through robust open APIs. The well-designed user experience as well as the ability to painlessly start and expand their platform usage appeal to SMBs and large enterprises alike.

 

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We believe, as a result, our market opportunity is a substantially larger and faster growing opportunity than the already sizable legacy customer support software market. According to IDC, in 2012 the worldwide CRM software market comprised $20.7 billion. Our customer service platform primarily addresses the customer service and contact center segments which comprised a total of $10.2 billion in 2012 worldwide. In addition, IDC has estimated that between 2012 and 2017, SaaS solutions in the overall CRM applications market will grow over ten times faster than legacy on-premise solutions.

In a 2013 report, IDC estimated that there were approximately 76 million SMBs worldwide. We believe that many of these organizations have not been able to implement or afford legacy customer support software and therefore represent a substantial greenfield market opportunity for our customer service platform.

Legacy Customer Support Software

Legacy customer support software suffers from a number of design and technical limitations that make it particularly inefficient at addressing the new and evolving customer-driven economy.

 

    Cumbersome and Complex.     Legacy software was not designed with the employee and, ultimately, the customer experience in mind. Interfaces are overly complex, inflexible, and difficult to learn and use. The result is cumbersome software that adds obstacles between agents and customers rather than removing them. Customers often suffer long wait times, must repeat themselves, and do not receive the help they need while organizations lose valuable opportunities to increase customer loyalty, upsell additional products, and gather customer feedback.

 

    Disconnected.     Organizations have often implemented separate inbound and outbound voice response software in their call centers, then added software point solutions for emerging channels, such as email, chat, and social media, that are poorly integrated with existing solutions. Without functionality to seamlessly engage people across channels and departments, use of legacy software results in uncoordinated customer service efforts and frustrated customers. While many customer inquiries potentially require and could definitely benefit from expertise throughout the organization, such as engineering, product, sales and billing, first line of defense agents are the only ones equipped with the software tools to respond. In addition, customer service representatives are often restricted to supporting customers through a single channel even when other channels would be preferred by the customer and less costly for the organization. This leads to agents who are ill-equipped to adequately address customer concerns and results in customer service that is often disorganized, slow, generic, and unhelpful. Moreover, agents and managers have few tools to organize support efforts, track performance, and inform other employees about recent customer questions or concerns.

 

    Expensive.     An organization’s need for multiple legacy software products to provide multi-channel customer service drives a high total cost of ownership. The required consultants for installation, customization, and training further increase the upfront and ongoing costs. We believe the limited functionality of legacy software and especially basic tools also increases the cost to provide customer service and results in a low return on investment because employees are less efficient and effective with their time.

 

    Legacy Architecture.     Legacy software is often as difficult to update or upgrade as it was to initially install due to lengthy consultant-led integrations and complex deployment requirements. As a result, organizations often avoid software changes because they are expensive, time consuming, and frequently require retraining agents. Focused on providing customer support on desktop computers, legacy software also has limited or no mobile functionality and is not designed for “bring your own device” environments.

 

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    Reactive Only.     Most legacy software focuses on reactively answering customer problems. It lacks specific outbound product functionality or a coordinated approach to proactive engagement. This encourages abrupt, generic, and often-insufficient responses through inconvenient channels. It also restricts or eliminates an organization’s ability to reach out to customers.

 

    Limited Insight.     Legacy software offers limited or no visibility into customer support efficacy and customer satisfaction. It inconsistently tracks metrics focused on minimizing costs and employee efficiency and is unable to compare analytics across relevant peers. This leaves managers with a difficult time interpreting the results and determining the strengths and weaknesses of customer service performance.

The Zendesk Approach

Zendesk’s mission is to help organizations build successful long-term relationships with their customers. Our comprehensive customer service platform is carefully designed for organizations to address the new customer-driven economy, in which customer service is a key business principle. Our intuitive platform facilitates listening to the customer, finding the best possible answer, communicating through the appropriate channel, and sharing the knowledge gained with the whole organization.

 

    Beautifully Simple.     We have an overarching philosophy to be beautifully simple. This approach begins with the look and feel of our customer service platform. We take intuitive design elements that people have grown to expect from consumer software and incorporate them into our customer service platform. The complexity of our underlying technology is wrapped in an easy-to-use interface built to simplify the tough work of customer service. However, beautifully simple at Zendesk extends far beyond that. We offer a free trial and a transparent purchase process with numerous self-service options that are suitable for SMBs and enterprise departments as well as assisted options for larger clients. Once purchased, our customer service platform provides fast results due to an easy set-up with a detailed tutorial and we assist organizations with questions or concerns through our product support team, community forum, and other software tools.

 

    Omni-Channel and Contextual.     Our customer service platform is built to support customers across a wide variety of integrated channels—email, voice, social media, and websites. Through Zopim, we offer live chat as a standalone service and as a means to integrate chat-enabled agents into our customer service platform. With little to no setup, our customer service platform can receive, manage, track, and report on customer interactions regardless of where they occur. This enables employees to listen to and engage with customers through the appropriate channels. In addition, our customer service platform provides important contextual information around customer issues by encouraging employee collaboration and enabling real-time information sharing. Based on our belief that the best customer service involves a whole organization, our customer service platform makes it easy for multiple departments to work together on as well as stay informed about customer interactions.

 

    Affordable.     We believe that customer service practices and philosophy affect the bottom line and that by using our customer service platform organizations can successfully manage customer service in a manner that generates a high return on investment. We believe our subscription plans are significantly less expensive and offer greater pricing transparency than many legacy customer support software applications (especially when software updates, ongoing maintenance and consultant fees required for integration, installation, customization, and training are taken into account). Furthermore, our customer service platform is designed to increase productivity by enabling faster responses, customer self-service tools, and automation.

 

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    Natively Mobile.     Mobile apps were not an afterthought at Zendesk. We have designed our customer service platform to enable great customer service on-the-go. Through native mobile apps, employees can access our customer service platform anywhere with robust product functionality, an elegant interface, and performance analytics. Our help centers are mobile optimized, allowing people to quickly find answers on their own with mobile devices.

 

    Cloud-Based Architecture.     The dynamic cloud-based architecture that powers our customer service platform allows SMBs and large enterprises alike to invest their time and energy in their customers rather than managing their software. This architecture automates frequent software updates and introduction of new features while also allowing our platform to easily scale within organizations. Configurations made with simple tools, including workflow automations and best practice templates, tailor the functionality and design of our customer service platform to an organization’s particular needs and keep customer service efforts of any size organized.

 

    Open Platform.     Integrations openly exchange information and product functionality between our customer service platform and other applications, leading to better informed employees and customer conversations. For example, an e-commerce integration provides real-time access for employees to order and shipping details in our customer service platform when conversing with a customer and customer service history in the e-commerce system when filling a purchase order. Our platform includes over 120 pre-built integrations with CRM, e-commerce, telephony, live chat, and other apps, which are simply downloaded from our app marketplace. Developed with our open APIs, our platform can also be customized, integrated, or expanded upon with private apps.

 

    Proactive Engagement.     Our customer service platform is designed to provide customer service on the customer’s terms. Organizations are equipped to proactively communicate with customers at the most relevant and critical moments. For example, organizations can automatically trigger workflow to proactively reach out to customers that may signal they have had a bad experience or need particular attention.

 

    Strategic Analytics.     Our customer service platform provides analytics that are mission critical for an organization’s operations. In all of our subscription plans, managers have access to real-time operational efficiency and customer satisfaction analytics at the interaction, agent, and organizational level. With over 40,000 customer accounts on our customer service platform, we continuously collect anonymized data, through the Zendesk Benchmark, to regularly report relevant comparisons of an organization’s metrics relative to its peers based on size, industry, and geographic region. Managers can be informed through our platform on the strengths and weaknesses of their customer service efforts on an hourly basis, as well as provided with recommendations of how to improve performance.

Benefits of the Zendesk Approach

 

    Benefits to Customers.     Through our platform, customer service focuses on people, making it convenient for them to seek help. Information is available where and when they would look. Background information does not need to be repeated nor requests endlessly passed from agent to agent. Peoples’ needs can even be anticipated and preemptively addressed by organizations proactively reaching out.

 

    Benefits to Employees.     By making it easy to connect with customers and provide knowledgeable responses, our customer service platform empowers employees and improves overall job satisfaction. As the look and feel of our interface matches consumer apps, it is easy for them to learn and navigate. Well-designed features, including automated tasks, save employees time and mobile apps facilitate working outside of the office.

 

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    Benefits to Organizations.     Our customer service platform creates a strong foundation for customer-focused organizations by managing all of their communication across channels and establishing a centralized source of customer information. Organizations benefit from feedback that can be broadly shared to drive continuous improvement guided by performance metrics. Through the use of our customer service platform, we believe organizations can successfully build their brand, influence strong customer advocates, and, ultimately, enhance their financial performance.

Growth Strategy

Zendesk was founded in 2007, aiming to help organizations build successful long-term relationships with their customers. We strive to continue the work our three founders began when they looked at the state of customer service and said: “we can do better.” We are focused on the following key areas of growth:

 

    Introducing New Products and Broadening Our Platform Functionality.     We are continuously investing in building a customer service platform that elegantly facilitates and improves customer service and ultimately creates successful long-term customer relationships. Significant research and development efforts are currently focused on broadening our existing customer engagement and communication tools. We intend to continue to develop new products and functionality to expand our platform and support that mission. In addition, we may selectively pursue acquisition opportunities of technologies that can broaden the functionality of our platform. For example, we recently acquired Zopim and intend to enhance our customer service platform through improved live chat functionality.

 

    Furthering Our Data-Driven Approach.     We believe our platform is unique for empowering a data-driven approach to customer service. For example, we have introduced the Zendesk Benchmark to enable organizations to compare their critical customer service performance metrics with their peers. We plan to expand our data analysis and reporting tools.

 

    Maintaining Leadership in SMB Market.     Our customer base today includes a large number of SMBs across industries and geographies. Our customer service platform’s ease-of-use, fast results, and flexible pricing are well suited for their needs. We will continue to expand sales in existing organizations, target new organizations, and advance our leadership position in the SMB market.

 

    Expanding Our Enterprise Customer Base.     Larger enterprises make up an increasing portion of our customer base. Our enterprise sales strategy is focused on land and expand, in which we sell our customer service platform into a single department or location and grow by adding agents in other departments, product divisions, and geographies. In addition to increasing the number of users, our customers often upgrade to our more expensive and feature rich subscription plans. We expect our recent sales initiatives to increase sales to new larger enterprises as well as increase our penetration in existing customers through expansion and subscription plan upgrades.

 

    Continuing to Increase Our Global Customer Footprint.     With customers in over 140 countries, we serve a global market. As of December 31, 2012 and 2013, international customers comprised over 48% and 53%, respectively, of the customer accounts on our customer service platform and in each such period we generated 41% of our revenue outside of the United States. Our international sales efforts will be focused on certain countries outside of the United States, including Brazil, France, Germany, Japan, and the United Kingdom, where we have demonstrated significant organic customer traction or believe represent particularly strategic opportunities.

 

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    Broaden Our Integrations and Partnerships.     Our customer service platform is deep and extensible, with over 100 applications integrated with our software, and a network of partner and third-party developers building additional applications which integrate with and embed our platform’s functionality. By growing this Zendesk ecosystem, we plan to build on relationships with third-party organizations and developers who further extend our customer service platform into new customers and use cases.

 

    Developing Our Brand.     We are focused on strengthening our reputation as a differentiated and category-defining company in customer service. Our brand attributes—airy, humble, charming, and uncomplicated—distinguish us from the traditional attitudes about organizations and the customer relationship. Our marketing emphasizes our customer service platform’s ease-of-use and unique aesthetic in a voice that we believe is memorable and fun (especially relative to legacy enterprise software). We currently host user-groups across the country, and regularly create other opportunities and events to bring together the best in the business to discuss and network. We also regularly publish content with advice for organizations of all sizes about becoming more customer-focused and effectively managing customer service. We believe these branding efforts and thought leadership have accelerated our growth to date and will fuel our future growth by driving organic leads.

Customers

We have more than 40,000 customer accounts on our customer service platform, which represent customers across a broad array of sizes, industries, and geographies. Our customers are located in over 140 countries and provide customer service through our platform in over 40 languages.

The following is a sample of our current customers across some of the industries we serve. The customers below vary in size of their respective business and the amount of revenue we derive from them.

 

Business Technology   Education/Non-Profit   Media/Entertainment

Acquia

AdRoll

Box

Engine Yard

MINDBODY

New Relic

Pivotal

Shopify

Zuora

 

Telecommunications

Bandwidth

Hi3G Access

 

charity: water

Nottingham Trent University

Oakland Unified School District

School of Rock

 

Consumer Technology

Adobe

Dropbox

Groupon

OpenTable

Trivago

Uber

Zulily

 

La Presse

REA Group

Real Networks

Rhapsody

Roku

 

Retail/eCommerce

JackThreads

LunchBots

ModCloth

MOO

O’Neill

UncommonGoods

Customer Case Studies

We believe that the following case studies provide a representative sample of how our customers use our solutions. These case studies have been approved by the applicable customers.

Uber

Situation: Uber is disrupting the transportation industry with its mobile technology platform that enables on-demand transportation services for users. With just a few smartphone taps, users request,

 

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rate, and pay for a sleek ride across town. The mobile experience, and specifically the customer experience, is at the heart of Uber. In 2010, they needed a customer service platform integrated into this experience to support both Uber’s users and Uber’s driver partners, and the solution had to scale for rapid growth.

Solution and benefits: With our platform, Uber integrated a support experience directly into their mobile app. In fact, while their agent and ticket volume has exponentially increased in the past several years, they have handled this rapid growth without the need for a lot of customizations of the platform. Users can contact support through their branded Zendesk help center which is mobile-optimized and linked to from within their app. Uber has taken a proactive approach to engaging their users at key points in the customer journey. For example, if a driver partner receives a rating of three stars or fewer, a ticket is automatically generated in our customer service platform. Uber was able to do this by taking advantage of our API. The Uber support team proactively follows up with these users to better understand the situation, learn how they can improve, offer a credit at times, and do what they can to make sure the user leaves with a positive feeling about the brand.

AOL

Situation : AOL Inc., home to a collection of premium brands and destination websites that include The Huffington Post, Patch, TechCrunch, MapQuest, and more, was looking to replace their on-premise corporate IT service desk with an easy to use, agile cloud-based solution that could scale globally. The company’s existing software allowed administrators to make changes, but adjustments were time consuming and required the skillset of a dedicated admin.

Solutions and benefits : Successful deployment of our customer service platform for AOL’s corporate IT team led to expansion within three months to ancillary IT groups that were not considered for the initial deployment, and to the purchase of 175 seats for AOL’s Shared Services group, who needed a new, simpler solution for processing and managing communications. Shared Services found that they were able to manage their own customer service platform without the help of IT, and benefitted from the ability to easily pull metrics. Given the success of IT and Shared Services, the AOL Paid Services deployed our customer service platform to handle escalation management. Security was an important consideration for Paid Services, which our customer service platform addressed with the ability to restrict IPs, even internally. Use of our customer service platform at AOL has expanded to more than 600 agents, serving a customer base that includes internal customers, external vendors, and external customers. The company has been able to leverage our customer service platform for a wide range of use cases, from internal IT to vendor management communications, customer escalations to social media interactions, and self-service to escalation management, while still allowing the company to streamline processes across divisions.

Shopify

Situation : Shopify, one of Canada’s fastest-growing startups, needed better insight into the performance of its customer service organization. Latency was a significant issue with its existing ticketing system, and prevented the company from being able to accurately measure agent productivity. It was also impossible to obtain meaningful reports in real time, including basic information such as the number of interactions by agent by channel by day or the distribution of interactions throughout a 24-hour time period. As a result, Shopify lacked the data it needed to effectively staff its customer service organization and to forecast its future need for customer service resources.

Solutions and benefits : Shopify selected our platform based on system performance, accessibility of data, and ease of integration. Latency was no longer an issue and access to data dramatically improved. Satisfaction scores hit 92 percent, up 10%, even while Shopify agents handled up to 200 interactions a day. For the first time, Shopify enjoyed real-time access to call center metrics and

 

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granular data regarding the distribution of customer service interactions across time. This allowed the company to establish appropriate staffing levels and to accurately forecast future customer service resource needs. Management was also able to easily combine data from our platform with data from other systems, which made it possible to measure the contribution the customer service organization was making to the company’s revenues. This data was then used to justify additional investment in customer service and ultimately to turn customer service into a sales engine.

Box

Situation : Box was looking to replace their existing customer support software with a solution that would allow them to focus more on providing the best possible experience for the millions of individuals, small businesses, and enterprise customers who rely on them for secure, scalable content-sharing, and less on the software itself. Their previous solution was complex, with so many features and options that it was cumbersome to use and tied them to a Windows-based operating system or the need to run virtual machines. Both their customer support team and internal help desk needed a simple but robust web-based solution that could help drive customer satisfaction.

Solutions and benefits : After switching to our platform, Box saw immediate results: a 15-20% increase in customer satisfaction, as well as improved agent productivity. Box utilized business rules to eliminate 20-30 seconds of time spent per support request. The greater visibility into the entire organization helped foster friendly competition among agents to resolve the highest number of issues. Using our platform, Box transformed their approach to managing support and re-grouped agents into two more focused and effective tiers of support. Additionally, now able to easily capture customer satisfaction data, support managers began sharing metrics and customer feedback with Product and Engineering, regularly contributing to decision-making at the product level.

REA Group

Situation : REA Group, the operator of two leading Australian real estate and commercial property advertising websites, was growing faster than their internal IT support system could keep pace with. Support request creation required tedious data entry, costing IT staff up to eight minutes per request. Prior to the implementation of our customer service platform, the ticketing system used by REA’s Technology team did not provide the transparency and flexibility to be able to manage the technology requirements of the REA community. Hindered by the lack of flexibility in their existing system, REA Group was prohibited from expanding globally without accruing the overhead required by a data center.

Solutions and benefits : REA Group implemented our platform for its ease of use and the transparency it allowed within the organization, as anyone using the platform could view the queue and open or solve support requests. With scalability no longer an issue, IT staff were able to quickly log new requests and assign an issue type, which helped with resource allocation and prioritization. Collectively, the team began to close as many as 400 issues per week while reducing the overall number of open issues in the queue. REA Group has expanded their use of our platform to multiple departments, and to more than 150 support staff, dramatically improving communication workflow and operational efficiency. They have leveraged the JIRA integration with our platform to remove barriers between their development team and call center, and use macros to streamline requests for support between human resources and corporate IT. Within a 12-month period following deployment of our platform, the corporate IT team achieved a 98% employee satisfaction rating and transformed the way the organization perceived the department.

 

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The Zendesk Customer Service Platform

Our customer service platform allows organizations to focus on the customer service experience within an environment designed for ease-of-use and efficiency. We offer a range of subscription plans to meet the needs of SMBs and larger organizations with the appropriate level of advanced features and product support.

Customer Support

Our platform provides organizations with a single customer service interface to manage all their one-on-one customer interactions, no matter where those conversations start or who needs to be involved to resolve them. It facilitates customer service in an efficient way through applying business rules and automations. This allows for both a reduction in ticket backlog and scaling up to accommodate growing organizations with large global audiences. Our platform is currently available in 14 languages for customer service agents. Key features include:

 

    Single Omni-Channel Interface.     Our customer service platform pulls in customer questions—from email, chat, voice, and social media—and brings them into our beautifully simple interface.

 

    Email .    Consolidate customer emails from multiple customer accounts into one interface for routing, assignments, and a single system of record for all conversations.

 

    Chat .    Communicate live with one on one chat sessions, which allow customers to initiate real-time support from employees through a web interface. All chat conversations are automatically transcribed into a ticket. Since our acquisition of Zopim, we have offered live chat software on a standalone basis and intend to utilize an integration of Zopim as the primary means through which we will offer chat functionality on our customer service platform in the future.

 

    Voice .    Make or receive calls through our customer service platform. Organizations can natively create support phone numbers or use existing telephony systems through our open API. Voicemails are automatically transcribed into a ticket and employees can record key information from calls in tickets.

 

    Social Media .    Convert Tweets and Facebook posts into tickets and reply through our customer service platform to keep a record of all conversations in one interface.

 

    Business Rules.     Initiate workflows triggered by ticket field changes or time-based conditions. Our customer service platform comes with pre-configured business rules that we recommend as best practices.

 

    Light Agents.     Provide visibility on customer interactions to the entire organization by adding non-support employees as light agents. Light agents can make private internal comments within tickets.

 

    Mobile Apps.     View and respond to requests through our native agent mobile apps for the iPhone, iPad, Android, Windows Phone, BlackBerry, and Kindle Fire. Our channel agnostic SaaS architecture ensures the same information and product functionality is available regardless of the device used.

Customer Self-Service

Our customer service platform helps organizations track and predict common questions and provides a seamless path to answers. This allows customers to help themselves, find what they need, and minimize their frustration. Available in more than 40 languages for end-users, help centers can be

 

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formatted with our self-service optimized themes and customized with organization-specific functionality. Key features include:

 

    Help Center.     Offers an easy-to-brand online portal for self-service, optimized for mobile usage.

 

    Knowledge Base .    Create a repository of articles, support documents, and how-to-guides that answers customers’ most popular questions. Sections within the knowledge base can be restricted to certain groups of customers or internal employees. Moderators can easily manage multi-lingual content in one place.

 

    Community .    Provide customers an opportunity to engage with one another along with the organization through the community. Customers can start a discussion, ask a question, or suggest an idea. Posts can be organized by topic and followed by customers.

 

    Customer Portal .    Allow customers to view their customer service history, track outstanding requests, and manage community subscriptions through the customer portal.

 

    Feedback Tab.     Provide customers an opportunity to chat with an agent, search the Help Center, or submit a support request on any website page with the feedback tab.

Customer Engagement

With customer engagement, customer service becomes less about the ticket and more about people. Our customer service platform lets organizations gather customer data and proactively engage with customers based on the insights the data provides. This turns interactions into proactive conversations and makes them more meaningful, personal, and productive. Key features include:

 

    Custom User and Organization Fields.     Create custom user and organization fields to provide context for proactive customer service and set customer-centric workflows around these fields.

 

    Customer Lists.     Organize customers into lists based on tags and user fields to enable proactive engagement with those customers.

 

    Customer Satisfaction Ratings.     Automatically send a customer satisfaction survey after a customer service request is solved to collect feedback.

 

    Apps and Integrations.     Provide full context for customer interactions through third-party apps and integrations that allow our customer service platform to plug into other important sources of customer and employee data, such as third-party applications for CRM, time tracking, bug tracking, and e-commerce.

Leveraging Strategic Analytics

Our customer service platform offers unique tools for organizations to understand their customers and track the efficiency and effectiveness of their customer service. Key features include:

 

    Reporting and Analytics.     Track real-time key performance indicators at the customer interaction, agent, or department level through customer service dashboards that are built into our interface. Metrics included cover customer satisfaction, first response time, ticket volume, and customer self-service tool usage. Organizations with advanced plans can create custom reports and filter data as well as compute advanced analytics based on their raw data that is updated as frequently as every hour.

 

    Zendesk Benchmark.     Compare customer service performance against similarly-sized organizations in the same industry and geographic region with the Zendesk Benchmark. Aggregating data to create relevant indices, performance metrics are shown on managers’ interfaces for real-time feedback and published in a quarterly report on our website.

 

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Platform Extensions

Through our APIs, our customer service platform ties together our customer support, customer self-service, and customer engagement elements with custom functionality across devices. We construct our own software from the same APIs that we offer to others, demonstrating our commitment to the Zendesk developer community and up-to-date code.

Subscription Plans

We currently offer a number of subscription plans for our customer service platform that vary based on the level of advanced features and dedicated product support. After a free trial, our customers use a credit card or execute a service order to purchase monthly or annual subscription plans. Our packaging and pricing philosophy is centered in transparency and simplicity, with all information publicly available on our website. Our subscription plans include:

 

    Starter.     At a low monthly or annual price per agent, the Starter plan provides access to our customer service platform for a limited number of employees to customer communications gathered through email, chat, voice, social media, and websites, as well as performance analytics comparisons with the Zendesk Benchmark.

 

    Regular.     Well-suited for small organizations and enterprise departments, the Regular plan allows employees to engage with customers through more channels, including community forums. Regular plan subscribers receive email-based product support and can further customize our customer service platform and track performance with customer satisfaction metrics and dashboards.

 

    Plus.     To upgrade customer service for organizations of all sizes, extra features in the Plus plan include custom analytics, multi-lingual content management, and internal knowledge base for employees. In addition to email, customers on our Plus plan receive product support from our dedicated customer advocates via phone.

 

    Enterprise.     As our deployments grow across departments to be the primary customer service software solution, the Enterprise plan incorporates tools to share customer interactions with the whole organization including unlimited light agents. In addition, we provide 24/7 email and phone support to drive customer success during deployment and ongoing use.

 

    Enterprise Elite.     For enterprise organizations with additional product support needs, the Enterprise Elite plan adds specialized premium service with dedicated account management.

Sales and Marketing

A subscription to our customer service platform is designed to be easy to purchase. A substantial number of our customers subscribe to the platform without any direct interaction with our sales team.

We also deploy a direct sales approach which includes an inside sales team based in three regional hubs: the Americas, EMEA (Europe, Middle East, and Africa), and APAC (Asia-Pacific). This team qualifies and manages prospective and current customers, aiming to initiate, retain, and expand their use of our platform over time. Our inside sales team partners with technical sales and product engineers to provide pre-sales technical support and is also responsible for driving renewals of existing contracts.

We have begun to develop and expand a field sales team responsible for discovery, qualification, and account management for larger organizations. We expect to increase penetration into larger organizations through a land and expand strategy whereby we attempt to capitalize on the limited use of our customer service platform by a functional or geographic department to expand the use of our customer service platform throughout other parts of the organization.

 

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We also utilize indirect sales channels, including referral partners and resellers as well as implementation partners. These channels provide additional sales coverage, particularly in geographic markets where we may have limited presence, as well as implementation services to our customers. Sales from indirect channels have not been significant to date, but we plan to continue to invest in these relationships to help us in certain markets and to complement our direct sales efforts.

Our marketing efforts are focused on generating awareness of our customer service platform and live chat software, creating sales leads, establishing and promoting our brand, and cultivating a community of successful and vocal customers. Based on our belief that the best method to sell our customer service platform and live chat software is to actively use and explore its capabilities, a central focus of the marketing team is to drive and encourage free trials and the successful conversion of trials to paid subscriptions. At any time during this limited-time trial, the prospective customer may elect to subscribe to simply-priced plans by providing their credit card information. We utilize both online and offline marketing initiatives, including search engine and email marketing, online banner and video advertising, blogs, corporate communications, whitepapers, case studies, user events, and webinars.

As of December 31, 2013, we had 165 employees in our sales and marketing organization. Our sales and marketing expenses were $22.7 million and $37.6 million for the years ended December 31, 2012 and 2013, respectively.

Product Support and Professional Services

We strive to exemplify the great customer service that organizations of all sizes can provide with our customer service platform and live chat software by offering multi-channel service from our product support team, a rich self-help knowledge center with detailed product guides, and active community forums for agents, managers, and developers.

We offer different levels of product support for our customer service platform based upon the subscription plans purchased by our customers. Starter plan customers rely exclusively on our knowledge base and community forums for support. Support from our product support team is offered to all other subscribers, with 24/7 email and voice support available for our Enterprise plan subscribers. Customers that subscribe to our Enterprise Elite plan also have dedicated account management. Regardless of the plan purchased, our customer service platform provides an intuitive interface, connectivity to our self-help knowledge base and community forums, and step-by-step tutorials to help employees learn, use and deploy our platform effectively.

Along with our global partners, our professional services team assists our customers in implementing more complex deployments of our customer service platform. These services include mapping our customer service platform to new and existing business processes, data migration, and integration with existing systems. Service engagements are typically scoped on a time and materials or project milestone basis and billed separately from the subscription to our customer service platform.

Through Zen U, our training platform, we offer courses to help our customers quickly learn how to effectively use our customer service platform as well as implement customer service best practices. Courses are available online, in-person at events, and, as requested by certain customers, on-site. Zen U sessions are typically targeted at specific levels of employee seniority and product experience, such as agent essentials or administrator expert, to more effectively tailor training to intended audiences.

We maintain a separate dedicated product support team for our live chat software. In the future, we intend to integrate the separate dedicated product support team for our live chat software into our support organization.

 

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Technology

Our technology infrastructure is designed to provide an available and scalable multi-tenant cloud-based platform with industry-standard security measures. We utilize industry leading hardware and software components to provide for and enable the rapid growth of our business. We employ virtualization to maximize utilization where appropriate. Maintaining the integrity and security of our technology infrastructure is critical to our business, and as such we leverage industry-standard security and monitoring tools to ensure performance across our network.

The architecture and deployment of our customer service platform are described and guided by the key characteristics below:

 

    Reliability.     Our customers are highly dependent on our customer service platform, which is designed to be available 24 hours a day, 365 days a year. Servers and software components are replicated to ensure fault-tolerance and high availability. Customer data is backed up and is stored in remote data centers. We regularly report to customers on platform availability and technical operations matters through our website and social media alerts.

 

    Scalability.     Our application infrastructure is highly scalable and regularly processes more than 100 million data driven requests that each require the processing of specific data, on a daily basis.

 

    Security.     Our platform hosts a large quantity of customer data. We maintain a comprehensive security program designed to help safeguard the security and integrity of our customers’ data, which includes both organizational and technical measures such as perimeter security, industry standard intrusion detection systems, security protocols, and authentication of customers and employees prior to accessing our platform, and testing of each released update before deployment. We regularly review our security program. In addition, we regularly obtain third-party security audits and examinations of our technical operations and practices covering data security, including a Statement on Standard Attestation Engagement No. 16 (SSAE16), Service Organization Controls #2 (SOC 2) Type I Attestation. Notwithstanding our security measures, our customer service platform is subject to the risk of security breaches as a result of third-party action, employee error, malfeasance, or other factors. Any such security breach could result in the loss or compromise of customer data and significant potential liability. Techniques used to sabotage and compromise cloud-based applications such as our platform change frequently and we may be unable to anticipate these techniques or to implement adequate preventative measures.

We originally utilized third-party managed hosting facilities located in the United States exclusively for hosting our customer service platform. Beginning in 2012, we added use of self-managed colocation data centers in which we manage our own network equipment and systems. We currently operate out of two such facilities located in Sacramento, California and Dublin, Ireland. We intend to expand our operations in these and other self-managed colocation data centers over time, although in certain markets we may elect to not pursue this self-managed colocation strategy depending on individual market dynamics. Certain of our customers, as well as backup and certain attachment data will continue to be hosted at third-party managed hosting facilities in the United States and Europe for the foreseeable future.

Our self-managed and third-party managed hosting facilities utilized for our customer service platform provide both physical security measures, including year-round manned security, biometric access controls and video surveillance systems, and systems security measures, including firewalls, environmental controls, and redundant power and Internet connectivity. These facilities have SSAE16 or ISO 27001 attestations or equivalent certifications with respect to service availability and information security management.

 

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For our live chat software, we utilize managed hosting facilities located in Orlando, Florida and collect data through leased servers in managed hosting facilities located in North America, Europe, and Asia. In the future, we intend to consolidate hosting of our live chat software into our self-managed colocation data centers and conform the live chat software to the technical and other operational and security measures applicable to our customer service platform.

Research and Development

Our research and development organization is responsible for the development, design, and testing of all aspects of our customer service platform. We invest heavily in these efforts to continuously improve and innovate our customer service platform. In addition to our hosted software solution, we have developed a multi-functional API that we utilize to build our platform as well as facilitate integrations with third-party applications.

Our global research and development team is based in San Francisco, California; Copenhagen, Denmark; Melbourne, Australia; and Dublin, Ireland. To foster rapid innovation, our team is further apportioned into smaller, agile development teams. Research and development for our live chat software is primarily managed by Zopim in Singapore.

We deploy new features, functionality, and technologies for our customer service platform through weekly software releases or updates in order to minimize disruption and provide for constant improvement.

To create a roadmap that meets our customers’ needs, we emphasize collaboration during the development process. Customers provide input through feedback forums, dialogue with our product support team, and feature utilization. As a result of using our customer service platform internally to support Zendesk customers, we also develop new or improved features based on our employees’ feedback.

As of December 31, 2013, we had 107 employees in our research and development organization. Our research and development expenses were $14.8 million and $15.3 million for the years ended December 31, 2012 and 2013, respectively.

Competition

There are a number of established and emerging competitors in the broader customer service software market. This market is fragmented, rapidly evolving, and highly competitive, with relatively low barriers to entry in some segments. We consider the principal competitive differentiators in our market to include:

 

    Ease-of-deployment and use;

 

    Enablement of customer communications across channels;

 

    Powerful self-service options;

 

    Data analytics and performance recommendations;

 

    Mobile and multi-device capabilities;

 

    Proactive outreach tools;

 

    Complete customer profiles;

 

    Customization and integration with third-party applications;

 

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    Brand recognition and thought leadership; and

 

    Total cost of ownership for the customer (including software updates, ongoing maintenance, and consultant fees).

While we believe that we successfully compete with respect to these dynamics, given the large number, disparate sizes and varying areas of focus of other customer service software companies with which we compete, we may not always compare favorably with respect to some or all of the foregoing factors.

For small to medium-sized organizations, we often compete with general use computer applications and other tools that organizations have adapted for customer service, including shared accounts for email communication, phone banks for voice communication, and pen and paper, text editors, and spreadsheets for tracking and management. For larger organizations, we compete with custom software systems and large enterprise software vendors, including salesforce.com, Inc., Oracle Corporation, and Microsoft Corporation. In addition, we compete with a number of smaller SaaS providers with focused customer service applications, including desk.com (a salesforce.com service), Kayako Helpdesk Pvt. Ltd., Freshdesk, Inc., Brightwurks, Inc. (Help Scout), SupportBee, Inc., and Tenmiles Technologies Pvt. Ltd. (Happy Fox). Pricing pressures and increased competition generally could result in reduced sales, reduced margins, losses or the failure of our customer service platform to achieve or maintain more widespread market acceptance, any of which could harm our business.

In order to maintain and improve our competitive position in the market, we remain focused in our development, operations, and sales and marketing efforts on evolving customer service needs of all organizations.

Intellectual Property

We rely on a combination of patent, trade secret, copyright, and trademark laws, a variety of contractual arrangements, such as license agreements, assignment agreements, confidentiality and non-disclosure agreements, and confidentiality procedures and technical measures to gain rights to and protect the intellectual property used in our business.

We have developed a patent program, and a strategy to identify, apply for, and secure patents for innovative aspects of our platform and technology. We have one issued U.S. patent and four U.S. patent applications pending. We also have five pending patent applications in jurisdictions outside of the United States. We intend to pursue additional patent protection to the extent we believe it would be beneficial and cost-effective.

We actively pursue registration of our trademarks, logos, service marks, and domain names in the United States and in other key jurisdictions. We are the registered holder of a variety of United States and international domain names that include the term Zendesk and similar variations. We use several trademarks for our products and services, including “Zendesk,” “Zopim,” and several logos and images.

We also rely on certain intellectual property rights that we license from third parties, including under certain open source licenses. Though such third-party technologies may not continue to be available to us on commercially reasonable terms, we believe that alternative technologies would be available to us.

Our policy is to require employees and independent contractors to sign agreements assigning to us any inventions, trade secrets, works of authorship, developments and other processes generated by them on our behalf and agreeing to protect our confidential information, and all of our key employees

 

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and contractors have done so. In addition, we generally enter into confidentiality agreements with our vendors and customers. We also control and monitor access to, and distribution of our software, documentation, and other proprietary information.

Culture and Employees

As a company we are highly focused on our customers and their success. To support this focus, we highly value simplicity, agility, sincerity, as well as a sense of humor and humility often absent from enterprises that sell business software. These values guide our communication, work, and company culture and are a cornerstone of the team of employees that we have assembled and seek to develop. We are a global and diverse group of individuals that strive to balance work with play and a focus on big-scale thinking.

We believe strongly in our obligation to participate in and improve the communities where we work and live. We do this through an active program of corporate social responsibility. Since 2011, we have committed to donating an amount equivalent to our revenue from subscriptions to our Starter plan to a variety of global and local charities. In addition, since 2011, we have entered into and implemented a series of community benefits agreements, including extensive volunteer efforts, workforce development and training, financial support for critical community programs, and promotion of local arts and culture, with the local neighborhood in San Francisco where our headquarters are located. We are developing similar programs near our other offices around the world.

As of December 31, 2013, we had a total of 473 employees, including 134 employees located outside the United States. None of our employees is represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees to be good.

Regulatory Considerations

The legal environment of Internet-based businesses is evolving rapidly in the United States and elsewhere. The manner in which existing laws and regulations are applied in this environment, and how they will relate to our business in particular, both in the United States and internationally, is often unclear. For example, we sometimes cannot be certain which laws will be deemed applicable to us given the global nature of our business, including with respect to such topics as data privacy and security, pricing, credit card fraud, advertising, taxation, content regulation, and intellectual property ownership and infringement.

Our customers, and those with whom they communicate using our customer service platform and live chat software, upload and store customer service and other data onto our platform, generally without any restrictions imposed by us. This presents legal challenges to our business and operations, such as rights of privacy or intellectual property rights related to the content loaded onto our platform. Both in the United States and internationally, we must monitor and comply with a host of legal concerns regarding the data stored and processed on our platform as well as the operation of our business. These laws include, without limitation, the following:

 

   

Data Privacy and Security Laws.     Data privacy and security with respect to the collection of PII continues to be the focus of worldwide legislation and regulation. We are subject to data privacy and security regulation by data protection authorities in countries throughout the world, by the U.S. federal government and by the states in which we conduct our business. Examples include statutes adopted by the State of California that require online services to disclose to California consumers the categories of PII collected from them and how they respond to “do not track” requests by such consumers and to report to California customers when their personal data might

 

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be disclosed to direct marketers. In recent years, there have been a number of well-publicized data breaches involving the improper use and disclosure of individuals’ personal information of individuals. Many states have responded to these incidents by enacting laws requiring holders of personal information to maintain safeguards and to take certain actions in response to a data breach, such as providing prompt notification of the breach to affected individuals and state officials or amending existing laws to expand compliance obligations, federal laws are also under consideration that may create additional compliance obligations and penalties. In the European Union, where U.S. companies must meet specified privacy and security standards, the Data Protection Directive and data protection laws of each of the European Member countries require comprehensive information privacy and security protections for consumers with respect to PII collected about them. With respect to our customer service platform, we certify adherence to the U.S. Department of Commerce’s Safe Harbor Privacy Principles and comply with the U.S.-EU and U.S.-Swiss Safe Harbor Frameworks as agreed to and set forth by the U.S. Department of Commerce, and the European Union and Switzerland, concerning U.S. companies doing business in Europe, collecting PII from European citizens, and transferring such PII to the United States Under the Safe Harbor Framework. However, it is not clear whether or for how long applicable data protection authorities in the European Union will continue to recognize such certification as a valid method of compliance with restrictions set forth in the Data Protection Directive and data protection legislation of individual member states restricting the transfer of data outside of the European Economic Area. We post on our website our privacy policies and practices concerning the processing, use and disclosure of PII. Our publication of our U.S.-EU Safe Harbor certification, our privacy policy, and other statements we publish that provide promises and assurances about privacy and security can subject us to potential state and federal action if they are found to deceptive or misrepresentative of our practices. Since our live chat software is provided by Zopim, a company organized under the laws of Singapore, certification to the U.S. Department of Commerce’s Safe Harbor Privacy Principles and compliance with the U.S.-EU and U.S.-Swiss Safe Harbor Frameworks with respect to our live chat software is not available (to the extent such safe harbor processes are still in force). As a result, the use of our live chat software by our EU-based customers may impose additional obligations on such customers to obtain consent from data subjects to transfer PII outside of the European Union.

Certain laws and regulations that protect the collection, use and disclosure of particular types of data may hinder our ability to provide services to customers and potential customers subjected to such laws. For example, rules under the Health Insurance Portability and Accountability Act of 1996 governing the collection, use and disclosure of certain health information impose specific data protection obligations on any organization providing services covered organizations. As another example, the Gramm-Leach-Bliley Act of 1999 imposes specific obligations on companies that process certain financial data on behalf of covered entities. We do not currently certify that our customer service platform or live chat software complies with these regulations. In order to compete in such highly regulated markets we will have to invest in additional resources, establish processes, and introduce additional measures to satisfy regulatory requirements applicable to companies serving such covered entities.

 

   

Copyrights.     U.S. and international copyright and trademark laws protect the rights of third parties from infringement of their intellectual property. Our customers and those with whom they communicate on our customer service platform can generally use our customer service platform to upload and present a wide variety of content. We maintain an active copyright infringement policy and respond to takedown requests by third-party intellectual property right owners that might result from content uploaded to our customer service platform. As our business expands to other countries, we must also respond to regional and country-specific intellectual property considerations, including takedown and cease-and-desist notices in foreign languages, and we must build infrastructure to support these processes. The Digital Millennium Copyright Act, or DMCA, also applies to our business. This statute provides relief for claims of circumvention of

 

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copyright-protected technologies but includes a safe harbor that is intended to reduce the liability of online service providers for listing or linking to third-party websites or hosting content that infringes copyrights of others. The copyright infringement policies that we have implemented for our customer service platform and live chat software are intended to satisfy the DMCA safe harbor.

Geographic Information

For a description of our revenue and long-lived assets by geographic location, see Note 11 of the Notes to our Consolidated Financial Statements included elsewhere in this prospectus.

Legal Proceedings

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We have received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend ourselves, our partners and our customers by determining the scope, enforceability, and validity of third-party proprietary rights, or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

Facilities

Our corporate headquarters are located in San Francisco, California. We operate in San Francisco under two leases for approximately 72,900 and 34,900 square feet of space, respectively, and a sublease for approximately 8,900 square feet of space. These leases expire in August 2022, October 2019, and October 2014, respectively.

We also lease office space in Madison, Wisconsin, Denmark, Japan, the United Kingdom, Ireland, Australia, the Philippines, and Singapore. We intend to procure additional space as we add employees and expand geographically. We believe our facilities are adequate and suitable for our current needs and that, should it be needed, suitable additional or alternative space will be available to accommodate any such expansion of our operations.

 

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MANAGEMENT

Executive Officers, Directors, and Key Employees

The following table provides information regarding our executive officers, directors, and key employees as of January 31, 2014:

 

Name

  Age  

Position

Executive Officers:

   

Mikkel Svane

  43   Chair of the Board of Directors and Chief Executive Officer

Alan Black

  53   Senior Vice President and Chief Financial Officer

Marcus Bragg

  39   Senior Vice President, Worldwide Sales and Customer Success

John Geschke

  43   Senior Vice President, General Counsel, and Secretary

William Macaitis

  39   Chief Marketing Officer

Adrian McDermott

  45   Senior Vice President, Product Development

Anne Raimondi

  42   Vice President, People Operations

Non-Employee Directors:

   

Peter Fenton (2)

  41   Director

Caryn Marooney (2)

  46   Director

Elizabeth Nelson (1)

  53   Director

Dana Stalder (1)(3)

  45   Director

Michelle Wilson (1)(3)

  51   Director

Devdutt Yellurkar (2)(3)

  54   Director

Key Employees:

   

Alexander Aghassipour

  46   Chief Product Officer

Toke Nygaard

  40   Chief Creative Officer

Morten Primdahl

  40   Chief Technology Officer

Rick Rigoli

  51   Executive Vice President

 

(1) Member of our audit committee.
(2) Member of our compensation committee.
(3) Member of our nominating and corporate governance committee.

Executive Officers

Mikkel Svane .     Mr. Svane co-founded Zendesk and has served as our Chief Executive Officer since August 2007 and as a member of our board of directors since August 2007. He was appointed Chair of our board of directors in January 2014. Mr. Svane holds an A.P. in marketing management from Arhus Kobmandsskole.

We believe that Mr. Svane is qualified to serve as a member of our board of directors because of his operational and historical expertise gained from serving as our Chief Executive Officer. As one of our founders and the longest serving member of our board of directors, we also value his deep understanding of our business as it has evolved over time.

Alan Black .     Mr. Black has served as our Senior Vice President and Chief Financial Officer since November 2011. From February 2005 to November 2011, Mr. Black served as the Chief Executive Officer of Intelliden Inc., a software company (which was acquired by IBM in January 2010). Mr. Black holds a Bachelor of Commerce, and a Graduate Diploma in public accountancy, from McGill University.

 

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Marcus Bragg .     Mr. Bragg has served as our Senior Vice President, Worldwide Sales and Customer Success since August 2013. From June 2012 to February 2013, Mr. Bragg served as the Group Vice President, Customer Experience and Customer Relationship Management at Oracle Corporation, an enterprise software company. Mr. Bragg served as Senior Vice President, Global Sales & Client Success from October 2010 to June 2012 and as Vice President and General Manager, Americas, from September 2008 to October 2010 at RightNow Technologies, Inc. a software company.

John Geschke .     Mr. Geschke has served as our Senior Vice President since November 2012 and as our General Counsel and Secretary since July 2012. From April 2010 to June 2012, Mr. Geschke served as General Counsel of Norwest Venture Partners, a venture capital firm. From March 1996 to April 1998 and from May 1999 to March 2010, Mr. Geschke practiced law at Cooley LLP, a law firm. Mr. Geschke currently serves on the board of directors of Zulily, Inc., an Internet retailer. Mr. Geschke holds an A.B. from Princeton University with a concentration in the Woodrow Wilson School of Public and International Affairs and a J.D. from Stanford University.

William Macaitis .     Mr. Macaitis has served as our Chief Marketing Officer since August 2012. From December 2008 to August 2012, Mr. Macaitis served as Senior Vice President, Online Marketing and Operations at salesforce.com, Inc., a software company. Mr. Macaitis holds a B.S. in business administration from the University of Illinois at Champaign Urbana.

Adrian McDermott .     Mr. McDermott has served as our Senior Vice President, Product Development since July 2010. From July 2007 to July 2010, Mr. McDermott served as the Chief Technology Officer of Attributor Corporation, a software company. Mr. McDermott holds a B.Sc. in computer science from De Montfort University.

Anne Raimondi .     Ms. Raimondi has served as our Vice President, People Operations since August 2013. From November 2012 to August 2013, Ms. Raimondi served as the Chief Revenue Officer at TaskRabbit, Inc., a provider of an online services marketplace. From May 2012 to November 2012, Ms. Raimondi served as the Chief Executive Officer of One Jackson, Inc., an apparel company. From May 2010 to April 2012, Ms. Raimondi served as Vice President, Marketing at SurveyMonkey Inc., a software company. From September 2007 to June 2010, Ms. Raimondi served as the Vice President of Business Talent Group, a consulting company. Ms. Raimondi holds a B.A. in economics and sociology from Stanford University and an M.B.A. from Stanford University.

Each executive officer serves at the discretion of our board of directors and holds office until his or her successor is duly elected and qualified or until his or her earlier resignation or removal. There are no family relationships among any of our directors or executive officers.

Non-Employee Directors

Peter Fenton .     Mr. Fenton has served as a member of our board of directors since July 2009. Since September 2006, Mr. Fenton has served as a General Partner of Benchmark, a venture capital firm. From October 1999 to May 2006, Mr. Fenton served as a Managing Partner at Accel Partners, a venture capital firm. Mr. Fenton currently serves on the boards of directors of Yelp Inc., a local directory and user review service, Twitter, Inc. a social networking service, and a number of privately-held companies. Mr. Fenton holds a B.A. in philosophy and an M.B.A. from Stanford University.

Mr. Fenton was selected to serve on our board of directors because of his extensive experience in the venture capital industry and his knowledge of technology companies.

 

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Caryn Marooney .     Ms. Marooney has served as a member of our board of directors since January 2014. Since May 2011, Ms. Marooney has served in various roles at Facebook, Inc., a social networking service, currently serving as the company’s Vice President of Technology Communications. From June 1997 to March 2011, Ms. Marooney served in various roles, including President and Chief Executive Officer, of The OutCast Agency, a public relations firm. Ms. Marooney holds a B.S. in labor relations from Cornell University.

Ms. Marooney was selected to serve on our board of directors because of her prior executive experience and her experience advising technology companies.

Elizabeth Nelson.     Ms. Nelson has served as a member of our board of directors since July 2013. Ms. Nelson currently serves on the boards of Nokia, a mobile technology and telecommunications company, Brightcove Inc., an online video platform, Pandora Media, Inc., an online music platform, and several privately-held companies. From 1996 to 2005, Ms. Nelson served as the Executive Vice President and Chief Financial Officer at Macromedia, Inc., where she also served as a director from January 2005 to December 2005. Ms. Nelson’s public company board service includes serving as a director of Ancestry.com, an online family history company, from 2009 to 2012, of SuccessFactors Inc., a provider of human resources solutions, from 2007 to 2012, of Autodesk Inc., a design software company, from 2007 to 2010, and of CNET Networks, Inc., an Internet media company, from 2003 to 2008. Ms. Nelson holds a B.S.F.S. in foreign service from Georgetown University and an M.B.A. in finance with distinction from the Wharton School at the University of Pennsylvania.

Ms. Nelson was selected to serve on our board of directors due to her financial, accounting, and operational expertise from prior experience as an executive and director for public and private technology companies.

Dana Stalder.     Mr. Stalder has served as a member of our board of directors since November 2010. Mr. Stalder has been a General Partner of Matrix Partners, a venture capital firm, since August 2008. From December 2001 to August 2008, Mr. Stalder served in various executive roles, including Senior Vice President of PayPal Products Sales and Marketing at eBay, Inc., an online marketplace company. Previously, he was the Chief Financial Officer and Vice President of Business Development of Respond.com, Vice President of Finance and Operations at Netscape Communication Corporation and an associate and manager at Ernst & Young LLP. Mr. Stalder currently serves on the boards of directors of QuinStreet, Inc., an online marketing company, and a number of privately-held companies. He holds a B.S. in commerce from Santa Clara University.

Mr. Stalder was selected to serve on our board of directors because of his significant operational experience as an executive and his deep knowledge of finance and financial reporting which is important to our board directors’ oversight of strategy, operations, risk management, and financial reporting.

Michelle Wilson.     Ms. Wilson has served as a member of our board of directors since January 2014. From July 2003 to September 2012, Ms. Wilson served as Senior Vice President, General Counsel and Secretary of Amazon.com, Inc., an Internet retail company. Ms. Wilson holds a B.A. in business administration from the University of Washington and a J.D. from the University of Chicago.

Ms. Wilson was selected to serve on our board of directors because of her significant experience as an executive in the technology industry.

Devdutt Yellurkar.     Mr. Yellurkar has served on our board of directors since April 2009. Mr. Yellurkar has been with Charles River Ventures, a venture capital firm, since April 2008 and is a

 

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General Partner. Prior to Charles River Ventures, Mr. Yellurkar was the co-founder and Chief Executive Officer of Yantra, a software company. Previously, Mr. Yellurkar was Senior Vice President, Sales and Marketing at Infosys, a global technology services company. Mr. Yellurkar currently serves on the board of several private companies. Mr. Yellurkar holds a B.S. in statistics from Fergusson College.

Mr. Yellurkar was selected to serve on our board of directors because of the breadth of knowledge and valuable insights regarding our business that he has gained from his extensive operational and investment experience in the information technology and SaaS industries.

Key Employees

Alexander Aghassipour.     Mr. Aghassipour co-founded Zendesk and has served as our Chief Product Officer since August 2007. Mr. Aghassipour holds Bachelors in electrical engineering from Danmarks Ingeniørakademi and a Masters in information technology from the Technical University of Denmark.

Toke Nygaard.     Mr. Nygaard has served as our Chief Creative Officer since November 2011. From January 2002 to September 2011, Mr. Nygaard was the Founder and Creative Director at Cuban Council, a digital design company.

Morten Primdahl.     Mr. Primdahl co-founded Zendesk and has served as our Chief Technology Officer since August 2007. Mr. Primdahl holds a Bachelors in chemical engineering from the Technical University of Denmark and a Masters, Sci. IT. in computer science and information technology from the IT University of Copenhagen.

Rick Rigoli.     Mr. Rigoli has served as our Executive Vice President since November 2011. From March 2009 to November 2011, he served as our Chief Financial Officer. From July 2006 to December 2008, Mr. Rigoli served as Chief Financial Officer of Brix Networks, Inc., a network technology company. Mr. Rigoli has a B.A. in economics and accounting from the College of the Holy Cross.

Code of Business Conduct and Ethics

Our board of directors has adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer, and other executive and senior financial officers. The full text of our code of business conduct and ethics will be posted on the investor relations page on our website. We intend to disclose any amendments to our code of business conduct and ethics, or waivers of its requirements, on our website or in filings under the Exchange Act, as required by the applicable rules and exchange requirements.

 

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Board of Directors

Our business and affairs are managed under the direction of our board of directors. The number of directors will be fixed by our board of directors, subject to the terms of our amended and restated certificate of incorporation and amended and restated bylaws that will become effective upon the completion of this offering. Our board of directors will consist of seven directors, six of whom will qualify as “independent” under the listing standards of the New York Stock Exchange.

In accordance with our amended and restated certificate of incorporation and our amended and restated bylaws, upon the completion of this offering our board of directors will be divided into three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Our directors will be divided among the three classes as follows:

 

    the Class I directors will be Ms. Marooney and Mr. Yellurkar, and their terms will expire at the annual meeting of stockholders to be held in 2015;

 

    the Class II directors will be Messrs. Fenton and Stalder, and their terms will expire at the annual meeting of stockholders to be held in 2016; and

 

    the Class III directors will be Ms. Nelson, Mr. Svane, and Ms. Wilson, and their terms will expire at the annual meeting of stockholders to be held in 2017.

Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.

This classification of our board of directors may have the effect of delaying or preventing changes in control of our company.

Currently, Devdutt Yellurkar serves on our board of directors as designee of entities affiliated with Charles River Ventures, Peter Fenton serves on our board of directors as designee of Benchmark Capital Partners VI, LP, and Dana Stalder serves on our board of directors as designee of Matrix IX, L.P., in each case pursuant to the provisions of a voting agreement, among us and certain of our stockholders. The voting agreement will terminate upon completion of this offering. For additional information, see “Certain Relationships and Related Party Transactions—Voting Agreement.”

Director Independence

Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning his or her background, employment, and affiliations, our board of directors has determined that Mmes. Marooney, Nelson, and Wilson and Messrs. Fenton, Stalder, and Yellurkar do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the applicable rules and regulations of the SEC, and the listing standards of the New York Stock Exchange. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them described in the section titled “Certain Relationships and Related Party Transactions.”

 

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Lead Independent Director

Our board of directors has appointed Ms. Nelson to serve as our lead independent director. As lead independent director, Ms. Nelson will preside over periodic meetings of our independent directors, serve as a liaison between our Chair of the board of directors and the independent directors, and perform such additional duties as our board of directors may otherwise determine and delegate.

Committees of the Board of Directors

Our board of directors has established, effective on the date of this offering, an audit committee, a compensation committee, and a nominating and corporate governance committee. The composition and responsibilities of each of the committees of our board of directors is described below. Members will serve on these committees until their resignation or until as otherwise determined by our board of directors.

Audit Committee

Effective on the date of this offering, our audit committee will consist of Mmes. Nelson and Wilson and Mr. Stalder, with Ms. Nelson serving as Chair. The composition of our audit committee meets the requirements for independence under current listing standards and SEC rules and regulations. Each member of our audit committee meets the financial literacy requirements of listing standards. Ms. Nelson and Mr. Stalder are each an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act of 1933, as amended, or the Securities Act. Our audit committee will, among other things:

 

    select a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;

 

    help to ensure the independence and performance of the independent registered public accounting firm;

 

    discuss the scope and results of the audit with the independent registered public accounting firm, and review, with management and the independent registered public accounting firm, our interim and year-end operating results;

 

    develop procedures for employees to submit concerns anonymously about questionable accounting or audit matters;

 

    review our policies on risk assessment and risk management;

 

    review related party transactions; and

 

    approve all audit and all permissible non-audit services, other than de minimis non-audit services, to be performed by the independent registered public accounting firm.

Our audit committee will operate under a written charter, to be effective on the date of this offering, that satisfies the applicable rules of the SEC and the listing standards of the New York Stock Exchange. In accordance with and pursuant to Section 10A(i)(3) of the Exchange Act, our board of directors has delegated to Ms. Nelson the authority to pre-approve any auditing and permissible non-auditing services to be performed by our registered independent public accounting firm, provided that all such decisions to pre-approve an activity are presented to the full audit committee at its first meeting following any such decision.

Compensation Committee

Effective on the date of this offering, our compensation committee will consist of Ms. Marooney and Messrs. Fenton and Yellurkar, with Mr. Fenton serving as Chair. The composition of our

 

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compensation committee meets the requirements for independence under the listing standards of the New York Stock Exchange and SEC rules and regulations. Each member of the compensation committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act, and an outside director, as defined pursuant to Section 162(m) of the Code. The purpose of our compensation committee is to discharge the responsibilities of our board of directors relating to compensation of our executive officers. Our compensation committee, among other things:

 

    reviews, approves and determines, or make recommendations to our board of directors regarding, the compensation of our executive officers;

 

    administers our stock and equity incentive plans;

 

    reviews and approves or makes recommendations to our board of directors regarding incentive compensation and equity plans; and

 

    establishes and reviews general policies relating to compensation and benefits of our employees.

Our compensation committee will operate under a written charter, to be effective on the date of this offering, that satisfies the applicable rules of the SEC and the listing standards of the New York Stock Exchange.

Nominating and Corporate Governance Committee

Effective on the date of this offering, our nominating and corporate governance committee will consist of Ms. Wilson and Messrs. Stalder and Yellurkar, with Ms. Wilson serving as Chair. The composition of our nominating and corporate governance committee meets the requirements for independence under the listing standards of the New York Stock Exchange and SEC rules and regulations. Our nominating and corporate governance committee will, among other things:

 

    identify, evaluate and select, or make recommendations to our board of directors regarding, nominees for election to our board of directors and its committees;

 

    consider and make recommendations to our board of directors regarding the composition of our board of directors and its committees;

 

    review and assess the adequacy of our corporate governance guidelines and recommend any proposed changes to our board of directors; and

 

    evaluate the performance of our board of directors and of individual directors.

The nominating and corporate governance committee will operate under a written charter, to be effective on the date of this offering that satisfies the applicable listing requirements and rules of the New York Stock Exchange.

Compensation Committee Interlocks and Insider Participation

None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

Peter Fenton and Devdutt Yellurkar, members of our compensation committee, are affiliated with Benchmark Capital Partners VI, L.P. and entities affiliated with Charles River Ventures, respectively. In September 2012, we sold shares of our Series D redeemable convertible preferred stock to Benchmark Capital Partners VI, L.P. and entities affiliated with Charles River Ventures. All purchasers of our Series D redeemable convertible preferred stock, including Benchmark Capital Partners VI, L.P. and entities affiliated with Charles River Ventures, are parties to our investors’ rights agreement and are entitled to

 

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specified registration rights thereunder. Such purchasers are also party to a right of first refusal and co-sale agreement and a voting agreement, each of which will terminate upon the completion of this offering. In October 2012, certain holders of our capital stock, including Benchmark Capital Partners VI, L.P. and entities affiliated with Charles River Ventures, purchased shares of our capital stock from certain of our stockholders pursuant to a tender offer. We have described each of these transactions in more detail under the section captioned “Certain Relationships and Related Party Transactions.”

Non-Employee Director Compensation

Other than as set forth in the table and described more fully below, we did not pay any compensation, reimburse any expense or make any equity awards or non-equity awards or pay any other compensation to any of our non-employee directors during the year ended December 31, 2013.

 

Name

   Option Awards (1)      Total  

Elizabeth Nelson

   $ 684,170       $ 684,170   

 

(1) Our board of directors granted Ms. Nelson this award in connection with her appointment to our board of directors in July 2013. The amounts reported represent the aggregate grant date fair value of the stock options awarded to Ms. Nelson in fiscal 2013, calculated in accordance with FASB ASC Topic 718. Such grant date fair value does not take into account any estimated forfeitures related to service-vesting conditions. The assumptions used in calculating the grant date fair value of the stock options reported in this column are set forth in the Notes to our Consolidated Financial Statements included elsewhere in this prospectus. The amounts reported in this column reflect the accounting cost for these stock options, and do not correspond to the actual economic value that may be received by Ms. Nelson upon exercise of the options.

The following table lists all outstanding equity awards held by our non-employee directors as of December 31, 2013.

 

Director Name

   Option Grant Date     Number of Securities
Underlying
Unexercised  Options
Exercisable (1)
     Number of
Securities
Underlying
Unexercised
Options
Unexercisable
     Option
Exercise Price
Per Share
     Option
Expiration
Date
 

Peter Fenton

                                      

Elizabeth Nelson

     7/17/2013  (1)       296,315               $ 3.29         7/17/2023   

Dana Stalder

                                      

Devdutt Yellurkar

                                      

 

(1) This option vests in 48 equal monthly increments following the date of grant, subject to continued service to us. This option is immediately exercisable and provides for full vesting acceleration in the event of a change in control.

On January 30, 2014, upon joining the board of directors, each of Ms. Marooney and Ms. Wilson received an option to purchase 325,000 shares of our common stock with an exercise price equal to $4.58 per share. These awards vest in 48 equal monthly increments following the date of grant, subject to continued service to us. These options are immediately exercisable and provide for full vesting acceleration in the event of a change in control.

Prior to this offering, we did not pay any cash compensation to our non-employee directors, nor did we have a formal policy regarding equity grants to our nonemployee directors. Directors who are also our employees receive no additional compensation for their service as a director. During 2013, Mr. Svane was an employee. See the section titled “Executive Compensation” for more information about Mr. Svane’s compensation.

 

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EXECUTIVE COMPENSATION

Overview

The following discussion contains forward-looking statements that are based on our current plans, considerations, expectations, and determinations regarding future compensation programs. The actual amount and form of compensation and the compensation policies and practices that we adopt in the future may differ materially from currently planned programs as summarized below.

As an emerging growth company, we have opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies,” as such term is defined in the rules promulgated under the Securities Act. The compensation provided to our named executive officers for 2013 is detailed in the 2013 Summary Compensation Table and accompanying footnotes and narrative that follows this section.

Our named executive officers in 2013 were:

 

    Mikkel Svane, our Chief Executive Officer, or CEO, and co-founder;

 

    Alan Black, our Senior Vice President and Chief Financial Officer;

 

    Marcus Bragg, our Senior Vice President, Worldwide Sales and Customer Success; and

 

    Adrian McDermott, our Senior Vice President, Product Development.

2013 Summary Compensation Table

The following table provides information regarding the total compensation for services rendered in all capacities that was earned by our principal executive officer during fiscal 2013, and our other named executive officers who were serving as executive officers as of December 31, 2013.

 

Name and Principal Position

   Year      Salary ($)     Option Awards
($) (1)
     Bonus
($) (2)
     Total ($)  

Mikkel Svane

Chief Executive Officer

     2013         200,000                74,906         274,906   

Alan Black

Senior Vice President and Chief Financial Officer

     2013         240,000        552,160         59,925         852,085   

Marcus Bragg

Senior Vice President, Worldwide Sales and Customer Success

     2013         93,462 (3)       2,648,385         167,000         2,908,847   

Adrian McDermott

Senior Vice President, Product Development

     2013         240,000        1,577,600         39,950         1,857,550   

 

(1) The amounts reported represent the aggregate grant date fair value of the stock options awarded to the named executive officer in fiscal 2013, calculated in accordance with FASB ASC Topic 718. Such grant date fair value does not take into account any estimated forfeitures related to service-vesting conditions. The assumptions used in calculating the grant date fair value of the stock options reported in this column are set forth in the Notes to our Consolidated Financial Statements included elsewhere in this prospectus. The amounts reported in this column reflect the accounting cost for these stock options, and do not correspond to the actual economic value that may be received by the named executive officers upon exercise of the options.
(2)

The amounts reported represent discretionary bonuses paid to each named executive officer. The amount reported for Mr. Bragg represents a $100,000 signing bonus, as well as his fiscal 2013

 

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  bonus at target, pro-rated based on his hire date. The material terms of the bonus payments are described in the section titled “—2013 Bonus Payments” below.
(3) Mr. Bragg’s salary was pro-rated based on his hire date.

2013 Bonus Payments

With the exception of Mr. Bragg, whose bonus determination is described below, our executive officers, including our named executive officers, received discretionary bonuses for exemplary company performance in 2013. Payments of the discretionary bonuses were made quarterly, on the regular payroll date following the approval by the board of directors of the bonuses for the completed quarter.

In determining the amounts of the discretionary bonuses, the board of directors based its decisions partially on the company’s achievement of its monthly recurring revenue goals and, except for the discretionary bonuses paid to Mr. Svane, partially on input regarding such executive officer’s individual performance from Mr. Svane or the other most senior executive officer to whom the officer reported. The discretionary bonuses paid to Mr. Svane were based on the evaluation of Mr. Svane’s individual performance by the board of directors.

The bonuses paid to Mr. Bragg consisted of payments for the prorated portion of his annual performance bonus for 2013, which under the terms of Mr. Bragg’s offer letter was guaranteed on target for 2013, and the payment of the sign-on bonus provided under Mr. Bragg’s offer letter. The amounts and conditions of the bonuses paid to Mr. Bragg in 2013 are described below under this section titled “Offer Letters.”

Outstanding Equity Awards at Fiscal 2013 Year-End

The following table sets forth information regarding outstanding stock options held by our named executive officers at the end of fiscal 2013:

 

    Option Awards (1)   Stock Awards (2)  

Name

  Vesting
Commencement
Date
    Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Option
Exercise
Price ($)
    Option
Expiration
Date
  Number of
Shares
or Units of
Stock That
Have Not
Vested (#)
    Market Value
of Shares
or Units of

Stock That
have Not
Vested as of
December 31,
2013 ($) (3)
 

Mikkel Svane

                                           

Alan Black

    11/9/2011 (4)(5)                              875,000        4,007,500   
    4/23/2013 (5)(6)(7)       175,000               3.12      5/3/2023     116,667        534,335   

Marcus Bragg

    8/30/2013 (8)       1,410,000               3.29      9/3/2023              

Adrian McDermott

    7/26/2010 (9)       1,140,001        233,333        0.06      9/9/2020              
    9/8/2011 (9)                     0.31      9/8/2021     70,000        320,600   
    4/23/2013 (7)(9)(10)       1,000,000               3.12      5/3/2023              

 

(1) Each stock option was granted pursuant to our 2009 Stock Option and Grant Plan. Unless otherwise described in the footnotes below, the stock options are not immediately exercisable. Unless otherwise described in the footnotes below, the shares of common stock subject to such stock options will vest over a four-year period, with 25% of the shares to vest upon completion of one year of service measured from the vesting commencement date, and the balance to vest in 36 successive equal monthly installments upon the completion of each additional month of service thereafter.
(2) Each stock award was granted pursuant to our 2009 Stock Option and Grant Plan. Unless specified otherwise, each stock award vests over a four-year period, with 25% of the shares to vest upon completion of one year of service measured from the vesting commencement date, and the balance to vest in 36 successive equal monthly installments upon the completion of each additional month of service thereafter.

 

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(3) Amounts calculated in accordance with ASC Topic 718 using a per share fair market value as of December 31, 2013 of $4.58.
(4) The stock award vests over a five-year period, with 20% vested upon completion of one year of service measured from the vesting commencement date, and the balance vesting in 48 successive equal monthly installments upon the completion of each additional month of service thereafter.
(5) The equity award has full vesting acceleration in the event that there is a change in control of our company and Mr. Black does not retain his current position in the combined ongoing company.
(6) The stock option vests monthly over a four-year period, with 2.0833% vesting each month commencing on the first month anniversary of the vesting commencement date. The stock option was granted with respect to 350,000 shares. Mr. Black exercised the option with respect to 175,000 shares, of which 116,667 shares remain unvested as of December 31, 2013.
(7) The stock option is subject to an early exercise provision, pursuant to which it is fully exercisable upon grant, with the shares received upon exercise subject to vesting in accordance with the vesting schedule applicable to the option.
(8) The stock option has full vesting acceleration in the event that Mr. Bragg’s employment is terminated without cause or resigns for good reason within 12 months following a change in control of our company.
(9) The equity award has vesting acceleration as to 50% of the unvested equity award in the event that there is a change in control of our company and Mr. McDermott does not retain his current position in the combined ongoing company.
(10) The stock option vests monthly over a five-year period, with 1.66667% vesting each month commencing on the one month anniversary of the vesting commencement date.

In February 2014, our board of directors granted Messrs. Svane, Black, and McDermott options to purchase 4,300,000, 250,000, and 500,000 shares of our common stock, respectively, with an exercise price equal to $4.76 per share. These awards vest in 60 equal monthly increments following the date of grant. The awards granted to Messrs. Black and McDermott are immediately exercisable and subject to acceleration provisions consistent with their other outstanding equity awards as described below under “—Executive Employment Arrangements and Potential Payments upon Termination or Change of Control—Equity Awards.” The award granted to Mr. Svane will accelerate in full in the event Mr. Svane’s employment with us is terminated without “cause” or by Mr. Svane for “good reason” at any time during the period that ends 12 months following the consummation date of a change of control of the company.

Executive Employment Arrangements and Potential Payments upon Termination or

Change of Control

Offer Letters

Alan Black

On October 28, 2011, we entered into an offer letter with Mr. Black for the position of Chief Financial Officer. The offer letter provides for his at-will employment and sets forth his initial base salary, initial equity award, and eligibility for the company’s benefit plans generally.

Marcus Bragg

On July 25, 2013, we entered into an offer letter with Mr. Bragg for the position of Senior Vice President, Worldwide Sales. The offer letter generally provides for his at-will employment and sets forth his initial base salary, initial equity award, annual performance bonus eligibility, and eligibility for the company’s benefit plans generally. For 2013, Mr. Bragg’s offer letter provides that his performance bonus will be prorated for his partial year of employment, but will be guaranteed on target. Mr. Bragg’s annual performance bonus target for 2013 was $200,000. Mr. Bragg’s offer letter also provides him with a signing bonus of $100,000, which will be deemed earned over the first 12 months of Mr. Bragg’s employment with us. If Mr. Bragg’s employment is terminated for any reason other than by us without “cause” or by him for “good reason” (as each such term is defined in Mr. Bragg’s offer letter) prior to the 12-month anniversary of the commencement of his employment, he shall be obligated to repay a portion of his signing bonus based on the number of months or partial months remaining until such 12-month anniversary. Mr. Bragg’s offer letter also provides that, in the event his employment is

 

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terminated by us or any successor without cause or he resigns for good reason, he will be entitled to six months’ salary and benefits continuation.

Adrian McDermott

On June 16, 2010, we entered into an offer letter with Mr. McDermott for the position of Vice President of Engineering. The offer letter generally provides for his at-will employment and sets forth his initial base salary, initial equity award and eligibility for the company’s benefit plans generally. In addition, Mr. McDermott’s offer letter provided him with a $100,000 signing bonus, which was subject to repayment in the event his employment terminated prior to the 12-month anniversary of his start date.

In addition, these offer letters and certain equity award agreements with our named executive officers provide for equity acceleration, as described below.

Equity Awards

Alan Black

In the event of a change in control of the company in which Mr. Black does not retain his current position in the combined ongoing company, 100% of the unvested equity subject to the outstanding equity awards of Mr. Black will be accelerated.

Marcus Bragg

In the event of a termination of employment by us without “cause” or by Mr. Bragg for “good reason” at any time during the period that ends 12 months following the consummation date of a change in control of the company, 100% of the unvested equity subject to the outstanding equity awards of Mr. Bragg will be accelerated.

Adrian McDermott

In the event of a change in control of the company in which Mr. McDermott does not retain his current position in the combined ongoing company, 50% of the unvested equity subject to the outstanding equity awards of Mr. McDermott will be accelerated.

Employee Benefit and Stock Plans

2014 Stock Option and Incentive Plan

Our 2014 Stock Option and Incentive Plan, or our 2014 Plan, was adopted by our board of directors and approved by our stockholders in February 2014 and will become effective immediately prior to the time that the registration statement of which this prospectus is part is declared effective by the SEC. The 2014 Plan will replace the 2009 Stock Option and Grant Plan as our board of directors has determined not to make additional awards under that plan following the consummation of our initial public offering. The 2014 Plan allows the compensation committee to make equity-based incentive awards to our officers, employees, directors and other key persons (including consultants).

We have initially reserved 15,000,000 shares of our common stock for the issuance of awards under the 2014 Plan, plus the shares of common stock remaining available for issuance under our 2009 Stock Option and Grant Plan. The 2014 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on

 

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January 1, 2015, by 5% of the outstanding number of shares of our common stock on the immediately preceding December 31 or such lesser number of shares as determined by our compensation committee. This number is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.

The shares we issue under the 2014 Plan will be authorized but unissued shares or shares that we reacquire. The shares of common stock underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without the issuance of stock, expire or are otherwise terminated (other than by exercise) under the 2014 Plan and the 2009 Stock Option and Grant Plan will be added back to the shares of common stock available for issuance under the 2014 Plan.

Stock options and stock appreciation rights with respect to no more than 10,000,000 shares of common stock may be granted to any one individual in any one calendar year. The maximum number of shares that may be issued as incentive stock options in any one calendar year period may not exceed 15,000,000 cumulatively increased on January 1, 2015 and on each January 1 thereafter by the lesser of 5% of the number of outstanding shares as of the immediately preceding December 31, or 15,000,000 shares.

The 2014 Plan will be administered by our compensation committee. Our compensation committee has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2014 Plan. Persons eligible to participate in the 2014 Plan will be those full or part-time officers, employees, non-employee directors and other key persons (including consultants) as selected from time to time by our compensation committee in its discretion.

The 2014 Plan permits the granting of both options to purchase common stock intended to qualify as incentive stock options under Section 422 of the Code and options that do not so qualify. The option exercise price of each option will be determined by our compensation committee 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 our compensation committee and may not exceed ten years from the date of grant. Our compensation committee will determine at what time or times each option may be exercised.

Our compensation committee may award stock appreciation rights subject to such conditions and restrictions as it may determine. Stock appreciation rights entitle the recipient to shares of common stock, or cash, equal to the value of the appreciation in our stock price over the exercise price. The exercise price may not be less than 100% of the fair market value of our common stock on the date of grant. The term of each stock appreciation right will be fixed by our compensation committee and may not exceed ten years from the date of grant. Our compensation committee will determine at what time or times each stock appreciation right may be exercised.

Our compensation committee may award restricted shares of common stock and restricted stock units to participants subject to such conditions and restrictions as it may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified vesting period. Our compensation committee may also grant shares of common stock that are free from any restrictions under the 2014 Plan. Unrestricted stock may be granted to participants in recognition of past services or for other valid consideration and may be issued in lieu of cash compensation due to such participant.

Our compensation committee may grant performance share awards to participants that entitle the recipient to receive awards of common stock upon the achievement of certain performance goals and

 

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such other conditions as our compensation committee shall determine. Our compensation committee may grant dividend equivalent rights to participants that entitle the recipient to receive credits for dividends that would be paid if the recipient had held a specified number of shares of common stock.

Our compensation committee may grant cash bonuses under the 2014 Plan to participants, subject to the achievement of certain performance goals.

Our compensation committee may grant awards of restricted stock, restricted stock units, performance share awards or cash-based awards under the 2014 Plan that are intended to qualify as “performance-based compensation” under Section 162(m) of the Code. Such awards will only vest or become payable upon the attainment of performance goals that are established by our compensation committee and related to one or more performance criteria. The performance criteria that could be used with respect to any such awards include: total stockholder return, earnings before interest, taxes, depreciation and amortization, net income (loss) (either before or after interest, taxes, depreciation and/or amortization), changes in the market price of our common stock, economic value-added, funds from operations or similar measure, sales or revenue, acquisitions or strategic transactions, operating income (loss), cash flow (including, but not limited to, operating cash flow and free cash flow), return on capital, assets, equity, or investment, return on sales, gross or net profit levels, productivity, expense, margins, operating efficiency, customer satisfaction, working capital, earnings (loss) per share of our common stock, sales or market shares and number of customers, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group. From and after the time that we become subject to Section 162(m) of the Code, the maximum award that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code that may be made to certain of our officers during any one calendar year period is 10,000,000 shares of common stock with respect to a share-based award and $5.0 million with respect to a cash-based award.

The 2014 Plan provides that upon the effectiveness of a “sale event,” as defined in the 2014 Plan, an acquirer or successor entity may assume, continue or substitute for the outstanding awards under the 2014 Plan. To the extent that awards granted under the 2014 Plan are not assumed or continued or substituted by the successor entity, all unvested awards granted under the 2014 Plan shall terminate. In the event of such termination, individuals holding options and stock appreciation rights will be permitted to exercise such options and stock appreciation rights (to the extent exercisable) prior to the sale event. In addition, in connection with the termination of the 2014 Plan upon a sale event, we may make or provide for a cash payment to participants holding vested and exercisable options and stock appreciation rights equal to the difference between the per share cash consideration payable to stockholders in the sale event and the exercise price of the options or stock appreciation rights.

Our board of directors may amend or discontinue the 2014 Plan and our compensation committee may amend or cancel outstanding awards for purposes of satisfying changes in law or any other lawful purpose, but no such action may adversely affect rights under an award without the holder’s consent. Certain amendments to the 2014 Plan require the approval of our stockholders.

No awards may be granted under the 2014 Plan after the date that is ten years from the date of stockholder approval of the 2014 Plan. No awards under the 2014 Plan have been made prior to the date hereof.

2014 Employee Stock Purchase Plan

In February 2014, our board of directors adopted and our stockholders approved the Employee Stock Purchase Plan, or the ESPP. The ESPP initially reserves and authorizes the issuance of up to a total of 7,250,000 shares of common stock to participating employees. The ESPP provides that the

 

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number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2015, by 1% of the outstanding number of shares of our common stock on the immediately preceding December 31 or such lesser number of shares as determined by our compensation committee. This number is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization.

All employees who we have employed for at least 30 days are eligible to participate in the ESPP. Any employee who owns 5% or more of the total combined voting power or value of all classes of stock is not eligible to purchase shares under the ESPP.

We will make one or more offerings, consisting of one or more purchase periods, each year to our employees to purchase shares under the ESPP. The first offering will begin on the effective date of the registration statement of which this prospectus is part and, unless otherwise determined by the administrator of the ESPP, will end on the date that is approximately eighteen months following such date. Each eligible employee as of the date of the closing of the offering will be deemed to be a participant in the ESPP at that time and must authorize payroll deductions or other contributions by submitting an enrollment form within 90 days after the commencement of the first offering. Subsequent offerings will usually begin every six months and will continue for eighteen-month periods, referred to as offering periods. Each offering period will consist of three approximately six-month equal purchase periods. Each eligible employee may elect to participate in any subsequent offering by submitting an enrollment form at least 15 days before the relevant offering date.

Each employee who is a participant in the ESPP may purchase shares by authorizing contributions of up to 15% of his or her compensation during an offering period. Unless the participating employee has previously withdrawn from the offering, his or her accumulated contributions will be used to purchase shares on the last business day of the purchase period at a price equal to 85% of the fair market value of the shares on the first business day of the offering period or the last business day of the purchase period, whichever is lower, provided that no more than 3,000 shares of common stock may be purchased by any one employee during each purchase period. Under applicable tax rules, an employee may purchase no more than $25,000 worth of shares of common stock, valued at the start of the offering period, under the ESPP for each calendar year in which a purchase right is outstanding.

The accumulated contributions of any employee who is not a participant on the last day of a purchase period will be refunded. An employee’s rights under the ESPP terminate upon voluntary withdrawal from the plan or when the employee ceases employment with us for any reason.

The ESPP may be terminated or amended by our board of directors at any time, but shall automatically terminate on the ten year anniversary of this offering. An amendment that increases the number of shares of common stock that are authorized under the ESPP and certain other amendments require the approval of our stockholders.

2009 Stock Option and Grant Plan

Our board of directors adopted, and our stockholders approved, our 2009 Stock Option and Grant Plan in July 2009. Our 2009 Stock Option and Grant Plan was most recently amended in May 2013. Our 2009 Stock Option and Grant Plan allows for the grant of incentive stock options to our employees and any of our parent and subsidiary corporations’ employees, and for the grant of nonqualified stock options and restricted stock, unrestricted stock, and restricted stock units awards to employees, officers, directors and consultants of ours and our parent and subsidiary corporations.

 

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Authorized Shares .    Our 2009 Stock Option and Grant Plan will be terminated in connection with this offering, and accordingly, no shares will be available for future issuance under the 2009 Stock Option and Grant Plan following the closing of this offering. Our 2009 Stock Option and Grant Plan will continue to govern outstanding awards granted thereunder. As of December 31, 2013, options to purchase 20,267,882 shares of our common stock remained outstanding under our 2009 Stock Option and Grant Plan at a weighted-average exercise price of approximately $1.41 per share and RSUs covering 1,621,679 shares of our common stock remained outstanding under our 2009 Stock Option and Grant Plan at a weighted-average grant date fair value of approximately $3.38 per share.

Plan Administration .    Our board of directors currently administers our 2009 Stock Option and Grant Plan. Subject to the provisions of our 2009 Stock Option and Grant Plan, the administrator has the power to interpret and administer our 2009 Stock Option and Grant Plan and any agreement thereunder and to determine the terms of awards (including the recipients), the number of shares subject to each award, the exercise price (if any), the vesting schedule applicable to the awards together with any vesting acceleration and the terms of the award agreement for use under our 2009 Stock Option and Grant Plan. The administrator may, at any time, authorize the issuance of new awards in exchange for the surrender and cancellation of any or all outstanding awards with the consent of a participant under certain circumstances.

Options .    Stock options may be granted under our 2009 Stock Option and Grant Plan. The exercise price per share of all options must equal at least 100% of the fair market value per share of our common stock on the date of grant. The term of an incentive stock option may not exceed ten years. An incentive stock option granted to a participant who owns more than 10% of the total combined voting power of all classes of our stock on the date of grant, or any parent or subsidiary corporations, may not have a term in excess of five years and must have an exercise price of at least 110% of the fair market value per share of our common stock on the date of grant. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or certain other property or other consideration acceptable to the administrator. After a participant’s termination of service, the participant generally may exercise his or her options, to the extent vested as of such date of termination, for 90 days after termination. If termination is due to death or disability, the option generally will remain exercisable, to the extent vested as of such date of termination, until the one-year anniversary of such termination. However, in no event may an option be exercised later than the expiration of its term. If termination is for cause, then an option automatically expires upon the date of the optionee’s termination.

Restricted Stock .    Restricted stock may be granted under our 2009 Stock Option and Grant Plan. Restricted stock awards are grants of shares of our common stock that are subject to various restrictions, including restrictions on transferability and forfeitures provisions. Shares of restricted stock will vest, and the restrictions on such shares will lapse, in accordance with terms and conditions established by the administrator.

Unrestricted Stock.     Unrestricted stock may be granted under our 2009 Stock Option and Grant Plan. Unrestricted stock awards may be granted to participants in recognition of past services or for other valid consideration and may be issued in lieu of cash compensation due to such participant.

RSUs .    RSUs may be granted under our 2009 Stock Option and Grant Plan. An RSU is an award that covers a number of shares of our common stock that may be settled upon vesting in cash, by the issuance of the underlying shares or a combination of both. The administrator determines the terms and conditions of RSUs, including the number of units granted, the vesting criteria (which may include accomplishing specified performance criteria or continued service to us) and the form and timing of payment.

 

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Transferability or Assignability of Awards .    Our 2009 Stock Option and Grant Plan generally does not allow for the transfer or assignment of awards, other than, at the discretion of the administrator, by gift to an immediate family member, to trusts for the benefit of family members, or to partnerships in which such family members are the only partners, and only the recipient of an award may exercise such an award during his or her lifetime.

Certain Adjustments .    In the event of certain changes in our capitalization, the exercise prices of and the number of shares subject to outstanding options, and the purchase price of and the numbers of shares subject to outstanding awards will be proportionately adjusted, subject to any required action by our board of directors or stockholders.

The 2009 Stock Option and Grant Plan provides that upon the effectiveness of a “sale event,” as defined in the 2009 Stock Option and Grant Plan, an acquirer or successor entity may assume, continue or substitute for the outstanding awards under the 2009 Stock Option and Grant Plan. To the extent that awards granted under the 2009 Stock Option and Grant Plan are not assumed or continued or substituted by the successor entity, all options and all other unvested awards granted under the 2009 Stock Option and Grant Plan shall terminate. In the event of such termination, individuals holding options will be permitted to exercise such options (to the extent exercisable) prior to the sale event. In addition, in connection with the termination of the 2009 Stock Option and Grant Plan upon a sale event, we may make or provide for a cash payment equal to (A) in the case of vested and exercisable options, the difference between the per share cash consideration payable to stockholders in the sale event and the exercise price of the options and (B) in the case of restricted stock and restricted stock unit awards, the per share cash consideration payable to stockholders in the sale event multiplied by the number of shares of stock subject to such stock awards (payable at the time of the sale event or upon the later vesting of the awards).

Our board of directors has determined not to grant any further awards under the 2009 Stock Option and Grant Plan after the completion of the offering. Following the consummation of our initial public offering, we expect to make future awards under the 2014 Plan.

401(k) Plan

We maintain a tax-qualified retirement plan that provides eligible U.S. employees with an opportunity to save for retirement on a tax-advantaged basis. Plan participants are able to defer eligible compensation subject to applicable annual Code limits. We have the ability to make discretionary contributions to the 401(k) plan but have not done so to date. The 401(k) plan is intended to be qualified under Section 401(a) of the Code with the 401(k) plan’s related trust intended to be tax exempt under Section 501(a) of the Code. As a 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.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In addition to the compensation arrangements, including employment, termination of employment and change in control arrangements, and indemnification arrangements, discussed, when required, in the sections titled “Management” and “Executive Compensation” and the registration rights described in the section titled “Description of Capital Stock—Registration Rights,” the following is a description of each transaction since January 1, 2011 and each currently proposed transaction in which:

 

    we have been or are to be a participant;

 

    the amount involved exceeded or exceeds $120,000; and

 

    any of our directors, executive officers, or holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, had or will have a direct or indirect material interest.

Series D Redeemable Convertible Preferred Stock Financing

In September 2012, we sold an aggregate of 8,582,021 shares of our Series D redeemable convertible preferred stock at a purchase price of approximately $5.24 per share for an aggregate purchase price of approximately $45.0 million.

All purchasers of our Series D redeemable convertible preferred stock are entitled to specified registration rights. See the section titled “Description of Capital Stock—Registration Rights” for more information regarding these registration rights.

The following table summarizes the Series D redeemable convertible preferred stock purchased by members of our board of directors or their affiliates and holders of more than 5% of our outstanding capital stock.

 

Name of Stockholder

   Shares of Series D Redeemable
Convertible Preferred Stock
     Total Purchase Price  

Entities affiliated with Charles River Ventures (1)

     302,895       $ 1,588,236   

Benchmark Capital Partners VI, L.P. (2)

     100,965         529,412   

Matrix Partners IX, L.P. (3)

     96,159         504,212   

 

(1) Consists of shares purchased by Charles River Partnership XIII, LP and Charles River Friends XIII-A, LP. Devdutt Yellurkar, a member of our board of directors, is a managing member of Charles River XIII GP, LLC, the ultimate general partner of Charles River Partnership XIII, LP and Charles River Friends XIII-A, LP, and, therefore, may be deemed to hold voting and dispositive power over the shares held by Charles River Partnership XIII, LP and Charles River Friends XIII-A, LP.
(2) Peter Fenton, a member of our board of directors, is a managing member of Benchmark Capital Management Co. VI, L.L.C., the general partner of Benchmark Capital Partners VI, L.P. and, therefore, may be deemed to hold voting and dispositive power over the shares held by Benchmark Capital Partners VI, L.P.
(3) The shares were purchased by Matrix Partners IX, L.P., or Matrix IX. Matrix IX Management Co. L.L.C. is the sole general partner of Matrix IX. Dana Stalder, a member of our board of directors, is a Managing Member of Matrix IX Management Co., L.L.C. and in such capacity has sole voting and dispositive power with respect to the shares held by Matrix IX.

2012 Third-Party Tender Offer

In September 2012, we entered into a letter agreement with certain holders of our capital stock, including entities affiliated with Charles River Ventures, Benchmark, and Matrix Partners, pursuant to

 

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which we agreed to waive certain transfer restrictions in connection with, and assist in the administration of, a tender offer that such parties proposed to commence. In October 2012, these holders commenced a tender offer to purchase shares of our capital stock from certain of our stockholders. Messrs. Svane, McDermott, and Aghassipour, each of whom is one of our directors or executive officers or a holder of more than 5% of our outstanding capital stock, sold shares of our capital stock in the tender offer. An aggregate of 7,978,475 shares of our capital stock were tendered pursuant to the tender offer at a price of approximately $4.81 per share.

Investors’ Rights Agreement

On September 5, 2012, we entered into a Third Amended and Restated Investors’ Rights Agreement, which we refer to as our investors’ rights agreement, with certain holders of our outstanding redeemable convertible preferred stock, including entities with which certain of our directors are affiliated. As of December 31, 2013, the holders of 68,646,185 shares of our common stock, including our common stock issuable in connection with the automatic conversion of all outstanding shares of our redeemable convertible preferred stock into common stock, are entitled to rights with respect to the registration of their shares following this offering under the Securities Act. See the section titled “Description of Capital Stock—Registration Rights” for more information regarding these registration rights.

Right of First Refusal and Co-Sale Agreement

We are a party to a right of first refusal and co-sale agreement, which imposes restrictions on the transfer of our capital stock. Upon the completion of this offering, the right of first refusal and co-sale agreement will terminate and the restrictions on the transfer of our capital stock set forth in this agreement will no longer apply.

Voting Agreement

We are party to a voting agreement under which certain holders of our capital stock, including persons who hold more than 5% of our outstanding capital stock and entities with which certain of our directors are affiliated, have agreed to vote their shares on certain matters, including with respect to the election of directors. Upon the completion of this offering, the voting agreement will terminate and none of our stockholders will have any special rights regarding the election or designation of members of our board of directors or the voting of our capital stock of the company.

Promissory Notes with Officers

We entered into a promissory note with Alan Black, our Senior Vice President and Chief Financial Officer, in November 2011 in connection with the purchase of shares under a restricted stock award. Pursuant to this note, we loaned Mr. Black $457,000. This loan bore interest at the rate of 2.67% per annum. As of December 31, 2013, the loan was paid in full.

We entered into a promissory note with Adrian McDermott, our Senior Vice President, Product Development, in November 2011 in connection with the exercise of a stock option. Pursuant to this note, we loaned Mr. McDermott $48,800. This loan bore interest at the rate of 2.67% per annum. As of December 31, 2013, the loan was paid in full.

We entered into a promissory note with Mark Urlocker, our former Chief Operating Officer, in November 2011 in connection with the exercise of a stock option. Pursuant to this note, we loaned Mr. Urlocker $1,189,500. This loan bore interest at the rate of 2.67% per annum. As of December 31, 2013, the loan was paid in full.

 

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Other Transactions

We have granted stock options and other equity awards to our executive officers and certain of our directors. See the sections titled “Executive Compensation—Outstanding Equity Awards at Fiscal 2013 Year-End” and “Management—Non-Employee Director Compensation” for a description of these options and equity awards.

We have entered into arrangements with certain of our executive officers that, among other things, provide for certain severance and change in control benefits.

We believe the terms of the transactions described above were comparable to terms we could have obtained in arm’s-length dealings with unrelated third parties.

Limitation of Liability and Indemnification of Officers and Directors

Prior to the closing of this offering, we expect to adopt an amended and restated certificate of incorporation, which will become effective upon the completion of this offering, and which will contain provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following:

 

    any breach of their duty of loyalty to our company or our stockholders;

 

    any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

    unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

 

    any transaction from which they derived an improper personal benefit.

Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.

In addition, prior to the closing of this offering, we expect to adopt amended and restated bylaws which will provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise. Our amended and restated bylaws are expected to provide that we may indemnify to the fullest extent permitted by law any person who is or was a party or is threatened to be made a party to any action, suit, or proceeding by reason of the fact that he or she is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust, or other enterprise. Our amended and restated bylaws will also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to very limited exceptions.

Further, prior to the closing of this offering, we expect to enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements will require us, among other things, to indemnify our directors and executive officers against liabilities that

 

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may arise by reason of their status or service. These indemnification agreements will also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit, or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.

The limitation of liability and indemnification provisions that are expected to be included in our amended and restated certificate of incorporation, amended restated bylaws, and in indemnification agreements that we enter into with our directors and executive officers may discourage stockholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be harmed to the extent that we pay the costs of settlement and damage awards against directors and executive officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.

Certain of our non-employee directors may, through their relationships with their employers or affiliated entities, be insured or indemnified against certain liabilities incurred in their capacity as members of our board of directors. In our indemnification agreements with these non-employee directors, we have agreed that our indemnification obligations will be primary to any such other indemnification arrangements.

The underwriting agreement provides for indemnification by the underwriters of us and our officers, directors and employees for certain liabilities arising under the Securities Act, or otherwise.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Policies and Procedures for Related Party Transactions

Following this offering, the audit committee will have the primary responsibility for reviewing and approving or disapproving “related party transactions,” which are transactions between us and related persons in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which a related person has or will have a direct or indirect material interest. For purposes of this policy, a related person will be defined as a director, executive officer, nominee for director, or greater than 5% beneficial owner of our common stock, in each case since the beginning of the most recently completed year, and their immediate family members. Our audit committee charter will provide that the audit committee shall review and approve or disapprove any related party transactions. As of the date of this prospectus, we have not adopted any formal standards, policies or procedures governing the review and approval of related party transactions, but we expect that our audit committee will do so in the future.

 

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of December 31, 2013, and as adjusted to reflect the sale of common stock offered by us in this offering assuming no exercise of the underwriters’ option to purchase additional shares, for:

 

    each of our named executive officers;

 

    each of our directors;

 

    all of our directors and executive officers as a group; and

 

    each person known by us to be the beneficial owner of more than five percent of any class of our voting securities.

We have determined beneficial ownership in accordance with the rules of the SEC, and therefore it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable. We have deemed shares of our common stock subject to options outstanding as of December 31, 2013 that were exercisable or exercisable within 60 days of December 31, 2013 to be outstanding and to be beneficially owned by the person holding the option for the purpose of computing the percentage ownership of that person but have not treated them as outstanding for the purpose of computing the percentage ownership of any other person.

We have based percentage ownership of our common stock before this offering on 114,997,171 shares of our common stock outstanding as of December 31, 2013, including 68,646,185 shares of common stock resulting from the automatic conversion of all outstanding shares of our redeemable convertible preferred stock upon the completion of this offering, as if this conversion had occurred as of December 31, 2013. Percentage ownership of our common stock after this offering assumes our sale of                 shares of common stock in this offering.

Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Zendesk, Inc., 989 Market Street, Suite 300, San Francisco, California 94103.

 

     Shares Beneficially Owned Prior to
the Offering
    Shares Beneficially
Owned After the
Offering
           Number                  Percentage           Number    Percentage

Named Executive Officers and Directors:

          

Mikkel Svane (1)

     8,118,533         7.1     

Alan Black (1)(2)

     1,650,000         1.6        

Adrian McDermott (1)(3)

     2,366,667         2.0        

Marcus Bragg (4)

     1,410,000         1.2        

Peter Fenton (5)

     21,457,935         18.7        

Caryn Marooney (6)

                    

Elizabeth Nelson (7)

     387,500         *        

Dana Stalder (8)

     10,099,283         8.8        

Michelle Wilson (6)

                    

Devdutt Yellurkar (9)

     28,161,131         24.5        

All directors and executive officers as a group (13 persons)  (10)

     76,491,049         62.9        

Other 5% or Greater Stockholders:

          

Entities associated with Charles River Ventures (11)

     28,161,131         24.5        

Benchmark Capital Partners VI, LP (12)

     21,457,935         18.7        

Matrix Partners IX, L.P. (13)

     10,080,811         8.8        

Alexander Aghassipour (1)(14)

     8,301,392         7.2        

 

* Represents beneficial ownership of less than one percent (1%) of the outstanding shares of our common stock.

 

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(1) On February 13, 2014, our board of directors granted Messrs. Svane, Black, McDermott, and Aghassipour options to purchase 4,300,000, 250,000, 500,000, and 1,000,000 shares of our common stock, respectively, with an exercise price equal to $4.76 per share. These awards vest in 60 equal monthly increments following the date of grant. These awards are immediately exercisable and with respect to Mr. Black and Mr. McDermott, subject to acceleration provisions consistent with each such executive’s other outstanding equity awards as described above under “Executive Compensation—Executive Employment Arrangements and Potential Payments upon Termination or Change of Control—Equity Awards.” The award granted to Mr. Svane will accelerate in full in the event Mr. Svane’s employment with us is terminated without “cause” or by Mr. Svane for “good reason” at any time during the period that ends 12 months following the consummation date of a change of control of the company. The award granted to Mr. Aghassipour will accelerate in full in the event Mr. Aghassipour’s employment with us is terminated without “cause” or by Mr. Aghassipour for “good reason” at any time during the period that ends 12 months following the consummation date of a change of control of the company.
(2) Consists of (i) 1,275,000 shares held of record, (ii) 200,000 shares held by the Black 2013 Family Heritage Trust, in which Mr. Black shares voting and dispositive power, (iii) 200,000 shares held by Linda Black, the wife of Alan Black, and (iv) 175,000 shares subject to outstanding options which are exercisable within 60 days of December 31, 2013.
(3) Consists of (i) 160,000 shares held of record and (ii) 2,206,667 shares subject to outstanding options which are exercisable within 60 days of December 31, 2013.
(4) Consists of 1,410,000 shares subject to outstanding options which are exercisable within 60 days of December 31, 2013.
(5) Consists of the shares listed in footnote 12 below which are held of record by Benchmark Capital Partners VI, L.P. Mr. Fenton is a managing member of Benchmark Capital Management Co. VI, L.L.C., the general partner of Benchmark Capital Partners VI, L.P. and, therefore, may be deemed to hold voting and dispositive power over the shares held by Benchmark Capital Partners VI, L.P.
(6) On January 30, 2014, upon joining the board of directors, each of Mmes. Marooney and Wilson received an option to purchase 325,000 shares of our common stock with an exercise price equal to $4.58 per share. These awards vest in 48 equal monthly increments following the date of grant, subject to continued service to us. These options are immediately exercisable and provide for full vesting acceleration in the event of a change in control.
(7) Consists of (i) 91,185 shares held of record and (ii) 296,315 shares subject to outstanding options which are exercisable within 60 days of December 31, 2013.
(8) Consists of (i) 10,080,811 shares held by Matrix Partners IX, L.P., or Matrix IX, and (ii) 18,472 shares held by Weston & Co. IX L.L.C., or Weston IX, as nominee for Dana Stalder. Mr. Stalder is a managing member of Matrix IX Management Co., L.L.C., the general partner of Matrix IX, and has sole voting and dispositive power with respect to the Matrix IX shares. Weston IX owns a total of 503,827 shares as nominee for certain beneficial owners, including Mr. Stalder. Mr. Stalder disclaims beneficial ownership of the Weston IX shares, except for the 18,472 shares held by Weston IX as nominee for Mr. Stalder. Mr. Stalder has sole voting and/or investment control over the 18,472 shares held by Weston IX as nominee for Mr. Stalder, but does not have sole or shared voting and/or investment control with respect to the other shares held by Weston IX.
(9) Consists of the shares listed in footnote 11 below which are held of record by Charles River Partnership XIII, LP and Charles River Friends XIII-A, LP. Mr. Yellurkar is a managing member of Charles River XIII GP, LLC, the ultimate general partner of Charles River Partnership XIII, LP and Charles River Friends XIII-A, LP, and, therefore, may be deemed to hold voting and dispositive power over the shares held by Charles River Partnership XIII, LP and Charles River Friends XIII-A, LP.
(10) Consists of (i) 70,068,422 shares held of record by our current directors and executive officers and (ii) 6,707,982 shares issuable pursuant to outstanding stock options which are exercisable within 60 days of December 31, 2013. On February 13, 2014, our board of directors granted our executive officers options, including the options described more fully in footnote 1 above, to purchase an aggregate of 5,800,000 shares of our common stock with an exercise price of $4.76 per share.
(11) Consists of (i) 768,847 shares held by Charles River Friends XIII-A, LP and (ii) 27,392,284 shares held by Charles River Partnership XIII, LP. Charles River XIII GP, LLC is the ultimate general partner of both Charles River Partnership XIII, LP and Charles River Friends XIII-A, LP. The Managing Members of Charles River XIII GP, LLC are Izhar Armony, Jon Auerbach, Bruce I. Sachs, William P. Tai, Devdutt Yellurkar and George Zachary, and, therefore, they may be deemed to hold voting and dispositive power with respect to the shares held by Charles River Friends XIII-A, LP and Charles River Partnership XIII, LP. The address for these entities is One Broadway, 15th Floor, Cambridge, MA 02142.
(12) Consists of 21,457,935 shares held directly by Benchmark Capital Partners VI, L.P., or BCP VI, for itself and as nominee for Benchmark Founders’ Fund VI, L.P., or BFF VI, Benchmark Founders’ Fund VI-B, L.P., or BFF VI-B, and related individuals. Benchmark Capital Management Co. VI, L.L.C., or BCMC VI, is the general partner of each of BCP VI, BFF VI and BFF VI-B. Mr. Fenton, Alexandre Balkanski, Matthew R, Cohler, Bruce W. Dunlevie, J. William Gurley, Kevin R. Harvey, Robert C. Kagle, Steven M. Spurlock, and Mitchell H. Lasky are the managing members of BCMC VI and, therefore, may be deemed to hold voting and dispositive power over the shares held by BCP VI. The address for these entities is 2965 Woodside Road, Woodside, CA 94062.
(13) Consists of 10,080,811 shares held by Matrix Partners IX, L.P. The address for Matrix Partners IX, L.P. is 101 Main Street, 17th Floor, Cambridge, MA 02142.
(14) Shares held in the Alexander Aghassipour Revocable Trust, for which Mr. Aghassipour holds voting and dispositive power.

 

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DESCRIPTION OF CAPITAL STOCK

General

The following description summarizes the most important terms of our capital stock, as they are expected to be in effect upon the completion of this offering. We expect to adopt an amended and restated certificate of incorporation and amended and restated bylaws in connection with this offering, and this description summarizes the provisions that are expected to be included in such documents. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description of the matters set forth in this “Description of Capital Stock,” you should refer to our amended and restated certificate of incorporation and amended and restated bylaws and investors’ rights agreement, which are or will be included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Delaware law. Upon the completion of this offering, our authorized capital stock will consist of 400,000,000 shares of common stock, $0.01 par value per share, and 10,000,000 shares of undesignated preferred stock, $0.01 par value per share.

Assuming the (A) automatic conversion of all outstanding shares of our redeemable convertible preferred stock into common stock, (B) conversion of all outstanding shares of our Series B common stock into common stock, and (C) conversion of all outstanding shares of our Series A common stock into common stock, which will occur upon the completion of this offering, as of December 31, 2013, there were 114,997,171 shares of our common stock outstanding, held by 143 stockholders of record, and no shares of our redeemable convertible preferred stock outstanding. Our board of directors is authorized, without stockholder approval except as required by the listing standards of the New York Stock Exchange to issue additional shares of our capital stock.

Common Stock

Dividend Rights

Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine.

Voting Rights

Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. We have not provided for cumulative voting for the election of directors in our amended and restated certificate of incorporation. Our amended and restated certificate of incorporation establishes a classified board of directors that is divided into three classes with staggered three-year terms. Only the directors in one class will be subject to election by a plurality of the votes cast at each annual meeting of our stockholders, with the directors in the other classes continuing for the remainder of their respective three-year terms.

No Preemptive or Similar Rights

Our common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.

Right to Receive Liquidation Distributions

If we become subject to a liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our common stock

 

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and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.

Fully Paid and Non-Assessable

All of the outstanding shares of our common stock are, and the shares of our common stock to be issued pursuant to this offering will be, fully paid and non-assessable.

Preferred Stock

Following this offering, our board of directors will be authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences, and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further vote or action by our stockholders. Our board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring, or preventing a change in our control of our company and might adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. We have no current plan to issue any shares of preferred stock.

Options

As of December 31, 2013, we had outstanding options to purchase an aggregate of 20,267,882 shares of our common stock, with a weighted-average exercise price of $1.41, pursuant to our 2009 Stock Option and Grant Plan, which was adopted in 2009 and last amended in 2013.

RSUs

As of December 31, 2013, we had 1,621,679 shares of our common stock subject to outstanding RSUs under our 2009 Stock Option and Grant Plan. Our outstanding RSUs will generally vest upon the satisfaction of both a service condition and a performance condition. For the majority of our outstanding RSUs, the service condition will be satisfied as to 25% of such RSU upon completion of one year of service measured from the vesting commencement date, and the balance will vest in 36 successive equal monthly installments, subject to continued service through each such vesting date. The performance condition for the majority of our outstanding RSUs will be satisfied on the earlier of (A) the effective date of this offering and (B) the date of a change in control.

Warrant

As of December 31, 2013, we had an outstanding warrant to purchase up to 250,000 shares of our common stock, with an exercise price of $0.96 per share, which will remain outstanding after the completion of this offering. This warrant is exercisable at any time on or before June 11, 2019. The warrant has a net exercise provision under which the holder may, in lieu of payment of the exercise

 

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price in cash, surrender the warrant and receive a net amount of shares based on the fair market value of our stock at the time of exercise of the warrant after deduction of the aggregate exercise price. The warrant also provides for adjustments in the event of specified stock dividends, stock splits, reclassifications, and consolidations.

Registration Rights

After the completion of this offering, certain holders of our common stock will be entitled to rights with respect to the registration of their shares under the Securities Act. These registration rights are contained in our investors’ rights agreement. We, along with certain holders of our common stock and the holders of our redeemable convertible preferred stock are parties to the investors’ rights agreement. The registration rights set forth in the investors’ rights agreement will expire five years following the completion of this offering, or, with respect to any particular stockholder, when such stockholder is able to sell all of its shares pursuant to Rule 144 of the Securities Act during any 90-day period. We will pay the registration expenses (other than underwriting discounts, selling commissions and stock transfer taxes) of the holders of the shares registered pursuant to the registrations described below. In an underwritten offering, the managing underwriter, if any, has the right, subject to specified conditions, to limit the number of shares such holders may include. In connection with this offering, each stockholder that has registration rights agreed not to sell or otherwise dispose of any securities without the prior written consent of the underwriters for a period of 180 days after the date of this prospectus. See the section titled “Underwriting” for more information regarding such restrictions.

Demand Registration Rights

After the completion of this offering, the holders of approximately 68,646,185 shares of our common stock will be entitled to certain demand registration rights. At any time beginning 180 days after the effective date of this offering, the holders of at least 51% of these shares then outstanding can request that we register the offer and sale of their shares if the anticipated aggregate offering price of such registrable securities is in excess of $30 million. We are obligated to effect only two such registrations. If we determine that it would be seriously detrimental to our stockholders to effect such a demand registration, we have the right to defer such registration, not more than once in any 12-month period, for a period of up to 60 days. Additionally, we will not be required to effect a demand registration during the period beginning with 60 days prior to our good faith estimate of the date of the filing of, and ending up to 180 days following the effectiveness of, a registration statement relating to the public offering of our common stock.

Piggyback Registration Rights

In connection with this offering, certain holders were entitled to, and the necessary percentage of holders waived, their rights to notice of this offering and to include their registrable securities in this offering. After the closing of this offering, if we propose to register the offer and sale of our common stock under the Securities Act, in connection with another public offering of such common stock the holders of up to approximately 68,646,185 shares of our common stock will be entitled to certain “piggyback” registration rights allowing the holders to include their shares in such registration, subject to certain marketing and other limitations. As a result, whenever we propose to file a registration statement under the Securities Act, other than with respect to (A) a registration related to a company stock plan, (B) a registration relating to an SEC Rule 145 transaction, (C) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the public offering of our common stock, or (D) a registration in which the only common stock being registered is common stock issuable upon the conversion of debt securities that are also being registered, the holders of these shares are entitled to notice of the registration and have the right, subject to certain limitations, to include their shares in the registration.

 

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S-3 Registration Rights

After the closing of this offering, the holders of up to approximately 68,646,185 shares of our common stock may make a written request that we register the offer and sale of their shares on a registration statement on Form S-3 if we are eligible to file a registration statement on Form S-3 so long as the request covers at least that number of shares with an anticipated offering price, net of underwriting discounts and commissions, of at least $10.0 million. These stockholders may make an unlimited number of requests for registration on Form S-3; however, we will not be required to effect a registration on Form S-3 if we have effected two such registrations within the 12-month period preceding the date of the request. Additionally, if we determine that it would be seriously detrimental to our stockholders to effect such a registration, we have the right to defer such registration, not more than once in any 12-month period, for a period of up to 60 days.

Anti-Takeover Provisions

The provisions of Delaware law, our amended and restated certificate of incorporation and our amended and restated bylaws, which are summarized below, may have the effect of delaying, deferring, or discouraging another person from acquiring control of our company. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.

Delaware Law

We are governed by the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes mergers, asset sales, or other transactions resulting in a financial benefit to the stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation’s outstanding voting stock. These provisions may have the effect of delaying, deferring, or preventing a change in our control.

Amended and Restated Certificate of Incorporation and Amended and Restated Bylaw Provisions

Our restated certificate of incorporation and our restated bylaws include a number of provisions that could deter hostile takeovers, delay or prevent changes in control of our board of directors or management team, or discourage lawsuits against our directors or officers, including the following:

 

    Board of Directors Vacancies.     Our amended and restated certificate of incorporation and amended and restated bylaws authorize only our board of directors to fill vacant directorships, including newly created seats . In addition, the number of directors constituting our board of directors will be permitted to be set only by a resolution adopted by a majority vote of our entire board of directors . These provisions would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees . This makes it more difficult to change the composition of our board of directors and promotes continuity of management.

 

   

Classified Board.     Our amended and restated certificate of incorporation and amended and restated bylaws provide that our board of directors is classified into three classes of directors . A third party may be discouraged from making a tender offer or otherwise attempting to obtain

 

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control of us as it is more difficult and time consuming for stockholders to replace a majority of the directors on a classified board of directors . See “Management—Board of Directors.”

 

    Stockholder Action; Special Meeting of Stockholders.     Our amended and restated certificate of incorporation provides that our stockholders may not take action by written consent, but may only take action at annual or special meetings of our stockholders . As a result, a holder controlling a majority of our capital stock would not be able to amend our amended and restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our amended and restated bylaws . Our amended and restated bylaws will further provide that special meetings of our stockholders may be called only by a majority of our board of directors, the Chair of our board of directors, our Chief Executive Officer or our President, therefore prohibiting a stockholder from calling a special meeting . These provisions might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors.

 

    Advance Notice Requirements for Stockholder Proposals and Director Nominations.     Our amended and restated bylaws will provide advance notice procedures for stockholders seeking to bring business before our annual meeting of stockholders or to nominate candidates for election as directors at our annual meeting of stockholders . Our amended and restated bylaws will also specify certain requirements regarding the form and content of a stockholder’s notice . These provisions might preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders if the proper procedures are not followed . We expect that these provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.

 

    No Cumulative Voting.     The Delaware General Corporation Law provides that stockholders are not entitled to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise . Our amended and restated certificate of incorporation does not provide for cumulative voting.

 

    Directors Removed Only for Cause.     Our amended and restated certificate of incorporation provides that stockholders may remove directors only for cause.

 

    Amendment of Charter Provisions.     Any amendment of the above provisions in our amended and restated certificate of incorporation would require approval by holders of at least seventy-five percent (75%) of our then outstanding common stock.

 

    Issuance of Undesignated Preferred Stock.     Our board of directors has the authority, without further action by the stockholders, to issue up to 10,000,000 shares of undesignated preferred stock with rights and preferences, including voting rights, designated from time to time by our board of directors that may be senior to our common stock. The existence of authorized but unissued shares of preferred stock would enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest, or other means.

 

   

Exclusive Jurisdiction for Certain Actions.     Our certificate of incorporation and bylaws, as amended and restated in connection with this offering, provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (A) any derivative action or proceeding brought on our behalf, (B) 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 stockholders, (C) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our certificate of incorporation or our bylaws, or (D) any action asserting a claim against us governed by the internal affairs doctrine. Although we believe this provision benefits us by

 

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providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers. The enforceability of similar exclusive forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could rule that this provision in our certificate of incorporation is inapplicable or unenforceable.

Transfer Agent and Registrar

Upon the closing of this offering, the transfer agent and registrar for our common stock will be             .

Listing

We intend to apply for the listing of our common stock on the New York Stock Exchange under the symbol “ZEN.”

 

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price at such time and our ability to raise equity capital in the future.

Following the closing of this offering, based on the number of shares of our capital stock outstanding as of December 31, 2013, we will have a total of                 shares of our common stock outstanding. Of these outstanding shares, all of the                 shares of common stock sold in this offering will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with the Rule 144 limitations described below.

The remaining outstanding shares of our common stock will be deemed “restricted securities” as defined in Rule 144. Restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below. In addition, all of our executive officers, directors, and holders of substantially all of our common stock and securities convertible into or exchangeable for our common stock have entered into market standoff agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell any of our stock for at least 180 days following the date of this prospectus. As a result of these agreements and the provisions of our investors’ rights agreement described above under the section titled “Description of Capital Stock—Registration Rights,” subject to the provisions of Rule 144 or Rule 701, based on an assumed offering date of December 31, 2013, shares will be available for sale in the public market as follows:

 

    beginning on the date of this prospectus, the shares of common stock sold in this offering will be immediately available for sale in the public market;

 

    beginning 181 days after the date of this prospectus, subject to extension as described in “Underwriting” below,                 additional shares of common stock will become eligible for sale in the public market, of which                 shares will be held by affiliates and subject to the volume and other restrictions of Rule 144, as described below; and

 

    the remainder of the shares of common stock will be eligible for sale in the public market from time to time thereafter, subject in some cases to the volume and other restrictions of Rule 144, as described below.

Lock-Up and Market Stand-Off Agreements

We, our executive officers, directors, and holders of substantially all of our common stock and securities convertible into or exchangeable for our common stock, have agreed or will agree that, subject to certain exceptions, for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of Goldman, Sachs & Co. and Morgan Stanley & Co. LLC, dispose of or hedge any shares or any securities convertible into or exchangeable for shares of our capital stock. Goldman, Sachs & Co. and Morgan Stanley & Co. LLC may, in their discretion, release any of the securities subject to these lock-up agreements at any time. There are no contractually

 

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specified conditions for the waiver of lock-up restrictions and any waiver is at the discretion of Goldman, Sachs & Co. and Morgan Stanley & Co. LLC. When determining whether or not to release shares from these lock-up agreements, Goldman, Sachs & Co. and Morgan Stanley & Co. LLC may consider, among other factors, the reasons given by us or the securityholder, as applicable, for requesting the release, the number of shares for which the release is being requested and market conditions at such time.

In addition to the restrictions contained in the lock-up agreements described above, we have entered into agreements with stockholders, including our investors’ rights agreement and our standard form of stock option agreement, that contain certain market stand-off provisions imposing restrictions on the ability of such stockholders to offer, sell, or transfer our equity securities for a period of 180 days following the date of this prospectus.

Rule 144

In general, under Rule 144 as currently in effect, once we have been subject to the public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. 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 our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.

In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period, a number of shares that does not exceed the greater of:

 

    1% of the number of shares of our common stock then outstanding, which will equal approximately                 shares immediately after this offering; or

 

    the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701

Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701.

 

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Registration Rights

Pursuant to our investors’ rights agreement, the holders of up to 68,646,185 shares of our common stock (including shares issuable upon the conversion of our outstanding redeemable convertible preferred stock upon the completion of this offering), or their transferees, will be entitled to certain rights with respect to the registration of the offer and sale of those shares under the Securities Act. See the section titled “Description of Capital Stock—Registration Rights” for a description of these registration rights. If the offer and sale of these shares is registered, the shares will be freely tradable without restriction under the Securities Act, and a large number of shares may be sold into the public market.

Registration Statement on Form S-8

We intend to file a registration statement on Form S-8 under the Securities Act to register all of the shares of common stock issued or reserved for issuance under our 2009 Stock Option and Grant Plan, our 2014 Plan and our ESPP. We expect to file this registration statement as promptly as possible after the closing of this offering. Shares covered by this registration statement will be eligible for sale in the public market, subject to the Rule 144 limitations applicable to affiliates, vesting restrictions and any applicable lock-up agreements and market standoff agreements.

Stock Options and RSUs

As of December 31, 2013, RSUs covering 1,621,679 shares of our common stock and options to purchase a total of 20,267,882 shares of common stock, each pursuant to our 2009 Stock Option and Grant Plan were outstanding, of which RSUs covering 197,778 shares have met the service condition and options to purchase 8,540,702 shares were vested and exercisable. As of December 31, 2013, no RSUs or options were outstanding or exercisable under our 2014 Plan. We intend to file a registration statement on Form S-8 under the Securities Act as promptly as possible after the closing of this offering to register shares that may be issued pursuant to our 2009 Stock Option and Grant Plan and our 2014 Plan. The registration statement on Form S-8 is expected to become effective immediately upon filing, and shares covered by the registration statement will then become eligible for sale in the public market, subject to the Rule 144 limitations applicable to affiliates, vesting restrictions and any applicable lock-up agreements and market standoff agreements. See the section titled “Executive Compensation—Employee Benefit and Stock Plans” for a description of our equity incentive plans.

Warrant

As of December 31, 2013, we had an outstanding warrant to purchase up to 250,000 shares of our common stock, with an exercise price of $0.96 per share, which will remain outstanding after the completion of this offering. This warrant is exercisable at any time on or before June 11, 2019.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS OF OUR COMMON STOCK

The following is a summary of certain material U.S. federal income tax considerations relating to the acquisition, ownership and disposition of common stock pursuant to this offering. This summary deals only with common stock held as a capital asset (within the meaning of Section 1221 of the Code) by a holder and does not discuss the U.S. federal income tax considerations applicable to a holder that is subject to special treatment under U.S. federal income tax laws, including, but not limited to: a dealer in securities or currencies; a financial institution; a regulated investment company; a real estate investment trust; a tax-exempt organization; an insurance company; a person holding common stock as part of a hedging, integrated, conversion or straddle transaction or a person deemed to sell common stock under the constructive sale provisions of the Code; a trader in securities that has elected the mark-to-market method of accounting; a person liable for alternative minimum tax; an entity that is treated as a partnership for U.S. federal income tax purposes; a person that received such common stock in connection with services provided; a U.S. person whose “functional currency” is not the U.S. dollar; a “controlled foreign corporation”; a “passive foreign investment company”; or a U.S. expatriate.

This summary is based upon provisions of the Code, applicable U.S. Treasury regulations promulgated thereunder, published rulings and judicial decisions, all as in effect as of the date hereof. Those authorities may be changed, perhaps retroactively, or may be subject to differing interpretations, which could result in U.S. federal income tax consequences different from those discussed below. This summary does not address all aspects of U.S. federal income tax, does not deal with all tax considerations that may be relevant to stockholders in light of their personal circumstances and does not address the Medicare tax imposed on certain investment income or any state, local, foreign, gift, estate or alternative minimum tax considerations.

For purposes of this discussion, a “U.S. holder” is a beneficial holder of common stock that is: an individual citizen or resident of the United States; a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; an estate the income of which is subject to U.S. federal income taxation regardless of its source; or a trust if it (A) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (B) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

For purposes of this discussion a “non-U.S. holder” is a beneficial holder of common stock that is neither a U.S. holder nor a partnership (or any other entity or arrangement that is treated as a partnership) for U.S. federal income tax purposes. However, neither the term U.S. holder nor the term non-U.S. holder includes any entity or other person that is subject to special treatment under the Code. If a partnership (or an entity or arrangement that is treated as a partnership for U.S. federal income tax purposes) holds common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. A partner of a partnership holding common stock is urged to consult its own tax advisors.

PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THEIR PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR SPECIFIC SITUATIONS, AS WELL AS THE TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR NON-U.S. TAX LAWS AND ANY OTHER U.S. FEDERAL TAX LAWS (INCLUDING THE U.S. FEDERAL ESTATE AND GIFT TAX LAWS).

 

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Distributions on our Common Stock

Distributions with respect to common stock, if any, generally will constitute dividends for U.S. federal income tax purposes to the extent paid out of current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Any portion of a distribution in excess of current or accumulated earnings and profits will be treated as a return of capital and will first be applied to reduce the holder’s tax basis in its common stock, but not below zero. Any remaining amount will then be treated as gain from the sale or exchange of the common stock and will be treated as described under the section entitled “—Disposition of our Common Stock” below.

Distributions treated as dividends that are paid to a non-U.S. holder, if any, with respect to shares of our common stock will be subject to U.S. federal withholding tax at a rate of 30% (or lower applicable income tax treaty rate) of the gross amount of the dividends unless the dividends are effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States. If a non-U.S. holder is engaged in a trade or business in the United States and dividends with respect to the common stock are effectively connected with the conduct of that trade or business and, if required by an applicable income tax treaty, are attributable to a U.S. permanent establishment, then although the non-U.S. holder will generally be exempt from the 30% U.S. federal withholding tax, provided certain certification requirements are satisfied, the non-U.S. holder will be subject to U.S. federal income tax on those dividends on a net income basis at regular graduated U.S. federal income tax rates in the same manner as if such holder were a resident of the United States. Any such effectively connected income received by a foreign corporation may, under certain circumstances, be subject to an additional branch profits tax equal to 30% (or lower applicable income tax treaty rate) of its effectively connected earnings and profits for the taxable year, as adjusted under the Code. To claim the exemption from withholding with respect to any such effectively connected income, the non-U.S. holder must generally furnish to us or our paying agent a properly executed IRS Form W-8ECI (or applicable successor form). A non-U.S. holder of shares of common stock who wishes to claim the benefit of an exemption or reduced rate of withholding tax under an applicable treaty must furnish to us or our paying agent a valid IRS Form W-8BEN (or applicable successor form) certifying such holder’s qualification for the exemption or reduced rate. If a non-U.S. holder is eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty, it may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the Internal Revenue Service. Non-U.S. holders are urged to consult their tax advisors regarding their entitlement to benefits under a relevant income tax treaty.

Disposition of our Common Stock

Non-U.S. holders may recognize gain upon the sale, exchange, redemption or other taxable disposition of common stock. Such gain generally will not be subject to U.S. federal income tax unless: (A) that gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment maintained by the non-U.S. holder); (B) the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met; or (C) we are or have been a “U.S. real property holding corporation” for U.S. federal income tax purposes at any time during the shorter of the five-year period preceding the date of disposition or the holder’s holding period for our common stock, and certain other requirements are met. We believe that we are not and we do not anticipate becoming a “U.S. real property holding corporation” for U.S. federal income tax purposes.

If a non-U.S. holder is an individual described in clause (A) of the preceding paragraph, the non-U.S. holder will generally be subject to tax on a net income basis at the regular graduated U.S. federal individual income tax rates in the same manner as if such holder were a resident of the United States, unless an applicable income tax treaty provides otherwise. If the non-U.S. holder is an individual

 

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described in clause (B) of the preceding paragraph, the non-U.S. holder will generally be subject to a flat 30% tax on the gain, which may be offset by U.S. source capital losses even though the non-U.S. holder is not considered a resident of the United States, provided that the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses. If a non-U.S. holder is a foreign corporation that falls under clause (A) of the preceding paragraph, it will be subject to tax on a net income basis at the regular graduated U.S. federal corporate income tax rates in the same manner as if it were a resident of the United States and, in addition, the non-U.S. holder may be subject to the branch profits tax at a rate equal to 30% (or lower applicable income tax treaty rate) of its effectively connected earnings and profits.

Information Reporting and Backup Withholding Tax

We report to our non-U.S. holders and the IRS the amount of dividends paid during each calendar year and the amount of any tax withheld. All distributions to holders of common stock are subject to any applicable withholding. Information reporting requirements apply even if no withholding was required because the distributions were effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business or withholding was reduced or eliminated by an applicable income tax treaty. This information also may be made available under a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established. Under U.S. federal income tax law, interest, dividends and other reportable payments may, under certain circumstances, be subject to “backup withholding” at the then applicable rate. Backup withholding, however, generally will not apply to distributions on our common stock to a non-U.S. holder, provided the non-U.S. holder furnishes to us or our paying agent the required certification as to its non-U.S. status, such as by providing a valid IRS Form W-8BEN or IRS Form W-8ECI, or certain other requirements are met. Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a U.S. person that is not an exempt recipient. Backup withholding is not an additional tax but merely an advance payment, which may be refunded to the extent it results in an overpayment of tax and the appropriate information is timely supplied to the IRS.

 

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Foreign Account Tax Compliance Act

New rules in the Code may impose withholding taxes on certain types of payments made to “foreign financial institutions” (as specially defined under these rules) and certain other non-U.S. entities if certification, information reporting and other specified requirements are not met. The legislation potentially imposes a 30% withholding tax on “withholdable payments” if they are paid to a foreign financial institution or to a foreign non-financial entity, unless (A) the foreign financial institution undertakes certain diligence and reporting obligations and other specified requirements are satisfied or (B) the foreign non-financial entity either certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner and other specified requirements are satisfied. “Withholdable payment” generally means (A) any payment of interest, dividends, rents and certain other types of generally passive income if such payment is from sources within the United States, and (B) any gross proceeds from the sale or other disposition of any property of a type that can produce interest or dividends from sources within the United States (including, for example, stock and debt of U.S. corporations). If the payee is a foreign financial institution, it must enter into an agreement with the U.S. Treasury requiring, among other things, that it undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts and withhold 30% on payments to account holders whose actions prevent it from complying with these reporting and other requirements. If an investor does not provide us with the information necessary to comply with the legislation, it is possible that distributions to such investor that are attributable to withholdable payments, such as dividends, will be subject to the 30% withholding tax. Withholding on certain passive income, such as dividends and interest, will is currently scheduled to begin July 1, 2014. The IRS has issued guidance indicating that withholding with respect to all other withholdable payments will be required after December 31, 2016. Prospective investors should consult their own tax advisers regarding this legislation.

 

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UNDERWRITING

We and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, the underwriters have severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co. and Morgan Stanley & Co. LLC are the representatives of the underwriters.

 

Underwriters

   Number of Shares

Goldman, Sachs & Co.

  

Morgan Stanley & Co. LLC

  

Credit Suisse Securities (USA) LLC

  

Pacific Crest Securities LLC

  

Canaccord Genuity Inc.

  
  

 

Total

  
  

 

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. They may exercise that option for 30 days. 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              additional shares.

 

     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 our common stock, have agreed 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 the representatives. This agreement does not apply to any existing employee benefit plans. See “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 the business potential and earnings prospects of our company, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.

 

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An application has been made to list the common stock on the New York Stock Exchange under the symbol “ZEN”. In order to meet one of the requirements for listing the common stock on the NYSE, the underwriters have undertaken to sell lots of 100 or more shares to a minimum of 400 beneficial holders.

In connection with the offering, the underwriters may purchase and sell shares of 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 our common 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 the New York Stock Exchange, in the over-the-counter market or otherwise.

The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.

We estimate that our share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $            . We have agreed to reimburse the underwriters for certain FINRA-related and other expenses incurred by them in connection with this offering in an amount up to $            .

We have 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,

 

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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.

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 trade 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.

European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not make an offer of shares to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time:

 

  (A) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

 

  (B) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43.0 million and (3) an annual net turnover of more than 50.0 million, as shown in its last annual or consolidated accounts;

 

  (C) to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such offer; or

 

  (D) in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of shares to the public” in relation to any shares 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 the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

 

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United Kingdom

Each underwriter has represented and agreed that:

 

  (A) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and

 

  (B) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.

Hong Kong

The shares may not be offered or sold by means of any document other than (A) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (B) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (C) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares 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 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” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) 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 shares may not be circulated or distributed, nor may the shares 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 (A) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (B) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA, or (C) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (A) a corporation (which is not an accredited investor) 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; or (B) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.

 

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Japan

The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations, and ministerial guidelines of Japan.

 

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LEGAL MATTERS

The validity of the shares of common stock offered by this prospectus will be passed upon for us by Goodwin Procter LLP, Menlo Park, California. The underwriters have been represented by Cooley LLP, San Francisco, California.

CHANGE IN ACCOUNTANTS

Our independent auditors were previously Deloitte & Touche LLP and management informed Deloitte & Touche LLP of our decision to dismiss them as our independent auditors on August 22, 2013. The decision to dismiss Deloitte & Touche LLP was approved by each of our independent directors on August 23, 2013 and ratified by our board of directors on October 22, 2013. Deloitte & Touche LLP previously audited our consolidated financial statements as of December 31, 2012 and for the year then ended. Deloitte & Touche LLP’s previously issued audit opinion with respect to our consolidated financial statements for the year ended December 31, 2012 is not included in the registration statement of which this prospectus is a part and should no longer be deemed associated with our consolidated financial statements for the year ended December 31, 2012. Deloitte & Touche LLP has not consented to the inclusion of, or reliance upon, such audit report in the registration statement of which this prospectus is a part. Deloitte & Touche LLP did not perform any audit or issue any audit reports on our consolidated financial statements for any financial reporting period subsequent to the year ended December 31, 2012.

The reports of Deloitte & Touche LLP on our consolidated financial statements did not contain any adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope, or accounting principles. We had no disagreements with Deloitte & Touche LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to its satisfaction, would have caused Deloitte & Touche LLP to make reference in connection with its opinion to the subject matter of the disagreement during its audit of the year ended December 31, 2012 or the subsequent interim period through August 22, 2013. During the two most recent fiscal years preceding our discharge of Deloitte & Touche LLP, and the subsequent interim period through August 22, 2013, there were no “reportable events” as such term is defined in Item 304(a)(1)(v) of Regulation S-K.

On August 23, 2013, management and each of our independent directors authorized the appointment of Ernst & Young LLP as our independent registered public accounting firm. The decision to appoint Ernst & Young LLP was ratified by our board of directors on October 22, 2013. During the year ended December 31, 2012 and through the interim period ended August 23, 2013, we did not consult with Ernst & Young LLP on matters that involved the application of accounting principles to a specified transaction, either completed or proposed, the type of audit opinion that might be rendered on our financial statements or any other matter that was the subject of a disagreement as that term is used in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K or a reportable event as that term is used in Item 304(a)(1)(v) and the related instructions to Item 304 of Regulation S-K.

EXPERTS

Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements at December 31, 2012 and 2013 and for each of the two years in the period ended December 31, 2013, as set forth in their report. We’ve included our financial statements in the

prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.

 

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ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some of which is contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our common stock, we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document is not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. Each statement is this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. You may obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. You may obtain information on the operation of the public reference rooms by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov .

As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act, and, in accordance with this law, will 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 facilities and the website of the SEC referred to above. We also maintain a website at www.zendesk.com . Upon the completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.

 

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ZENDESK, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page  

Report of Ernst & Young, LLP, Independent Registered Public Accounting Firm

     F-2   

Consolidated Balance Sheets

     F-3   

Consolidated Statements of Operations

     F-4   

Consolidated Statements of Comprehensive Loss

     F-5   

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit

     F-6   

Consolidated Statements of Cash Flows

     F-7   

Notes to Consolidated Financial Statements

     F-8   

 

F-1


Table of Contents

Report of Ernst & Young, LLP, Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Zendesk, Inc.

We have audited the accompanying consolidated balance sheets of Zendesk, Inc. as of December 31, 2012 and 2013, and the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Zendesk, Inc. at December 31, 2012 and 2013, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Redwood City, CA

February 14, 2014

 

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Table of Contents

ZENDESK, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and shares)

 

     As of
December 31,
    Pro Forma
Stockholders’
Equity

2013
 
     2012     2013    
                 (Unaudited)  

Assets

      

Current Assets:

      

Cash and cash equivalents

   $ 48,688      $ 53,725     

Marketable securities

            9,889     

Accounts receivable, net of allowance for doubtful accounts of $173 and $282 as of December 31, 2012 and 2013, respectively

     3,752        7,237     

Prepaid expenses and other current assets

     2,221        3,008     
  

 

 

   

 

 

   

Total current assets

     54,661        73,859     

Marketable securities, noncurrent

            2,225     

Property and equipment, net

     8,472        15,431     

Other assets

     925        1,221     
  

 

 

   

 

 

   

Total assets

   $ 64,058      $ 92,736     
  

 

 

   

 

 

   

Liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit)

      

Current liabilities:

      

Accounts payable

   $ 1,025      $ 3,988     

Accrued liabilities

     2,671        4,737     

Accrued compensation and related benefits

     2,575        4,226     

Deferred revenue

     14,529        28,473     

Current portion of credit facility

            365     

Current portion of capital leases

     337        364     
  

 

 

   

 

 

   

Total current liabilities

     21,137        42,153     

Deferred revenue, noncurrent

     601        575     

Credit facility, noncurrent

            23,395     

Capital leases, noncurrent

     374        10     

Other liabilities

     831        1,510     
  

 

 

   

 

 

   

Total liabilities

     22,943        67,643     
  

 

 

   

 

 

   

Commitments and contingencies (Note 6)

      

Redeemable convertible preferred stock:

      

Redeemable convertible preferred stock, Series A, $0.01 par value; 4,786,463 shares authorized, issued, and outstanding (aggregate liquidation value of $1,550) as of December 31, 2012 and 2013; no shares issued or outstanding, pro forma (unaudited)

     1,533        1,537      $   

Redeemable convertible preferred stock, Series B, $0.01 par value; 6,843,299 shares authorized, issued, and outstanding (aggregate liquidation value of $6,000) as of December 31, 2012 and 2013; no shares issued or outstanding, pro forma (unaudited)

     5,971        5,977          

Redeemable convertible preferred stock, Series C, $0.01 par value; 3,386,279 shares authorized, issued, and outstanding (aggregate liquidation value of $19,000) as of December 31, 2012 and 2013; no shares issued or outstanding, pro forma (unaudited)

     18,923        18,939          

Redeemable convertible preferred stock, Series D, $0.01 par value; 9,000,000 shares authorized; 8,582,021 issued and outstanding (aggregate liquidation value of $45,000) as of December 31, 2012 and 2013; no shares issued or outstanding, pro forma (unaudited)

     44,893        44,916          
  

 

 

   

 

 

   

 

 

 

Total redeemable convertible preferred stock

     71,320        71,369          
  

 

 

   

 

 

   

 

 

 

Stockholders’ equity (deficit):

      

Common stock, $0.01 par value; 200,000,000 and 220,000,000 shares authorized as of December 31, 2012 and 2013; 45,941,426 and 46,885,663 shares issued as of December 31, 2012 and 2013, 45,406,749 and 46,350,986 shares outstanding as of December 31, 2012 and 2013 (including 4,038,510 and 1,568,178 shares, subject to repurchase, legally issued and outstanding as of December 31, 2012 and 2013); 115,729,626 shares issued and 115,194,949 shares outstanding as of December 31, 2013, pro forma (unaudited)

     419        453        1,139   

Additional paid-in capital

     11,911        18,367        90,859   

Accumulated other comprehensive income

            10        10   

Accumulated deficit

     (41,883     (64,454     (66,263

Treasury stock at cost; 534,677 shares as of December 31, 2012, 2013, and pro forma (unaudited)

     (652     (652     (652
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (30,205     (46,276   $ 25,093   
  

 

 

   

 

 

   

 

 

 

Total liabilities, redeemable convertible preferred stock, and stockholders’ equity (deficit )

   $ 64,058      $ 92,736     
  

 

 

   

 

 

   

See Notes to Consolidated Financial Statements.

 

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ZENDESK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

     Year Ended December 31,  
           2012                 2013        

Revenue

   $ 38,228      $ 72,045   

Cost of revenue (1)

     13,253        24,531   
  

 

 

   

 

 

 

Gross profit

     24,975        47,514   

Operating expenses: (1)

    

Research and development

     14,816        15,288   

Sales and marketing

     22,749        37,622   

General and administrative

     11,558        16,437   
  

 

 

   

 

 

 

Total operating expenses

     49,123        69,347   
  

 

 

   

 

 

 

Operating loss

     (24,148     (21,833

Other expense, net

     (96     (517
  

 

 

   

 

 

 

Loss before provision for income taxes

     (24,244     (22,350

Provision for income taxes

     121        221   
  

 

 

   

 

 

 

Net loss

     (24,365     (22,571

Accretion of redeemable convertible preferred stock

     (50     (49

Deemed dividend to investors in relation to tender offer

     (8,326       
  

 

 

   

 

 

 

Net loss attributable to common stockholders, basic and diluted

   $ (32,741   $ (22,620
  

 

 

   

 

 

 

Net loss per share attributable to common stockholders

   $ (0.83   $ (0.52
  

 

 

   

 

 

 

Weighted-average shares used to compute net loss per share attributable to common stockholders

     39,258        43,349   
  

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders, basic and diluted (unaudited)

     $ (0.20
    

 

 

 

Weighted-average shares used to compute pro forma net loss per share attributable to common stockholders (unaudited)

       112,050   
    

 

 

 

 

(1) Includes share-based compensation expense as follows:

 

     Year Ended December 31,  
         2012              2013      

Cost of revenue

   $ 129       $ 254   

Research and development

     4,117         635   

Sales and marketing

     1,313         1,210   

General and administrative

     4,081         2,755   

See Notes to Consolidated Financial Statements.

 

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ZENDESK, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

 

     Year Ended December 31,  
           2012                 2013        

Net loss

   $ (24,365   $ (22,571

Other comprehensive income (loss), net of tax:

    

Net change in unrealized gain on available-for-sale investments

            10   

Foreign currency translation adjustments

     (40       
  

 

 

   

 

 

 

Comprehensive loss

   $ (24,405   $ (22,561
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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ZENDESK, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(In thousands, except shares)

 

                Stockholders’ Deficit  
    Redeemable
Convertible

Preferred Stock
    Common Stock     Additional
Paid-In
Capital
    Treasury Stock     Accumulated
Other
Comprehensive
Income (Loss)
    Accumulated
Deficit
    Total
Stockholders’
Deficit
 
    Shares     Amount     Shares     Amount       Shares     Amount        

Balances as of December 31, 2011

    15,016,041      $ 26,385        43,458,037      $ 368      $ 1,168        (534,677   $ (652   $ 40      $ (17,518   $ (16,594

Issuance of Series D redeemable convertible preferred stock, net of issuance costs of $115

    8,582,021        44,885                                                           

Issuance of common stock upon exercise of stock options

                  1,436,131        14        200                                    214   

Issuance of common stock upon early exercise of stock options

                  1,057,258                                                    

Vesting of early exercised stock options

                         37        686                                    723   

Repurchase of common stock

                  (10,000                                                 

Issuance of common stock warrant in connection with credit facility

                                182                                    182   

Share-based compensation

                                9,725                                    9,725   

Accretion of redeemable convertible preferred stock

           50                      (50                                 (50

Foreign currency translation adjustment

                                                     (40            (40

Net loss

                                                            (24,365     (24,365
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of December 31, 2012

    23,598,062        71,320        45,941,426        419        11,911        (534,677     (652            (41,883     (30,205

Issuance of common stock upon exercise of stock options

                  1,529,783        15        666                                    681   

Issuance of common stock upon early exercise of stock options

                  327,318                                                    

Vesting of early exercised stock options

                         19        842                                    861   

Repurchase of common stock

                  (912,864                                                 

Share-based compensation

                                4,997                                    4,997   

Accretion of redeemable convertible preferred stock

           49                      (49                                 (49

Unrealized gain on investments

                                                     10               10   

Net loss

                                                            (22,571     (22,571
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances as of December 31, 2013

    23,598,062      $ 71,369        46,885,663      $ 453      $ 18,367        (534,677   $ (652   $ 10      $ (64,454   $ (46,276
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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ZENDESK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

     Year Ended December 31,  
           2012                 2013        

Cash flows from operating activities

    

Net loss

   $ (24,365   $ (22,571

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

    

Depreciation and amortization

     2,506        5,222   

Provision for doubtful accounts

     123        109   

Share-based compensation

     9,640        4,854   

Loss from disposal of property and equipment

            70   

Changes in operating assets and liabilities:

    

Accounts receivable

     (1,404     (3,594

Prepaid expenses and other current assets

     (1,571     (482

Other assets and liabilities

     (383     303   

Accounts payable

     704        2,712   

Accrued liabilities

     401        1,813   

Accrued compensation and related benefits

     1,583        1,651   

Deferred revenue

     7,670        13,918   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (5,096     4,005   
  

 

 

   

 

 

 

Cash flows from investing activities

    

Purchases of property and equipment

     (3,582     (7,116

Internal-use software development costs

     (3,505     (4,661

Purchases of marketable securities

            (12,409

Increase to restricted cash

     (32       
  

 

 

   

 

 

 

Net cash used in investing activities

     (7,119     (24,186
  

 

 

   

 

 

 

Cash flows from financing activities

    

Issuance of Series D redeemable convertible preferred stock, net of issuance costs

     44,885          

Proceeds from exercise of employee stock options

     2,125        1,793   

Proceeds from issuance of debt

            23,760   

Principal payments on capital lease obligations

     (305     (337
  

 

 

   

 

 

 

Net cash provided by financing activities

     46,705        25,216   
  

 

 

   

 

 

 

Effect of exchange rate changes on cash and cash equivalents

     (40     2   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     34,450        5,037   

Cash and cash equivalents at the beginning of period

     14,238        48,688   
  

 

 

   

 

 

 

Cash and cash equivalents at the end of period

   $ 48,688      $ 53,725   
  

 

 

   

 

 

 

Supplemental cash flow data:

    

Cash paid for interest and taxes

   $ 71      $ 171   
  

 

 

   

 

 

 

Non-cash investing and financing activities:

    

Deemed dividends on common stock

   $ 8,326      $   
  

 

 

   

 

 

 

Vesting of early exercised stock options

   $ 62      $ 860   
  

 

 

   

 

 

 

Purchases of property and equipment in accrued expenses

   $      $ 251   
  

 

 

   

 

 

 

Issuance of warrant in connection with credit facility

   $ 182      $   
  

 

 

   

 

 

 

Property and equipment acquired under capital leases

   $ 123      $   
  

 

 

   

 

 

 

Share-based compensation capitalized in development costs

   $ 85      $ 143   
  

 

 

   

 

 

 

Accretion of redeemable convertible preferred stock issuance costs

   $ 50      $ 49   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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Table of Contents

ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

Note 1. Organization

Zendesk was founded in Denmark in 2007 and reincorporated in Delaware in April 2009.

Our mission is to help organizations build successful long-term relationships with their customers. We are a software development company that provides a software-as-a-service, or SaaS, customer service platform. Our beautifully simple platform helps organizations engage with people in new ways that foster long-term customer loyalty and satisfaction. We empower organizations to better answer customers’ questions, and to solve their problems through the channels that people use every day when seeking help, such as email, chat, voice, social media and websites. Our customer service platform also helps people find answers on their own through knowledge bases and communities, capitalizing on the increasing customer preference for self-service. Our customer engagement capabilities allow organizations to proactively serve their customers, reaching out to those who may need help and soliciting feedback about their experience. The openness of our customer service platform makes it easy for organizations to integrate with their other applications. Our customer service platform consolidates the data from customer interactions and provides organizations with powerful analytics and performance benchmarking.

References to Zendesk or “we” in these notes refer to Zendesk, Inc. and its subsidiaries on a consolidated basis.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or GAAP. The consolidated financial statements include the accounts of Zendesk, Inc. and its subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

Stock Split

In April 2012, our board of directors approved a 2-for-1 stock split of Series A common stock and Series B common stock. All share and per share information referenced throughout the consolidated financial statements and notes to the consolidated financial statements have been retroactively adjusted to reflect this stock split.

Immaterial Error Correction

The statement of redeemable convertible preferred stock and stockholders’ deficit reflects a correction for an immaterial error in the presentation of other liabilities and accumulated deficit of $0.5 million as of January 1, 2012. The adjustment did not affect any other financial statements presented.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

statements, as well as the reported amounts of revenue and expenses during the reported periods. Significant items subject to such estimates and assumptions include the fair value of our common stock and share-based awards and the capitalization and estimated useful life of our capitalized internal-use software.

These estimates are based on information available as of the date of the financial statements; therefore, actual results could differ from those estimates.

Unaudited Pro Forma Stockholders’ Equity and Net Loss Per Share Attributable to Common Stockholders

Upon the completion of the initial public offering contemplated by this registration statement, all of the outstanding shares of our redeemable convertible preferred stock will automatically convert into 68,646,185 shares of common stock, based on the shares of the redeemable convertible preferred stock outstanding at December 31, 2013. In addition, all outstanding shares of our Series B common stock will convert on a one-for-one basis into shares of our Series A common stock. The unaudited pro forma stockholders’ equity as of December 31, 2013 has been computed to give effect to the automatic conversion of the redeemable convertible preferred stock (using the if-converted method) into common stock and Series B common stock into Series A common stock, as though the conversion had occurred on the original date of issuance. References to common stock herein refer to Series A common stock after giving effect to such conversion.

The unaudited pro forma stockholders’ equity also gives effect to approximately $1.8 million of share-based compensation expense associated with share-based awards with both service and performance conditions, net of estimated forfeitures, which we expect to record upon the completion of our initial public offering. This amount relates to share-based awards for which both the service condition was satisfied as of December 31, 2013, and the performance condition would have been satisfied as of December 31, 2013, assuming the completion of an initial public offering as of that day. Refer to the Share-Based Compensation Expense section of this note for further details. This pro forma adjustment related to share-based compensation expense has been reflected as an increase to additional paid-in capital and accumulated deficit. The service condition had been satisfied with respect to approximately 198,000 shares of these awards as of December 31, 2013 and the shares of common stock underlying these awards have been included in the pro forma stockholders’ equity disclosure of shares outstanding. Payroll tax expenses and other withholding obligations have not been included in the pro forma adjustments. The holders of certain of these awards will incur taxable income based upon the value of the shares on the date they are settled and we are required to withhold taxes on such value at applicable minimum statutory rates. We currently expect that the average of these withholding rates will be approximately 40%. We are unable to quantify these obligations as of December 31, 2013 and will remain unable to quantify this amount until the settlement of these awards as the withholding obligations will be based on the value of the shares at the time of settlement upon the completion of this offering.

Segment Information

Our chief operating decision maker reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating our financial performance. Accordingly, we have determined that we operate in a single reporting segment.

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

Revenue Recognition

We generate substantially all of our revenue from subscription services, which are comprised of subscription fees from customer accounts on our customer service platform. Arrangements with customers do not provide the customer with the right to take possession of the software supporting our customer service platform at any time, therefore are accounted for as service contracts. Subscription service arrangements are generally non-cancelable and do not provide for refunds to customers in the event of cancellations or any other right of return. We record revenue net of sales or excise taxes.

We commence revenue recognition when all of the following conditions are met:

 

    There is persuasive evidence of an arrangement;

 

    The service has been or is being provided to the customer;

 

    The collection of the fees is reasonably assured; and

 

    The amount of fees to be paid by the customer is fixed or determinable.

Subscription revenue is recognized on a straight-line basis over the contractual term of the arrangement beginning on the date that our service is made available to the customer. Payments received in advance of services being rendered are recorded as deferred revenue and recognized on a straight-line basis over the requisite service period.

We derive an immaterial amount of revenue from implementation, voice, and training services, for which we recognize revenue upon completion.

Deferred Revenue

Deferred revenue consists primarily of customer billings in advance of revenue being recognized. We invoice customers for subscriptions to our customer service platform in monthly, quarterly, or annual installments. Deferred revenue that is anticipated to be recognized during the succeeding 12-month period is recorded as current deferred revenue and the remaining portion is recorded as noncurrent deferred revenue. Deferred revenue associated with services was immaterial as of December 31, 2012 and 2013.

Cost of Revenue

Cost of revenue consists primarily of personnel costs (including salaries, benefits, and share-based compensation) for employees associated with our customer service platform infrastructure and our product support organizations, data center costs related to hosting our customer service platform, depreciation expense associated with the equipment purchased for our self-managed colocation data centers, amortization expense associated with capitalized internal-use software, payment processing fees, and allocated shared costs.

Cash, Cash Equivalents, and Restricted Cash

We consider all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. Cash and cash equivalents are recorded at fair value and consist primarily of bank deposits and money market funds.

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

Restricted cash of $153,000 as of December 31, 2012 and 2013 consists of a certificate of deposit pledged as collateral on credit cards and is recorded within other assets in the accompanying consolidated balance sheets.

Marketable Securities

Marketable securities consist of corporate bonds. We classify marketable securities as available-for-sale at the time of purchase and reevaluate such classification as of each balance sheet date. All marketable securities are recorded at their estimated fair value. Unrealized gains and losses for available-for-sale securities are recorded in other comprehensive loss. We evaluate our investments to assess whether those with unrealized loss positions are other than temporarily impaired. Impairments are considered other than temporary if they are related to deterioration in credit risk or if it is likely we will sell the securities before the recovery of their cost basis. Realized gains and losses and declines in value determined to be other than temporary are determined based on the specific identification method and are reported in other expense, net in the consolidated statements of operations.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount, net of allowance for doubtful accounts. The allowance is based upon historical loss patterns, the number of days that billings are past due, and an evaluation of the potential risk of loss associated with delinquent accounts. Accounts receivable deemed uncollectable are charged against the allowance for doubtful accounts when identified.

The allowance for doubtful accounts consists of the following activity (in thousands):

 

     Year Ended December 31,  
         2012             2013      

Allowance for doubtful accounts, beginning balance

   $ 50      $ 173   

Additions

     145        301   

Write-offs

     (22     (192
  

 

 

   

 

 

 

Allowance for doubtful accounts, ending balance

   $ 173      $ 282   
  

 

 

   

 

 

 

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of assets. Maintenance and repair costs are charged to expense as incurred. The estimated useful lives of our property and equipment are as follows:

 

Furniture and fixtures    5 years
Hosting equipment    3 years
Computer equipment and software    3 years
Leasehold improvements    Shorter of the lease term or estimated useful life

Depreciation expense of assets acquired through capital leases is included in depreciation and amortization expense in the accompanying consolidated statements of operations.

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

We periodically review property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset is impaired or the estimated useful lives are no longer appropriate. If indicators of impairment exist and the undiscounted projected cash flows associated with such assets are less than the carrying amount of the assets, an impairment loss is recorded to write the assets down to their estimated fair values. Fair value is estimated based on discounted future cash flows. No impairment charges were recorded during the years ended December 31, 2012 and 2013.

Fair Value Measurements

We measure certain financial assets at fair value using a fair value hierarchy. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs that are supported by little or no market activity.

Our marketable securities are classified in either Level 1 or Level 2 and we have no financial assets or liabilities measured using Level 3 inputs. The fair value of our Level 1 financial assets is based on quoted market prices of the identical underlying security. The fair value of our Level 2 financial assets is based on inputs that are directly or indirectly observable in the market, including the readily available pricing sources for the identical underlying securities that may not be actively traded.

For certain other financial instruments, including accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these balances. Based on borrowing rates available to us for loans with similar terms and maturities, the carrying value of borrowings approximates fair value or Level 2 within the fair value hierarchy.

Capitalized Internal-Use Software Costs

We capitalize certain development costs incurred in connection with software development for our customer service platform and software used in operations. Costs incurred in the preliminary stages of development are expensed as incurred. Once software has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing. We also capitalize costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized costs are recorded as part of property and equipment. Maintenance and training costs are expensed as incurred.

Capitalized internal-use software is amortized on a straight-line basis over its estimated useful life and recorded in cost of revenue within the accompanying consolidated statements of operations. The weighted-average useful life of our capitalized internal-use software was 3.4 years as of December 31, 2013. We evaluate the useful lives of these assets and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. There were no impairments to internal-use software during the years ended December 31, 2012 and 2013.

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

Advertising Expense

Advertising is expensed as incurred. For the years ended December 31, 2012 and 2013, advertising expense was $3.5 million and $6.5 million, respectively.

Share-Based Compensation Expense

Share-based compensation expense to employees is measured based on the fair value of the awards on the grant date and recognized in our consolidated statements of operations over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). We estimate the fair value of stock options granted using the Black-Scholes option valuation model. We measure the fair value of restricted stock units, or RSUs, based on the fair value of the underlying shares on the date of grant. Compensation expense for awards with only service conditions is recognized over the vesting period of the applicable award using the straight-line method.

In 2013, we granted 1.6 million RSUs and 49,000 stock options to employees with both a service and a performance condition. The service condition for substantially all of these awards is satisfied over four years. The performance condition is satisfied upon the occurrence of a qualifying liquidity event (change in control or the completion of an initial public offering). The RSUs for which the service condition has been satisfied are not forfeited upon termination of employment provided the termination is within three years of the performance condition being satisfied. These RSUs and stock options with both a service condition and performance condition are collectively referred to as “Performance Awards” in the following discussion.

As of December 31, 2013, no share-based compensation expense had been recognized for the Performance Awards because, prior to this offering, we have not deemed satisfaction of the performance condition to be probable. At the time of a qualifying liquidity event, we will recognize a cumulative share-based compensation expense for the portion of the Performance Awards that have met the service condition as of that date, using the accelerated attribution method. The remaining unrecognized share-based compensation expense related to the Performance Awards will be recorded over the remaining requisite service period, using the accelerated attribution method, net of estimated forfeitures. If this offering had closed on December 31, 2013, we would have recognized $1.8 million of share-based compensation expense on that date, net of estimated forfeitures, associated with the Performance Awards, and would have approximately $3.1 million of additional future period expense to be recognized over a weighted-average period of approximately 1.5 years, net of estimated forfeitures.

In addition to share-based compensation expense associated with Performance Awards, as of December 31, 2013, we had unrecognized share-based compensation expense of approximately $11.5 million related to other outstanding equity awards, net of estimated forfeitures, which are expected to be recognized over an estimated weighted-average period of 2.8 years.

Income Taxes

We record income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

those tax assets and liabilities are expected to be realized or settled. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.

We recognize tax benefits from uncertain tax positions if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Although we believe that we have adequately reserved for our uncertain tax positions, we can provide no assurance that the final tax outcome of these matters will not be materially different. We make adjustments to these reserves when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made and could have a material impact on our financial condition and results of operations.

We have elected to record interest accrued and penalties related to unrecognized tax benefits in the financial statements as a component of provision for income taxes.

Foreign Currency Transactions

The functional currency of our foreign subsidiaries is the U.S. dollar. Accordingly, monetary balance sheet accounts are remeasured using the current exchange rate in effect at the balance sheet date and non-monetary items are remeasured at the historical exchange rates. Expenses are generally remeasured at the average exchange rates for the period. Foreign currency remeasurement and transaction gains and losses are included in other expense, net on the statements of operations and were not material for the periods presented.

Concentrations of Risk

Financial instruments potentially exposing us to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, marketable securities and accounts receivable. We place our cash and cash equivalents with high-credit-quality financial institutions, however, maintain balances in excess of the FDIC insurance limits. We do not require our customers to provide collateral to support accounts receivable and maintain an allowance for doubtful accounts receivable balances.

At December 31, 2012 and 2013, there were no customers that represented more than 10% of the accounts receivable balance. There were no customers that individually exceeded 10% of our revenue in any of the periods presented.

Recently Issued Accounting Standards

In February 2013, the Financial Accounting Statements Board, or FASB, issued Accounting Standards Update No. 2013-02 “ Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income ”, which requires an entity to disaggregate the total change of each component of other comprehensive income either on the face of the statement of operations or as a separate disclosure in the notes. The new guidance became effective for reporting periods beginning after December 15, 2012 and is applied prospectively. We adopted this standard for the year ended December 31, 2013, and the adoption did not have any impact on our financial position, results of operations, or cash flows, as the amounts reclassified out of accumulated other comprehensive loss are not significant.

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

In July 2013, the FASB issued Accounting Standards Update No. 2013-11 “ Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ,” or ASU 2013-11, which provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss, or NOL, carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 supports the approach for companies to present an unrecognized tax benefit as a reduction of a deferred tax asset for a NOL or tax credit carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. This approach requires companies to assess whether to net the unrecognized tax benefit with a deferred tax asset as of the reporting date. The standard becomes effective for us on January 1, 2014, and it should be applied prospectively to unrecognized tax benefits that exist at the effective date with retrospective application permitted. We do not anticipate that the adoption of this standard will have a material effect on our financial position, results of operations, or cash flows.

Note 3. Fair Value Measurements

The following tables present information about our financial assets measured at fair value on a recurring basis as of December 31, 2013 based on the three-tier fair value hierarchy (in thousands):

 

     Fair Value Measurement at
December 31, 2013
 
     Level 1      Level 2      Total  

Description

        

U.S. corporate debt securities

   $       $ 12,114       $ 12,114   

Money market funds

     10,836                 10,836   
  

 

 

    

 

 

    

 

 

 

Total

   $ 10,836       $ 12,114       $ 22,950   
  

 

 

    

 

 

    

 

 

 

Included in cash and cash equivalents

         $ 10,836   
        

 

 

 

Included in marketable securities

         $ 12,114   
        

 

 

 

We had no money market funds or marketable securities as of December 31, 2012.

There were no transfers between fair value measurement levels during the years ended December 31, 2012 or 2013.

Gross unrealized gains or losses for cash equivalent and marketable securities as of December 31, 2013 were not material. As of December 31, 2013, there were no securities that were in an unrealized loss position for more than twelve months.

The following table classifies our marketable securities by contractual maturities as of December 31, 2013 (in thousands):

 

     December 31,
2013
 

Due in one year

   $ 9,889   

Due in one to five years

     2,225   
  

 

 

 

Total

   $ 12,114   
  

 

 

 

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

Note 4. Property and Equipment

Property and equipment consisted of the following (in thousands):

 

     December 31,  
     2012     2013  

Capitalized internal-use software

   $ 6,641      $ 11,445   

Furniture and fixtures

     1,092        1,383   

Hosting equipment

     2,400        7,931   

Computer equipment and software

     901        1,680   

Leasehold improvements

     1,126        1,717   
  

 

 

   

 

 

 

Total

     12,160        24,156   

Less accumulated depreciation and amortization

     (3,688     (8,725
  

 

 

   

 

 

 

Property and equipment, net

   $ 8,472      $ 15,431   
  

 

 

   

 

 

 

Depreciation expense was $1.1 million and $2.9 million for the years ended December 31, 2012 and 2013, respectively. We capitalized $3.6 million and $4.8 million in internal-use software during the years ended December 31, 2012 and 2013, respectively. Included in the capitalized development costs are $85,000 and $143,000 in share-based compensation costs for the years ended December 31, 2012 and 2013, respectively. Amortization expense of capitalized development costs totaled $1.4 million and $2.3 million during the years ended December 31, 2012 and 2013, respectively. The carrying value of capitalized internal-use software at December 31, 2012 and 2013 was $4.3 million and $6.8 million, respectively.

Note 5. Credit Facility

In June 2012, we entered into a loan and security agreement, or credit facility, with Silicon Valley Bank. The credit facility consisted of a $10.0 million revolving line of credit and a $5.0 million mezzanine loan. The mezzanine loan was not drawn upon and expired in June 2013, and none of the revolving line of credit was utilized in 2012.

In June 2013, we entered into a first amendment to the credit facility, adding a $10.0 million equipment line of credit bearing interest at a rate of 2.5% per annum. We had $3.8 million of equipment loan advances outstanding under the equipment line of credit as of December 31, 2013. For each equipment advance under the equipment line of credit, we make interest-only payments until September 14, 2014, when the last draw against the equipment line of credit can be made. The outstanding balance as of September 14, 2014 will be payable in equal monthly installments for 30 months thereafter, with the last payment due on March 14, 2017. We are also required to make a final payment fee of 4.0% of the aggregate principal amount of all historical advances made under the equipment line of credit on March 14, 2017.

In December 2013, we entered into a second amendment to the credit facility, increasing the revolving line of credit to $20.0 million. We borrowed $20.0 million under the revolving line of credit during 2013, all of which was outstanding as of December 31, 2013. Borrowings on the revolving line of credit are subject to a borrowing base limit determined monthly based on our recurring revenue metrics from the previous month and the ratio of certain current assets to current liabilities as of the

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

previous month end. Borrowings on the revolving line of credit bear interest at the prime rate plus 2.0% per annum. We will make interest-only payments until January 1, 2016, when the outstanding balance is due in full. The interest rate will be reduced to the prime rate upon the consummation of this offering, provided that net cash proceeds are at least $100.0 million.

The credit facility is collateralized by substantially all of our assets, excluding our intellectual property. Our domestic subsidiary is a guarantor of the credit facility and we have pledged up to 65% of the equity in our international subsidiaries as collateral. The credit facility also imposes various covenants on us, including the delivery of financial and other information, the maintenance of our primary operating and securities accounts with the lender, the maintenance of minimum revenue targets and an agreed ratio of certain current assets to current liabilities, as well as limitations on dispositions, changes in business or management, certain mergers or consolidations, dividends and other corporate activities. As of December 31, 2012 and 2013, we were in compliance with all of the covenants contained in the credit facility.

Contractual future principal repayments in relation to the credit facility are as follows for the year ending December 31 (in thousands):

 

2014

   $ 365   

2015

     1,485   

2016

     21,523   

2017

     387   

2018 and thereafter

       
  

 

 

 

Total future repayments

   $ 23,760   
  

 

 

 

In June 2012, in connection with the credit facility, we issued a non-refundable, fully earned warrant to the financial institution to purchase 250,000 shares of Series B common stock at $0.96 per share with an expiration date in June 2019. We recorded the fair value of the warrant on issuance as a deferred charge classified within other assets on the face of the consolidated balance sheet, which is being accreted to interest expense using the effective interest rate method over the life of the credit facility. The following table presents the assumptions used in the Black-Scholes valuation model to value the warrant issued in connection with the debt financing at the issuance date:

 

Expected volatility

     57.71

Dividend rate

     0

Risk-free interest rate

     1.12

Expected term (in years)

     7.0   

Note 6. Commitments and Contingencies

Leases

We lease office space under noncancelable operating leases with various expiration dates. Certain of the office space lease agreements contain rent holidays or rent escalation provisions. Rent holiday and rent escalation provisions are considered in determining the straight-line expense to be recorded over the lease term. The lease term begins on the date of initial possession of the leased property for purposes of recognizing lease expense on a straight-line basis over the term of the lease. In 2013, we renewed the lease of our headquarters in San Francisco through October 2019, with an

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

option to renew for an additional 7 years and 8 months. We also entered into a lease for additional office space in San Francisco with an 8-year term, renewable for an additional period of 5 years. For the years ending December 31, 2012 and 2013, rent expense was $1.6 million and $2.3 million, respectively.

We lease computer equipment from various parties under capital lease agreements that expire through March 2015. The total outstanding balance financed under capital leases was $711,000 and $374,000 at December 31, 2012 and 2013, respectively. Accumulated depreciation on the leased assets was $330,000 and $671,000 at December 31, 2012 and 2013, respectively. Depreciation of assets recorded under the capital leases is included in depreciation expense.

As of December 31, 2013, the future minimum lease payments by year under noncancelable leases are as follows (in thousands):

 

     Capital
Leases
    Operating
Leases
 

2014

   $ 380      $ 3,445   

2015

     10        6,009   

2016

            6,024   

2017

            5,999   

2018

            6,167   

Thereafter

            18,052   
  

 

 

   

 

 

 

Total minimum lease payments

     390        45,696   

Less amount representing interest and taxes

     (16       
  

 

 

   

 

 

 

Total present value of minimum lease payments

     374      $ 45,696   
    

 

 

 

Less current portion of the present value of minimum payments

     (364  
  

 

 

   

Noncurrent

   $ 10     
  

 

 

   

Letters of Credit

As of December 31, 2013, we had a total of $3.8 million in letters of credit outstanding related to our leased office space in San Francisco. The letters of credit are collateralized by substantially all of our assets, excluding our intellectual property. These letters of credit renew annually and mature at various dates through October 31, 2022.

Litigation and Loss Contingencies

We accrue estimates for resolution of legal and other contingencies when losses are probable and estimable. From time to time, we may become a party to litigation and subject to claims incident to the ordinary course of business, including intellectual property claims, labor and employment claims, and threatened claims, breach of contract claims, tax, and other matters. We currently have no material pending litigation.

We are not currently aware of any litigation matters or loss contingencies that would be expected to have a material adverse effect on our business, consolidated financial position, results of operations, comprehensive loss, or cash flows.

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

Indemnifications

In the ordinary course of business, we enter into contractual arrangements under which we agree to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of the breach of such agreements, intellectual property infringement claims made by third parties, and other liabilities relating to or arising from our customer service platform or our acts or omissions. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. Further, our obligations under these agreements may be limited in terms of time and/or amount, and in some instances, we may have recourse against third parties for certain payments. In addition, we have indemnification agreements with certain of our directors and executive officers that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The terms of such obligations may vary.

Note 7. Redeemable Convertible Preferred Stock

In September 2012, our stockholders authorized the issuance of 9.0 million shares of Series D redeemable convertible preferred stock. In September 2012, we received gross proceeds of $45.0 million through the issuance of approximately 8.6 million shares of Series D redeemable convertible preferred stock at $5.24 per share. We incurred $115,000 in issuance costs, which are recorded as a discount to the carrying value of the Series D redeemable convertible preferred stock.

The authorized and outstanding shares of our redeemable convertible preferred stock, the carrying amount, and aggregate liquidation preference of such redeemable convertible preferred stock are as follows (in thousands, except shares):

 

     Shares
Authorized
     Shares Issued
and
Outstanding
     Carrying
Amount
     Aggregate
Liquidation
Preference
 

Series A

     4,786,463         4,786,463       $ 1,537       $ 1,550   

Series B

     6,843,299         6,843,299         5,977         6,000   

Series C

     3,386,279         3,386,279         18,939         19,000   

Series D

     9,000,000         8,582,021         44,916         45,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     24,016,041         23,598,062       $ 71,369       $ 71,550   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other rights, preferences and privileges of our convertible redeemable preferred stock are as follows:

Conversion Rights

Each share of the redeemable convertible preferred stock is convertible, at the option of its holder, into the number of fully paid and non-assessable shares of Series A common stock, which results from dividing the applicable original issue price per share by the applicable conversion price per share on the date that the share certificate is surrendered for conversion. The original issue price per share of Series A, Series B, Series C, and Series D redeemable convertible preferred stock was $0.32383, $0.87677, $5.610875, and $5.24352, respectively. As of December 31, 2013, each share of Series A, Series B, and Series C redeemable convertible preferred stock is convertible into Series A common stock at the option of the holder on a four-for-one basis, subject to certain adjustments. Each

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

share of Series D redeemable convertible preferred stock is convertible into Series A common stock at the option of the holder on a one-for-one basis, subject to certain adjustments. Each share of the redeemable convertible preferred stock will automatically convert into common stock, at the conversion rate then in effect, immediately upon the earlier of: (A) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of the redeemable convertible preferred stock (voting together as a single class on an as-converted basis) or (B) the closing of the sale of our common stock in a firm commitment underwritten public offering resulting in proceeds of at least $30.0 million, net of underwriting discounts and commissions.

Dividend Rights

We may not declare, pay, or set aside any dividends on shares of any class or series of our capital stock (other than dividends on shares of common stock payable in shares of common stock), unless the holder of the redeemable convertible preferred stock then outstanding simultaneously receive a dividend on each outstanding share of the redeemable convertible preferred stock in an amount at least equal to that dividend per share of the redeemable convertible preferred stock as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into common stock and (B) the number of shares of common stock issuable upon conversion of such share of the redeemable convertible preferred stock, in each case calculated on the record date for determination of holders entitled to receive such dividend; provided that, if we declare, pay, or set aside, on the same date, a dividend on shares of more than one class or series of our capital stock, the dividend payable to the holders of the redeemable convertible preferred stock shall be calculated based upon the dividend on the class of common stock that would result in the highest dividend for each series of the redeemable convertible preferred stock.

As of December 31, 2013, no dividends were declared on the redeemable convertible preferred stock.

Liquidation Rights

In the event of a liquidation event, the holders of the redeemable convertible preferred stock are entitled, on a pari passu basis, to be paid a liquidation preference per share, before any payment is made to the holders of any class of common stock, equal to the greater of (A) the original issuance price per share of such redeemable convertible preferred stock, plus any declared and unpaid dividends or (B) the amount payable per share of the redeemable convertible preferred stock on an as-if-converted to Series A common stock basis. After payment of the applicable liquidation preference to the holders of the redeemable convertible preferred stock, the remaining assets available for distribution to our stockholders will be distributed ratably among the holders of the common stock.

Voting Rights

The holders of the redeemable convertible preferred stock are entitled to the number of votes equal to the number of whole shares of Series A common stock into which the redeemable convertible preferred stock is convertible, subject to limitations. The holders of Series A, Series B, and Series C redeemable convertible preferred stock, each voting as a separate class, are entitled to elect one member of our board of directors.

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

Voting Agreement

We are party to a voting agreement under which certain holders of our capital stock, including persons who hold more than 5% of our outstanding capital stock and entities with which certain of our directors are affiliated, have agreed to vote their shares on certain matters, including with respect to the election of directors. Upon the completion of our initial public offering, the voting agreement will terminate and none of our stockholders will have any special rights regarding the election or designation of members of our board of directors or the voting of our capital stock of the company.

Redemption

At any time on or after September 5, 2017, the holders of at least a majority of the then-outstanding shares of redeemable convertible preferred stock may elect to redeem all outstanding shares of the redeemable convertible preferred stock in cash for a sum per share equal to the liquidation preference of each share of the redeemable convertible preferred stock, plus all declared but unpaid dividends, payable in three annual installments. If the funds available for redemption are insufficient to redeem the total number of shares of the redeemable convertible preferred stock that the holders elect to redeem, the funds shall be used to redeem the maximum number of such shares ratably among the holders of the redeemable convertible preferred stock that elect to have their shares of the redeemable convertible preferred stock redeemed in proportion to the aggregate redemption price that each such holder is entitled to receive. If a holder elects to be excluded from the redemption, then shares of the redeemable convertible preferred stock registered on our books in the name of such holder shall be not redeemed and thereafter shall not be redeemable whether on such redemption date or thereafter.

Accretion of Redeemable Convertible Preferred Stock

Stock issuance costs are accreted via a charge to accumulated deficit over the period from issuance of the redeemable convertible preferred stock to the date at which the redeemable convertible preferred stock becomes redeemable at the option of the holders of the redeemable convertible preferred stock. During the year ended December 31, 2013, we recorded charges to additional paid-in capital of $4,000, $6,000, $16,000, and $23,000 to accrete the carrying value of Series A, Series B, Series C, and Series D redeemable convertible preferred stock, respectively, to the redemption amount.

Note 8. Common Stock and Stockholders’ Deficit

Common Stock

Our board of directors has authorized two classes of common stock, Series A and Series B. At December 31, 2012, there were 150.0 million and 50.0 million shares authorized for Series A and Series B common stock, respectively, and there were approximately 19.8 million and 25.6 million shares outstanding of Series A and Series B common stock, respectively, of which 4.0 million shares of Series B common stock were unvested resulting from employees exercising stock options prior to vesting. At December 31, 2013, there were 160.0 million and 60.0 million shares authorized for Series A and Series B common stock, respectively, and there were approximately 19.8 million and 26.6 million shares outstanding of Series A and Series B common stock, respectively, of which 1.6 million shares of Series B common stock were unvested resulting from employees exercising stock options prior to vesting.

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

Holders of Series A and Series B common stock are entitled to dividends, if and when declared, by our board of directors. Holders of Series A common stock are entitled to one vote for each share of Series A common stock, subject to certain limitations. Holders of Series B common stock are not entitled to voting rights.

Each share of Series B common stock shall be converted into Series A common stock on a one-for-one basis, subject to certain adjustments, upon the earlier of (A) the affirmative vote of at least a majority of the then-outstanding shares of Preferred Stock, voting together as a single class and not as a separate series and on an as-converted basis; (B) the closing of the sale of shares of Series A common stock to the public, in a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in proceeds of at least $30.0 million, net of underwriting discounts or commissions; or (C) the approval by our board of directors of a transaction that would constitute either a deemed liquidation event or a reorganization.

Series A Common Stock Reserved for Future Issuance

We have reserved the following shares of Series A common stock for future issuances as of December 31, 2013:

 

Series A redeemable convertible preferred stock

     19,145,852   

Series B redeemable convertible preferred stock

     27,373,196   

Series C redeemable convertible preferred stock

     13,545,116   

Series D redeemable convertible preferred stock

     8,582,021   

Series B common stock

     26,588,610   

Share-based payment plan:

  

Options outstanding

     20,267,882   

RSUs outstanding

     1,621,679   

Shares available for future grants

     3,707,885   

Common stock warrant outstanding

     250,000   
  

 

 

 

Total

     121,082,241   
  

 

 

 

Series B Common Stock Reserved for Future Issuance

We have reserved the following shares of Series B common stock for future issuances as of December 31, 2013:

 

Share-based payment plan:

  

Options outstanding

     20,267,882   

RSUs outstanding

     1,621,679   

Shares available for future grants

     3,707,885   

Common stock warrant outstanding

     250,000   
  

 

 

 

Total

     25,847,446   
  

 

 

 

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

Share-Based Compensation Plan

As of December 31, 2012, the 2009 Stock Option and Grant Plan, or the 2009 Plan, provides for the issuance of up to 28.7 million shares of Series A common stock and 28.7 million shares of Series B common stock, not to exceed a total issuance of 28.7 million shares of common stock, used for the issuance of incentive stock options, nonstatutory stock options, restricted stock awards, unrestricted stock awards, or restricted stock units to eligible participants. As of December 31, 2013, the 2009 Plan provides for the issuance of up to 37.0 million shares of Series A common stock and 37.0 million shares of Series B common stock, not to exceed a total issuance of 37.0 million shares of common stock. During 2012 and 2013, the 2009 Plan was amended to increase the authorized number of common shares available for grants by 5.5 million shares and 8.3 million shares, respectively.

Stock options and RSUs granted to date generally vest over a four and five year period from the date of grant. Options awarded under the Plan may be granted at an exercise price per share not less than the fair market value at the date of grant, and are exercisable up to ten years. RSUs generally expire seven years from the grant date if not previously settled for shares of common stock. Common stock received under the 2009 Plan are subject to certain restrictions, including a right of first refusal by us with respect to the sale or transfer of these shares to third parties, other than with respect to certain estate planning activities. Our right of first refusal terminates upon the completion of our initial public offering. In April 2012, we extended an offer to our existing option holders to amend their grants to allow for early exercise subject to the right by us to repurchase stock acquired through early exercise to the extent the shares do not vest. In exchange for the right to early exercise, we imposed general restrictions on transfer of the shares underlying these awards other than with respect to certain estate planning activities. All stock options awarded under the 2009 Plan granted since April 2012 contain such transfer restrictions and provisions permitting early exercise.

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

A summary of our stock option activity for the years ended December 31, 2012 and 2013 is as follows:

 

      Options Outstanding     RSUs Outstanding  
    Shares
Available
for Grant
    Number of
Shares
    Weighted-
Average
Exercise
Price
    Weighted-
Average
Remaining
Contractual
Term
    Aggregate
Intrinsic

Value
    Outstanding
RSUs
    Weighted-
Average
Grant
Date Fair
Value
 

Outstanding—January 1, 2012

    2,748,488        12,476,584      $ 0.19        $ 9,633,892            

Increase in Plan authorized shares

    5,500,000                         

Stock options granted

    (6,514,250     6,514,250        1.04                

Stock options exercised

           (2,493,389     0.38                

Unvested shares repurchased

    10,000                         

Stock options cancelled or expired

    934,585        (934,585     0.42                
 

 

 

   

 

 

         

 

 

   

Outstanding—December 31, 2012

    2,678,823        15,562,860        0.50          34,101,150            

Increase in Plan authorized shares

    8,300,000                        

Stock options granted

    (7,395,250 )     7,395,250       3.10               

RSUs granted

    (1,635,715 )                 1,635,715     $ 3.38  

Stock options exercised

          (1,857,101 )     0.80               

Stock options cancelled or expired

    833,127        (833,127     0.62               

Unvested shares repurchased

    912,864                         

RSUs forfeited and cancelled

    14,036                     (14,036     3.38   
 

 

 

   

 

 

         

 

 

   

 

 

 

Outstanding—December 31, 2013

    3,707,885        20,267,882      $ 1.41        8.15     $ 50,185,357       1,621,679      $ 3.38  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Options vested and exercisable as of December 31, 2013

      8,540,702      $ 0.62        7.35     $ 27,908,039      
   

 

 

   

 

 

   

 

 

   

 

 

     

Options vested and expected to vest as of December 31, 2013

      19,426,814      $ 1.44        8.16     $ 48,963,518       
   

 

 

   

 

 

   

 

 

   

 

 

     

The total intrinsic value of stock options exercised during the year ended December 31, 2012 and 2013 was $1.8 million and $4.6 million, respectively. The weighted-average grant date fair value of stock options granted during the years ended December 31, 2012 and 2013 was $0.56 and $1.62, respectively.

Share-Based Compensation Expense

All share-based awards to employees and members of our board of directors are measured based on the grant date fair value of the awards and recognized in the consolidated statements of operations over the period during which the employee is required to perform services in exchange for the award (generally the vesting period of the award). No share-based awards were granted to nonemployee consultants during 2012 or 2013. We record share-based compensation expense for service-based equity awards using the straight-line attribution method. We record share-based compensation expense for performance-based equity awards using the accelerated attribution method.

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

We estimate the fair value of stock options granted using the Black-Scholes option valuation model. We determine the assumptions for the option valuation model as follows:

Fair Value of Common Stock

We estimate the fair value of stock options granted using the Black-Scholes option valuation model. Our option pricing model requires the input of highly subjective assumptions, including the fair value of our underlying common stock, the expected term of stock options, the expected volatility of the price of our common stock, risk-free interest rates, and the expected dividend yield of our common stock. The assumptions used in our option pricing model represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. If factors change and different assumptions are used, our share-based compensation expense could be materially different in the future.

Expected Term

We determine the expected term based on the average period the stock options are expected to remain outstanding, generally calculated as the midpoint of the stock options vesting term and contractual expiration period, as we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.

Expected Volatility

We determine the price volatility factor based on the historical volatility of publicly traded industry peers. To determine our peer group of companies, we consider public companies in the technology industry and select those that are similar to us in size, stage of life cycle, and financial leverage. We do not rely on implied volatilities of traded options in our industry peers’ common stock because the volume of activity is relatively low. We intend to continue to consistently apply this methodology using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own common stock price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.

Dividend Yield

We have not paid and do not anticipate paying any cash dividends in the foreseeable future and, therefore, use an expected dividend yield of zero.

In addition to assumptions used in the Black-Scholes option valuation model, we must also estimate a forfeitures rate to calculate share-based compensation expense. We estimate the forfeiture rate based on an analysis of actual historical forfeitures. The estimation of the forfeiture rate requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts are recorded as a cumulative adjustment in the period the estimates are revised.

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

For the year ended December 31, 2012 and 2013, the following assumptions were used to estimate the fair value of stock options granted to employees:

 

     2012    2013

Expected volatility

   57% - 59%    50% - 63%

Dividend rate

   0%    0%

Risk-free interest rate

   0.68% - 1.47%    0.63% - 2.02%

Expected term (in years)

   5.28 - 6.27    4.47 - 6.27

In November 2012, in connection with a prior purchase of Series D redeemable convertible preferred stock, the purchasers of the Series D redeemable convertible preferred stock, including certain existing investors, completed a tender offer to acquire approximately 8.0 million shares of outstanding vested Series A and Series B common stock from employees, former employees, and other existing investors. In connection with the tender offer, we waived any rights of first refusal or other transfer restrictions applicable to such shares. The shares were repurchased from the stockholders at a purchase price of $4.81 per share. As a result of this transaction, we recorded a total of $8.6 million in share-based compensation expense in the three months ended December 31, 2012 for the difference between the price paid for shares held by our employees and former employee stockholders and the estimated fair market value on the date of the transaction. Of the total share-based compensation expense, we recorded $20,000, $3.9 million, $1.0 million, and $3.7 million in cost of revenue, research and development, sales and marketing, and general and administrative expenses, respectively.

In connection with the tender offer, we recorded $8.3 million in deemed dividends, within additional paid-in capital, for the difference between the price paid for shares held by stockholders that were not employees or former employees and the estimated fair market value on the date of the transaction.

In May 2013, we recorded $1.7 million in share-based compensation expense related to the accelerated vesting of certain stock options.

Early Exercise of Stock Options and Purchase of Unvested Stock Awards

Common stock purchased pursuant to an early exercise of stock options or unvested stock awards is not deemed to be outstanding for financial reporting purposes until those shares vest. Therefore, cash received in exchange for unvested shares is recorded as a liability and is transferred into common stock and additional paid-in capital as the shares vest. Upon termination of service, we may, at our discretion, repurchase unvested shares acquired through early exercise of stock options or purchase of unvested stock awards at a price equal to the price per share paid upon the exercise of such options or the purchase of such unvested stock awards. As of December 31, 2012 and 2013, there were 2,548,742 and 1,568,178 shares outstanding as a result of an early exercise of stock options and purchase of unvested stock awards that were classified as accrued liabilities for an aggregated amount of $1.2 million and $1.4 million, respectively.

Certain key employees, including officers, early exercised stock options and purchased unvested stock awards in exchange for nonrecourse promissory notes. Refer to Note 12 for further discussion.

 

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Table of Contents

ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

Treasury Stock

We repurchased 534,677 shares of common stock in the year ended December 31, 2011 and recorded the repurchased shares as treasury shares in the stockholders’ equity (deficit) section of the balance sheet at cost.

Note 9. Income Taxes

The components of income (loss) before provision for income taxes are as follows (in thousands):

 

     Year Ended December 31,  
           2012                 2013        

U.S.

   $ (24,739   $ (23,117

Foreign

     495        767   
  

 

 

   

 

 

 

Total

   $ (24,244   $ (22,350
  

 

 

   

 

 

 

The income tax provision is composed of the following (in thousands):

 

     Year Ended December 31,  
         2012             2013      

Current tax provision:

    

Federal

   $      $   

State

     2        37   

Foreign

     126        189   
  

 

 

   

 

 

 
     128        226   

Deferred tax provision:

    

Federal

              

State

              

Foreign

     (7     (5
  

 

 

   

 

 

 

Total provision for income taxes

   $ 121      $ 221   
  

 

 

   

 

 

 

Significant components of deferred tax assets are as follows (in thousands):

 

     As of December 31,  
     2012     2013  

Deferred tax assets:

    

Tax credit carryforward

   $ 7      $ 15   

Net operating loss carryforward

     12,921        19,278   

Share-based compensation

     67        771   

Accrued liabilities and reserves

     713        1,316   

Other

     506        677   
  

 

 

   

 

 

 

Total deferred tax assets

     14,214        22,057   

Less: valuation allowance

     (12,668     (19,837
  

 

 

   

 

 

 

Deferred tax assets, net of valuation allowance

     1,546        2,220   

Deferred tax liabilities:

    

Depreciation and amortization

     (1,539     (2,207
  

 

 

   

 

 

 

Net deferred tax assets

   $ 7      $ 13   
  

 

 

   

 

 

 

 

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Table of Contents

ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

The following is a reconciliation of the statutory federal income tax rate and the effective tax rates:

 

     Year Ended December 31,  
         2012             2013      

Tax at federal statutory rate

     34.0     34.0

State tax provision, net of federal benefit

     0.0        (0.2

Share-based compensation

     (11.1     (4.4

Valuation allowance

     (23.3     (30.4

Other

     (0.1     0.0   
  

 

 

   

 

 

 

Effective tax rate

     (0.5 )%      (1.0 )% 
  

 

 

   

 

 

 

We have not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries as of December 31, 2013 because we intend to permanently reinvest such earnings outside of the U.S. If these foreign earnings were to be repatriated in the future, the related U.S. tax liability may be reduced by any foreign income taxes previously paid on these earnings. As of December 31, 2013, the cumulative amount of earnings upon which U.S. income taxes have not been provided is approximately $0.8 million. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.

As of December 31, 2013, we had net operating loss carryforwards of approximately $52.9 million for federal income taxes and $33.3 million for state income taxes. If not utilized, these carryforwards will begin to expire in 2029 for federal purposes and 2031 for state purposes.

As of December 31, 2013, we had research and development credit carryforwards of approximately, $1.7 million and $1.8 million for federal and state income taxes, respectively. If not utilized, the federal carryforwards will begin to expire in 2029. The state tax credit can be carried forward indefinitely.

A share option exercise may result in a tax deduction prior to the actual recognition of the related excess tax benefit because we have a net operating loss carryforward. Our net operating losses listed here include $2.0 million of excess stock option benefits that will be creditable to additional paid in capital when realized.

Internal Revenue Code Section 382 limits the use of net operating loss and tax credit carryforwards in certain situations where changes occur in the stock ownership of a company. In the event that we had a change of ownership, utilization of the net operating loss and tax credit carryforwards may be restricted.

 

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Table of Contents

ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits (excluding interest and penalties) is as follows (in thousands):

 

Balance at December 31, 2011

   $ 1,238   

Additions for tax positions related to the prior year

       

Additions for tax positions related to the current year

     701   

Lapse of statutes of limitations

       
  

 

 

 

Balance at December 31, 2012

     1,939   

Additions for tax positions related to the prior year

       

Additions for tax positions related to the current year

     1,978   

Lapse of statutes of limitations

       
  

 

 

 

Balance at December 31, 2013

   $ 3,917   
  

 

 

 

As of December 31, 2013, we had unrecognized tax benefits of $3.9 million, of which $0.4 million would have an impact on our effective tax rate if reversed.

The amount accrued for interest and penalties included in our current tax provision and the amount accrued for interest and penalties as of the end of all periods presented is not material.

We are currently unaware of any uncertain tax positions that could result in significant additional payments, accruals, or other material deviation in this estimate over the next 12 months.

Our 2009-2012 tax years remain subject to examination by the taxing authorities for U.S. federal, state, and foreign tax purposes.

Note 10. Net Loss Per Share

We compute net loss per share of common stock in conformity with the two-class method required for participating securities. We consider all series of the redeemable convertible preferred stock to be participating securities as the holders of the preferred stock are entitled to receive a non-cumulative dividend on a pari passu basis in the event that a dividend is paid on common stock. We also consider shares of common stock issued upon the early exercise of stock options subject to repurchase to be participating securities, because holders of such shares have non-forfeitable dividend rights in the event a dividend is paid on common stock. The holders of all series of the redeemable convertible preferred stock and the holders of shares of common stock acquired upon early exercise of stock options do not have a contractual obligation to share in our losses. As such, our net losses for the years ended December 31, 2012 and 2013 were not allocated to these participating securities.

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, less the weighted-average unvested common stock subject to repurchase. Diluted net loss per share is computed by giving effect to all potential shares of common stock, including common stock issuable upon conversion of the redeemable convertible preferred stock, outstanding share-based awards, and outstanding warrant, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential common stock outstanding would have been anti-dilutive.

 

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Table of Contents

ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

The following table presents the calculation of basic and diluted net loss per share for the periods presented (in thousands, except per share data):

 

     Year Ended December 31,  
     2012     2013  
     Class A     Class B     Class A     Class B  

Net loss

   $ (12,104   $ (12,261   $ (10,290   $ (12,281

Less: Accretion of redeemable convertible preferred stock

     (25     (25     (22     (27

Less: Deemed dividend to investors in relation to tender offer

     (4,136     (4,190              
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (16,265   $ (16,476   $ (10,312   $ (12,308
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic shares:

        

Weighted-average common shares outstanding

     19,763        24,306        19,762        25,929   

Less: Weighted-average common shares subject to repurchase

     (260     (4,551            (2,342
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used to compute basic net loss per share

     19,503        19,755        19,762        23,587   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted shares:

        

Weighted-average shares used to compute diluted net loss per share

     19,503        19,755        19,762        23,587   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders:

        

Basic and diluted

   $ (0.83   $ (0.83   $ (0.52   $ (0.52
  

 

 

   

 

 

   

 

 

   

 

 

 

The anti-dilutive securities excluded from the shares used to calculate the diluted net loss per common stock were as follows (in thousands):

 

     Year Ended December 31,  
         2012              2013      

Redeemable convertible preferred stock

     68,646         68,646   

Shares subject to outstanding common stock options

     15,563         20,268   

Shares subject to common stock warrant

     250         250   

Restricted stock units

             1,622   
  

 

 

    

 

 

 
     84,459         90,786   
  

 

 

    

 

 

 

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

Unaudited Consolidated Pro Forma Net Loss Per Share Attributable to Common Stockholders

The following table presents the calculation of pro forma basic and diluted net loss per share attributable to common stockholders (in thousands, except per share data):

 

     Year Ended
December 31,
2013
 

Net loss (1)

   $ (22,571

Less: Accretion of redeemable convertible preferred stock

     (49
  

 

 

 

Net loss attributable to common stockholders

   $ (22,620
  

 

 

 

Basic and diluted shares:

  

Weighted-average shares used to compute basic net loss per share

     43,349   

Pro forma adjustment to reflect assumed conversion of preferred stock to occur upon the completion of this offering

     68,646   

Pro forma adjustment to reflect assumed vesting of Performance Awards

     55   
  

 

 

 

Weighted-average shares used to compute basic pro forma net loss per share

     112,050   
  

 

 

 

Pro forma net loss per share attributable to common stockholders:

  

Basic and Diluted

   $ (0.20
  

 

 

 

 

(1) Excludes share-based compensation related to our Performance Awards because the performance condition contained in such grants had not occurred as of December 31, 2013. If the performance condition had occurred on December 31, 2013, we would have recognized $1.8 million of share-based compensation expense, net of estimated forfeitures.

Note 11. Geographic Information

Revenue

The following table presents our total revenue by geographic areas for the years ended December 31, 2012 and 2013, as determined based on the billing address of our customers:

 

     Year Ended December 31,  
         2012              2013      
     (In thousands)  

United States

   $ 22,445       $ 42,415   

EMEA

     10,257         19,125   

Other

     5,526         10,505   
  

 

 

    

 

 

 

Total

   $ 38,228       $ 72,045   
  

 

 

    

 

 

 

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

Long-Lived Assets

The following table presents our long-lived assets by geographic areas as of December 31, 2012 and 2013:

 

     December 31,  
     2012      2013  
     (In thousands)  

United States

   $ 3,898       $ 6,466   

EMEA

     205         2,054   

Other

     99         135   
  

 

 

    

 

 

 

Total

   $ 4,202       $ 8,655   
  

 

 

    

 

 

 

The carrying value of capitalized internal-use software is excluded from the balance of long-lived assets presented in the table above.

Note 12. Related Party Transactions

Certain key employees, including officers, exercised stock options and purchased unvested stock awards in exchange for promissory notes bearing interest at a rate of 1.05% or 2.67% per annum. These notes were secured by the underlying shares purchased and unvested shares could be repurchased by us upon termination of employment at the lower of the original issuance price or the fair market value of the underlying shares as of the date of repurchase. Because the notes were considered to be in-substance nonrecourse, we deemed the exercise of the stock options and the purchase of unvested stock awards to be non-substantive. As such, the notes receivable were not reflected in the consolidated financial statements and the related stock transactions were not recorded until the notes receivable were settled in cash.

Notes receivable as of December 31, 2012 were $554,000, and were paid in full as of December 31, 2013.

Note 13. Retirement Plans

We have a 401(k) retirement and savings plan made available to all United States employees. The 401(k) plan allows each participant to contribute up to an amount not to exceed an annual statutory maximum. We may, at our discretion, make matching contributions to the 401(k) plan. We are responsible for the administrative costs of the 401(k) plan. We have not made any contributions to the 401(k) plan since inception.

Note 14. Subsequent Events

2009 Stock Option and Grant Plan

On February 13, 2014, our board of directors and stockholders approved the amendment of our 2009 Stock Option and Grant Plan, or the 2009 Plan, to increase the maximum number of shares of common stock authorized for issuance by 12.5 million shares to approximately 49.5 million shares.

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

On January 30, 2014, we granted stock options under the 2009 Plan to certain employees to purchase approximately 1.3 million shares of common stock at an exercise price of $4.58 per share. We also granted RSUs with respect to 335,450 shares of common stock.

On February 13, 2014, we granted stock options under the 2009 Plan to certain employees to purchase 8.9 million shares of common stock at an exercise price of $4.76 per share. We also granted RSUs with respect to 1.2 million shares of common stock.

2014 Stock Option and Incentive Plan

On February 13, 2014, our board of directors adopted the 2014 Stock Option and Incentive Plan, or the 2014 Plan, which would become effective one business day prior to the effective date of the registration statement for our initial public offering. A total of 15.0 million shares of common stock is reserved for issuance pursuant to the 2014 Plan. The 2014 Plan provides for an annual increase in the number of shares available for issuance on the first day of each year beginning in 2015.

2014 Employee Stock Purchase Plan

On February 13, 2014, our board of directors adopted the Employee Stock Purchase Plan, or ESPP. A total of approximately 7.3 million shares of our common stock are available for sale under the ESPP. The ESPP provides for annual increases in the number of shares available for issuance on the first day of each year beginning in 2015.

Amendment to Sixth Amended and Restated Certificate of Incorporation, As Amended

On February 13, 2014, our board of directors and stockholders approved an amendment to our sixth amended and restated certificate of incorporation, as amended, to (A) increase the total number of authorized shares of common stock by 30.0 million shares to a new total of 250.0 million shares; (B) increase the total number of shares of common stock designated as Series A common stock by 15.0 million shares to a new total of 175.0 million shares; (C) increase the total number of shares of common stock designated as Series B common stock by 15.0 million shares to a new total of 75.0 million shares; and (D) increase the number of shares of Series A common stock that may be issued upon conversion of Series B common stock without triggering anti-dilution provisions of our sixth amended and restated certificate of incorporation, as amended, by 15.0 million shares to a new total of 75.0 million shares.

This note describes subsequent events that we have evaluated through February 14, 2014, the date on which these consolidated financial statements were issued.

Note 15. Subsequent Events (unaudited)

Acquisition

In March 2014, we completed an acquisition of Zopim Technologies Pte Ltd. a software development company that provides a software-as-a-service live chat service, or Zopim. The purchase price of approximately $15.9 million ($5.0 million of cash and $10.9 million of our common stock) includes $1.1 million of cash and $2.4 million of common stock consideration held back between 12 and 18 months as partial security for standard indemnification obligations and which is payable in the

 

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ZENDESK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013

 

future under terms specified in the stock purchase agreement. In connection with the acquisition of Zopim, we established a retention plan pursuant to which we will pay up to $13.9 million in cash and equity consideration over two and three years, respectively, to Zopim employees in connection with their continued employment, which will be recorded as compensation expense over the associated service periods of such employees.

2009 Stock Option and Grant Plan

On March 12, 2014, we granted stock options under the 2009 Plan to certain employees to purchase approximately 0.3 million shares of common stock at an exercise price of $6.04 per share. We also granted RSUs with respect to approximately 0.4 million shares of common stock.

On March 21, 2014, we granted RSUs with respect to approximately 1.8 million shares of common stock under the 2009 Plan as part of the retention plan adopted in connection with the acquisition of Zopim.

 

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LOGO

CUSTOMER ACCOUNTS PER COUNTRY (as of December 31, 2013)
38,000+
CUSTOMER ACCOUNTS
40+
LANGUAGES SUPPORTED
>1,000
500 - 999
100 - 499
<100
88%
2013 REVENUE
GROWTH RATE
2013 REVENUE BY GEOGRAPHIC AREA
15% 26% 59%
U.S. EMEA OTHER
zendesk


Table of Contents

 

 

 

LOGO

 

NYSE: ZEN

 

 

 

 

Through and including                     , 2014 (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.

 

 


Table of Contents

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

 

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses to be paid by us, other than underwriting discounts and commissions, in connection with this offering. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee, and the exchange listing fee.

 

SEC registration fee

   $ 19,320   

FINRA filing fee

     23,000   

Exchange listing fee

         *       

Printing and engraving expenses

         *       

Legal fees and expenses

         *       

Accounting fees and expenses

         *       

Transfer agent and registrar fees

         *       

Miscellaneous expenses

         *       
  

 

 

 

Total

   $     *       
  

 

 

 

* To be completed by amendment.

 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law authorizes a corporation’s board of directors to grant, and authorizes a court to award, indemnity to officers, directors, and other corporate agents.

Prior to the completion of this offering, we expect to adopt an amended and restated certificate of incorporation, which will become effective upon the completion of this offering, and which will contain provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for the following:

 

    any breach of their duty of loyalty to our company or our stockholders;

 

    any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

    unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

 

    any transaction from which they derived an improper personal benefit.

Any amendment to, or repeal of, these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.

In addition, prior to the completion of this offering, we expect to adopt amended and restated bylaws which will provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise. Our amended and restated bylaws are expected to provide that we may indemnify to the fullest extent

 

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permitted by law any person who is or was a party or is threatened to be made a party to any action, suit, or proceeding by reason of the fact that he or she is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust, or other enterprise. Our amended and restated bylaws will also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to very limited exceptions.

Further, prior to the completion of this offering, we expect to enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements will require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements will also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit, or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.

The limitation of liability and indemnification provisions that are expected to be included in our amended and restated certificate of incorporation, amended restated bylaws, and in indemnification agreements that we enter into with our directors and executive officers may discourage stockholders from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against our directors and executive officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be harmed to the extent that we pay the costs of settlement and damage awards against directors and executive officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.

Certain of our non-employee directors may, through their relationships with their employers or affiliated entities, be insured or indemnified against certain liabilities incurred in their capacity as members of our board of directors. In our indemnification agreements with these non-employee directors, we have agreed that our indemnification obligations will be primary to any such other indemnification arrangements.

The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification by the underwriters of the Registrant and its officers and directors for certain liabilities arising under the Securities Act and otherwise.

 

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since January 1, 2011, we made sales of the following unregistered securities:

 

    We granted to our directors, officers, employees, consultants and other service providers options to purchase an aggregate of 30,186,875 shares of common stock under our 2009 Stock Option and Grant Plan at exercise prices ranging from $0.305 to $6.04 per share.

 

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    We granted to our directors, officers, employees, consultants and other service providers restricted stock units for an aggregate of 5,376,015 shares of common stock under our 2009 Stock Option and Grant Plan.

 

    We issued an aggregate of 1,500,000 shares of common stock to one of our officers pursuant to a restricted stock agreement under our 2009 Stock Option and Grant Plan.

 

    In July 2012, we issued a warrant to purchase 250,000 shares of common stock at an exercise price of $0.96 per share in connection with our entry into a loan agreement.

 

    In September 2012, we sold an aggregate of 8,582,021 shares of our Series D preferred stock at a purchase price of $5.24352 per share for an aggregate purchase price of approximately $45 million.

 

    In March 2014, we issued an aggregate of 1,803,345 shares of common stock in connection with our acquisition of all of the ordinary outstanding shares of Zopim and the termination of all outstanding vested options to acquire shares of Zopim.

We believe these transactions were exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act, Regulation D, or Regulation S 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 securities in each of these transactions 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, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about Zendesk.

 

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

See the Exhibit Index on the page immediately following the signature page for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.

(b) Financial Statement Schedules.

All schedules are omitted because the required information is either not present, not present in material amounts or is presented within the consolidated financial statements included in the prospectus that is part of this registration statement.

 

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters 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 foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission 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

 

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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, 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:

 

  (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act, shall be deemed to be part of this registration statement as of the time it was declared effective.

 

  (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California, on April 10, 2014.

 

ZENDESK, INC.
By:  

/s/    Mikkel Svane        

  Mikkel Svane
 

Chief Executive Officer and Chair of the Board of Directors

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Mikkel Svane and Alan Black, and each of them, as his or her true and lawful attorneys-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign the Registration Statement on Form S-1 of Zendesk, Inc., and any or all amendments (including post-effective amendments) thereto and any new registration statement with respect to the offering contemplated thereby filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agent, 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, as amended, this registration statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.

 

Signature

  

Title

 

Date

/s/    Mikkel Svane        

Mikkel Svane

   Chief Executive Officer and Chair of the Board of Directors (Principal Executive Officer)   April 10, 2014

/s/    Alan Black        

Alan Black

   Chief Financial Officer (Principal Financial and Accounting Officer)   April 10, 2014

/s/    Peter Fenton        

Peter Fenton

   Director   April 10, 2014

/s/    Caryn Marooney        

Caryn Marooney

   Director   April 10, 2014

/s/    Elizabeth Nelson        

Elizabeth Nelson

   Director   April 10, 2014

 

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Signature

  

Title

 

Date

/s/    Dana Stalder        

Dana Stalder

   Director   April 10, 2014

/s/    Michelle Wilson        

Michelle Wilson

   Director   April 10, 2014

/s/    Devdutt Yellurkar        

Devdutt Yellurkar

   Director   April 10, 2014

 

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EXHIBIT INDEX

 

Exhibit
Number

  

Description

    1.1*    Form of Underwriting Agreement.
    2.1    Share Purchase and Sale Agreement by and among the Registrant, the sellers listed therein, the option holders listed therein, Zopim Technologies Pte Ltd., and the representative of the sellers and option holders listed therein, dated as of March 14, 2014.
    3.1    Sixth Amended and Restated Certificate of Incorporation of the Registrant, as amended, as currently in effect.
    3.2    Form of Amended and Restated Certificate of Incorporation of the Registrant to be in effect upon the completion of this offering.
    3.3    By-laws of the Registrant, as currently in effect.
    3.4    Form of Amended and Restated By-laws of the Registrant to be in effect upon the completion of this offering.
    4.1*    Form of Common Stock Certificate of the Registrant.
    4.2    Third Amended and Restated Investors’ Rights Agreement by and among the Registrant and certain of its stockholders, dated as of September 5, 2012.
    4.3    Warrant to Purchase Stock issued to Silicon Valley Bank, dated as of June 12, 2012.
    5.1*    Opinion of Goodwin Procter LLP.
  10.1    Forms of Indemnification Agreement.
  10.2#    2009 Stock Option and Grant Plan, as amended, and related form agreements.
  10.3#    2014 Stock Option and Incentive Plan, and related form agreements.
  10.4#    2014 Employee Stock Purchase Plan.
  10.5#    Offer Letter between the Registrant and Alan Black, dated as of October 28, 2011.
  10.6#    Offer Letter between the Registrant and Marcus Bragg, dated as of July 25, 2013.
  10.7#    Offer Letter between the Registrant and Adrian McDermott, dated as of June 16, 2010.
  10.8    Office Lease between the Registrant and 989 Market Street, LLC, dated as of April 29, 2011.
  10.9    First Amendment to Lease between the Registrant and 989 Market Street, LLC, dated as of June 28, 2011.
  10.10    Second Amendment to Lease between the Registrant and 989 Market Street, LLC, dated as of August 11, 2011.
  10.11    Third Amendment to Lease between the Registrant and HMC Mid-Market Ventures LLC, dated as of September 11, 2013.
  10.12    Sublease between the Registrant and Zoosk, Inc., dated as of August 1, 2012.
  10.13    Lease Agreement between the Registrant and 1019 Market St. Property, LLC, dated as of September 6, 2013.
  10.14    Loan and Security Agreement by and between the Registrant and Silicon Valley Bank, dated as of June 12, 2012.


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Exhibit
Number

  

Description

  10.15    First Amendment and Waiver to Loan and Security Agreement by and between the Registrant and Silicon Valley Bank, dated as of June 14, 2013.
  10.16    Second Amendment to Loan and Security Agreement by and between the Registrant and Silicon Valley Bank, dated as of December 30, 2013.
  10.17    Third Amendment to Loan Security Agreement by and between the Registrant and Silicon Valley Bank, dated as of February 7, 2014.
  16.1    Letter from Deloitte & Touche LLP.
  21.1*    List of Subsidiaries of the Registrant.
  23.1    Consent of Ernst & Young LLP, independent registered public accounting firm.
  23.2*    Consent of Goodwin Procter LLP (included in Exhibit 5.1).
  24.1    Power of Attorney (see page II-5 of this Registration Statement on Form S-1).

 

* To be filed by amendment.
# Indicates management contract or compensatory plan, contract, or agreement.

Exhibit 2.1

EXECUTION VERSION

SHARE PURCHASE AND SALE AGREEMENT

by and among

ZENDESK, INC.,

ZOPIM TECHNOLOGIES PTE LTD,

THE SELLERS

(as defined herein),

certain of the

VESTED OPTIONHOLDERS

(as defined herein),

and

ROYSTON TAY,

as the Representative of the Sellers for purposes of this Agreement

March 14, 2014


TABLE OF CONTENTS

 

            Page  

ARTICLE I DEFINITIONS; PURCHASE AND SALE

     2   

1.1

    

Definitions

     2   

1.2

    

Share Purchase and Sale

     13   

1.3

    

Effect on Company Options

     14   

1.4

    

Purchase Price Determination

     15   

1.5

    

Closing Deliverables

     16   

1.6

    

Closing

     18   

1.7

    

Payment of Purchase Price

     18   

1.8

    

Tax Withholding

     19   

1.9

    

Tax Consequences

     20   

ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND VESTED OPTIONHOLDERS

     20   

2.1

    

Ownership of Shares

     20   

2.2

    

Authority of Sellers

     20   

2.3

    

No Violation

     21   

2.4

    

Consents and Approvals

     21   

2.5

    

Brokers’, Finders’ Fees, etc

     21   

2.6

    

Securities Law Representations

     21   

2.7

    

Disclosure

     22   

ARTICLE III REPRESENTATIONS AND WARRANTIES ABOUT THE COMPANY

     23   

3.1

    

Corporate Organization; Authorization

     23   

3.2

    

No Violation

     24   

3.3

    

Consents and Approvals of Governmental Authorities

     24   

3.4

    

Capitalization

     24   

3.5

    

Subsidiaries and Affiliates

     25   

3.6

    

Financial Statements

     25   

3.7

    

Absence of Undisclosed Liabilities

     27   

3.8

    

Absence of Certain Changes

     27   

3.9

    

Intellectual Property.

     27   

3.10

    

Contracts and Commitments

     35   

3.11

    

Litigation; Compliance with Laws

     37   

3.12

    

Taxes

     38   

3.13

    

Benefit Plans

     40   

3.14

    

Employees; Labor Relations

     41   

3.15

    

Environmental Matters

     42   

3.16

    

Brokers’, Finders’ Fees, etc

     43   

3.17

    

Affiliate Transactions

     43   

3.18

    

Insurance

     44   

3.19

    

Bank Accounts

     44   

3.20

    

Title to Properties; Encumbrances; Capital Leases

     44   

3.21

    

Sufficiency of Assets

     44   

3.22

    

Accounts Payable; Accounts Receivable

     45   

3.23

    

Customers and Suppliers

     45   

3.24

    

Export Controls and Economic Sanctions

     46   

3.25

    

Anti-Corruption Laws

     47   

 

i


3.26

    

Solvency

     47   

3.27

    

Corporate Records

     48   

3.28

    

Warranties

     49   

3.29

    

Disclosure

     49   

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER

     49   

4.1

    

Organization and Corporate Power; Capitalization

     49   

4.2

    

Authorization of Transactions

     50   

4.3

    

Non-Contravention

     50   

4.4

    

Litigation

     50   

4.5

    

Brokerage

     51   

4.6

    

Sufficient Funds

     51   

4.7

    

Buyer Financial Information

     51   

ARTICLE V CONDUCT OF COMPANY BUSINESS DURING PENDENCY OF TRANSACTION

     51   

5.1

    

Affirmative Obligations of the Company

     51   

5.2

    

Forbearance of the Company

     52   

5.3

    

Procedures for Requesting Buyer Consent

     55   

ARTICLE VI ADDITIONAL AGREEMENTS

     55   

6.1

    

Non-Solicitation of Competing Acquisition Proposals

     55   

6.2

    

Governmental Approvals

     56   

6.3

    

Endeavors to Close

     57   

6.4

    

Access to Information

     57   

6.5

    

Notification of Certain Matters

     57   

6.6

    

Confidentiality

     57   

6.7

    

Contracts

     58   

6.8

    

Employee Matters

     59   

6.9

    

Tax Matters

     60   

6.10

    

Further Assurances

     63   

6.11

    

Transactions with Affiliates

     63   

6.12

    

Seller and Vested Optionholder Releases

     63   

6.13

    

Spreadsheet; Allocation

     64   

6.14

    

Tail Insurance Coverage

     64   

6.15

    

Disclosure to U.S. Authorities

     64   

ARTICLE VII CONDITIONS TO THE ACQUISITION

     65   

7.1

    

Conditions to Obligations of Each Party

     65   

7.2

    

Additional Conditions to the Obligations of Buyer

     65   

7.3

    

Additional Conditions to Obligations of the Company and the Sellers

     68   

ARTICLE VIII INDEMNIFICATION

     68   

8.1

    

Indemnification

     68   

8.2

    

Additional Indemnity Provisions

     72   

8.3

    

Claims Procedure

     72   

8.4

    

Survival of Representations and Warranties, etc

     75   

8.5

    

Holdback Arrangements

     75   

ARTICLE IX PRE-CLOSING TERMINATION OF AGREEMENT

     76   

9.1

    

Termination

     76   

9.2

    

Effect of Termination

     77   

 

ii


ARTICLE X MISCELLANEOUS PROVISIONS

     77   

10.1

    

Amendment and Modification

     77   

10.2

    

Waiver of Compliance

     78   

10.3

    

Notices

     78   

10.4

    

Binding Nature; Assignment

     79   

10.5

    

Entire Agreement

     79   

10.6

    

Expenses

     79   

10.7

    

Press Releases and Announcements

     79   

10.8

    

Governing Law

     79   

10.9

    

Arbitration

     79   

10.10

    

Interpretation

     80   

10.11

    

Fair Market Value of Buyer Series B Common Stock

     81   

10.12

    

Specific Performance

     81   

10.13

    

Severability

     81   

10.14

    

Counterparts

     81   

10.15

    

Seller Representative

     81   

Exhibits*

 

Exhibit A-1    Sellers
Exhibit A-2    Vested Optionholders
Exhibit B    Form of Closing Certificate
Exhibit C    Principal Residences of Sellers and Vested Optionholders
Exhibit D    Form of Buyer Stockholder Agreement
Exhibit E    Form of Director and Officer Resignation Letter
Exhibit F    Form of Non-Competition Agreement
Exhibit G-1    Form of Retention Plan
Exhibit G-2    Retention Payment Recipients
Exhibit G-3    Form of Retention Agreement (Participation Agreement)
Exhibit H    Deed of Confirmation and Release
Exhibit I-1    Form of Officer’s Certificate
Exhibit I-2    Form of Seller Certificate
Exhibit J    Other Key Employees
Exhibit K    Form of Vested Optionholder Agreement
Exhibit L    Disclosure Letter

 

* Not filed herewith pursuant to Item 601(b)(2) of Regulation S-K. The registrant will provide a supplemental copy of these exhibits to the Commission upon request.

 

iii


SHARE PURCHASE AND SALE AGREEMENT

THIS SHARE PURCHASE AND SALE AGREEMENT (the “ Agreement ”) is made and entered into as of March 14, 2014, by and among the Sellers listed on Exhibit A-1 hereto (the “ Sellers ”), certain of the Vested Optionholders (as defined below) listed on Exhibit A-2 hereto, Zopim Technologies Pte Ltd, a private limited company duly organized under the laws of Singapore (the “ Company ”), Zendesk, Inc., a Delaware corporation (the “ Buyer ”), and Royston Tay as the representative of the Sellers and Vested Optionholders (the “ Seller Representative ”).

A. The Sellers own all of the issued and outstanding shares in the capital of the Company (collectively, the “ Shares ”);

B. Buyer desires to purchase from the Sellers, and the Sellers desire to sell to Buyer, collectively, all of the Shares, free and clear of all Liens (such transactions, together, the “ Acquisition ”);

C. A portion of the consideration otherwise payable in connection with the Acquisition shall be withheld by Buyer to serve as security in respect of the indemnification obligations set forth in this Agreement;

D. The Company and each of the Sellers desire to make certain representations, warranties, covenants and other agreements in connection with the Acquisition; and

E. In connection with the consummation of the Acquisition, each Other Employee (as defined herein) will enter into employment arrangements with Buyer or a Subsidiary (as defined herein) thereof to be effective as of the Closing Date (as defined herein) pursuant to the execution of an employment agreement (collectively, the “ Employment Agreements ”) and a proprietary information and inventions assignment agreement, each being a version of Buyer’s or the relevant Subsidiary’s applicable standard form modified to comply with applicable Laws, as further provided in Section 7.2(i)(ii) below.

F. Concurrently with the execution and delivery of this Agreement, each Key Employee (as defined herein) will enter into and deliver to Buyer (i) an Employment Agreement (the “ Key Employee Employment Agreements ”) and (ii) a Non-Competition and Non-Solicitation Agreement (the “ Non-Competition Agreement ”) in the form set forth on Exhibit F hereto, to be effective upon the Closing Date.

G. Effective as of the Closing and in connection with the transactions contemplated hereby, Buyer shall adopt a retention plan in the form attached hereto as Exhibit G-1 (the “ Retention Plan ”) to provide for cash payments and grants of Buyer Series B Common Stock in the form of restricted stock units (the “ Retention RSUs ”) to the Retention Payment Recipients (as defined herein), conditioned on such persons agreeing to certain obligations and entering into certain Retention Agreements, as set forth under the terms of the Retention Plan and pursuant to this Agreement.

NOW THEREFORE , in consideration of the premises and of the representations, warranties, covenants and agreements which are to be made and performed by the respective parties, it is agreed as follows:


ARTICLE I

DEFINITIONS; PURCHASE AND SALE

1.1 Definitions . The following terms when used in this Agreement have the meanings set forth below:

Accountant ” has the meaning set forth in Section 1.4(b) .

Accountant Costs ” has the meaning set forth in Section 1.4(b) .

Acquisition ” has the meaning assigned to it in the Recitals.

Action of Divestiture ” has the meaning set forth in Section 6.2 .

Affiliate ” means, with respect to any Person, (i) if such Person is an individual, a spouse of such Person, or any child or parent of such Person, and (ii) if such Person is not an individual, any Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person, where “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

Aggregate Exercise Price ” means the amount of the aggregate exercise price payable to the Company in connection with the exercise of all Vested Company Options outstanding immediately prior to the Closing.

Agreed Amount ” has the meaning set forth in Section 8.3(a) .

Agreed Valuation Method ” has the meaning set forth in Section 10.11 .

Amended Agreements ” has the meaning set forth in Section 6.7(b) .

Alternative Transaction ” has the meaning set forth in Section 6.1(b) .

Arbitration Rules ” has the meaning set forth in Section 10.9(a) .

Arbitrator ” has the meaning set forth in Section 10.9(b) .

Audit ” has the meaning set forth in Section 7.2(q) .

Balance Sheet Date ” has the meaning set forth in Section 3.6(a) .

Books and Records ” has the meaning set forth in Section 3.27 .

Business ” means the development, marketing, sale and provision of software-as-a-service online personalization solutions, including technology, software, services and expert advice.

Business Day ” means any day on which banking institutions in New York, New York and Singapore are open for the purpose of transacting business.

Buyer End Date ” has the meaning set forth in Section 9.1(c) .

 

2


Buyer Indemnified Parties ” has the meaning set forth in Section 8.1(a) .

Buyer Series B Common Stock ” has the meaning set forth in Section 1.2(a) .

Buyer Stockholder Agreement ” means the Buyer Stockholder Agreement in the form attached as Exhibit D , entered into between Buyer and each Seller setting forth terms in accordance with which each Seller shall hold those shares of Buyer Series B Common Stock acquired by such Seller pursuant to this Agreement.

Cash Holdback ” has the meaning set forth in the Section 1.1 .

Cash ” means the amount of unrestricted cash held in the name of the Company in the bank accounts listed on Schedule 3.19 as of the Close of Business on the Closing Date, as determined by Section 1.4(b) ; provided that the value of any checks issued and wires sent by the Company which have not been deducted from the amount of cash held in the bank accounts listed on Schedule 3.19 as of the Close of Business on the Closing Date shall be deducted from the amount of cash held in such accounts as of the Close of Business on the Closing Date.

CFC ” has the meaning set forth in Section 3.12(n) .

Claim Certificate ” has the meaning set forth in Section 8.3(a) .

Claimed Amount ” has the meaning set forth in Section 8.3(a) .

Close of Business ” as of a particular date, means 5:00 p.m. Singapore time on such date.

Closing ” has the meaning set forth in Section 1.6 .

Closing Balance Sheet ” has the meaning set forth in Section 1.4(b) .

Closing Certificate ” means the certificates delivered by the President of the Company pursuant to Section 1.7(c) .

Closing Date ” has the meaning set forth in Section 1.6 .

Closing Statement ” has the meaning set forth in Section 1.4(b) .

Code ” means the United States Internal Revenue Code of 1986, as amended.

Company Audited Balance Sheets ” has the meaning set forth in Section 3.6(a) .

Company Audited Financial Statements ” has the meaning set forth in Section 3.6(a) .

Company Benefit Plan ” has the meaning set forth in Section 3.13(a) .

Company Contract ” has the meaning set forth in Section 3.10(b) .

Company Intellectual Property ” has the meaning set forth in Section 3.9(a)(i) .

Company Intellectual Property Rights ” has the meaning set forth in Section 3.9(a)(ii) .

Company Interim Balance Sheet ” has the meaning set forth in Section 3.6(b) .

 

3


Company Interim Financial Statements ” has the meaning set forth in Section 3.6(b) .

Company Officers ” has the meaning set forth in Section 1.5(d) .

Company Privacy Policy ” has the meaning set forth in Section 3.9(a)(iv) .

Company Products ” has the meaning set forth in Section 3.9(a)(iii) .

Company Registered Intellectual Property ” has the meaning set forth in Section 3.9(b) .

Company Sites ” has the meaning set forth in Section 3.9(q) .

Company Stock Option ” has the meaning set forth in Section 1.3(a) .

Compliance Certificate ” has the meaning set forth in Section 1.5(n) .

Confidential Information ” has the meaning set forth in Section 6.6 .

Contaminants ” has the meaning set forth in Section 3.9(v) .

Continuing Benefit Plans ” has the meaning set forth in Section 6.8(c) .

Continuing Employee ” has the meaning set forth in Section 6.8(c) .

Contract ” means any contract, mortgage, indenture, lease, covenant or other agreement, instrument or commitment, permit, concession, franchise or license (including any purchase or sales order), whether written or oral.

Copyrights ” has the meaning set forth in Section 3.9(a)(vii) .

Current Assets ” means current assets of the Company (other than any Tax assets) as defined under Singapore FRS.

Current Liabilities ” means current Liabilities of the Company (other than any Seller Expenses and Indebtedness to the extent included in the Estimated Closing Adjustment or the Final Closing Adjustment, as applicable, and excluding the amount of any deferred revenue) as defined under Singapore FRS, including all accrued but unused vacation and similar balances of employees of the Company; provided that, for the sake of clarity, each of (A) up to the first $500,000 of the amount of any fees, costs and expenses that would otherwise constitute Seller Expenses (if read without regard to the $500,000.00 threshold) and (B) the amount of any Pre-Closing Taxes will constitute Current Liabilities.

Customer Data ” has the meaning set forth in Section 3.9(a)(v) .

Deed of Confirmation and Release ” has the meaning set forth in Section 1.5(e) .

Director and Officer Resignation Letter ” has the meaning assigned to it in Section 1.5(d) .

Disclosure Letter ” has the meaning assigned to it in Section 6.15 .

Disclosure Matters ” has the meaning assigned to it in Section 6.15 .

Domain Names ” has the meaning set forth in Section 3.9(a)(vii) .

 

4


EAR ” has the meaning set forth in Section 3.24(a)(i) .

Employee ” shall mean any current or former employee, consultant, independent contractor or director of the Company.

Employment Agreement ” has the meaning set forth in the Recitals.

Environment ” means soil, sediment, surface waters, wetlands, groundwaters, drinking water supplies, land, surface or subsurface strata, ambient air (including indoor air), plant and animal life (including fish and all other aquatic life), and any other environmental medium or natural resource.

Environmental Laws ” means all Laws relating to pollution, the protection of the Environment, public or worker environmental health and safety, or any other environmental matters (including, without limitation, any Laws relating to the use, storage, emission, discharge, handling, release or disposal of any Hazardous Substance).

Environmental Permits ” has the meaning set forth in Section 3.15(b) .

Environmental Reports ” mean any report, study, assessment, audit or other similar document or material that addresses any issue of actual or potential non-compliance with, actual or potential Liability under or cost arising out of, or actual or potential business impact in connection with any Environmental Law, concerning the Company, or any property currently or formerly owned, leased, operated or otherwise used by the Company.

Equityholder-Related Claims ” means any claim by any Seller or Vested Optionholder, equity holder or former shareholder, equity holder, or any other Person, seeking to assert, or based upon (i) ownership or rights to ownership of any equity securities or securities convertible into or exercisable for equity securities, (ii) any rights of a Seller or Vested Optionholder (other than the right to receive such Seller’s or Vested Optionholder’s portion of the Purchase Price pursuant to this Agreement), or holder of share options, warrants or other securities convertible into or exercisable for equity securities, including any option, preemptive rights or rights to notice or to vote and any claim that any formulas, definitions or provisions related to the payment of the Purchase Price are incorrect, (iii) any rights under the articles of association and bylaws (or similar organizational documents) of the Company, in effect as of immediately prior to the Closing, (iv) any claim that his, her or its equity securities were wrongfully repurchased by the Company, (v) any claim relating to breach of fiduciary duty, or (vi) any failure of the Spreadsheet to be true and correct in all respects.

ERISA ” has the meaning set forth in Section 3.13(d) .

Estimated Closing Adjustment ” means the arithmetic sum of (i) the Estimated Seller Expenses plus (ii) the absolute value of the Estimated Working Capital Adjustment plus (iii) the absolute value of the Estimated Indebtedness as of the Close of Business on the Closing Date.

Estimated Indebtedness ” means the estimated amount of Indebtedness as of the Close of Business on the Closing Date as set forth on the Closing Certificate.

Estimated Pre-Closing Taxes ” means the estimated amount of Pre-Closing Taxes as of the Close of Business on the Closing Date as set forth on the Closing Certificate.

Estimated Purchase Price ” has the meaning set forth in Section 1.7(a) .

 

5


Estimated Seller Expenses ” means the estimated Seller Expenses as of the Close of Business on the Closing Date as set forth on the Closing Certificate.

Estimated Working Capital ” means the estimated Working Capital of the Company as of Close of Business on the Closing Date as set forth on the Closing Certificate.

Estimated Working Capital Adjustment ” means the negative difference (if any), of (i) Estimated Working Capital minus (ii) the Working Capital Target, as determined in accordance with Section 1.4(b) . In the event that the calculation in the preceding sentence would derive a positive number, the “Estimated Working Capital Adjustment” shall be deemed to be $0.

FCPA ” has the meaning set forth in Section 3.25(a) .

Final Closing Adjustment ” means the arithmetic sum of (i) the Seller Expenses as of the Close of Business on the Closing Date, plus (ii) the absolute value of the Final Working Capital Adjustment, plus (iii) the absolute value of the Indebtedness as of the Close of Business on the Closing Date, each as finally determined in accordance with Section 1.4(b) .

Final Holdback Release Date ” has the meaning set forth in Section 8.5(c) .

Final Working Capital ” means the Working Capital of the Company as of the Close of Business on the Closing Date, as finally determined in accordance with Section 1.4(b) .

Final Working Capital Adjustment ” means the negative difference (if any), of (i) Final Working Capital minus (ii) the Working Capital Target, as determined in accordance with Section 1.4(b) . In the event that the calculation in the preceding sentence would derive a positive number, the “Final Working Capital Adjustment” shall be deemed to be $0.

Financial Statements ” has the meaning set forth in Section 3.6(a) .

First Cutoff Date ” has the meaning set forth in Section 8.1(b)(ii) .

Founders ” means each of Mr. Royston Tay Zhing Keak, Mr. Wenxiang Wu and Mr. Kwok Yang Bin.

Fundamental Representations ” has the meaning set forth in Section 8.4 .

GAAP Company Interim Financial Statements ” has the meaning set forth in Section 7.2(r) .

General Representations ” has the meaning set forth in Section 8.1(b)(ii) .

General Survival Date ” has the meaning set forth in Section 8.4 .

Generally Commercially Available Code ” has the meaning set forth in Section 3.9(a)(vi) .

Governmental Authority ” shall mean any federal, state, commonwealth, municipal, county or other governmental department, commission, body, organization, authority or agency, or any court, in each case whether of the United States, any of its possessions or territories, Singapore or of any foreign nation.

Hazardous Substances ” mean any substance or material regulated under any Environmental Law, including (i) petroleum, asbestos or polychlorinated biphenyls, and (ii) any waste, gas or other substance or material that is hazardous, toxic, radioactive, explosive, or infectious, and any derivative or by-product thereof.

 

6


Holdback Amount ” means, subject to any adjustment pursuant to Section 1.3(b) , an amount in cash equal to USD $1,100,000 (the “ Cash Holdback ”) plus 397,254 shares of Buyer Series B Common Stock (such number subject to appropriate adjustment in the event of a stock split or reverse stock split in respect of the Buyer Series B Common Stock) (the “ Share Holdback ”) to be withheld from the Estimated Purchase Price and retained by Buyer as set forth herein.

Inbound Licenses ” has the meaning set forth in Section 3.9(f) .

Inchoate Indemnity Claims ” has the meaning set forth in Section 1.5(e) .

Indebtedness ” means without duplication, all obligations, contingent or otherwise, of the Company (i) for borrowed money; (ii) evidenced by notes, bonds, debentures or similar instruments; (iii) including all capitalized lease obligations of the Company; (iv) for the deferred purchase price of property, goods or services (other than trade payables incurred in the ordinary course of business which are included as Liabilities in the determination of the Working Capital or which are excluded from such determination because they are not due as of the Closing Date); (v) for reimbursement obligations, whether contingent or matured, with respect to letters of credit (whether drawn or undrawn), bankers’ acceptances, surety bonds or interest rate cap agreements, interest rate swap agreements, foreign currency exchange contracts or other hedging contracts; (vi) all conditional sale obligations and all obligations under any title retention agreement; (vii) all obligations of any other Person of the type referred to in clauses (i) through (vi) which is secured by a Lien on any property or asset of the Company, the amount of such obligation being deemed to be the lesser of the fair market value of such property or asset or the amount of the obligation; (viii) in the nature of guarantees of the types of obligations described in (i)-(vi) above; (ix) any amendment, supplement, modification, deferral, renewal, extension, refunding or refinancing or any Liability of the types referred to in clauses (i) through (ix) above; (x) for all accrued and unpaid interest on or any fees, premiums, penalties or other amounts due with respect to any of the obligations described in (i)-(ix) above; and (xi) all Liabilities for reserves for any of the foregoing. For purposes of calculating deductions from the Purchase Price, “Indebtedness” does not include any Pre-Closing Taxes or Seller Expenses.

Indemnifying Party ” has the meaning set forth in Section 8.1(a) .

Initial Holdback Release Date ” has the meaning set forth in Section 8.5(c) .

Initial Public Offering ” means Buyer’s first firm-commitment underwritten public offering of its Series A Common Stock under the Securities Act.

Intellectual Property Rights ” has the meaning set forth in Section 3.9(a)(vii) .

Intentional Bad Acts ” has the meaning set forth in Section 8.1(a)(vi) .

IP Representations ” has the meaning set forth in Section 8.1(b)(i) .

IRS ” means the United States Internal Revenue Service.

Key Employee Employment Agreement ” has the meaning set forth in the Recitals.

 

7


Key Employees ” shall mean each of the Founders and each other Employee of the Company listed on Exhibit J .

Knowledge ” or “ Known ” means, with respect to the Company, that such entity will also be deemed to have “Knowledge” of, or to have “Known”, a particular fact or other matter if (i) any of the Founders, directors or officers of the Company is actually aware of such fact or other matter or would reasonably be expected to have become aware of such fact or other matter after reasonable inquiry of those employees, consultants, internal and external counsel and advisors, and contractors of and to such entities who would reasonably be expected to have knowledge of the matter in question, (ii) such fact or other matter is reflected in one or more documents (whether written or electronic, including electronic mails sent or received by a Founder, director or officer of the Company) in, or that have been in, the possession of such Founder, director or officer of the Company, including his or her personal files, or (iii) such fact or other matter is reflected in one or more documents (whether written or electronic) contained in books and records of the Company that could reasonably be expected to be reviewed by a director or executive officer of the Company in the customary performance of his or her duties and responsibilities.

Laws ” mean any common law or any code, law, ordinance, regulation, order (administrative or other), treaty, decree, rule, statute, judgment or reporting or licensing requirements, applicable to a Person or its assets, properties, Liabilities or business promulgated, interpreted or enforced by any Governmental Authority.

Letter of Transmittal ” has the meaning set forth in Section 1.7(a) .

Liability ” or “ Liabilities ” means, with respect to any Person, any and all Liabilities or obligations of any kind (whether known or unknown, asserted or unasserted, contingent, accrued, due or to become due, secured or unsecured, matured or otherwise), including but not limited to accounts payable, royalties payable, and other reserves, accrued bonuses and commissions, accrued vacation and any other form of leave, termination payment obligations, employee expense obligations, obligations arising under any order of any Governmental Entity, and all other Liabilities or obligations of such Person or any of its Subsidiaries or Affiliates, regardless of whether such Liabilities or obligations are required to be reflected on a balance sheet in accordance with Singapore FRS, and including any Seller Expenses.

Liens ” shall mean any and all liens, encumbrances, mortgages, charges, claims, pledges, security interests, title defects, voting agreements or trusts, transfer restrictions or other restrictions of any nature, other than restrictions under applicable securities laws.

Loss ” and “ Losses ” means any and all Liabilities, claims, deficiencies, obligations, judgments, settlements, liens, penalties, fines, costs, losses, Taxes, damages (including diminution in value, but other than punitive damages unless such punitive damages are owed or paid to a third party), and reasonable cost, expenses and disbursements, including but not limited to, reasonable attorneys’ and consultants’ fees, and accounting fees and other expert fees (and other expenses related to litigation or other claims or proceedings), incurred in connection with investigating, defending against or settling any of the foregoing, in each case, paid, incurred, accrued, suffered or sustained by the Indemnified Parties, or any of them (regardless of whether or not such Losses relate to any third party claims).

Made Available ” means that the subject documents or other materials were included in the online data site hosted at https://www.dropbox.com/home#!/home/Zopim%20Due%20Diligence, at least two (2) Business Days prior to the date hereof.

Mask Works ” has the meaning set forth in Section 3.9(a)(vii) .

 

8


Material Adverse Effect ” shall mean any state of facts, condition, change, development, event or effect (each, an “ Effect ”) that, either alone or in combination with any other Effect, is, or could reasonably be expected to be or become, materially adverse to the business, assets, Liabilities, condition (financial or other), prospects, customer relationships or results of operations of the Company, taken as a whole, whether in the short-term, intermediate-term or long-term; provided that, for purposes of this Agreement, a Material Adverse Effect shall not include the foregoing Effects to the extent resulting from (a) changes to the industry or market in which the Company operates, (b) general economic, regulatory or political conditions or changes, (c) military action or any act of terrorism, or (d) any Effects to the extent resulting from any public announcement of the transactions contemplated by this Agreement that is not in violation of the terms of this Agreement by the party asserting that such Effects are a Material Adverse Effect; provided, further , in the cases of the foregoing clauses (a) through (c), that such Effects do not disproportionately affect the Company relative to any similarly situated companies.

Non-Competition Agreement ” has the meaning assigned to it in the Recitals.

Non-U.S. Person ” has the meaning set forth in Section 2.6(e) .

Objection Certificate ” has the meaning set forth in Section 8.3(a) .

Objection Notice ” has the meaning set forth in Section 1.4(b) .

Objection Period ” has the meaning set forth in Section 8.3(a) .

OFAC ” has the meaning set forth in Section 3.24(a)(i) .

Open Source Software ” has the meaning set forth in Section 3.9(a)(viii) .

Ordinary Course Outbound Agreements ” has the meaning set forth in Section 3.9(h) .

Other Employees ” has the meaning set forth in Section 7.2(i)(ii) .

Outbound Licenses ” has the meaning set forth in Section 3.9(h) .

Patents ” has the meaning set forth in Section 3.9(a)(vii) .

PCBs ” has the meaning set forth in Section 3.15(e) .

PCI-DSS ” has the meaning set forth in Section 3.9(w) .

Permits ” means any permit, license, authorization, registration, certificate, variance or similar right issued or granted by any Governmental Authority (but excluding registrations of Intellectual Property Rights).

Permitted Liens ” shall mean (i) statutory Liens for Taxes not yet due and payable or that are being contested in good faith by appropriate proceedings and, in each case, for which adequate reserves have been established in accordance with Singapore FRS, (ii) mechanics’, carriers’, workers’, repairers’ and other similar liens arising or incurred in the ordinary course of business relating to obligations which are not individually, or in the aggregate, material, and (iii) purchase money security interests in respect of personal property arising or incurred in the ordinary course of business.

Per Option Consideration ” has the meaning set forth in Section 1.2(a) .

 

9


Per Share Consideration ” has the meaning set forth in Section 1.2(a) .

Person ” means a natural person, a partnership, a corporation, a company (limited liability or otherwise), an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a Governmental Authority, or any department, agency or subdivision thereof.

Personally Identifiable Information ” has the meaning set forth in Section 3.9(a)(ix) .

Planned Options ” has the meaning set forth in Section 5.2(b) .

Post-Closing Adjustment ” means the difference of the Estimated Closing Adjustment minus the Final Closing Adjustment.

Pre-Closing Tax Period ” has the meaning set forth in Section 6.9(a) .

Pre-Closing Taxes ” shall mean Taxes of the Company (A) attributable to any Pre-Closing Tax Period or resulting from actions taken on or prior to the Closing Date; (B) any Taxes as a result of the Company being (or ceasing to be) on or prior to the Closing Date (1) a member of an affiliated or combined group pursuant to Treasury Regulations Section 1.1502-6 or any similar provision of state, local or foreign law prior to the Closing Date or (2) a transferee or successor by Contract or otherwise, which relate to an event occurring on or before the Closing Date; and (C) as a result of an express or implied obligation arising on or prior to Closing Date to indemnify or otherwise assume or succeed to the Taxes of any other Person, in each case, to the extent not reflected in the calculation of Working Capital or Seller Expenses.

Pro Rata Portion ” means, with respect to any Seller or Vested Optionholder, (i) the aggregate value of the portion of the Total Consideration payable to such Seller or Vested Optionholder, divided by (ii) the value of the Total Consideration payable to all such Sellers and Vested Optionholders. For purposes of clarity, the sum of all “Pro Rata Portions” shall at all times equal one (1).

PTO ” has the meaning set forth in Section 3.9(b) .

Purchase Price ” has the meaning set forth in Section 1.4(a) .

Registered Intellectual Property ” has the meaning set forth in Section 3.9(a)(x) .

Regulation S Qualified Person ” means any Person who may be offered or issued securities of Buyer pursuant to an exemption from registration under Regulation S promulgated under the Securities Act.

Released Causes of Action ” has the meaning set forth in Section 6.12(a) .

Released Parties ” has the meaning set forth in Section 6.12(a) .

Releasing Parties ” has the meaning set forth in Section 6.12(a) .

Representatives ” has the meaning set forth in Section 6.1(b) .

Retention Agreement ” means the Participation Agreement, in the form attached as Exhibit B to the Retention Plan and reproduced as Exhibit G-3 hereto, entered into between each Retention Payment Recipient and Buyer pursuant to the Retention Plan.

 

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Retention Payment Amount ” means an aggregate amount in cash equal to USD $3,000,000 plus the Retention RSUs equal to 1,805,700 shares of Buyer Series B Common Stock (such number subject to appropriate adjustment in the event of a stock split or reverse stock split in respect of the Buyer Series B Common Stock) payable or issuable to the Retention Payment Recipients in accordance with, and in the proportions set forth in, the Retention Plan.

Retention Payment Recipient ” means the current Employees of the Company set forth on Exhibit G-2 who shall enter into Retention Agreements with Buyer pursuant to the Retention Plan as a condition to the Closing.

Retention Plan ” has the meaning set forth in the Recitals.

Retention RSUs ” has the meaning set forth in the Recitals.

Section 338(g) Election ” has the meaning set forth in Section 6.9(d) .

Securities Act ” means the Securities Act of 1933, as amended.

Seller End Date ” has the meaning set forth in Section 9.1(d) .

Seller Expenses ” mean all fees, costs and expenses (calculated net of GST) in excess of USD $500,000.00 incurred, paid or payable by the Sellers, the Company or any of their respective Affiliates, for which the Company is liable in connection with the preparation of, or the transactions contemplated by, this Agreement including (i) all legal, accounting, financial advisory, consulting, finders, brokerage, commission, and all other fees and expenses of third parties incurred by the Company (whether paid or unpaid) in connection with the negotiation and effectuation of the terms and conditions of this Agreement, all other agreements, instruments and other documents referenced herein or contemplated hereby, the Acquisition and the other transactions contemplated hereby, including all fees, costs and expenses payable to (1) Orrick, Herrington & Sutcliffe LLP, (2) Allen & Gledhill LLP, (3) Central Chambers Law Corporation and (4) Ernst & Young LLP (“ Ernst & Young ”), and any Taxes incurred in connection with any of the foregoing; (ii) all costs and expenses incurred by the Company in connection with remediation and voluntary self-disclosure of violations related to export controls and OFAC sanctions, any penalties associated with identified non-compliance, and installation of a compliance program; (iii) any termination, pre-payment, balloon or similar fees or payments (including penalties) of the Company resulting from the early termination of outstanding Indebtedness in connection with the consummation of the Acquisition and the other transactions contemplated hereby, other than any amounts included in Closing Indebtedness; and (iv) any bonus, severance, change-in-control payments or similar payment obligations (including payments with “single-trigger” provisions triggered at or prior to Closing, but excluding severance payments made after the Closing pursuant to “double-trigger” provisions where an individual is involuntarily terminated by Buyer following the Closing) of the Company that become due or payable in connection with the consummation of the Acquisition and the other transactions contemplated hereby, and any payroll or similar employer-side Taxes payable in connection therewith. For purposes of calculating deductions from the Purchase Price, “Seller Expenses” does not include, to the extent not incurred in connection with the Acquisition or the other transactions contemplated hereby, (1) the Company’s general ongoing legal and financial expenses or (2) costs and expenses of investigating, maintaining and securing the Company’s compliance with generally applicable laws and regulations of Singapore, the United States and other jurisdictions (other than those set forth in clause (ii) above).

Seller-Related Guarantees ” has the meaning set forth in Section 1.5(l) .

 

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Share Holdback ” has the meaning set forth in Section 1.1 .

Singapore FRS ” means Singapore Financial Reporting Standards issued by the Accounting Standards Council of Singapore.

Shares ” has the meaning set forth in the Recitals.

Specified Matters ” has the meaning set forth in Section 8.1(b)(i) .

Spreadsheet ” has the meaning set forth in Section 6.13 .

Stamp Duties ” means the amount of stamp duty assessed to be paid by the Stamp Duty Branch of the Inland Revenue Authority of Singapore in connection with the Acquisition.

Standard-Form Agreement ” has the meaning set forth in Section 3.9(g) .

Straddle Period ” has the meaning set forth in Section 6.9(b) .

Subsidiary ” means, with respect to any Person, any other Person of which more than 50% of the securities or other ownership interests having by their terms ordinary voting power to elect a majority of the board of directors or of other Persons performing similar functions, or to receive more than 50% of the profits or losses, of such other Person is directly or indirectly owned or controlled by such Person, by one or more of such Person’s Subsidiaries (as defined in the preceding clause) or by such Person and any one or more of such Person’s Subsidiaries.

Survival Date ” has the meaning set forth in Section 8.1(b)(iii) .

Tax ” or “ Taxes ” means any and all U.S. federal, state, local, Singapore and other non-U.S. taxes, assessments and other governmental charges, fees, duties, impositions and Liabilities in the nature of tax, including without limitation those based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, severance, stamp, social security, unemployment, disability, registration, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts, whether disputed or not and including any obligations to indemnify or otherwise assume or succeed to the Tax liability of any other Person.

Tax Return ” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

Technology ” has the meaning set forth in Section 3.9(a)(xi) .

Terminated Agreements ” has the meaning set forth in Section 6.7(b) .

Threshold ” has the meaning set forth in Section 8.2(a) .

Third Party ” has the meaning set forth in Section 6.1(b) .

Third Party Claim ” has the meaning set forth in Section 8.3(b) .

Top Customer ” has the meaning set forth in Section 3.23(a) .

 

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Top Supplier ” has the meaning set forth in Section 3.23(b) .

Total Consideration ” means the Purchase Price plus Retention Payment Amount receivable by the Retention Payment Recipients as set forth on the Spreadsheet.

Trademarks ” has the meaning set forth in Section 3.9(a)(vii) .

Transaction Document ” means this Agreement and each agreement, Contract, document, schedule, certificate or other instrument executed or delivered in connection with this Agreement, including the Non-Competition Agreements, the Retention Plan and the Retention Agreements, and the Employment Agreements.

Transfer Taxes ” has the meaning set forth in Section 6.9(h) .

Treasury Regulations ” means the U.S. Treasury regulations promulgated under the Code.

URLs ” has the meaning set forth in Section 3.9(a)(vii) .

US GAAP ” means United States generally accepted accounting principles.

US Shareholder ” has the meaning set forth in Section 3.12(n) .

Vested Company Option ” has the meaning set forth in Section 1.3(a) .

Vested Optionholder ” has the meaning set forth in Section 1.3(a) .

Vested Optionholder Agreements ” has the meaning set forth in Section 7.2(o) .

Whitewash Procedure ” has the meaning set forth in Section 1.2(b)(i) .

Working Capital ” means (i) Current Assets minus (ii) Current Liabilities, in each case, as of the Close of Business on the Closing Date.

Working Capital Target ” means an amount equal to USD $0.00.

1.2 Share Purchase and Sale .

(a) Consideration . Subject to the terms and conditions set forth herein, at the Closing, and in reliance on the representations and warranties of and covenants and agreements made herein and in connection with the Acquisition, Buyer will purchase and acquire from the Sellers, and the Sellers will sell, assign, transfer and deliver to Buyer, free and clear of all Liens, all of the Shares, as shown on Exhibit A-1 hereto, for an aggregate purchase price equal to the Purchase Price, less the portion of the Purchase Price to be paid to Vested Optionholders pursuant to Section 1.3 hereof. Each Seller will receive, with respect to each Share, the portion of the Purchase Price equal to (A) the sum of (1) the Purchase Price and (2) the Aggregate Exercise Price divided by (B) the sum of (1) the aggregate number of Shares outstanding immediately prior to the Closing and (2) the aggregate number of Shares issuable pursuant to Vested Company Options outstanding immediately prior to the Closing (the “ Per Share Consideration ”), as set forth opposite such Seller’s name on the Spreadsheet in accordance with Section 6.13 . The amount of Purchase Price to be paid to each Seller shall be paid in cash and in shares of Series B Common Stock of Buyer, par value $0.01 per share (such number subject to appropriate adjustment in the event of a stock split or reverse stock split in respect of the Buyer Series B Common Stock) (the “ Buyer Series B Common Stock ”), as set forth on the Spreadsheet provided in accordance with Section 6.13 .

 

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(b) Whitewash Procedure .

(i) Each of the Buyer, the Sellers and Vested Optionholders acknowledges and agrees that notwithstanding that the Company is a party to this Agreement or anything to the contrary in this Agreement, the Company’s taking on of any liability or obligation under this Agreement is conditional upon the completion by the Company of the procedures set out in section 76(10) of the Companies Act, Chapter 50 of Singapore (the “ Whitewash Procedure ”).

(ii) Each of the Buyer, the Sellers and Vested Optionholders acknowledges and agrees that unless and until the Whitewash Procedure has been completed by the Company, none of the Buyer, the Sellers or Vested Optionholders shall have any rights or claims against the Company in respect of any of its representations, warranties, obligations and undertakings under this Agreement including but not limited to ARTICLE I (Definitions; Purchase and Sale) , ARTICLE III (Representations and Warranties about the Company) , ARTICLE V (Conduct of Company Business During Pendency of Transaction) , ARTICLE VI (Additional Agreements) and ARTICLE VII (Conditions to the Acquisition) ; provided that, for purposes of clarity, nothing in this Section 1.2(b) shall operate to limit or otherwise affect the obligations of the Sellers and Vested Optionholders under ARTICLE VIII , including, without limitation, their obligation to indemnify and hold harmless the Buyer Indemnified Parties as set forth in ARTICLE VIII .

(iii) Each of the Sellers further agrees that:

(A) it shall use all reasonable endeavors to ensure that the Whitewash Procedure is carried out in accordance with the requirements under the Companies Act, Chapter 50 of Singapore and shall exercise all of its voting rights in the Company to enable the Whitewash Procedure to be carried out; and

(B) unless and until the Whitewash Procedure has been completed by the Company, it shall procure, by use of its voting rights, that all obligations of the Company as set out in this Agreement are complied with.

1.3 Effect on Company Options .

(a) Immediately prior to, but contingent upon, the Closing, the Company shall take all reasonable actions necessary to provide that each option to purchase Ordinary Shares of the Company (each, a “ Company Stock Option ”) that is outstanding, unexpired and unexercised immediately prior to the Closing, shall be vested immediately prior to Closing (each, a “ Vested Company Option ”) and shall be cancelled as of the Closing and each holder thereof (each, a “ Vested Optionholder ”) shall cease to have any rights with respect thereto, except the right to receive the portion of the Purchase Price payable in respect thereof, as set forth in this Section 1.3 and the Vested Optionholder Agreements. At the Closing, on the terms and subject to the conditions of this Agreement, including the execution and delivery of the Vested Optionholder Agreements, each Vested Optionholder shall, without any further action on the part of Buyer, the Company or such Vested Optionholder, be entitled to receive, with respect to each Vested Company Option, the portion of the Purchase Price equal to (A) the Per Share Consideration less (B) the exercise price of each such Vested Company Option (the “ Per Option Consideration ”), as set forth opposite such Vested Optionholder’s name on the Spreadsheet provided in accordance with Section 6.13 (provided that the Per Option Consideration shall not be less than zero).

 

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(b) Notwithstanding the foregoing Section 1.3(a) , with respect to the Per Option Consideration payable to any Vested Optionholder not resident in Singapore, Buyer may, in its sole discretion and by agreement with such Vested Optionholder, elect to substitute cash in the place of shares of Buyer Series B Common Stock otherwise payable to such Vested Optionholder pursuant to Section 1.3(a) above (such election, a “ Cash Election ”), in which case the Per Option Consideration payable to such Vested Optionholder shall consist of a cash payment equal to (A) the cash value of Per Share Consideration less (B) the exercise price of each such Vested Company Option. For purposes of the foregoing, the cash value of the Per Share Consideration shall be determined by applying the value of the Buyer Series B Common Stock as of the Closing Date pursuant to Section 10.11 (and without further adjustment) to any component of the Per Share Consideration that would otherwise be payable in shares of Buyer Series B Common Stock were no Cash Election made by Buyer. If Buyer exercises a Cash Election with respect to a Vested Optionholder, (i) the number of shares of Buyer Series B Common Stock comprising the Purchase Price shall be decreased by the number of shares of Buyer Series B Common Stock substituted for cash in connection with such Cash Election, (ii) the amount of cash comprising the Purchase Price shall be increased by an amount equal to the aggregate value (as determined in accordance with Section 10.11 and without further adjustment) of the shares of Buyer Series B Common Stock so substituted for cash in connection with such Cash Election, (iii) the amount of cash and number of shares of Buyer Series B Common Stock comprising the portion of the Holdback Amount attributable to such Vested Optionholder shall be adjusted proportionally in accordance with the adjustments to the Purchase Price set forth in clauses (i) and (ii) above, and (iv) such Cash Election shall be reflected in the Vested Optionholder Agreement of such Vested Optionholder and on the Spreadsheet provided in accordance with Section 6.13 .

1.4 Purchase Price Determination .

(a) Purchase Price . Subject to the other terms and conditions of this Agreement, including Section 1.3(b) and Section 1.7 , the aggregate final purchase price to be paid to the Sellers and Vested Optionholders on the Closing Date shall be equal to the sum of (i) USD $5,000,000 in cash minus the Final Closing Adjustment, plus (ii) 1,805,700 shares of Buyer Series B Common Stock (such number subject to appropriate adjustment in the event of a stock split or reverse stock split in respect of the Buyer Series B Common Stock) (collectively, the “ Purchase Price ”).

(b) Determination of the Post-Closing Adjustment . Within sixty (60) days after the Closing Date, Buyer will deliver to the Seller Representative a closing balance sheet of the Company, prepared in accordance with Singapore FRS (the “ Closing Balance Sheet ”), which shall set forth the Post-Closing Adjustment, if any, and the amount of Indebtedness, the amount of Seller Expenses, the amount of Pre-Closing Taxes, in each case as of the Close of Business on the Closing Date, as well as the Final Working Capital Adjustment and the Final Closing Adjustment (such amounts, the “ Closing Calculations ”; and such statement, the “ Closing Statement ”). At the time Buyer delivers the Closing Statement to the Seller Representative, Buyer shall also deliver to the Seller Representative reasonable detail supporting the Closing Calculations. From the time Buyer delivers the Closing Statement and thereafter until the Closing Calculations have each been finally resolved pursuant to this Section 1.4(b) , Buyer will make available to the Seller Representative on a reasonably timely basis, access to (i) all physical and electronic records and work papers used in preparing the Closing Statement that are reasonably necessary for the Seller Representative to confirm Buyer’s computations therein, and (ii) the individual or individuals who were chiefly responsible for preparing the Closing Statement. If the Seller Representative disagrees with the Closing Calculations, the Seller Representative may, within thirty (30) days after the receipt of the Closing Statement, deliver a written notice (an “ Objection Notice ”) to Buyer

 

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setting forth the Seller Representative’s computation of any or all of the Closing Calculations, as the case may be, and such information, arguments and support used in preparing such computation. If Buyer has not received an Objection Notice within thirty (30) days after the Seller Representative has received the Closing Statement, then the parties will be deemed to have agreed to all of the Closing Calculations. If Buyer has received an Objection Notice within thirty (30) days after the Seller Representative has received the Closing Statement, Buyer and the Seller Representative will attempt, in good faith, to resolve any disputes, as set forth in the Objection Notice, as to the computation of any disputed Closing Calculation. If Buyer and the Seller Representative do not achieve final resolution within thirty (30) days after Buyer has received the Objection Notice, then Buyer and the Seller Representative will retain any of the internationally reputable big four accounting firms (i.e. (i) Messrs PricewaterhouseCoopers LLP, (ii) Messrs Ernst & Young LLP, (iii) Messrs KPMG LLP, or (iv) Messrs Deloitte & Touche LLP) as mutually agreed upon by Buyer and the Seller Representative (the “ Accountant ”), to resolve any remaining disputes. The Accountant will consider only those items and amounts in the Closing Statement set forth in the Objection Notice which Buyer and the Seller Representative are unable to resolve. Buyer and the Seller Representative shall each make a submission to the Accountant within twenty (20) days after the Accountant’s engagement, which submission shall contain a computation of the Closing Calculations and information, arguments, and support for such computation. The Accountant shall review such submissions and base its determination solely on such submissions (without an independent review). In resolving any disputed item, the Accountant may not assign a value to any item greater than the greatest value for such item claimed by Buyer or the Seller Representative or less than the smallest value for such item claimed by Buyer or the Seller Representative. The Accountant’s determination will be based on the definitions contained in this Agreement of each of individual components of the Closing Calculations and in accordance with Singapore FRS, and will take no account of events occurring after the Closing Date. The determination of the Accountant will be conclusive and binding upon the parties. The Seller Representative and Buyer shall pay the portion of the fees and costs of the Accountant (“ Accountant Costs ”), if any, determined by multiplying the amount of the Accountant Costs by a fraction the numerator of which is (with respect to each party) of (A) the positive difference between (1) the aggregate Final Closing Adjustment submitted by such party to the Accountant on the Closing Statement or Objection Notice, as applicable and (2) the determination of the actual Final Closing Adjustment made by the Accountant and the denominator of which is (B) the aggregate difference between each party’s submission of the amount of Final Closing Adjustment as set forth on the Closing Statement or Objection Notice, as applicable.

1.5 Closing Deliverables . At the Closing, the Company or the Sellers, as applicable, will deliver to Buyer:

(a) the original share certificates representing the Shares in the name of the Sellers, together with valid share transfer forms in respect of the Shares, duly executed by the Sellers in favour of Buyer together with a working sheet signed by a director or secretary of the Company computing the net asset value per share of the Company and/or such other document(s) as may be prescribed from time to time by the Stamp Duty Branch of the Inland Revenue Authority of Singapore for the purpose of assessing the Stamp Duty payable on a transfer of shares;

(b) certified true copies of the resolutions passed by the Board of Directors of the Company:

 

  (i) approving the transfer of the Shares to Buyer;

 

  (ii) authorising the issue of new share certificates in respect of the Shares in favour of Buyer;

 

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  (iii) approving the entry of the name of Buyer into the register of members of the Company as the holder of the Shares and the making of such other entries into other corporate records of the Company as may be necessary to effectuate and reflect the Acquisition;

 

  (iv) effecting and accepting the resignation of the directors, officers and secretary(ies) of the Company, with effect from the Closing and appointing as its directors, officers and secretary(ies) of the Company, the person(s) nominated by Buyer as notified to the Sellers in writing, with effect from the Closing Date; and

 

  (v) revoking all existing authorities to banks in respect of the operation of its bank accounts and giving authority in favour of such persons as Buyer may nominate to operate such accounts;

(c) certified true copies of the resolutions passed by the Board of Directors of each Seller that is not an individual (if applicable):

 

  (i) approving the sale of the Shares held by such Seller to Buyer; and

 

  (ii) authorising the execution by such Seller of all other documents and agreements ancillary or pursuant thereto or in connection therewith, and the execution thereof (where necessary) under the common seal of such Seller;

(d) a letter duly signed by each officer, secretary or director of the Company (the “ Company Officers ”) tendering his or her resignation as officer, secretary or director of the Company and/or all offices or places of profit under the Company, to be effective as of the Closing, in the form attached hereto as Exhibit E (the “ Director and Officer Resignation Letter ”);

(e) deeds executed by the Sellers and each of the Company Officers confirming that they each have no claim against the Company (including without limitation, in respect of the Company Officers, for compensation for loss of office, but excluding indemnity obligations of the Company to the Company Officers under the articles of association and bylaws (or similar organizational documents) of the Company or any insurance policy maintained by the Company for the benefit of the Company Officers (“ Inchoate Indemnity Claims ”)) and if there are any claims that they shall release and disclaim all their rights to such claims, which deeds shall be substantially in the form attached hereto as Exhibit H (the “ Deed of Confirmation and Release ”);

(f) such waivers or consents as may be necessary to enable Buyer to be registered in the register of members of the Company as holder of any and all of the Shares;

(g) the certificates of title, title deeds, leases and tenancy agreements and all other documentation relating to the Property;

(h) all financial, accounting and tax records of the Company (including, without limitation, all management accounts, correspondence with government, governmental agencies, statutory bodies or revenue authorities, banks and other financiers, customers and vendors for the Company);

 

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(i) the notice of incorporation, common seals, the memorandum and articles of association, cheque books and all statutory and other books and records and current business registration certificates and business licences of the Company (duly written up-to-date);

(j) a list of all bank accounts maintained by the Company;

(k) bank statements of all bank accounts of the Company as at the Close of Business on the last Business Day prior to the Closing Date, together with directions, in the agreed form, varying and/or replacing the mandates given to such banks by the Company;

(l) an acknowledgment in the agreed form from the Sellers that there is no Indebtedness owing at Closing from the Company to any Sellers and that all Seller-Related Guarantees have been fully and completely discharged as at Closing. For the purposes of this provision, “ Seller-Related Guarantees ” means all guarantees, indemnities, counter-indemnities and letters of comfort of any nature whatsoever: (i) given to any third party by the Company in respect of any Liability of the Seller or (ii) given to any third party by any Seller in respect of any Liability of the Company; and

(m) a compliance certificate signed by two directors or by a director and secretary of the Company, pursuant to Section 76A(6) of the Companies Act (Chapter 50 of Singapore) confirming that the requirements of the financial assistance whitewash procedures under Section 76(10) of the Companies Act (Chapter 50 of Singapore) have been complied with in relation to the provision of financial assistance by the Company for the purposes of the Acquisition through (i) the Company bearing all fees, costs and expenses incurred by legal advisors, auditors, accountants, and/or financial advisors in connection with the Acquisition (including the costs of all documentation relating to or implementing the Acquisition) up to a maximum of S$800,000.00 and (ii) the provision by the Company of the representations, warranties, undertakings, covenants and obligations under this Agreement (“ Compliance Certificate ”).

1.6 Closing . Unless this Agreement is validly terminated pursuant to Section 9.1 , the Acquisition shall be consummated at a closing (the “ Closing ”) on a date within five (5) Business Days following satisfaction or waiver (if permissible hereunder) of the conditions set forth in ARTICLE VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to satisfaction or waiver (if permissible hereunder) of those conditions), at the offices of the Company located at 1 Commonwealth Lane, #03-01 Singapore 149544, or such other date, time and place as Buyer and the Seller Representative shall agree in writing (the day on which the Closing actually takes place, the “ Closing Date ”).

1.7 Payment of Purchase Price .

(a) Estimated Payments . Subject to any adjustment pursuant to Section 1.3(b) , the “ Estimated Purchase Price ” will be equal to the result of (i) the cash amount of USD $5,000,000 (which amount includes a portion of the Holdback Amount to be withheld by Buyer at Closing pursuant to Section 1.7(b)) , minus the cash amount of the Estimated Closing Adjustment, plus (ii) 1,805,700 shares of Buyer Series B Common Stock (such number subject to appropriate adjustment in the event of a stock split or reverse stock split in respect of the Buyer Series B Common Stock) (which amount includes a portion of the Holdback Amount to be withheld by Buyer at Closing pursuant to Section 1.7(b)) . At least two (2) Business Days prior to the Closing Date, Buyer shall deliver to the Seller Representative a form of letter of transmittal (the “ Letter of Transmittal ”) and instructions for use in effecting the surrender of the share certificates representing the Shares and agreements representing the Vested Company Options in exchange for the applicable portion of the Estimated Purchase Price. Buyer will cause to be paid to the Sellers and Vested Optionholders an amount equal to the Estimated Purchase Price via wire transfer of

 

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immediately available funds to accounts designated by each Seller and Vested Optionholder by initiating such wire transfer, and providing such Seller or Vested Optionholder with federal reference numbers for such wire transfer, no later than three (3) Business Days after receipt from such Seller or Vested Optionholder a Letter of Transmittal, duly executed and completed in accordance with the instructions thereto, and such other documents as may reasonably be required pursuant to the Letter of Transmittal, and by the issuance of original stock certificates representing the shares of Buyer Series B Common Stock, to be held in accordance with the terms of the Buyer Stockholder Agreements. Buyer will deliver to each Seller and Vested Optionholder at Closing a portion of the Estimated Purchase Price less such Seller’s or Vested Optionholder’s portion of the Holdback Amount as set forth on the Spreadsheet in accordance with Section 6.13 .

(b) Holdback Amount . At Closing, Buyer shall withhold from the Estimated Purchase Price otherwise payable to the Sellers and Vested Optionholders the Holdback Amount to secure the payment of the indemnification obligations set forth in Section 6.9 and ARTICLE VIII which amounts shall not become payable as of the Closing Date but shall instead be paid in accordance with, and subject to the provisions of, Section 6.9 and ARTICLE VIII hereof. If and to the extent the Holdback Amount is delivered (1) to the Sellers, interest shall be imputed on such amount as required by Sections 483 or 1274 of the Code, and (2) to the Vested Optionholders, such amounts shall be treated as compensation and includable in gross income of such holders and deductible by Buyer at the time of payment, to the extent required by law.

(c) Closing Certificate . No later than three (3) Business Days prior to the Closing Date, the Company shall deliver, or cause to be delivered, to Buyer the Closing Certificate in the form annexed hereto as Exhibit B , which shall set forth the reasonable, good faith estimate of the Estimated Indebtedness, the Estimated Working Capital, the Estimated Seller Expenses, the Estimated Pre-Closing Taxes, the Estimated Working Capital Adjustment and the Estimated Closing Adjustment, in each case projected as of the Close of Business on the Closing Date, all as reasonably acceptable to Buyer.

(d) Post-Closing Adjustment . The Post-Closing Adjustment shall be computed in accordance with Section 1.4(b) of this Agreement or by the written agreement of Buyer and the Seller Representative, as the case may be, immediately after the final determinations pursuant to Section 1.4(b) and shall be paid within five (5) Business Days thereafter in immediately available funds. If the Post-Closing Adjustment is a positive number, the Post-Closing Adjustment shall be paid by Buyer to the Sellers and Vested Optionholders, based upon their respective Pro Rata Portions thereof. If the Post-Closing Adjustment is a negative number, the Post-Closing Adjustment shall be paid by the Sellers and Vested Optionholders to Buyer, and Buyer shall collect any Post-Closing Adjustment due to Buyer first from the Holdback Amount. Any Post-Closing Adjustment to be paid by Buyer shall be paid in cash, pro rata to all Sellers and Vested Optionholders in accordance with their respective Pro Rata Portions of the Purchase Price. Any Post-Closing Adjustment to be paid by the Sellers and Vested Optionholders, shall be paid pro rata amongst the Sellers and Vested Optionholders in accordance with their respective Pro Rata Portions of the Purchase Price, and in the same form (cash or shares of Buyer Series B Common Stock) as each such Seller and Vested Optionholder received at Closing.

1.8 Tax Withholding . Buyer and the Company shall each be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement such amounts that it is required to deduct and withhold with respect to the making of such payment under the Code or any other applicable Law and notwithstanding anything herein to the contrary no payments shall be made to any Seller or Vested Optionholder unless and until such Seller or Vested Optionholder has provided Buyer with any necessary Tax forms, including, without limitation, if required, an original and duly executed IRS Form W-9 or the appropriate version of IRS Form W-8, as applicable, or any similar information. To the extent that amounts are so withheld and paid over to the appropriate taxing authority by Buyer, the Company, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the person in respect of which such deduction and withholding was made by Buyer, the Company.

 

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1.9 Tax Consequences . The parties hereto acknowledge that the Acquisition is a taxable transaction for U.S. federal income Tax purposes, and that it does not qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Buyer makes no representations or warranties to the Company or to any Sellers or Vested Optionholders regarding the Tax treatment of the Acquisition, or any of the Tax consequences to the Company or any Sellers or Vested Optionholders of this Agreement, the Acquisition or any of the other transactions or agreements contemplated hereby. The Company acknowledges that the Company, the Sellers and the Vested Optionholders are relying solely on their own Tax advisors in connection with this Agreement, the Acquisition and the other transactions and agreements contemplated hereby.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND VESTED OPTIONHOLDERS

The Sellers and each Vested Optionholder that is a party hereto hereby severally, but not jointly, represent and warrant to Buyer, subject to such exceptions as are specifically disclosed in the disclosure schedule (which disclosure should reference the appropriate section and subsection numbers of this ARTICLE II ; provided, however , that any disclosures made therein shall apply to any other section or subsection without repetition where it is reasonably clear on the face of such disclosure, without any independent knowledge on the part of the reader regarding the matter disclosed, that the disclosure is intended to apply to such other section or subsection), supplied by the Company to Buyer and dated as of the date hereof (the “ Disclosure Schedule ”), on the date hereof and (except where a representation or warranty is made herein as of a specified date) as of the Closing, as though made at the Closing, as follows:

2.1 Ownership of Shares . Such Seller or Vested Optionholder is the legal and beneficial owner, beneficially and of record of, and has good and valid title to and unrestricted power to vote (in the case of Seller) and sell, all of the Shares and/or Vested Company Options, as applicable, set forth opposite such Seller’s or Vested Optionholder’s name on Exhibit A-1 or Exhibit A-2 hereto free and clear of any Lien. At Closing, (i) each such Seller will transfer good and valid title to the Shares set forth opposite such Seller’s name on Exhibit A-1 hereto to Buyer free and clear of any Lien together with all rights, dividends, entitlements and advantages now and hereafter attaching thereto as at the Closing Date and thereafter and (ii) each Vested Company Option shall be cancelled and each such Vested Optionholder shall cease to have any rights with respect to the Vested Company Options set forth opposite such Vested Optionholder’s name on Exhibit A-2 . On Closing, the Shares are and shall have been duly authorised, validly issued and fully paid-up. Such Seller or Vested Optionholder is not a party to any option, warrant, purchase right, or other contract, agreement or commitment that could require such Seller or Vested Optionholder to sell, transfer, or otherwise dispose of any Shares and/or Vested Company Options (other than as set forth in this Agreement). Such Seller or Vested Optionholder is not a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any share capital of the Company.

2.2 Authority of Sellers . Such Seller or Vested Optionholder has the full right, capacity and power to enter into this Agreement and all Transaction Documents executed and delivered by such Seller or Vested Optionholder pursuant hereto and to consummate the transactions contemplated herein and therein. This Agreement and all Transaction Documents executed and delivered by such Seller or Vested Optionholder pursuant hereto have been duly executed and delivered by such Seller or Vested Optionholder and constitute valid and binding obligations of such Seller or Vested Optionholder, enforceable against such Seller or Vested Optionholder in accordance with their respective terms.

 

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2.3 No Violation . The execution and delivery of this Agreement and all Transaction Documents executed and delivered by such Seller or Vested Optionholder pursuant hereto and the consummation of the transactions contemplated hereby and thereby do not and will not (i) violate or result in a violation of, conflict with or constitute or result in a violation of or default (whether after the giving of notice, lapse of time or both) under, accelerate (except as disclosed in Schedule 3.4(b)) any obligation under, or give rise to a right of termination of, any contract, agreement, obligation, permit, license or authorization to which the Company or such Seller or Vested Optionholder is a party or by which any of them or their respective assets are bound or, in the case of a Seller who is a legal entity other than an individual, the memorandum (if applicable) and articles of association (or the equivalent constitutive documents), certificate of incorporation, bylaws, partnership agreements or other organizational documents of such Seller or Vested Optionholder; (ii) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, any provision of any Law, or any order of, or any restriction imposed by, any Governmental Authority applicable to the Company or such Seller or Vested Optionholder; or (iii) require from the Company or such Seller or Vested Optionholder any notice to, declaration or filing with, or consent or approval of, any Governmental Authority or other third party.

2.4 Consents and Approvals . No consent, approval or authorization of, or declaration, filing or registration with, any Governmental Authority or third party is required to be made or obtained by such Seller or Vested Optionholder in connection with the execution, delivery and performance of this Agreement or the Transaction Documents or the consummation of the transactions contemplated hereby or thereby save for such filings as may be required to be made with the Accounting and Corporate Regulatory Authority.

2.5 Brokers’, Finders’ Fees, etc . Such Seller or Vested Optionholder has not employed or engaged any broker, finder, investment banker or financial advisor (i) as to whom such Seller or Vested Optionholder may have any obligation to pay any brokerage or finders’ fees, commissions or similar compensation in connection with the transactions contemplated hereby, or (ii) who might be entitled to any fee or commission from Buyer, the Company or any of their respective Affiliates upon consummation of the transactions contemplated hereby.

2.6 Securities Law Representations .

(a) Investment Intent . Such Seller or Vested Optionholder is acquiring the shares of Buyer Series B Common Stock from Buyer for its own account, with no present intention of selling or otherwise distributing the same.

(b) Status of Shares of Buyer Series B Common Stock . Such Seller or Vested Optionholder has been informed by Buyer that, as of the Closing Date, the shares of Buyer Series B Common Stock have not been nor will be registered under the Securities Act, under the securities laws of any nation or under any state securities laws and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering.

(c) Sophistication and Financial Condition . Such Seller is (i) an “Accredited Investor” as defined in Regulation D under the Securities Act (an “ Accredited Investor ”), or (ii) a Non-U.S. Person (as defined below), and in either case, has had a full and fair opportunity to ask questions, seek their own legal counsel, and have access to all relevant documents requested regarding the merits and risks of an investment in the shares of Buyer Series B Common Stock.

 

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(d) Principal Residence . Such Seller or Vested Optionholder represents and warrants that its principal residence is as set forth on Exhibit C attached hereto.

(e) Regulation S Restrictions . If such Seller or Vested Optionholder is not an Accredited Investor, then such Seller is not a “U.S. person” as such term is defined in Rule 902(k) of Regulation S of the Securities Act (a “ Non-U.S. Person ”) and is not acquiring shares of Buyer Series B Common Stock for the account or benefit of a “U.S. person” (as such term is defined in Rule 902(k) of Regulation S of the Securities Act); (ii) agrees that any resale of the shares of Buyer Series B Common Stock purchased by it shall be in accordance with the provisions of Regulation S of the Securities Act, pursuant to registration under the Securities Act or pursuant to an available exemption from registration; (iii) agrees not to engage in any hedging transactions with regard to such shares of Buyer Series B Common Stock unless in compliance with the Securities Act; (iv) represents that it has satisfied itself as to the compliance in all material respects by it with the laws of its jurisdiction required to be complied with by it in connection with any invitation by Buyer to it to accept such shares of Buyer Series B Common Stock, including (A) the legal requirements within its jurisdiction for the receipt of the shares of Buyer Series B Common Stock by it; (B) any foreign exchange restrictions applicable to it; (C) any governmental or other consents that may need to be obtained by it and (D) the income tax and other tax consequences to it, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the shares of Buyer Series B Common Stock; and (v) certifies that to its knowledge, its acquisition of and continued beneficial ownership of the shares of Buyer Series B Common Stock will not violate any securities or other laws of the jurisdictions that are applicable to it. Such Seller or Vested Optionholder agrees that, to the extent necessary pursuant to Regulation S of the Securities Act, Buyer may refuse to register any transfer of shares of Buyer Series B Common Stock not made in accordance with the provisions of such Regulation S, pursuant to registration under the Securities Act or pursuant to an available exemption from registration.

2.7 Disclosure . With respect to statements made or omitted to be made by such Seller or Vested Optionholder, this Agreement, including the Disclosure Schedules, any Transaction Document and any certificate, instrument or other document required to be delivered pursuant to this Agreement by such Seller or Vested Optionholder, does not contain any untrue statement of a material fact, and does not omit to state any material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. Such Seller or Vested Optionholder has Made Available to Buyer true and complete copies of all documents requested from Seller or Vested Optionholder by Buyer or required to be delivered pursuant to this Agreement by such Seller or Vested Optionholder (including any attachment thereto, such that the contents of such copies comprise the entire agreement between the parties thereto). Such Seller or Vested Optionholder has not failed to disclose to Buyer in this Agreement or in the Disclosure Schedules any facts material to the Business, assets, Liabilities, financial condition or prospects of the Company or to Buyer’s decision to purchase the Shares and consummate the Acquisition.

 

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ARTICLE III

REPRESENTATIONS AND WARRANTIES ABOUT THE COMPANY

The Company and each of the Sellers hereby represent and warrant to Buyer, subject to such exceptions as are specifically disclosed in the Disclosure Schedule (which disclosure should reference the appropriate section and subsection numbers of this ARTICLE III ; provided, however , that any disclosures made therein shall apply to any other section or subsection without repetition where it is reasonably clear on the face of such disclosure, without any independent knowledge on the part of the reader regarding the matter disclosed, that the disclosure is intended to apply to such other section or subsection), on the date hereof and (except where a representation or warranty is made herein as of a specified date) as of the Closing, as though made at the Closing, as follows:

3.1 Corporate Organization; Authorization .

(a) The Company is duly incorporated and validly existing under Singapore law and has all requisite corporate power and authority to carry on its business as now conducted and to own or lease its property and assets and is not in receivership, judicial management or liquidation. The Company is duly qualified or licensed to do business as a foreign company in good standing in each jurisdiction (i) listed in Schedule 3.1(a) , and (ii) in which the conduct of its business or the ownership or leasing of its property require such qualification. The Company has full corporate power and authority to own and operate its respective properties and to carry on its respective business as now conducted and currently proposed to be conducted. The Company has Made Available to Buyer true, accurate, complete and correct copies of its organizational documents (including its certificate of incorporation or analogous document and memorandum and articles of association containing full details of the rights and restrictions attached to the share capital of the Company), each as amended to date and in full force and effect on the date hereof, and no amendments to any such organizational documents have been approved or proposed. Copies of all the resolutions and agreements (including without limitation, shareholders’ agreements, voting agreements, etc .) required by applicable Law to be annexed to or incorporated in the constitutive documents of the Company are annexed or incorporated thereto. The Company has complied with its memorandum and articles of association and other constitutive documents in all respects and none of the activities, agreements, commitments or rights of the Company is ultra vires or unauthorized. All governmental, statutory and other approvals, licenses, orders and authorizations which were necessary or desirable in connection with the incorporation of the Company, the allotment or transfer of shares in the Company to the present and former holders thereof, the appointment of directors and officers of the Company, were duly obtained, complied with and are in full force and effect, and no such approval, license, order or authorization will be revoked, suspended, varied or cancelled.

(b) Schedule 3.1(b) lists the directors and officers of the Company as of the date hereof.

(c) Schedule 3.1(c) contains a true, correct and complete list, as of the date of this Agreement, of every state or foreign jurisdiction in which the Company has employees or facilities or otherwise has conducted its business since inception (specifying the existence of employees or facilities in each such state or jurisdiction).

(d) The operations now being conducted by the Company are not now and have never been conducted under any other name.

(e) The Company has full corporate power and authority to enter into this Agreement and the Transaction Documents to which it is a party and to carry out the transactions contemplated hereby and thereby. The board of directors of the Company and the Sellers, the only shareholders of the Company, have taken all action required to authorize the execution and delivery of this Agreement and all Transaction Documents executed and delivered by the Company pursuant hereto, the performance of its obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby. No other corporate proceeding on the part of the Company is necessary to authorize the execution, delivery and performance by the Company of this Agreement and all Transaction Documents executed and delivered by the Company pursuant hereto. This Agreement and all Transaction Documents executed and delivered by the Company pursuant hereto are valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms.

 

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3.2 No Violation . The execution and delivery of this Agreement and all Transaction Documents executed and delivered by the Company pursuant hereto and the consummation of the transactions contemplated hereby and thereby do not and will not violate or result in a violation of, conflict with or constitute, result in a violation of or default (whether after the giving of notice, lapse of time or both) or loss of benefit, give rise to a right of termination, cancellation, modification or acceleration of any obligation under (i) any contract, agreement, permit, license, authorization or obligation to which the Company is a party or by which it or any of its assets are bound, or any provision of the certificate of registration or bylaws, or cause the creation of any Lien upon any of the assets of the Company; or (ii) any provision of any Law, or any order of, or any restriction imposed by, any Governmental Authority applicable to the Company. Following the Closing Date, the Company will be permitted to exercise all of its rights under the contracts and agreements to which it is a party without the payment of any additional amounts or consideration other than ongoing fees, royalties or payments which the Company would otherwise be required to pay pursuant to the terms of such contracts or agreements had the transactions contemplated by this Agreement not occurred.

3.3 Consents and Approvals of Governmental Authorities . No consent, approval or authorization of, or declaration, filing or registration with, any Governmental Authority is required to be made or obtained by the Company in connection with the execution, delivery and performance of this Agreement and all Transaction Documents executed and delivered by the Company pursuant hereto or the consummation of the transactions contemplated hereby and thereby.

3.4 Capitalization .

(a) Share Capital . The Company has a share capital of S$1,070.46. The issued Shares of the Company consist of 844,600 Ordinary Shares (collectively, the “ Company Capital Stock ”). The Shares represent the entire issued share capital of the Company and have been duly authorized, are legally and validly issued and fully paid. The Shares owned by the Sellers represent all of the outstanding Company Capital Stock free and clear of any Liens, and as a result of the Acquisition, Buyer will be the sole record and beneficial holder of all issued and outstanding shares of Company Capital Stock free and clear of any Liens. Schedule 3.4(a) sets forth a true, correct and complete list of all holders of Company Capital Stock as of the date hereof, including (i) the name and the address of the holders of such shares of Company Capital Stock, (ii) the number of shares of Company Capital Stock of each class and type held by such holder, and (iii) the issue price of such shares of Company Capital Stock. There are no outstanding shares of Company Capital Stock that constitute unvested restricted stock or that are otherwise subject to a repurchase or redemption right. All issued and outstanding shares of Company Capital Stock are duly authorized, validly issued, fully paid and non-assessable and were offered, issued, sold and delivered in compliance with all applicable Singapore and other securities laws and have not been issued in violation of any pre-emption or any other rights. Other than the Shares owned by the Sellers, there are no securities or other rights convertible into or exchangeable or exercisable for shares of Company Capital Stock outstanding, and, except as set forth on Schedule 3.4 , there are no outstanding subscriptions, convertibles, options, warrants, rights, contracts, agreements, commitments, understandings or arrangements of any kind by which the Company is bound to issue, sell, repurchase, redeem or otherwise acquire or retire any additional shares or other securities of the Company or by which any Person is entitled to acquire any such shares or securities. There are (i) no preemptive rights, rights of first refusal, put or call rights or obligations or anti-dilution rights with respect to the issuance, sale or redemption of Company Capital Stock or any interests therein; (ii) no rights to have shares of Company Capital Stock registered for sale to the public in connection with the laws of any jurisdiction, (iii) no declared or accrued but unpaid dividends with respect to any shares of Company Capital Stock and (iv) no documents, instruments or agreements relating to the voting of the Company’s voting securities or restrictions on the transfer of shares of Company Capital Stock. The Company has not received any unconditional or conditional shareholders’ contributions or any equity or other capital contributions of any nature that may involve any repayment obligations of the Company. The Company has not repurchased any shares of Company Capital Stock or any securities exercisable for or into or convertible into any shares of Company Capital Stock.

 

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(b) Equity Plans . Except for the Company’s Amended and Re-stated Employee Share Option Scheme 2011 (the “ Plan ”), the Company has never adopted, sponsored, entered into or maintained any stock option plan or any other plan or agreement providing for equity or equity-related compensation to any person (whether payable in shares, cash or otherwise. Pursuant to the Plan, the total aggregate number of shares with respect to which the Company may grant options pursuant to the Plan may not exceed the lower of (i) 155,400 shares, or (ii) 15.54% of the enlarged issued share capital of the Company. As of the date hereof, options to purchase 49,000 shares have been granted under the Plan, of which options to purchase 35,494 shares have vested and are exercisable to purchase 35,494 shares, and 0 shares have been issued upon the exercise of options granted under the Plan. True and complete copies of all agreements and instruments relating to or issued under the Plan have been Made Available to Buyer and such agreements and instruments have not been amended, modified or supplemented, and there are no agreements to amend, modify or supplement such agreements or instruments from the forms thereof. No holder of Vested Company Options has the ability to early exercise or has so early exercised any Vested Company Options for shares of Company Capital Stock. Except to the extent disclosed otherwise in Schedule 3.4(b) , all holders of Vested Company Options are current employees or non-employee directors of the Company. Schedule 3.4(b) sets forth for each outstanding Company Option, the name of the holder, the type of entity of such holder, the domicile address of record of such holder, whether such holder is an employee of the Company, the number of shares of Company Capital Stock issuable upon the exercise of Company Option, the date of grant, the expiration date, the exercise price, the vesting schedule, including the extent vested to date and whether (and to what extent) such vesting is subject to acceleration as a result of the transactions contemplated by this Agreement or any other events. Each Vested Optionholder listed on Exhibit A-2 is the holder of all of the Vested Company Options set forth opposite such Vested Optionholder’s name on Exhibit A-2 , free and clear of any Lien and has the sole right (together with the Company) to cancel such Vested Company Options.

3.5 Subsidiaries and Affiliates . The Company does not have and has not ever had any Subsidiaries and the Company does not own or control and has never owned or controlled, directly or indirectly, any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, or have any commitment or obligation to invest in, purchase any securities or obligations of, fund, guarantee, contribute or maintain the capital of or otherwise financially support any, corporation, partnership, joint venture or other business association or entity.

3.6 Financial Statements .

(a) The Company has previously delivered to Buyer and attached hereto in Schedule 3.6(a) a true, accurate and complete copy of the audited balance sheets of the Company as of and for the twelve (12) months ended March 31, 2013 (the “ Balance Sheet Date ”) and March 31, 2012 (collectively, the “ Company Audited Balance Sheets ”) and the related audited statements of operations, changes in shareholders’ equity and cash flows for the years then ended, together with a report thereon by the independent certified public accountants of the Company (together with the Company Audited Balance Sheets, the “ Company Audited Financial Statements ”). The Company Audited Financial Statements have been audited by an auditor or firm of accountants qualified to act as auditors in Singapore and the auditors’ report(s) required to be annexed to the Company Audited Financial Statements is unqualified. The Company Audited Financial Statements have been filed in accordance with the requirements of the Companies Act (Chapter 50 of Singapore). The Company Audited Financial Statements present fairly the financial position of the Company at the date thereof, and the results of operations, changes in shareholders’ equity and cash flows of the Company for the years indicated, were prepared in accordance with and comply with applicable Laws and with Singapore FRS consistently

 

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applied throughout the periods indicated, and the methodology for preparing the Company Audited Financial Statements has been consistent with the Company’s past practice and which methodology is set forth in detail sufficiently satisfactory to Buyer on Schedule 3.6(a) , and are consistent with the books and records of the Company. The financial statements referred to in this Section 3.6(a) and in Section 3.6(b) are sometimes referred to collectively as the “ Financial Statements .”

(b) Set forth on Schedule 3.6(b) is a true and correct copy of: (i) the unaudited balance sheet of the Company as of and for the nine (9) months ended December 31, 2013 (the “ Company Interim Balance Sheet ”) and the related unaudited statements of operations, changes in shareholders’ equity and cash flows for the nine (9) months then ended (together with the Company Interim Balance Sheet, the “ Company Interim Financial Statements ”). The Company Interim Financial Statements present fairly the financial position of the Company, at the date thereof, and the results of operations, changes in shareholders’ equity and cash flows for the period indicated, were prepared in conformity with Singapore FRS consistently applied throughout the periods indicated, and the methodology for preparing the Company Interim Financial Statements has been consistent with the Company’s past practice and which methodology is set forth in detail sufficiently satisfactory to Buyer on Schedule 3.6(b) , and are consistent with the books and records of the Company, subject to the absence of footnote disclosure and normal or recurring year-end adjustments; provided, however , that any such normal and recurring year-end adjustments will not be material, in the aggregate.

(c) The Financial Statements make: (i) full provision for all actual Liabilities; (ii) proper and adequate provision (or note in accordance with good accounting practice) for all contingent Liabilities; (iii) proper and adequate provision or reserve for all bad and doubtful debts; (iv) due provision for depreciation and amortisation and for any obsolescence of assets; and full provision or reserve for all Tax liable to be assessed on the Company or for which it is or may become accountable. The stock and work-in-progress, if any, are included in the Company Audited Financial Statements and the Company Interim Financial Statements at figures not exceeding the amounts which could, in the circumstances existing at the date of the Company Audited Financial Statements and the Company Interim Financial Statements respectively, reasonably be expected to be realised in the normal course of carrying on the business of the Company. The profits and losses of the Company for the applicable financial year ended on the balance sheet date of each of the Company Audited Financial Statements, the audited balance sheets of the Company for previous periods and the Company Interim Financial Statements and the trend of profits thereby shown have not (except as therein disclosed) been affected by inconsistencies of accounting practices, by the inclusion of unusual or non-recurring items of income or expenditure, by transactions entered into otherwise than on normal commercial terms or by any other factors rendering such profits for all or any of such periods exceptionally high or low (other than as disclosed in the relevant accounts). The Company Audited Financial Statements have been prepared on a basis consistent with the audited accounts of the Company for the two (2) preceding financial years, without any changes in accounting policies used. The Company Interim Financial Statements have been prepared on a basis consistent with the Company Audited Financial Statements and there has been no revaluation of any assets, fixed or otherwise, from the value of those assets stated in the Company Audited Financial Statements, without any changes in accounting policies used.

(d) The Company maintains accurate books and records reflecting its assets and Liabilities, taken as a whole, and maintains proper and adequate internal accounting controls that provide assurance (i) that transactions, receipts and expenditures of the Company are being executed and made only in accordance with appropriate authorizations of management and the Company’s Board of Directors, (ii) that transactions are recorded as necessary (A) to permit preparation of financial statements in conformity with Singapore FRS and (B) to maintain accountability for assets, (iii) regarding prevention or timely detection of unauthorized acquisition, use or disposition of the assets of the Company, (iv) that the amount recorded for assets on the books and records of the Company are compared with the existing

 

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assets at reasonable intervals and appropriate action is taken with respect to any differences and (v) accounts, notes and other receivables and inventory are recorded accurately, and proper and adequate procedures are implemented to effect the collection thereof on a current and timely basis.

(e) The Company has not, nor, to the Knowledge of the Company, has any Representative thereof, received or otherwise had or obtained knowledge of any complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or its internal accounting controls, including any material complaint, allegation, assertion or claim that the Company has engaged in questionable accounting or auditing practices. To the Knowledge of the Company, there have been no instances of fraud by any officer or employee of the Company, whether or not material, that occurred during any period covered by the Financial Statements and the Company has not, nor has any representative thereof, received or otherwise had or obtained knowledge of any complaint, allegation, assertion or claim, whether written or oral regarding fraud by any officer or employee of the Company.

3.7 Absence of Undisclosed Liabilities . The Company does not have any Liabilities of any nature, except Liabilities (i) expressly stated in the Company Interim Balance Sheet, and (ii) incurred in the ordinary course of business since the date of the Company Interim Balance Sheet, as applicable, and consistent with the Company’s past practice (including as to frequency and amount), and that do not exceed $50,000 individually or in the aggregate.

3.8 Absence of Certain Changes . Since the Balance Sheet Date, the Company (i) has conducted its business only in the ordinary course, (ii) has not suffered a Company Material Adverse Effect, (iii) has not suffered any theft, damage, destruction or casualty loss in excess of USD $25,000 in the aggregate to its assets (whether or not covered by insurance), and (iv) has not failed to act or taken any action that would require the consent of Buyer under Section 5.1 or Section 5.2 if such failure to act or action had been taken after the date hereof.

3.9 Intellectual Property.

(a) Definitions. For all purposes of this Agreement, the following terms shall have the following respective meanings:

(i) “ Company Intellectual Property ” means any and all Technology and Intellectual Property Rights that are owned or purported by the Company to be owned by the Company.

(ii) “ Company Intellectual Property Rights ” means any and all Intellectual Property Rights that are owned or purported by the Company to be owned by the Company.

(iii) “ Company Products ” means all products and services developed (including products and services under development), manufactured, made commercially available, marketed, distributed, sold, imported for resale or licensed by or on behalf of the Company since its inception and all modifications, upgrades, updates and follow-ons to the foregoing that the Company plans to release within six (6) months after the date hereof, as evidenced in documents existing on the date hereof.

(iv) “ Company Privacy Policy ” shall mean any external or internal, past or present written privacy policy of the Company relating to: (i) the privacy of users of any Company Product or of any website of the Company, (ii) the collection, storage, disclosure, and transfer of any Customer Data or Personally Identifiable Information, or (iii) any employee information

 

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(v) “ Customer Data ” means all data, meta data, information or other content (i) transmitted to the Company by users or customers of the Company Products, or (ii) otherwise stored or hosted by the Company or the Company Products.

(vi) “ Generally Commercially Available Code ” means any generally commercially available software in executable code form licensed to the Company on a license basis for a cost of not more than USD $10,000 for a license per user or work station, and not more than USD $50,000 in the aggregate for all users and work stations.

(vii) “ Intellectual Property Rights ” means any or all of the following and all rights in, arising out of, or associated therewith: (i) all United States, Singapore and foreign patents and utility models and applications therefor and all reissues, divisions, re-examinations, renewals, extensions, provisionals, continuations and continuations-in-part thereof, and equivalent or similar rights anywhere in the world in inventions and discoveries including without limitation invention disclosures (“ Patents ”); (ii) all trade secrets and other rights in know-how and confidential or proprietary information; (iii) all copyrights, copyrights registrations and applications therefor and all other rights corresponding thereto throughout the world (“ Copyrights ”); (iv) all industrial designs and any registrations and applications therefor throughout the world; (v) mask works, mask work registrations and applications therefor, and all other rights corresponding thereto throughout the world (“ Mask Works ”); (vi) all World Wide Web addresses and domain names, uniform resource locators (“ URLs ”), other names and locators associated with the Internet, and applications and registrations therefor (“ Domain Names ”), (vii) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor and all goodwill associated therewith throughout the world (“ Trademarks ”); and (viii) any similar, corresponding or equivalent rights to any of the foregoing anywhere in the world.

(viii) “ Open Source Software ” means all software or other Intellectual Property that is distributed as “open source software” or “free software” or is otherwise publicly distributed or made generally available in source code or equivalent form under terms that permit modification and redistribution of such software or Intellectual Property. Open Source Software includes, without limitation, any software under a similar licensing or distribution model (including but not limited to the GNU General Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla Public License (MPL), BSD licenses, the Artistic License, the Netscape Public License, the Sun Community Source License (SCSL), the Sun Industry Standards License (SISL) and the Apache License).

(ix) “ Personally Identifiable Information ” means any information that alone or in combination with other information held by the Company can be used to specifically identify a Person or an individual computer, device or application including but not limited to a natural person’s name, street address, telephone number, e-mail address, computer IP address, photograph, social security number, driver’s license number, passport number, credit or debit card number or customer or financial account number or any similar information that is treated as personally identifiable information under any applicable Laws.

 

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(x) “ Registered Intellectual Property ” means all Intellectual Property Rights that are the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any state, government or other public legal authority at any time anywhere in the world.

(xi) “ Technology ” means any or all of the following (i) works of authorship including computer programs, whether in source code or in executable code form, architecture and documentation, (ii) inventions (whether or not patentable), discoveries and improvements, (iii) proprietary and confidential information, trade secrets and know how, (iv) databases, data compilations and collections and technical data, (v) logos, trade names, trade dress, trademarks and service marks, (vi) domain names, web addresses and sites, (vii) methods and processes, and (viii) devices, prototypes, designs and schematics.

(b) Registered Intellectual Property . Schedule 3.9(b) (i) lists all Registered Intellectual Property that is owned by, purported by the Company to be owned by, or held in the name of the Company (“ Company Registered Intellectual Property ”) including any application, registration or serial numbers, (ii) lists any actions that must be taken by the Company within one hundred twenty (120) days of the date of this Agreement with respect to any of the foregoing, including the payment of any registration, maintenance or renewal fees or the filing of any documents, applications or certificates, and (iii) lists any proceedings or actions before any court or tribunal (including the United States Patent and Trademark Office (the “ PTO ”) or equivalent authority anywhere in the world) related to any Company Registered Intellectual Property or Company Intellectual Property. All registration, maintenance and renewal fees currently due (or which will be due on or before the Closing Date) in connection with such Company Registered Intellectual Property have been or will be timely paid, and all documents and certificates currently required to be filed (or which will be required to be filed on or before the Closing Date) in connection with such Company Registered Intellectual Property have been or will be timely filed with the PTO or other relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Company Registered Intellectual Property. The Company has not claimed any status in the application for or registration of any Registered Intellectual Property Rights, including “small business status,” that, to its Knowledge, would not be applicable to Buyer.

(c) Transferability of Company Intellectual Property . All Company Intellectual Property as of the date hereof is, and, as of and immediately following the Closing, will be fully transferable, alienable and licensable by Buyer without restriction and without payment of any kind to any Person.

(d) Validity . The Company Intellectual Property Rights as of the date hereof are, and, as of and immediately following the Closing, will be valid and enforceable, and there are no facts or circumstances that would render any Company Intellectual Property Rights invalid or unenforceable. Without limiting the foregoing, there exists no information, materials, facts, or circumstances, including any information or fact that would constitute prior art, that would render any of the Company Registered Intellectual Property invalid or unenforceable, or would affect any pending application for any Company Registered Intellectual Property and the Company has not misrepresented, or failed to disclose, any facts or circumstances in any application for any Company Registered Intellectual Property that would constitute fraud or a misrepresentation with respect to such application or that would otherwise affect the validity or enforceability of any Company Registered Intellectual Property.

(e) Title to Company Intellectual Property . The Company is the sole and exclusive owner of each item of Company Intellectual Property, free and clear of any Liens other than licenses granted under non-exclusive licenses of the Company Products to end users that do not materially differ

 

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in substance from the Company’s corresponding Standard Form Agreement. All Company Intellectual Property will be fully transferable, alienable or licensable by Buyer to the same extent as such Company Intellectual Property was transferable, alienable or licensable by the Company immediately prior to the Closing. The Company has the sole and exclusive right to bring a claim or suit against a third party for infringement or misappropriation of the Company Intellectual Property Rights. The Company has not (i) transferred to any Person ownership of, or granted any exclusive license with respect to, any Company Intellectual Property Rights or (ii) permitted the rights of the Company in any Company Intellectual Property that is or was at the time material to the Company to lapse or enter into the public domain. Any and all Company Intellectual Property that is or was owned by any Employee has been properly transferred to the Company. No Company Intellectual Property or Company Product is subject to any claim, proceeding or outstanding decree, order, judgment, or stipulation or Contract restricting in any material manner, the use, transfer, or licensing thereof by the Company, or which may affect the validity, use or enforceability of such Company Intellectual Property or Company Product.

(f) Third Party Intellectual Property Rights . Schedule 3.9(f) sets forth all Contracts under which the Company is granted any right under any Intellectual Property Rights or with respect to Technology of any other Person, other than (i) licenses for Open Source Software listed on Schedule 3.9(f) and (ii) licenses for Generally Commercially Available Code, other than any Generally Commercially Available Code that is or will to any extent be (as currently proposed by the Company) incorporated into, integrated or bundled with or linked with any Company Product (collectively, “ Inbound Licenses ”).

(g) Standard Form Agreements . Copies of the Company’s standard form(s) of non-disclosure agreement and the Company’s standard form(s), including attachments, of non-exclusive licenses of the Company Products to end-users (collectively, the “ Standard Form Agreements ”) have been Made Available to Buyer.

(h) Outbound License Agreements . Other than agreements that do not materially differ in substance from the corresponding Standard Form Agreements, Schedule 3.9(h) lists all Contracts to which the Company is a party and under which the Company has licensed, provided or assigned or granted any right to any Company Intellectual Property and/or Technology to third parties (“ Outbound Licenses ”). All Outbound Licenses are in full force and effect.

(i) No Infringement by the Company . The operation of the business of the Company, including the design, development, use, import, branding, advertising, promotion, marketing, manufacture, delivery, sale and/or licensing of any Company Product, in each case as it is currently conducted or as it is proposed to be conducted by the Company as evidenced in documents existing on the date hereof, does not infringe or misappropriate and will not infringe or misappropriate when conducted in the same manner by Buyer following the Closing, any Intellectual Property Rights of any third Person, violate any right (including any right to privacy or publicity) of any third Person or constitute unfair competition or trade practices under the laws of any jurisdiction. The Company has not received notice from any Person claiming that such operation or any act, any Company Product, any Technology used by the Company or any Company Intellectual Property infringes or misappropriates any Intellectual Property Rights of any Person or constitutes unfair competition or trade practices under the laws of any jurisdiction (nor is there any basis therefor) and the Company has no reason to believe that any such claim is or may be forthcoming. The Company is not in violation of the terms of any Inbound License.

(j) Third Party Rights . No third Person that has licensed to the Company any Intellectual Property Rights that are included in or used for the provision of Company Products or has provided any Technology that is included in or used for the provision of Company Products to the Company, has retained or been assigned by the Company sole ownership of or has retained or been granted by the Company exclusive license rights under any Intellectual Property Rights in any improvements or derivative works made solely or jointly by the Company.

 

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(k) Restrictions on Business . The Company is not bound by any Contract that would restrict or limit it from engaging in any line of business or from developing, using, making, selling, offering for sale any product, service or Technology. Neither this Agreement nor the transactions contemplated by this Agreement, including the assignment to Buyer by operation of Law or otherwise of any Inbound Licenses or Outbound Licenses to which the Company is a party, will result in: (i) Buyer granting to any third Person any right to or with respect to any Intellectual Property Rights owned by, or licensed to, Buyer or any of its Subsidiaries, (ii) the Company or any of its Affiliates granting to any third Person any right to or with respect to any Intellectual Property Rights owned by, or licensed to the Company or any of its Affiliates (other than rights granted by the Company on or prior to the Closing Date under Intellectual Property Rights owned by the Company as of the Closing Date), (iii) Buyer, any of its Subsidiaries or the Company, being bound by, or subject to, any non-compete or other restriction on its freedom to engage in, participate in, operate or compete in any line of business, or (iv) Buyer, the Company or any of their Subsidiaries or Affiliates being obligated to pay any royalties or other license fees with respect to Intellectual Property Rights of any third Person in excess of those payable by the Company in the absence of this Agreement or the transactions contemplated hereby.

(l) No Third Party Infringement . To the Company’s Knowledge, no Person is infringing or misappropriating any Company Intellectual Property Rights.

(m) Proprietary Information Agreements . Copies of the Company’s standard form of proprietary information, confidentiality and assignment agreement for employees and the Company’s standard form of consulting agreement containing proprietary information, confidentiality and assignment provisions are attached to Schedule 3.9(m) . All current and former employees of the Company, and all current and former consultants or contractors of the Company who have been involved in the creation or development of any Technology or Intellectual Property Rights for the Company, have executed the applicable form of agreement or have otherwise assigned all of their Intellectual Property Rights related thereto to the Company in accordance with applicable Law and agreed to confidentiality obligations in favor of the Company. Without limiting the foregoing, no current or former employee owns any Company Products or Company Intellectual Property, nor has any employee made any assertions with respect to any alleged ownership. All current and former employees of the Company, and all current and former consultants or contractors of the Company who have been involved in the creation or development of any Company Products or Technology for or on behalf of the Company have executed the applicable form of agreement with the Company that to the fullest extent permitted under applicable law, waives for the benefit of the Company, all moral rights in any works of authorship relating to the business of the Company.

(n) No Government Funding . No government funding, facilities or resources of a university, college, other educational institution, multi-national, bi national or international organization or research center was used in the development of any Company Intellectual Property. No employee of the Company, who has been involved in the creation or development of any Technology or Intellectual Property Rights for the Company, or have had access to such Technology or Intellectual Property Rights, has performed services for the government, university, college, or other educational institution or research center during a period of time during which such employee, consultant or independent contractor was also performing services for the Company. There are no current or contingent usage rights, march-in rights, manufacturing restrictions or other rights of any governmental entity in or to any Company Intellectual Property, or in or to any other Intellectual Property that is either used by or for the Company or that is otherwise necessary to conduct the business of the Company as currently conducted and currently contemplated to be conducted.

 

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(o) Open Source Software . The Company has taken sufficient steps, including by implementing and enforcing commercially reasonable policies, designed to (i) identify Open Source Software used by the Company or otherwise included in the Company Products, and (ii) regulate the use, modification, and distribution of Open Source Software in connection with the operation of the business of the Company. Schedule 3.9(o) lists all Open Source Software that is or has been incorporated into, linked with, distributed with, made available to any third party, used to host or otherwise provide or used in the development of any Company Product in any way, or from which any part of any Company Product has been derived, and accurately describes (i) the Company Products (if any) to which each such item of Open Source Software relates, as well as (ii) the manner in which such Open Source Software was incorporated, linked or otherwise used, including, without limitation, (a) whether the Open Source Software is or has been modified and/or distributed by the Company or any of its Affiliates and (b) whether (and if so, how) such Open Source Software was incorporated into or linked in any Company Product. Schedule 3.9(o) also lists (or provides a link to) the applicable license for each such item of Open Source Software. Except to the extent disclosed on Schedule 3.9(o) , the Company has not used Open Source Software in any manner that (i) requires the disclosure or distribution in source code form of any Company Intellectual Property, including any portion of any Company Product other than such Open Source Software, (ii) requires the licensing of any Company Intellectual Property, or any portion of any Company Product other than such Open Source Software, for the purpose of making derivative works, (iii) imposes any restriction on the consideration to be charged for the distribution of any Company Intellectual Property, (iv) creates material obligations for the Company with respect to Company Intellectual Property or grants to any third Person, any rights or immunities under Company Intellectual Property, or (v) imposes any other material limitation, restriction or condition on the right of the Company to use or distribute any Company Intellectual Property. With respect to any Open Source Software that is used by the Company in the operation of its business, the Company is in material compliance with all applicable licenses with respect thereto.

(p) Source Code . The Company has not, nor has any other Person acting on its behalf disclosed, delivered or licensed to any Person, agreed to disclose, deliver or license to any Person, or permitted the disclosure or delivery to any escrow agent or other Person of, any source code for any Company Product, other than to Persons involved in the development of such source code who have executed the applicable form of agreement attached to Schedule 3.9(m) . Neither this Agreement nor the transactions contemplated by this Agreement, including the assignment or transfer to Buyer, by operation of Law or otherwise, of any Company Intellectual Property, will result in, or entitle any Person to demand, the disclosure, delivery or license of any source code for any Company Product to any Person.

(q) Personally Identifiable Information and Customer Data . Schedule 3.9(q) describes the types of Personally Identifiable Information and Customer Data collected (and the process by which such information is collected) by the Company through Internet websites and mobile applications owned, maintained or operated by the Company (“ Company Sites ”), and through any Company Products, including the types of Personally Identifiable Information and Customer Data, and the method of collection for each; contains each Company Privacy Policy; and identifies with respect to each Company Privacy Policy, the period of time during which such policy was or has been in effect, whether the terms of a later Company Privacy Policy apply to the data or information collected under such Privacy Policy; and, if so, the mechanism (e.g., opt-in, opt-out, notice) used to apply the later Company Privacy Policy to such data or information. The Company has complied in all material respects with all applicable Laws (including but not limited to the Personal Data Protection Act 2012 of Singapore), fiduciary obligations, requirements of self-regulatory organizations, contractual obligations, consumer-facing statements in any marketing or promotional materials, and each Company Privacy Policy (collectively, “ Privacy Requirements ”) relating to (i) the privacy of users of Company Sites and Company Products and (ii) the collection, storage, transfer, disclosure, retention, disposal and any other processing of any Personally Identifiable Information and Customer Data collected or used by the

 

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Company in any manner or maintained by third parties having authorized access to such information. Each Company Privacy Policy and all materials distributed or marketed by the Company have at all times made all disclosures to users, customers and Employees as required in all material respects by applicable Privacy Requirements, and none of such disclosures made or contained in any Company Privacy Policy or in any other materials has been inaccurate or in material violation of any Privacy Requirements. The Company has taken measures designed to ensure that all third parties that are provided with access to Personally Identifiable Information, Customer Data and/or any other data contained in the Company’s databases protect the privacy, security and confidentiality of such data and information, including by requiring such parties to be subject to written agreements requiring such parties to comply with the applicable Privacy Requirements with respect to such data and information. Neither this Agreement, nor the transactions contemplated by this Agreement, nor the transfer to Buyer or Buyer’s possession or use (as such information has been used by the Company) of any Personally Identifiable Information, Customer Data, and/or any other data contained in the Company’s databases will result in any material violation of any applicable Privacy Requirement.

(r) Protection of Personally Identifiable Information and Customer Data . The Company has taken commercially reasonable steps consistent with industry standards designed to protect the Personally Identifiable Information and Customer Data against damage, loss and against unauthorized access, use, modification, disclosure or other misuse. Such steps and procedures comply in all material respects with all Privacy Requirements (including data protection legislation) relating to the security of information technology assets, Personally Identifiable Information, Customer Data, and other data, information, and Company Intellectual Property to which the Company or any third party acting on its behalf has access or otherwise collects, transmits, handles, or stores. This includes, but is not limited to, the Company having implemented, maintained, and monitored reasonable measures with respect to technical, administrative, and physical security to preserve and protect the confidentiality, availability, security, and integrity of the information technology assets, Personally Identifiable Information, Customer Data, and other data, information, and Company Intellectual Property collected, processed, transmitted or stored by the Company or any third party acting on its behalf (including protecting such systems from infection by Contaminants, access by unauthorized Persons, or access by authorized Persons that exceeds the Person’s authorization), performing and documenting its risk assessment and management procedures; and conforming with standard industry practices pertaining to secure programming techniques. The Company’s information security practices conform, and at all times have conformed, to all Privacy Requirements, in all material respects, and industry standards. There is no, nor has there ever been, any complaint to, or any audit, proceeding, investigation (formal or informal), or claim against, the Company or, to the Knowledge of the Company, any of its customers, initiated by (i) any private Person or (ii) any Governmental Authority with respect to the security, confidentiality, transmission, availability, or integrity of information technology assets, Personally Identifiable Information, Customer Data, and other data, information or Company Intellectual Property. To the Company’s Knowledge, the Company information technology assets, Personally Identifiable Information, Customer Data, and other data, information or Company Intellectual Property are and have at all times been collected, processed, transmitted, stored, and used in Singapore, and the Company is not subject to the jurisdiction of any non-Singapore Governmental Entity with respect to the collection, processing, transmission, storage and use of Personally Identifiable Information and Customer Data. There has been no unauthorized access to or other misuse by the Company, or to the Company’s Knowledge, by any third party, of information technology assets, Personally Identifiable Information, Customer Data, and other data, information of the Company.

(s) Disputes . There are no contracts, licenses or agreements between the Company and any other Person with respect to any Intellectual Property Right or Technology under which there is any dispute regarding the scope of such agreement, or performance under such agreement, including with respect to any payments to be made or received by the Company thereunder.

 

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(t) Products . Schedule 3.9(t)(i) contains a complete and accurate list (by name and version number) of all Company Products. There are no claims with respect to any of the Company Products (or any other Company Intellectual Property) which do, or may reasonably be expected to, adversely affect the value, functionality or fitness for the intended purpose of such Company Product or Company Intellectual Property or which would reasonably be expected to, adversely affect the Company’s ability to perform any of its contractual obligations. Schedule 3.9(t)(ii) of the Disclosure Schedule sets forth a complete and accurate list and/or description of all Intellectual Property Rights and Technology granted or provided to the Company by any third Person that is incorporated into, integrated or bundled with, linked with, or used in the development or compilation of, any Company Product, other than any Open Source Software listed on Schedule 3.9(o) .

(u) Bugs . Schedule 3.9(u) sets forth the Company’s current (as of the date hereof) list of known bugs maintained by its development or quality control groups with respect to any of the Company Products and Technology. The Company has and enforces a policy to document all known bugs, errors and defects in the Company Products, and such documentation is retained and is available internally at the Company and has been Made Available to Buyer. To the Company’s Knowledge, there are no bugs, errors or defects in the Company Products which do, or may reasonably be expected to, materially: adversely affect the value, functionality or fitness of the intended purpose of such Company Product.

(v) Contaminants . The Company has not intentionally included in any Company Products or Company Intellectual Property (and all parts thereof) distributed or licensed by the Company, any disabling codes or instructions or any “back door,” “time bomb,” “Trojan horse,” “worm,” “drop dead device,” “virus” or other software routines or hardware components that permit unauthorized access or the unauthorized disablement or erasure of Company Products, information technology assets, Personally Identifiable Information, Customer Data or Company Intellectual Property (or all parts thereof) or data or other software of the Company or any third Person (“ Contaminants ”).

(w) Security Measures . The Company has taken commercially reasonable steps to protect the information technology systems used in connection with the operation of the Company from unauthorized access and Contaminants. The Company has and maintains commercially reasonable disaster recovery and security plans, procedures and facilities for the business, which plans, procedures and facilities are set forth in detail on Schedule 3.9(w) . To the Company’s Knowledge, there have been no unauthorized intrusions or breaches of the security of information technology systems used in connection with the operation of the business of the Company.

(x) IP Sufficiency . The Company Intellectual Property, together with any Intellectual Property Rights or Technology licensed pursuant to Inbound Licenses, includes all Intellectual Property Rights and Technology that are used in or necessary to the conduct of the business of the Company as it currently is conducted including the design, development, manufacture, use, marketing, import for resale, distribution, licensing out and sale of any Company Product, in each case as currently or previously conducted by the Company. The Company owns, or possesses licensed copies of, all Technology that is used in or necessary to the conduct of the business of the Company as currently conducted.

(y) PCI Compliance . The Company is and has been in compliance with the applicable portions of the Payment Card Industry Data Security Standard (“ PCI-DSS ”) in all material respects, as it has been amended from time-to-time. With respect to payment card transactions or information processed in any way (including any processing, storing or communication of transaction data or Cardholder Data (as such term is defined in the PCI-DSS)), by the Company, the Company is in material compliance with the PCI-DSS applicable to service providers and with the requirements related

 

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to PCI-DSS in each Agreement pursuant to which the Company provides services of any kind. Each Company Product that is (i) intended to be used to process financial or payment card transactions (including any processing, storing or communication of transaction data or Cardholder Data), and (ii) provided by the Company to any Person, is in compliance with the PCI-DSS.

3.10 Contracts and Commitments .

(a) Except as specifically contemplated by this Agreement or as set forth on Schedule 3.10(a) , the Company is not a party to or bound by, whether written or oral, any:

(i) Contract involving a potential commitment or payment by the Company in excess of USD $10,000, individually or in the aggregate;

(ii) any bonus, commission, pension, profit sharing, retirement or any other form of deferred compensation or incentive plan or any stock purchase, stock option, warrant, personnel option, hospitalization, insurance or similar employee benefit plan or practice;

(iii) Contract for the employment of any officer, individual employee or other Person on a full-time, consulting or independent contractor basis or any severance or change-of-control agreement, or any collective bargaining agreement or Contract with any labor union;

(iv) Contract relating to Indebtedness (including guaranty arrangements) or to mortgaging, pledging or otherwise placing a Lien, other than any Permitted Lien, on any of its assets, or any guaranty of an obligation of a third party;

(v) royalty, dividend or similar arrangement based on the revenues or profits of the Company or any contract or agreement involving fixed price or fixed volume arrangements;

(vi) Contract which contains any provisions requiring the Company to indemnify any other party;

(vii) Contract under which the Company is lessee of, or holds or operates, any property, real or personal, owned by any other party or under which it is lessor of or permits any third party to hold or operate any property, real or personal, owned or controlled by the Company;

(viii) Contract or group of related Contracts which are not cancelable by the Company without penalty on less than thirty (30) days’ notice;

(ix) Contract relating to the ownership of or investment in any business or enterprise (including investments in joint ventures and minority equity investments);

(x) Contract limiting the freedom of the Company, or that would limit the freedom of Buyer or any of its Affiliates after the Closing Date, to freely engage in any line of business or with any Person anywhere in the world or during any period of time or otherwise including provisions on joint price-fixing, market or customer sharing, exclusivity or market classification;

 

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(xi) Contract under which the Company has triggered an obligation to provide a refund or rebate or any other payment related to volume-based pricing discounts or similar provisions;

(xii) Contract relating to the distribution, marketing, advertising or sales of the Company’s products and/or services;

(xiii) Contract pursuant to which it subcontracts work to third parties;

(xiv) Contract with any Governmental Authority;

(xv) power of attorney from the Company, including the name of such Person holding such power of attorney;

(xvi) acquisition agreement, whether by merger, stock or asset sale or otherwise;

(xvii) Contract not executed in the ordinary course of business, not consistent with fair market terms, conditions and prices or with applicable Laws and regulations or otherwise not made on arm’s length terms and conditions; or

(xviii) other Contract material to the Company or its business.

(b) Each Contract that is, or should have been, listed on Schedule 3.10(a) (each a “ Company Contract ”) to which the Company is a party, or to which any of its properties or assets (whether tangible or intangible) is subject, is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, and is in full force and effect with respect to the Company and, to the Knowledge of the Company, any other party thereto subject to (i) Laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of Law governing specific performance, injunctive relief and other equitable remedies. The Company has not violated nor is in violation of, in any material respect, any provision of, or has committed or failed to perform any act which, with or without notice, lapse of time or both would constitute a material breach of, a default or an event of default under the provisions of, any Company Contract. To the Knowledge of the Company, (i) no Person other than the Company, which is party to any Company Contract, has violated or is in violation of, in any material respect, any provision of, or has committed or failed to perform any act which, with or without notice, lapse of time or both, would constitute a material breach of, a default or an event of default under the provisions of any Company Contract and (ii) there are no facts or circumstances that would reasonably be expected to result in a violation of, in any material respect, any provision of, or the failure to perform any act which, with or without notice, lapse of time or both, would constitute a material breach of, a default or an event of default under the provisions of any Company Contract by the Company or any other Person. No Company Contract requires the obtaining of any consent, approval, notation or waiver of any third party in connection with the transactions contemplated by this Agreement, and following the Closing, the Company shall be entitled to all rights under each Company Contract existing immediately prior to the Closing. To the Knowledge of the Company, none of the Company Contracts are subject to any claims, charges, set offs or defenses. None of the Company or any of its officers, directors, or employees, by or on behalf of the Company, is party to or has ever been a party to a Contract with any Governmental Authority. As of the date hereof, there are no new Contracts that are being actively negotiated and that would be required to be listed on Schedule 3.10 .

(c) The Company has fulfilled all material obligations required to have been performed by the Company prior to the date of this Agreement pursuant to each Company Contract.

 

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(d) The execution, performance or completion of this Agreement and/or the consummation of the transactions contemplated by this Agreement, will not relieve any person of any obligation to the Company (whether contractual or otherwise), or enable any person to determine or reduce the scope or extent of any such obligation or any right or benefit enjoyed by the Company or to exercise any right in respect of the Company (including without limitation to revise or accelerate any obligation, create any Lien or enforce any security, or demand any payment or discount).

3.11 Litigation; Compliance with Laws .

(a) There is no litigation, action, suit, claim, audit or proceeding of any nature that is pending or overtly threatened against the Company or as to matters related to the Company or its operations, against any officer, director or Key Employee of the Company in their respective capacities in such positions; nor, to the Knowledge of the Company, are there any facts or circumstances that could constitute a reasonable basis therefor. To the Company’s Knowledge, there is no investigation pending or threatened against the Company; nor, to the Knowledge of the Company, are there any facts or circumstances that could constitute a reasonable basis therefor. To the Company’s Knowledge, there is no action, suit, claim or proceeding of any nature pending or threatened against any Person who has a contractual right or a right pursuant to any Law to indemnification from the Company related to facts and circumstances existing prior to the Closing; nor, to the Knowledge of the Company, are there any presently existing facts or circumstances that would constitute a reasonable basis therefor. There are no unsatisfied judgments or other orders against the Company. Schedule 3.11(a) includes a description of all litigation, actions, suits, claims, notices of violations, proceedings of any nature, audits or investigations involving the Company or any of its respective officers, directors or Key Employees in connection with the business of the Company occurring, arising or existing since the Company’s inception.

(b) The Company is in material compliance and has been in material compliance since the Company’s inception with all Laws and Permits applicable to the Company or any of its assets, properties or Business.

(c) No event has occurred or facts or circumstances exist that (with or without notice or lapse of time): (i) may constitute or result in a material violation by the Company of, or a failure on the part of the Company to comply in any material respect with, any Law or Permit applicable to the Company or its assets, properties or Business; or (ii) may give rise to any material obligation on the part of the Company to undertake, or to bear all or any material portion of the cost of, any curative action of any nature.

(d) The Company has not received any notification from any Governmental Authority or any other Person asserting that (i) the Company is not in compliance with any Law or Permit applicable to the Company or its assets or Business; or (ii) the Company may have an obligation to undertake, or to bear all or any portion of the cost of, any curative action of any nature.

(e) The Company possesses all Permits necessary to conduct the Business in each jurisdiction (federal, state, local and foreign) in which the Company has conducted business, and Schedule 3.11(e) contains a true, correct and complete list of all such Permits under which the Company, the Business or any assets of the Company is operating or bound. All such Permits are in full force and effect and there are no proceedings pending or, to the Knowledge of the Company, threatened, that seek the revocation, cancellation, suspension or adverse modification of any such Permit. To the Knowledge of the Company, there is no proposed change in any applicable Law that would require the Company to obtain any Permit not set forth on Schedule 3.11(e) in order to conduct the Business or own, lease or operate the assets of the Company. There is and, immediately following consummation of the transaction contemplated by this Agreement, will be no material impediment to Buyer obtaining all Permits necessary for the conduct of the Business as currently conducted as currently contemplated to be conducted.

 

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(f) Except as set forth in Schedule 3.11(f) , during the five (5) years preceding the date hereof, the Company has not conducted any internal investigation for any actual or alleged material violation of Law by the Company or by any officer, director or agent of the Company acting in his capacity as an officer, director or agent of the Company.

3.12 Taxes .

(a) Except as set forth in Section 3.12 of the Disclosure Schedule, all Tax Returns required to be filed by or on behalf of the Company have been duly and timely filed and all such Tax Returns are, in all material respects, true, correct and complete and were prepared in compliance with all applicable laws and regulations. All Taxes due and owing by the Company have been paid in full. Adequate provision has been made in the Company Interim Financial Statements for all Taxes for which the Company is liable.

(b) No deficiency in payment of Tax in respect of the period up to and including the Closing Date has been, is or, to the Knowledge of the Company, will be claimed or made by any Tax authority for any year or part of a year in respect of the Company.

(c) Since January 1, 2009, the Company has never received notice of any claim nor, to the Knowledge of the Company, has any written claim been threatened by an authority in a jurisdiction where the Company does not file Tax Returns claiming that the Company is or may be subject to taxation by that jurisdiction. The Company is not currently the beneficiary of any extension of time within which to file any Tax Return.

(d) There is no dispute or claim concerning any material amount of income Tax liability of the Company for any taxable period ending on or prior to the Closing Date either (A) claimed or raised by any authority in writing or (B) as to which the Sellers, the Company or any of their respective directors and officers (and employees responsible for Tax matters) has Knowledge based upon personal contact with any agent of such authority.

(e) The unpaid Taxes of the Company (i) did not, as of December 31, 2013, exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Company Interim Balance Sheet and (ii) will not exceed that reserve as adjusted for operations and transactions through the Closing Date in accordance with the past custom and practice of the Company in filing its Tax Returns.

(f) The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any: (i) change in method of accounting made prior to the Closing for a taxable period ending on or prior to the Closing Date; (ii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local, or non-U.S. Tax law) executed on or prior to the Closing; (iii) intercompany transactions or any excess loss account described in Treasury Regulations under Section 1502 of the Code (or any corresponding or similar provision of state, local, or non-U.S. Tax law); (iv) installment sale or open transaction disposition made on or prior to the Closing Date; (v) prepaid amount received on or prior to the Closing Date, or (vi) election under Section 108(i) of the Code.

 

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(g) There are no Liens for Taxes upon any of the assets of the Company other than statutory liens for Taxes not yet due or delinquent (or which may be paid without interest or penalties) or the validity or amount of which is being contested in good faith by appropriate proceedings being diligently conducted, for which adequate reserves have been established in accordance with Singapore FRS.

(h) All material amounts required to be paid by the Company for the purpose of Tax, social security, insurance, pensions and other similar costs or benefits relating to employees have been duly and timely paid and all amounts required to be deducted from moneys paid to employees for the purposes of Tax, social security, insurance, pensions and other similar costs or benefits relating to employees have been deducted and have been paid to the appropriate Governmental Authority, and there is no dispute on any issue in respect of any deduction or payment. The Company has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party.

(i) The Company does not have and has never had any interest in any trust, partnership, corporation, LLC, or other business entity for U.S. federal income tax purposes.

(j) The Company has not entered into or been party to any scheme, arrangement or transaction designed wholly or principally for the purpose of avoiding Tax.

(k) Except as set forth in Section 3.12 of the Disclosure Schedule, the Company is not, and has never been, a party to any agreement or arrangement, the principal subject of which is the allocation or sharing of Taxes.

(l) To the Knowledge of the Company and except as set forth in Section 3.12 of the Disclosure Schedule, the Company is not subject to Tax in any jurisdiction other than Singapore. As of the date hereof, the Company has not since January 1, 2009 had a “permanent establishment” within the meaning of the Code, any other applicable Tax Laws or any applicable income tax convention in any jurisdiction other than the jurisdiction in which the Company is incorporated. The Company is and has been at all times been resident for Tax purposes in its country of incorporation or formation and is not and has not at any time been treated as resident in any other country for any Tax purpose (including any arrangement for the avoidance of double taxation). The Company is not liable for any Tax as the agent of any other Person nor constitutes a permanent establishment or place of business of any other Person for any Tax purpose.

(m) The Company has never been a member of a group filing a consolidated or combined Tax Return.

(n) To the Knowledge of the Company and except as set forth in Section 3.12 of the Disclosure Schedule, the Company is not currently and has never been engaged in a U.S. trade or business within the meaning of the Code and regulations promulgated thereunder. The Company is treated as a foreign corporation for U.S. federal income tax purposes. The Company is not a “passive foreign investment company” within the meaning of Section 1297 of the Code (ignoring Section 1297(d) of the Code). The Company is not a “controlled foreign corporation” as defined in Section 957(a) of the Code (a “ CFC ”). If the Company is a CFC or would be a CFC if the Company were wholly owned by a “United States shareholder” as defined in Section 951(b) (a “ US Shareholder ”), the actual (or deemed) “United States shareholders” would not be required to include any amount as income under Section 951 of the Code were the taxable year of such actual (or deemed) CFCs deemed to close on the Closing Date.

 

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(o) The Company has provided to Buyer a list of all income and other material Tax Returns (including any elections) filed by the Company since January 1, 2009. The Company has Made Available to Buyer true, correct and complete copies of all such Tax Returns that are based on or measured by income of the Company.

(p) The Company is and always has been classified as a corporation for U.S. federal income Tax purposes, and has had comparable status under the Laws of any state or local jurisdiction in which it was required to file any Tax Return at the time it was required to file such Tax Return. The Company has not filed an election under Treasury Regulations Section 301.7701-3(c) with respect to the Company.

(q) The Company has not, at any time, owned any “United States real property interests” within the meaning of Section 897(c) of the Code.

(r) The Company does not benefit from any ruling or advanced pricing agreement issued by the competent Tax authorities or any Governmental Authority. The Company is not party to any cost-sharing agreement or similar arrangement that is not in compliance with Treasury Regulations Section 1.482-7 and any comparable provision of any Tax Law. The Company has maintained documentation (including any applicable transfer pricing studies) in connection with such related party transactions in accordance with Singapore law to the extent any such related party transactions exist.

3.13 Benefit Plans .

(a) Company Benefit Plans . Schedule 3.13(a) sets forth a true, complete, up-to-date and accurate list of all written or oral employee benefit, welfare, supplemental unemployment benefit, bonus, pension, profit sharing, executive compensation, current or deferred compensation, incentive compensation, stock compensation, stock purchase, stock option, stock appreciation, phantom stock option, savings, severance or termination pay, retirement, supplementary retirement, hospitalization insurance, salary continuation, legal, health or other medical, dental, life, disability or other insurance (whether insured or self-insured) plan, program, agreement or arrangement, and every other written or oral benefit plan, program, agreement or arrangement currently sponsored, maintained or contributed to or required to be contributed to by the Company or any Affiliate of the Company for the benefit of any employees of the Business or former employees and their dependants or as provided by any collective agreement to which the Company is a party or by which it is, or was at any time in the last five years, bound with respect to which the Company participates and has any actual or potential Liability or obligations, other than plans established pursuant to statute (each a “ Company Benefit Plan ”).

(b) Plan Documents . True, complete and correct copies of the following documents, with respect to each Company Benefit Plan, where applicable, have been made available to Buyer: (i) all documents embodying or governing such Company Benefit Plan and any funding medium for the Company Benefit Plan, including all trust agreements and insurance policies and contracts; (ii) all related agreements including investment management agreements, service and fee agreements and administrative services only agreements; (iii) the most recent filings or reports required to be provided to Governmental Authorities under applicable Laws; (iv) all material correspondence to and from any Governmental Authority; and (v) all material booklets, manuals, plan summaries and plan descriptions circulated or made available to employees, former employees and their beneficiaries. The booklets, manuals, plan summaries and plan descriptions circulated or made available to employees, former employees and their beneficiaries concerning each Company Benefit Plan accurately describe, in all material respects, the benefits provided under each such Company Benefit Plan.

 

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(c) Compliance . Each Company Benefit Plan is, and has been, established, administered, invested and funded in material compliance with its terms and all applicable Laws. No litigation or governmental administrative proceeding, audit or other proceeding (other than those relating to routine claims for benefits) is pending or, to the Knowledge of the Company, threatened with respect to any Company Benefit Plan or any fiduciary or service provider thereof, and, to the Knowledge of the Company, there is no reasonable basis for any such litigation or proceeding. All payments, contributions and premiums required to have been made or remitted with respect to each Company Benefit Plan have been timely made or remitted. All Liabilities of the Company (whether accrued, absolute, contingent or otherwise) related to all Company Benefit Plans have been fully and accurately disclosed in all material respects in accordance with Singapore FRS in the Financial Statements. No insurance policy or other contract or agreement affecting any Company Benefit Plan requires or permits a retroactive increase in premiums or payments due thereunder.

(d) Certain Plans . No Company Benefit Plan is subject to the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”). Neither the Company, nor any entity that would have ever been considered a single employer with the Company under Section 4001(b) of ERISA or part of the same “controlled group” as the Company for purposes of Section 302(d)(3) of ERISA, has ever maintained any employee benefit plan that is, was or would have been (if such plan was subject to ERISA), subject to Title IV of ERISA, Section 412 of the Code, Section 302 of ERISA or is a Multiemployer Plan.

(e) Post Termination Health Care Benefits . None of the Company Benefit Plans provides health care benefits to any employees after their employment is terminated, including by reason of retirement, and neither the Company, nor to the Knowledge of the Company, any Affiliate of the foregoing, has ever promised to provide such post-termination or retiree benefits.

(f) Certain Actions . Except for Vested Company Options, each Company Benefit Plan may be amended, terminated, or otherwise modified by the Company, as applicable, to the greatest extent permitted by applicable Laws. The Company has not announced its intention to modify or terminate any Company Benefit Plan or adopt any arrangement or program which, once established, would come within the definition of a Company Benefit Plan, except as described in this Agreement. The execution of this Agreement and the completion of the transactions contemplated hereby will not (either alone or in conjunction with any additional or subsequent events) (i) constitute an event under any Company Benefit Plan that will or may result in any payment (whether of severance pay or otherwise), acceleration of payment or vesting of benefits, forgiveness of indebtedness, vesting, distribution, restriction on funds, increase in benefits or obligation to fund benefits with respect to any employee or (ii) result in any “parachute payment” as defined in Section 280G of the Code (whether or not such payment is considered to be reasonable compensation for services rendered).

(g) Section 409A . No Company Benefit Plan constitutes a nonqualified deferred compensation plan subject to Section 409A of the Code. No payment to be made under any Company Benefit Plan (including with respect to any Vested Company Options) is, or to the Knowledge of the Company, will be, subject to the penalties of Section 409A(a)(1) of the Code.

3.14 Employees; Labor Relations .

(a) Schedule 3.14(a) contains a list of the name of each current officer and employee of the Company, together with each such person’s position or function, annual base salary or wages and any incentive or bonus arrangement with respect to such person. The Company is not delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed for the Company or amounts required to be reimbursed to such

 

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employees. No labor union or any representative thereof represents, or has made any attempt to organize or represent, employees of the Company. The Company is not a party to any collective bargaining agreements. There are no strikes or lockouts or work stoppages or slowdowns pending or, to the Knowledge of the Company, threatened against the Company. No officer or Key Employee of the Company, to the Knowledge of the Company, has any present plan or intention to terminate his or her employment, and in the past twelve (12) months no officer’s or employee’s employment with the Company has been terminated for any reason.

(b) The Company is not liable to make any outstanding payment to any director, officer or employee or former director, officer or employee by way of damages or compensation for loss of office or employment or for redundancy or unfair or wrongful dismissal or for other grounds, and the Company has no obligation, by law or otherwise, to employ or re-employ any person, including any former employee of the Company.

(c) The Company has not materially violated any legislation, regulation or agreement relating to labor or employment in any jurisdiction, and no such violation exists.

(d) The Company is not involved in any litigation, arbitration or any other proceedings in relation to present or former employees, and there is no dispute between the Company and any current or former employee or trade union (whether local, regional or national), pending or, to the Company’s Knowledge, threatened. There are no unfair labor practice charges, pending claims or actions with respect to unfair labor practice charges, pending grievance proceedings or adverse decisions of any Governmental Authority or entity against the Company, and there are no pending or, to the Company’s Knowledge, threatened investigations, actions, claims or charges against the Company from any other Governmental Authority or entity.

(e) The consummation of the transactions contemplated in this Agreement will not (i) entitle any employee of the Company to severance pay, unemployment compensation, bonus payment or any other payment, or (ii) accelerate the time of payment for vesting of, or increase the amount of compensation due to, any such employee, or (iii) entitle any such employee to terminate, shorten or otherwise change the terms of his employment.

(f) All of the persons who are receiving remuneration for work or services provided to the Company who are not employees are treated as independent contractors, are properly characterized as independent contractors, and are not likely to be characterized by any Governmental Authority as employees.

(g) Every employee who requires an employment pass or other required permit to work in Singapore has a current employment pass or such other required permit and all necessary permission to remain and work in Singapore.

(h) All deductions and payments required to be made by the Company in respect of Central Provident Fund contributions (including employer’s contributions) in relation to the remuneration of its employees (if applicable) have been so made.

3.15 Environmental Matters .

(a) The Company is and has been, in compliance in all material respects with all applicable Environmental Laws.

 

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(b) The Company possesses and is in compliance in all material respects with all permits, licenses, approvals, registrations, certificates, franchises and other authorizations required under Environmental Laws to conduct the Company’s business (“ Environmental Permits ”). Except as set forth on Schedule 3.15 , all Environmental Permits are in full force and effect.

(c) The Company has not received any written request for information, complaint, demand, administrative inquiry, notice of claim, notice of responsibility, notice of violation, notice of intent to bring a “citizens suit” under any Environmental Laws, or other information indicating that it is or may be liable or held responsible under Environmental Laws, and there is no civil, administrative, or criminal proceeding of which the Company has received written notice or, to the Knowledge of the Company, threatened against the Company under any Environmental Laws. The Company has no reason to believe that any of the items enumerated in this subsection (c) will be forthcoming.

(d) The operations of the Company have not resulted in any material release of any prohibited amount or concentration of Hazardous Substances on (i) any real property now or formerly owned, operated or leased by the Company or (ii) any other property to which the Company has transported or disposed of, or allowed or arranged for any third party to transport or dispose of, wastes. To the Knowledge of the Company, no prohibited amount or concentration of Hazardous Substance is present or has come to be located in the Environment at any property now or formerly owned, operated or leased by the Company, during a time period in which the Company was leasing, occupying or using such property, in an amount or concentration in excess of any amount or concentration prescribed, permitted, or required to be reported under Environmental Laws or that requires any investigation, remediation, or other response action pursuant to any Environmental Laws.

(e) The Company does not own or operate any underground storage tanks regulated under Environmental Laws. To the Knowledge of the Company, no polychlorinated biphenyls (“ PCBs ”) or equipment containing PCBs; lead or lead-based paint; asbestos or asbestos-containing materials; or toxic mold, mildew or fungi are present at any real property now owned, operated or leased by the Company.

(f) The Company has Made Available to Buyer or its counsel true and complete copies of all Environmental Reports, if any, that are in the possession or control of, or were commissioned by or on behalf of, the Sellers, the Company or any of its Affiliates.

3.16 Brokers’, Finders’ Fees, etc . The Company has not employed any broker, finder, investment banker or financial advisor (i) as to whom the Company, the Sellers or the Vested Optionholders may have any obligation to pay any brokerage or finders’ fees, commissions or similar compensation in connection with the transactions contemplated hereby, or (ii) who might be entitled to any fee or commission from Buyer, the Company or any of their respective Affiliates upon consummation of the transactions contemplated hereby.

3.17 Affiliate Transactions . Neither the Sellers, the Vested Optionholders, nor any current Employee, officer or director of the Company or any other person related by blood or marriage to any of the foregoing, or any entity in which any such person owns any outstanding equity interest, is a party to any Company Contract, lease, loan, contract, commitment or transaction with the Company or which is pertaining to the business of the Company, other than a Company Benefit Plan, or has any interest in any property, real or personal or mixed, tangible or intangible, used in or pertaining to the business of the Company. Neither the Sellers, the Vested Optionholders, nor any current Employee, director or officer of the Company owns directly or indirectly, on an individual or joint basis, any interest in, or serves as an officer or director or in another similar capacity of, any competitor, customer or supplier of the Company, or any organization which has a contract or agreement with the Company.

 

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3.18 Insurance . Schedule 3.18 contains a true and complete list (including the names and addresses of the insurers, the expiration dates thereof, the annual premiums and deductibles and a brief description of the interests insured thereby) of all liability, property, workers’ compensation, directors’ and officers’ liability and other insurance policies currently in effect that insure the business, operations or employees of the Company or affect or relate to the ownership, use or operation of any of the assets or properties of the Company and that have been issued to the Company. The insurance coverage provided by the policies described herein will not terminate or lapse by reason of the transactions contemplated by this Agreement or the other Transaction Documents. Each policy listed on Schedule 3.18 is valid and binding and in full force and effect, no premiums due thereunder have not been paid and the Company has not received any notice of cancellation or termination in respect of any such policy or is in default thereunder. Schedule 3.18 sets forth a complete and accurate list of all claims in excess of USD $10,000 made by the Company under the policies and binders described on Schedule 3.18 since the Company’s inception. Such insurance policies listed on Schedule 3.18 are sufficient for material compliance with all legal requirements and contracts to which the Company is a party or by which the Company is bound. Other than in connection with renewal in the ordinary course of business, since January 1, 2008, the Company has not received (i) any refusal of coverage or any notice that a defense will be afforded with reservation of rights, or (ii) any notice of cancellation or any other indication that any insurance policy is no longer in full force or effect or will not be renewed or that the issuer of any policy is not willing or able to perform its obligations thereunder.

3.19 Bank Accounts . Schedule 3.19 sets forth (a) a true and complete list of the names and locations of all banks, trust companies, securities brokers and other financial institutions at which the Company has an account or safe deposit box or maintains a banking, custodial, trading or other similar relationship; and (b) a true and complete list and description of each such account, box and relationship, indicating in each case the account number and the names of the respective officers, employees, agents or other similar representatives of the Company having signatory power with respect thereto.

3.20 Title to Properties; Encumbrances; Capital Leases .

(a) Schedule 3.20(a) hereto lists all real properties and interests therein leased by the Company as of the date hereof.

(b) The Company is the valid lessee or licensee to each of its leased real properties listed in Schedule 3.20(a) and has good, valid and marketable title to all tangible personal property and assets, real, personal and mixed, used or held for use in and/or necessary for the conduct of the business of the Company as currently conducted, free and clear of all Liens, except for Permitted Liens.

(c) The Company does not own and has never owned any real property.

(d) Except as set forth in Schedule 3.20(d) , with respect to real property leased or subleased by the Company, (i) each lease or sublease is in full force and effect as of the date hereof; and (ii) the Company is not and, to the Knowledge of the Company, no other party to such leases or subleases is, in breach or default or has repudiated any material provision thereof.

(e) Schedule 3.20(e) sets forth a list of all capital leases to which the Company is a party, including (i) the name of the lessor under such capital lease, (ii) a description of the item subject to such capital lease, (iii) the aggregate amount of payments remaining under such capital lease and (iv) the payment schedule under such capital lease.

3.21 Sufficiency of Assets . The assets of the Company include all assets used, or held for use by the Company, in the conduct of its business as currently conducted by the Company and such assets are sufficient to permit the Company to conduct such business. All tangible assets of the Company are in good condition and repair (ordinary wear and tear excepted).

 

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3.22 Accounts Payable; Accounts Receivable .

(a) All accounts payable of the Company arose in bona fide arm’s length transactions in the ordinary course of business and no such account payable is delinquent in its payment. The reserves set forth on the Company Audited Balance Sheet and the Company Interim Balance Sheet against the accounts receivable for bad debts have been calculated in an appropriate manner consistent with Singapore FRS and with the past practices of the Company. Since the Balance Sheet Date, the Company has paid its accounts payable in the ordinary course of its business and in a manner which is consistent with its past practices. The Company has not had any account payable to any person who is affiliated with it or any of its directors, officers, employees or shareholders.

(b) Schedule 3.22(b) sets forth a list of all accounts receivable of the Company, whether billed or unbilled, as of the Balance Sheet Date, together with an aging schedule (of only billed accounts receivable) indicating a range of days elapsed since original invoice, and indicating the amounts of allowances for doubtful accounts. None of such accounts receivable have been reinvoiced since the original invoice date. All of the accounts receivable of the Company are valid and enforceable claims, are subject to no set-off or counterclaim and are fully collectible within thirty (30) days of the date hereof, less an amount not in excess of the allowance for doubtful accounts provided for on the Interim Balance Sheet. Since the Balance Sheet Date, the Company has collected its accounts receivable in the ordinary course of its business and in a manner which is consistent with past practices and has not accelerated any such collections. The Company has not had any accounts receivable or loans receivable from any person which is affiliated with it or any of its directors, officers, employees or stockholders. All of the accounts receivable, whether billed or unbilled, of the Company arose in the ordinary course of business, consistent with past practices, are carried at net realizable values and do not represent obligations for goods sold on consignment, on approval or on a sale or return basis or subject to any other repurchase or return arrangement. None of the accounts receivable of the Company is subject to any claim of offset, recoupment, setoff or counter-claim, and, to the Company’s Knowledge, there are no facts or circumstances (whether asserted or unasserted) that could give rise to any such claim. None of the accounts receivable of the Company is contingent upon the performance by the Company of any obligation or Contract and no agreement for deduction or discount has been made with respect to any of such accounts receivable.

3.23 Customers and Suppliers .

(a) Schedule 3.23(a) contains a true and correct list of the top fifty (50) end-user customers of the Company by revenue for the twelve (12) month period ended March 31, 2013 and the top fifty (50) end-user customers of the Company by revenue for the eleven (11) month period ending February 28, 2014 (each such customer, a “ Top Customer ”). There are no material disputes with any Top Customer. The Company has not received formal notice, nor does the Company have Knowledge, that any Top Customer intends to cancel or otherwise materially and adversely modify its relationship with the Company (whether related to payment, price or otherwise) on account of the transactions contemplated by this Agreement or otherwise. All sales to, and arrangements with, any Top Customer are subject to written documentation or a binding Contract between the Company and such Top Customer, in each case, in accordance with the requirements under Singapore FRS, including for purposes of revenue recognition. There are no warranty claims or other uninsured claims pending or, to the Knowledge of the Company, threatened against the Company under any Contracts which might involve a material monetary Liability which is not fully reserved against in the Company Interim Balance Sheet. The Company has Made Available to Buyer all Contracts with each Top Customer.

 

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(b) Schedule 3.23(b) contains a list of the top fifty (50) suppliers of the Company by dollar volume of purchases for the twelve (12) month period ended March 31, 2013 and the top fifty (50) suppliers of the Company by dollar volume of purchases for the nine (9) month period ending December 31, 2013 (each such supplier, a “ Top Supplier ”). There are no material disputes with any Top Supplier. The Company has not received formal notice, nor does the Company have Knowledge, that any Top Supplier intends to cancel or otherwise materially and adversely modify its relationship with the Company (whether related to payment, price or otherwise and whether on account of the transactions contemplated by this Agreement or otherwise). The Company has Made Available to Buyer all Contracts with each Top Supplier.

3.24 Export Controls and Economic Sanctions .

With the exception of matters described in Schedule 3.24:

(a) The Company has at all times been in material compliance with all applicable trade laws, including import and export control laws, trade embargoes, and anti-boycott laws, and, except as specifically authorized by a valid license issued by a Governmental Authority, a license exception, or other permit or applicable authorization of a Governmental Authority, has not, to the extent that legal requirements identified below have been applicable and to the extent that actions described below would have had a materially adverse effect:

(i) exported, reexported, transferred, or brokered the sale of any goods, services, technology, or technical data to any destination to which, or individual for whom, a license or other authorization is required under the U.S. Export Administration Regulations (the “ EAR ,” 15 C.F.R. § 730 et seq.), or the U.S. economic sanctions administered by the Office of Foreign Assets Control (“ OFAC ,” 31 C.F.R. Part 500 et seq.);

(ii) exported, reexported, or transferred any goods, services, technology, or technical data to, on behalf of, or for the benefit of any person or entity (A) designated as a Specially Designated National by OFAC, (B) on the Denied Persons, Entity, or Unverified Lists of the Bureau of Industry and Security, or (C) designated for sanctions by the Monetary Authority of Singapore (to the extent such list-based restrictions apply to such activities);

(iii) exported any goods, services, technology, or technical data that have been or will be used for any purposes associated with nuclear activities, missiles/unmanned aerial vehicles, chemical or biological weapons, or terrorist activities, or that have been or will be used, transshipped or diverted contrary to applicable U.S. trade controls; or

(iv) exported, reexported, transferred, or imported any goods, services, technology, or technical data to or from Cuba, Iran, North Korea, Syria, or Sudan, or the governments or government instrumentalities of these countries, wherever located.

(b) The Company reasonably believes that, to the extent that the EAR is applicable, none of its products normally require a license under the EAR to be exported provided the Company maintains an encryption registration under the EAR.

(c) The Company has in place adequate controls to ensure material compliance with any applicable Laws pertaining the export and import of goods, services, and technology. The Company

 

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has not undergone and is not undergoing any material audit, review, inspection, investigation, survey or examination by a Governmental Authority relating to exports, imports, or other trade-related activity. To the Knowledge of the Company, there are no threatened material claims, nor presently existing facts or circumstances that would constitute a reasonable basis for any future material claims, with respect to exports, imports, or other trade-related activity by the Company.

(d) No authorization from any Governmental Authority for the transfer to Buyer of any Governmental License material to the Company’s business is required, or such authorization can be obtained expeditiously without material cost.

3.25 Anti-Corruption Laws .

(a) To the extent that any such measures have applied to the Company, the Company has not taken or failed to take any action that would cause it to be materially in violation of the Foreign Corrupt Practices Act of 1977, as amended (the “ FCPA ”), the U.K. Bribery Act 2010, the Singapore Prevention of Corruption Act, any rules or regulations under these laws, or any other applicable anti-corruption or anti-kickback law, including without limitation:

(i) the making of any offer or promise to pay, payment of, or authorization of payment of, directly or indirectly, money or anything of value to any Official or other person covered by any applicable anti-corruption law, for the purpose of improperly influencing an act or decision, inducing the doing or omission of any act in violation of a lawful duty, or securing an improper advantage;

(ii) use of any corporate funds for any illegal contributions, gifts, entertainment or other unlawful expenses relating to political activity;

(iii) establishment or maintenance of any unlawful fund of corporate monies or other properties; or

(iv) making or receiving of any bribe, unlawful rebate, payoff, influence payment, kickback or other unlawful payment of any nature.

For purposes of this Agreement, an “ Official ” shall include any appointed or elected official, any government employee, any political party, party official, or candidate for political office, or any officer, director or employee of any Governmental Authority or employees of state-owned or state-controlled businesses.

(b) The Company has in place adequate controls and systems to ensure compliance with applicable Laws pertaining to anti-corruption. To the Knowledge of the Company, the Company has not undergone and is not undergoing any audit, review, inspection, investigation, survey or examination by a Governmental Authority relating to the FCPA, the U.K. Bribery Act 2010, the Singapore Prevention of Corruption Act, or any other anti-corruption or anti-kickback activity. To the Knowledge of the Company, there are no threatened claims, nor presently existing facts or circumstances that would constitute a reasonable basis for any future claims, under theses anti-corruption laws against the Company.

3.26 Solvency . No application or order has been made or resolution passed for the winding-up, judicial management or administration or for the appointment of a liquidator, provisional liquidator or judicial manager of the Company, nor are there any grounds on which any person would be entitled to have the Company wound-up or placed in judicial management or administration, nor has any person

 

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threatened to present such an application or convened or threatened to convene a meeting of the Company to consider a resolution to wind up the Company or place it under judicial management or administration, nor has any step been taken in relation to the Company under the law relating to insolvency or the relief of debtors in any part of the world. No person has appointed or threatened to appoint or become entitled to appoint a receiver or receiver and manager or other similar officer over the Company’s business or assets or any part of them. No composition in satisfaction of the debts of the Company, or scheme of arrangement of its affairs, or compromise or arrangement between it and its creditors and/or members or any class of its creditors and/or members, has been proposed, sanctioned or approved. There are no grounds on which the Company may be wound up pursuant to Section 254 of the Companies Act (Chapter 50 of Singapore). No distress, execution or other process has been levied on any asset owned or used by the Company, nor has any person threatened any such distress, execution or other process. No event has occurred causing or which upon intervention or notice by any third party may cause any floating charge created by the Company to crystallize or any charge created by the Company to become enforceable, nor has any such crystallization occurred nor is such enforcement in process.

3.27 Corporate Records .

(a) Without limiting the generality of the representations and warranties in this Section 3.27 as given by Sellers who are also Founders, the representations and warranties in this Section 3.27 as given by Sellers who are not Founders are limited to each respective Seller’s Knowledge; provided that, for purposes of clarity, nothing in this Section 3.27(a) shall operate to limit or otherwise affect the obligations of the Sellers and Vested Optionholders under ARTICLE VIII , including, without limitation, their obligation to indemnify and hold harmless the Buyer Indemnified Parties as set forth in ARTICLE VIII .

(b) The statutory records, registers books of accounts and other books and records of the Company (including documents of title and copies of all subsisting agreements to which the Company are a party), all of which have been Made Available to Buyer, are up-to-date, duly entered into and maintained in accordance with all legal requirements applicable thereto and contain true, correct and complete records of all meetings held, and corporate action taken, by the shareholders, the Board of Directors and committees of the Board of Directors of the Company, and no meeting of any such shareholders, Board of Directors or committee has been held for which minutes have not been prepared or that are not contained in such minute books, other than such a meeting or meetings where no corporate action was taken. The Company has made and kept business records, financial books and records, personnel records, ledgers, sales accounting records, tax records, sales order files, purchase order files, engineering order files, warranty and repair files, supplier lists, customer lists, dealer, representative and distributor lists, studies, surveys, analyses, strategies, plans, forms, designs, diagrams, drawings, specifications, technical data, production and quality control records and formulations, and other books and records of the Company (collectively, the “ Books and Records ”) that are true, correct and complete and accurately and fairly reflect, in all material respects, the business activities of the Company. The Company has not engaged in any transaction, maintained any bank account or used any corporate funds except as reflected in its normally maintained Books and Records. Copies of the Company’s certificate of incorporation, articles of association and share register as at the date hereof are enclosed as Schedule 3.27 , which copies are true and complete and fully and completely set forth all actions taken and/or required to be recorded therein at the date hereof. All returns, particulars, resolutions and other documents which the Company is required by law to file with or deliver to any authority in any jurisdiction (including the Accounting and Corporate Regulatory Authority of Singapore) have been correctly made up and filed or, as the case may be, delivered. In particular, all charges in favour of the Company have (if appropriate) been registered in accordance with the provisions of any applicable legislation. The Company has not given any power of attorney or other authority by which a person may

 

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enter into an agreement, arrangement or obligation on the Company’s behalf (other than an authority for a director, other officer or employee to enter into an agreement in the ordinary and usual course of that person’s duties). None of the records, data or information of the Company is recorded, stored, maintained, operated or otherwise wholly or partly dependent on or held or accessible by any means (including without limitation, any electronic, mechanical or photographic process, computerised or not) which are not under the exclusive ownership, possession and direct control of the Company.

3.28 Warranties . Schedule 3.28 sets forth a complete list of all outstanding product and service warranties and guarantees on any of the Company Products. Each Company Product performs in accordance with its documented specifications and as the Company has warranted or guaranteed. There are no existing nor, to the Knowledge of the Company, threatened, claims against the Company relating to any work performed by the Company, product liability, warranty or other similar claims against the Company alleging that any Company Product is defective or fails to meet any product or service warranties. Except as disclosed in Schedule 3.9(u) , there are (a) no inherent design defects or systemic or chronic problems in any Company Product and (b) no Liabilities for warranty or other claims or returns with respect to any Company Product relating to any such defects or problems which could reasonably result in a material Liability to the Company.

3.29 Disclosure . This Agreement, including the Disclosure Schedules, any Transaction Document and any certificate, instrument or other document required to be delivered pursuant to this Agreement by the Company, does not contain any untrue statement of a material fact, and does not omit to state any material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. The Company has Made Available to Buyer true and complete copies of all documents requested by Buyer or listed in the Schedules (including any attachment thereto, such that the contents of such copies comprise the entire agreement between the parties thereto) or in any other Exhibit or Schedule called for by this Agreement. The Company has not failed to disclose to Buyer in this Agreement or in the Disclosure Schedules any facts material to the Business, assets, Liabilities, financial condition or prospects of the Company or to Buyer’s decision to purchase the Shares and consummate the Acquisition.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF BUYER

As a material inducement to the Company and the Sellers to enter into this Agreement, Buyer hereby represents and warrants to the Company and each Seller, subject to such exceptions as are specifically disclosed in the disclosure schedule (which disclosure should reference the appropriate section and subsection numbers of this ARTICLE IV ; provided, however , that any disclosures made therein shall apply to any other section or subsection without repetition where it is reasonably clear on the face of such disclosure, without any independent knowledge on the part of the reader regarding the matter disclosed, that the disclosure is intended to apply to such other section or subsection) supplied by Buyer to the Company and the Sellers and dated as of the date hereof (the “ Buyer Disclosure Schedule ”), as of the date of this Agreement and as of the Closing Date, that:

4.1 Organization and Corporate Power; Capitalization . Buyer is duly organized, validly existing and in good standing under the laws of Delaware. Buyer is not in default under or in violation of any provision of its certificate of incorporation. The authorized capital stock of Buyer consists of (i) 250,000,000 shares of Common Stock, $0.01 par value per share, 175,000,000 of which have been designated as Series A Common Stock, of which 19,762,376 are issued and outstanding as of the date hereof, and 75,000,000 of which have been designated as Series B Common Stock, of which 27,872,742 are issued and outstanding as of the date hereof, and (ii) 24,016,041 shares of Preferred Stock, par value

 

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$0.01 per share, 4,786,463 of which are designated as Series A Preferred Stock, all of which are issued and outstanding, 6,843,299 of which are designated as Series B Preferred Stock, all of which are issued and outstanding, 3,386,279 of which are designated as Series C Preferred Stock, all of which are issued and outstanding, and 9,000,000 of which are designated as Series D Preferred Stock, of which 8,582,021 are issued and outstanding. Except as set forth on Schedule 4.1 , there are no outstanding subscriptions, convertibles, options, warrants, rights, contracts, agreements, commitments, understandings or arrangements of any kind by which Buyer is bound to issue or sell any additional shares or other securities of Buyer or by which any Person is entitled to acquire any such shares or securities. All issued and outstanding shares of Buyer Common Stock and shares of Buyer Preferred Stock (x) have been duly authorized and validly issued and are fully paid and nonassessable, and (y) were issued in compliance with all applicable state and federal laws concerning the issuance of securities. The shares of Buyer Series B Common Stock issuable as part of the Purchase Price, when issued and delivered and paid for in compliance with the provisions of this Agreement, will be validly issued, fully paid and nonassessable. All preemptive rights have been properly waived or complied with, with respect the issuances of shares of Buyer Series B Common Stock pursuant to this Agreement. In addition, there are issued and outstanding equity awards under Buyer’s 2009 Stock Option and Grant Plan covering 32,294,295 shares of its Series B Common Stock. 4,519,019 shares of Buyer’s Series B Common Stock remain available for the issuance of equity awards under Buyer’s 2009 Stock Option and Grant Plan.

4.2 Authorization of Transactions . Buyer has full corporate power and authority to execute and deliver this Agreement and each of the Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The board of directors of Buyer has duly approved this Agreement and all Transaction Documents to which it is a party and has duly authorized the execution and delivery of this Agreement and all Transaction Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby. No other corporate proceedings on the part of Buyer are necessary to approve and authorize the execution and delivery of this Agreement or the Transaction Documents to which Buyer is a party and the consummation of the transactions contemplated hereby and thereby. This Agreement and all Transaction Documents to which Buyer is a party have been duly executed and delivered by Buyer and constitute the valid and binding agreements of Buyer enforceable against Buyer in accordance with their terms. Buyer has made available true, complete and correct copies of its Sixth Amended and Restated Certificate of Incorporation, dated September 5, 2012, and its bylaws, each as amended to date and in full force and effect on the date hereof, to the Company, and no amendments to any such organizational documents have been approved or proposed.

4.3 Non-Contravention . The execution, delivery and performance by Buyer of this Agreement and all agreements, documents and instruments executed and delivered by Buyer pursuant hereto and the performance of the transactions contemplated by this Agreement and such other agreements, documents and instruments do not and will not: (i) violate or result in a violation of, conflict with or constitute or result in a default (whether after the giving of notice, lapse of time or both) under, accelerate any obligation under, or give rise to a right of termination of, any material contract, agreement, obligation, permit, license or authorization to which Buyer is a party or by which it or its assets are bound, (ii) violate or result in a violation of, conflict with or constitute or result in a default (whether after the giving of notice, lapse of time or both) under, or accelerate any obligation under, any provision of Buyer’s organizational documents; (iii) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, any provision of any law, regulation or rule, or any order of, or any restriction imposed by, any court or governmental agency applicable to Buyer; or (iv) require from Buyer any notice to, declaration or filing with, or consent or approval of, any governmental authority or other third party.

4.4 Litigation . There are no actions, suits, proceedings or orders pending or, to Buyer’s knowledge, threatened against or affecting Buyer at law or in equity, or before or by any federal, state,

 

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municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which would adversely affect the performance of Buyer under this Agreement and the Transaction Documents or the consummation of the transactions contemplated hereby or thereby.

4.5 Brokerage . There is no investment banker, broker, finder or other intermediary whom has been retained by or is authorized to act on behalf of Buyer who might be entitled to any fee or commission from Buyer in connection with the transactions contemplated by this Agreement.

4.6 Sufficient Funds . Buyer has sufficient authorized shares of Buyer Series B Common Stock and sufficient funds available to satisfy its obligations under this Agreement.

4.7 Buyer Financial Information . Buyer has previously delivered to the Company a true, accurate and complete copy of the audited balance sheets of the Company as of and for the twelve (12) months ended December 31, 2013 and the related audited statements of operations, changes in shareholders’ equity and cash flows for the year then ended, together with a report thereon by the independent certified public accountants of the Company (together, the “ Buyer Audited Financial Statements ”). The Buyer Audited Financial Statements present fairly the financial position of Buyer at the date thereof, and the results of operations, changes in shareholders’ equity and cash flows of Buyer for the year indicated, were prepared in accordance with and comply with applicable Laws and with US GAAP consistently applied throughout the period indicated.

ARTICLE V

CONDUCT OF COMPANY BUSINESS DURING PENDENCY OF TRANSACTION

5.1 Affirmative Obligations of the Company . During the period from the date of this Agreement and continuing until the earlier of (x) the valid termination of this Agreement pursuant to Section 9.1 and (y) the Closing, except to the extent that Buyer shall otherwise consent in writing, the Company shall (and the Sellers shall cause the Company to) (i) conduct the business of the Company in the usual, regular and ordinary course, consistent with past practices and in substantially the same manner as heretofore conducted and in compliance with all applicable Legal Requirements, (ii) pay all Taxes of the Company when due (subject to Buyer’s review of Tax Returns, as provided in Section 5.2(n)) , (iii) report all salary, wages, benefits or other compensation payments to Employees to the appropriate Governmental Entities on a timely basis, (iv) pay, perform or satisfy all other Liabilities and obligations of the Company when and as they come due (including the timely withholding, collecting, reporting, remitting and payment of all Taxes required under Legal Requirement), (v) collect accounts receivable and pay accounts payable when due, sell or distribute Company Products consistent with past practice (including without limitation as to license, service and maintenance terms), (vi) preserve intact the present business organizations of the Company, (vii) maintain the Books and Records in a manner consistent with past practice and in compliance with all applicable Legal Requirements and accounting principles, standards, practices and policies generally accepted in Singapore consistently applied, (viii) keep available the services of the present officers and Employees of the Company, (ix) preserve the assets (including intangible assets) and properties of the Company, (x) co-operate with Buyer, with respect to the recordal, procurement, maintenance and enforcement of the Company Intellectual Property, Company Intellectual Property Rights and Intellectual Property Rights, in such manner as may be agreed between the Sellers and Buyer in order to protect the Company Intellectual Property, Company Intellectual Property Rights and Intellectual Property Rights, and (xi) preserve the relationships of the Company with customers, suppliers, distributors, licensors, licensees, and others having business dealings with them, all with the goal of preserving unimpaired the goodwill and ongoing businesses of the Company at the Closing. The Company shall (and the Sellers shall cause the Company to) give reasonable advance notice to Buyer prior to allowing any Contract or right thereunder to lapse or terminate by its terms, and shall maintain its or their respective leased premises in accordance with the terms of the applicable lease.

 

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5.2 Forbearance of the Company . In furtherance and not in limitation of Section 5.1 , during the period from the date of this Agreement and continuing until the earlier of the valid termination of this Agreement pursuant to Section 9.1 or the Closing Date, except as expressly contemplated by this Agreement and except as expressly set forth in Section 5.2 of the Disclosure Schedule, the Company shall not (and the Sellers shall cause the Company not to):

(a) cause or permit any modifications, amendments or changes to its memorandum and articles of association and other constitutive documents of the Company;

(b) declare, set aside, or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any Company capital stock, split, combine or reclassify any Company capital stock, issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of Company capital stock, or directly or indirectly repurchase, redeem or otherwise acquire any shares of Company capital stock (or options, warrants or other rights convertible into, exercisable or exchangeable therefor), except in accordance with the agreements evidencing Vested Company Options outstanding and as in effect on the date hereof; provided, however, that the Company may grant the new options to purchase Ordinary Shares of the Company set forth in Section 5.2(b) of the Disclosure Schedule to the employees and service providers, and in the share amounts, as set forth therein (the “ Planned Options ”) in accordance with applicable law;

(c) issue, grant, deliver or sell or authorize or propose or agree to or enter into any agreement or undertaking to undertake any capital reduction, the issuance, grant, delivery or sale of, or purchase or propose the purchase of, or redeem, or repay, any Company capital stock, or equity-based awards (whether payable in cash, stock or otherwise) or any securities or other forms of instruments (howsoever called) convertible into, exercisable or exchangeable for, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating any of them to issue or purchase any such shares or other convertible securities, bonus issue or stock split, except for the issuance of Company capital stock pursuant to the exercise of Vested Company Options outstanding as of the date of this Agreement in accordance with their terms as in effect on the date hereof, and the Planned Options;

(d) form or dissolve, or enter into any commitment to form or dissolve, a subsidiary, or acquire, or enter into any commitment to acquire, an interest in any corporation, association, joint venture, partnership or other business entity or division thereof;

(e) make or agree to make any capital expenditure or commitment exceeding USD $10,000 individually or USD $50,000 in the aggregate other than the capital expenditures set forth in Section 5.2(e) of the Disclosure Schedule;

(f) dispose or agree to dispose of any assets of the Company or any business enterprise or division thereof (including any of the legal or beneficial interest of the Company in any other corporation (if any) outside the ordinary course of the business of the Company and consistent with past practice;

(g) enter into any agreement, contract or commitment for (i) the sale, lease, license or transfer of any Company Intellectual Property or any agreement contract or commitment or modification or amendment to any agreement with respect to Company Intellectual Property with any Person (other than non-exclusive licenses of the Company Products to end-users pursuant to Standard

 

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Form Agreements); (ii) the purchase or license of any Intellectual Property or Intellectual Property Rights or execution, modification or amendment of any agreement with respect to the Intellectual Property or Intellectual Property Rights of any Person; (iii) any change in pricing or royalties set or charged by the Company to its customers or licensees or in pricing or royalties set or charged by Persons who have licensed Intellectual Property Rights to the Company, or (iv) agree to terminate or permit the loss or lapse (including registrations and applicable) of any Company Intellectual Property, Company Intellectual Property Rights or Intellectual Property Rights);

(h) incur any Indebtedness exceeding USD $10,000 individually or USD $50,000 in the aggregate (other than the obligation to reimburse employees for travel and business expenses or indebtedness incurred in connection with the purchase of goods and services, each in the ordinary course of the Company’s business consistent with past practices), issue or sell any debt securities, create a Lien over any asset of the Company or amend the terms of any outstanding loan agreement;

(i) make any loan or advance to any Person (except for advances to employees for reasonable business travel and expenses in the ordinary course of business consistent with past practice), purchase debt securities of any Person or guarantee any Indebtedness of any Person;

(j) (A) commence or settle any Action or threat of any Action by or against the Company or relating to any of their respective businesses, properties or assets; or (B) make any filing or registration with (including the making of any payment or fees in relation thereto), or enter into any settlement, compromise or other similar agreement with, any Governmental Entity;

(k) compromise, settle, dispute in court or waive a right in relation to any employment dispute, including claims or matters raised by any individual, class of employees, Governmental Entity, or any workers’ representative organization, bargaining unit or union regarding, claiming or alleging any labor issue or claim of breach of contract, policy, or past practice, misrepresentation, wrongful or unlawful discharge or any unlawful employment or labor-related practice, breach or action with respect to the Company;

(l) (A) pay, discharge, release, waive or satisfy any claims, rights or Liabilities, other than the payment, discharge or satisfaction in the ordinary course of business of Liabilities reflected on the Current Balance Sheet or incurred in the ordinary course of business after the Balance Sheet Date; or (B) issue or agree to issue any material refunds, credits, allowances or other concessions with customers with respect to amounts collected by or owed to the Company;

(m) (A) adopt or change accounting principles, standards, methods or practices (including any change in depreciation or amortization policies or rates or any change to practices that would impact the methodology for recognizing revenue) other than as required by Singapore FRS; or (B) (i) accelerate or delay the payment of, or agree to any change in the payment terms of, including by offering discounts, any accounts payable or other Liabilities or accounts receivable (including unbilled accounts receivable), deferred revenue or notes payable, (ii) modify its cash management practices in a manner inconsistent with past practice, or (iii) do anything that would have the effect of cause the working capital position of the Company to be inconsistent with historical levels and trends;

(n) make or change any election in respect of Taxes, adopt or change any accounting method in respect of Taxes, enter into any agreement in respect of Taxes, settle any claim or assessment in respect of Taxes, consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes, make or request any Tax ruling, enter into any Tax sharing or similar agreement or arrangement, enter into any transactions giving rise to deferred gain or loss, amend any Tax Return or file any Tax Return including any estimated Tax Return or other material Tax Return that takes any position which is inconsistent with the Company’s past practices unless a copy of such Tax Return has been submitted to Buyer for review a reasonable period of time prior to filing;

 

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(o) adopt, amend or terminate, or start a termination process of, any Company Benefit Plan, including any indemnification agreement and any Contract with a labor union or collective bargaining agreement, or enter into or amend any Company Benefit Plan;

(p) hire any Person or terminate any Employee, including any officer of the Company, promote, demote or make any other change to employment status, title, office or position or materially reduce the responsibilities of any Employee;

(q) remove or request the resignation of any member of the Board of Directors of the Company, or agree to do any of the foregoing;

(r) except for the increases in compensation set forth in Section 5.2(r) of the Disclosure Schedule or as may be required to comply with applicable Laws, increase or make any other change that would result in increased cost to the Company to the salary, wage rate, incentive compensation opportunity, employment status, title or other compensation (including equity based compensation) payable or to become payable by the Company to any Employee;

(s) make any declaration, payment, commitment or obligation of any kind for the payment (whether in cash, equity or otherwise) of a severance payment or other change in control payment, termination payment, bonus, special remuneration or other additional salary or compensation (including equity based compensation) to any Employee, except payments made pursuant to written agreements existing on the date hereof and disclosed in Section 5.2(s) of the Disclosure Schedule;

(t) take any action to accelerate the vesting or payment of, or otherwise modify the terms of any of the outstanding Company Stock Options or accelerate the vesting or payment of, any other compensation to any Employee;

(u) cancel, amend (other than in connection with the addition of customers and suppliers to such insurance policies from time to time in the ordinary course of business consistent with past practices) or fail to renew (on substantially similar terms) any insurance policy of the Company;

(v) send or issue any communications (including electronic communications) to Employees regarding this Agreement, the Transaction Documents or the transactions contemplated hereby or thereby (other than to Employees involved in the negotiation of this Agreement or the Transaction Documents in course of negotiation of this Agreement or the Transaction Documents) or make any representations to Employees that, in each case, are inconsistent with this Agreement, the Transaction Documents or the transactions contemplated hereby or thereby, including any representations regarding offers of employment from Buyer;

(w) (i) terminate, amend, waive, or modify in any material manner relative to such Contract or the business or operations of the Company or any Subsidiary, or violate, the terms of any Contract, (ii) enter into any Contract which would have constituted a Company Contract listed on Schedule 3.10(a) of the Disclosure Schedule had such Contract been entered into prior to the date hereof, or (iii) enter into any agreement, arrangement or obligation with any Seller or in which any Seller is interested; or

(x) take, commit, or agree in writing or otherwise to take, any of the actions described in clauses (a)-(w) of this Section 5.2 , or any other action that would (i) prevent the Company or

 

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any Subsidiary, or any of the Sellers, from performing, or cause the Company or any Subsidiary, or any Sellers, not to perform, its covenants or agreements hereunder or (ii) cause or result in any of its representations and warranties set forth herein being untrue or incorrect.

5.3 Procedures for Requesting Buyer Consent . If the Company or any Subsidiary desires to take an action which would be prohibited pursuant to Section 5.2 hereof without the written consent of Buyer, prior to taking such action the Company may request such written consent by sending an e-mail to each of the following individuals, and may not take such action until such consent in writing has been received from each of the following individuals:

Conan Reidy (creidy@zendesk.com)

John Geschke (jgeschke@zendesk.com)

ARTICLE VI

ADDITIONAL AGREEMENTS

6.1 Non-Solicitation of Competing Acquisition Proposals .

(a) Termination of Pending Discussions . The Company and each of the Sellers and Vested Optionholders who are a party to this Agreement shall immediately cease and cause to be terminated any such negotiations, discussions or agreements (other than with Buyer) regarding any Alternative Transaction.

(b) Non-Solicitation of Competing Acquisition Proposals . Commencing on the date hereof and continuing at all times until the earlier to occur of the Closing and the valid termination of this Agreement pursuant to the provisions of Section 9.1 , each of the Company and each of the Sellers and Vested Optionholders who are a party to this Agreement, shall not, through any of its directors, officers or other employees, shareholders, Affiliates, representatives, or other agents including its financial, legal or accounting advisors (together, “ Representatives ”), directly or indirectly (i) solicit, initiate, seek, knowingly encourage, promote, formally approve or support any inquiry, proposal or offer from, (ii) furnish any non-public information regarding the Company (other than in connection with the sale of products and services in the ordinary course of business consistent with past practice or license of intellectual property in connection therewith) to, (iii) participate in any discussions or negotiations with, in each case any corporation, limited liability company, general or limited partnership, business trust, unincorporated association or other entity, person or group of any of the foregoing (other than Buyer and its Representatives acting in their capacities as such) (each, a “ Third Party ”) regarding (A) any acquisition of all or any part of the Company (including by way of any merger or consolidation with or involving the Company) or any acquisition, issuance, grant, sale or transfer of any of the securities, business, properties or assets of the Company (other than the sale of products and services in the ordinary course of business consistent with past practice or license of Intellectual Property in connection therewith), (B) any joint venture or other strategic investment in or involving the Company, including any new financing, investment round or recapitalization of the Company, (C) the employment of all or substantially all of the Employees or (D) any other similar transaction involving the Company that is not in the ordinary course of business consistent with past practices (each, an “ Alternative Transaction ”); or (iv) enter into any Contract, whether binding or non-binding, with any Third Party providing for an Alternative Transaction (including a letter of intent or exclusivity agreement).

(c) Notice of Competing Acquisition Proposals . In the event that the Company, or any of its Affiliates or Representatives (including any of the Sellers or Vested Optionholders who are a party to this Agreement), shall receive, prior to the Closing or the termination of this Agreement in

 

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accordance with Section 9.1 , any inquiry offer, proposal or indication of interest regarding a potential Alternative Transaction, or any request for disclosure of information or access of the type referenced in Section 6.1(b)(ii) above, the Company or such Affiliate or Representative (including any Seller or Vested Optionholder who is a party to this Agreement) shall immediately notify Buyer thereof, which notice shall include the identity of the party making any such inquiry, offer, proposal, indication of interest or request, and the specific terms of such inquiry, offer, proposal, indication or request, as the case may be (including a copy of any written material and electronic communications received from such third party), and such other information related thereto as Buyer may reasonably request.

(d) Actions of Representatives . The parties hereto understand and agree that any violation of the restrictions set forth above by any Representative of the Company shall be deemed to be a breach of this Agreement by the Company. In addition, with respect to any violation of the above restrictions by any Seller or Vested Optionholder who is a party to this Agreement, such Seller or Vested Optionholder shall be directly liable to Buyer therefor.

(e) Specific Performance . The parties hereto agree that irreparable damage would occur in the event that the provisions of this Section 6.1 were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed by the parties hereto that Buyer shall be entitled to an immediate injunction or injunctions, without the necessity of proving the inadequacy of money damages as a remedy and without the necessity of posting any bond or other security, to prevent breaches of the provisions of this Section 6.1 and to enforce specifically the terms and provisions hereof in any court having jurisdiction, this being in addition to any other remedy to which Buyer may be entitled at law or in equity.

6.2 Governmental Approvals . Subject to the terms of this Section 6.2 , each of the Company, the Sellers and Buyer shall promptly execute and file, or join in the execution and filing of, any application, notification or other document that may be necessary in order to obtain the authorization, approval or consent of any Governmental Entity that may be reasonably required to consummate, or that Buyer may reasonably request in connection with the consummation of, the Acquisition and other transactions contemplated by this Agreement as promptly as possible after the execution of this Agreement. Each of the Company and Buyer shall use reasonable endeavors to obtain all such authorizations, approvals and consents. To the extent permitted by applicable Legal Requirements, each of the Company, the Sellers and Buyer shall promptly inform the other of any material communication between the Company, the Sellers or Buyer (as applicable) and any Governmental Entity regarding the Acquisition and the other transactions contemplated by this Agreement. If the Company, any Seller or Buyer or any Affiliate thereof shall receive any formal or informal request for supplemental information or documentary material from any Governmental Entity with respect to the Acquisition or any other transaction contemplated by this Agreement, then the Company or Buyer (as applicable) shall make, or cause to be made, as soon as reasonably practicable, a response in compliance with such request. Each of the Company and Buyer shall direct, in its sole discretion, the making of such response, but shall consider in good faith the views of the other. Notwithstanding anything in this Section 6.2 or in Section 6.3, Buyer shall not be required to agree to (i) any license, sale or other disposition or holding separate (through establishment of a trust or otherwise) of any shares of capital stock or of any business, assets or properties of Buyer, its Subsidiaries or Affiliates or of the Company or any of its Affiliates, (ii) the imposition of any limitation on the ability of Buyer, its Subsidiaries or Affiliates or the Company or any of its Affiliates to conduct their respective businesses or own any capital stock or assets or to acquire, hold or exercise full rights of ownership of their respective businesses, or (iii) the imposition of any impediment on Buyer, its Subsidiaries or Affiliates or the Company or its Affiliates under any Legal Requirement governing competition, monopolies or restrictive trade practices (any such action described in (i), (ii) or (iii), an “ Action of Divestiture ”). Nothing set forth in this Agreement shall require Buyer to litigate or enter into similar proceedings with any Governmental Entity. The Company shall not be required to, take any action with respect to any applicable antitrust or anti-competition Legal Requirement which would bind the Company irrespective of whether the Acquisition occurs.

 

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6.3 Endeavors to Close . Subject to the terms and conditions provided in this Agreement, each of the parties hereto shall use reasonable endeavors to take promptly, or cause to be taken promptly, all actions, and to do promptly, or cause to be done promptly, all things necessary, proper or advisable under applicable Legal Requirements to consummate and make effective the Acquisition and the other transactions contemplated hereby as promptly as practicable, including by using reasonable endeavors to take all action necessary to satisfy all of the conditions to the obligations of the other party or parties hereto to effect the Acquisition set forth in ARTICLE VII , to obtain all necessary waivers, consents, approvals and other documents required to be delivered hereunder and to effect all necessary registrations and filings and to remove any injunctions or other impediments or delays, legal or otherwise, in each case in order to consummate and make effective the Acquisition and the other transactions contemplated by this Agreement for the purpose of securing to the parties hereto the benefits contemplated by this Agreement. Each party hereto, at the request of another party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of the Acquisition and the other transactions as contemplated hereby.

6.4 Access to Information . The Company shall (and the Sellers shall cause the Company to) afford Buyer and its Representatives reasonable access during the period from the date hereof and prior to the Closing to (i) all of the properties, Books and Records and Contracts of the Company, including all Company Intellectual Property, (ii) all other information concerning the business, properties and personnel (subject to restrictions imposed by applicable law) of the Company as Buyer may reasonably request, and (iii) all current Employees of the Company. The Company agrees to provide to Buyer and its accountants, counsel and other Representatives copies of internal financial statements (including Tax Returns, Tax forms, and supporting documentation) promptly upon request. No information or knowledge obtained in any investigation pursuant to this Section 6.4 or otherwise shall affect or be deemed to modify, amend or supplement any representation or warranty set forth herein or in the Disclosure Schedule or the conditions to the obligations of the parties to consummate the Acquisition in accordance with the terms and provisions hereof, restrict, impair or otherwise affect any Indemnified Parties’ right to indemnification hereunder or otherwise prevent or cure any misrepresentations, breach of warranty or breach of covenant.

6.5 Notification of Certain Matters . The Company or the Sellers shall (and the Sellers shall cause the Company to) give prompt notice to Buyer of: (a) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any representation or warranty of any Seller set forth in this Agreement to be untrue or inaccurate at or prior to Closing, and (b) any failure of the Company or any Seller to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided , however , that the delivery of any notice pursuant to this Section 6.5 shall not (i) limit or otherwise affect any remedies available to the party receiving such notice, or (ii) constitute an acknowledgment or admission of a breach of this Agreement; and provided , further that the failure to deliver a notice pursuant to this Section 6.5 shall not be considered in determining whether the condition set forth in Section 7.2(a) or Section 7.2(b) has been satisfied. No disclosure by the Company or a Seller pursuant to this Section 6.5 shall affect or be deemed to modify, amend or supplement any representation or warranty set forth herein or in the Disclosure Schedule or the conditions to the obligations of the parties to consummate the Acquisition in accordance with the terms and provisions hereof, restrict, impair or otherwise affect any Indemnified Parties’ right to indemnification hereunder or otherwise prevent or cure any misrepresentations, breach of warranty or breach of covenant.

6.6 Confidentiality . Upon Closing, the Sellers and Vested Optionholders who are a party to this Agreement shall treat and hold, and shall cause their respective Affiliates to treat and hold, as

 

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confidential any information concerning the Company, including any notes, analyses, compilations, studies, forecasts, interpretations or other documents that are derived from, contain, reflect or are based upon any such information (the “ Confidential Information ”), refrain from using any of the Confidential Information, except as permitted by applicable Law in connection with being a stockholder of Buyer with respect to shares of Buyer Series B Common Stock received as part of the Purchase Price, and deliver promptly to Buyer, at the request and option of Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in its possession or under its control. Notwithstanding the foregoing, Confidential Information shall not include information that is generally available to the public other than as a result of a breach of this Section 6.6 or other act or omission of such Sellers or Vested Optionholders or any of their Affiliates. In the event that such Sellers or Vested Optionholders are requested or required to produce information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar process to disclose any Confidential Information, such Sellers or Vested Optionholders, as applicable, shall notify Buyer promptly of the request or requirement so that Buyer may seek an appropriate protective order or waive compliance with the provisions of this Section 6.6 . If, in the absence of a protective order or the receipt of a waiver hereunder, such Sellers or Vested Optionholders are, on the advice of counsel, compelled to disclose any Confidential Information to any tribunal or else stand liable for contempt, such Sellers or Vested Optionholders, as applicable, may disclose the Confidential Information to the tribunal; provided , that such Sellers or Vested Optionholders shall use their reasonable efforts to obtain, at the written request and cost of Buyer, an order or other assurance that confidential treatment shall be accorded to such portion of the Confidential Information required to be disclosed as Buyer shall designate.

6.7 Contracts .

(a) Notices and Consents . The Company shall use reasonable endeavors to obtain all necessary consents, waivers and approvals of any third parties to any Contract of the Company (including all of the Contracts set forth in Section 3.10 of the Disclosure Schedule) as are required thereunder in connection with the Acquisition in order for such Contract to remain in full force and effect following the Acquisition. Such consents, modifications, waivers and approvals shall be in a form acceptable to Buyer. In the event the Acquisition does not close for any reason, Buyer shall have no Liability to the Company, the Sellers, the Vested Optionholders or any other Person for any costs, claims, Liabilities or damages resulting from the Company seeking to obtain such consents, modifications, waivers and approvals.

(b) Terminated and Amended Agreements . The Company shall use its reasonable endeavors to terminate each of the agreements listed on Schedule 6.7(b)(1) (the “ Terminated Agreements ”) effective as of and contingent upon the Closing, including sending all required notices, such that each Terminated Agreement shall be of no further force or effect immediately following the Closing. The Company shall use its reasonable endeavors to amend each of the agreements listed on Schedule 6.7(b)(2) (the “ Amended Agreements ”) to provide for the applicable changes as set forth on such Schedule for each such agreement, in all cases effective as of and contingent upon the Closing. The form and substance of each termination letter and/or amendment agreement shall be subject to prior review and approval by Buyer. Upon the Closing, the Company shall have paid all amounts owed under the Terminated Agreements (as a result of the termination of the Terminated Agreements or otherwise), and the Company will not incur any claim, Liability or obligation under any Terminated Agreement following the Closing Date. The Company shall be responsible for making any payments required to terminate the Terminated Agreements or amend the Amended Agreements and shall reflect such payment or other consideration incurred by the Company as of the Closing Date or anticipated to be incurred or payable after the Closing, which payments or anticipated payments shall be set forth in the Closing Statement as Seller Expenses. In the event the Acquisition does not close for any reason, other than as a consequence of termination by the Seller Representative pursuant to Section 9.1(h) (in which case all costs, claims, Liabilities or damages resulting from the Company seeking to obtain such terminations or amendments shall be paid by Buyer).

 

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6.8 Employee Matters .

(a) Proprietary Information and Inventions Assignment Agreements . Prior to the Closing, the Company shall cause each person who becomes an employee of the Company after the date hereof and prior to the Closing to enter into and execute an Employee Proprietary Information Agreement or other invention assignment agreement as reasonably requested by Buyer with the Company effective as of such employee’s first date of employment or service, in each case, without exclusions thereto. The Company shall cause each current and former consultant or contractor of the Company to have entered into and executed, and each Person who becomes a consultant or contractor of the Company after the date hereof and prior to the Closing shall be required by the Company to enter into and execute, a Consultant Proprietary Information Agreement with the Company effective as of such consultant or contractor’s first date of service.

(b) Termination of Employee Plans . Unless instructed otherwise by Buyer, effective as of no later than the day immediately preceding the Closing Date, the Company shall terminate any and all Company Benefit Plans intended to include group severance pay or benefits and any equity incentive plans (or similar plans). The Company shall take such other actions in furtherance of terminating any such Company Benefit Plan as Buyer may require.

(c) Employee Benefit Plans . As promptly as reasonably practicable after the Closing Date, Buyer shall cause the Company to provide each Company employee who has accepted and will continue employment with the Company (each, a “ Continuing Employee ”) with benefits in the aggregate that are either (i) substantially the same as those provided to such Continuing Employees by the Company before the Closing Date on substantially similar terms applicable to such Continuing Employees before the Closing Date, subject to any changes required by applicable Law, or (ii) if more favorable, substantially the same as those provided to similarly situated employees of Buyer, including, but not limited to, enrolling such Continuing Employees in such employee benefit plans for which such employees are eligible (the “ Continuing Benefit Plans ”), on substantially similar terms to similarly situated employees of Buyer based on levels of responsibility. Buyer shall use reasonable efforts to recognize the prior service with the Company of each of the Continuing Employees for purposes of determining eligibility to participate, vesting and entitlement to benefits where length of service is relevant (including, but not limited to, for purposes of vacation, sick and paid time-off accrual and severance benefits) under the Continuing Benefit Plans. Buyer shall use reasonable efforts to waive all limitations as to preexisting conditions exclusions (or actively at work or similar limitations), evidence of insurability requirements and waiting periods with respect to participation and coverage requirements applicable to such Continuing Employees under any medical, dental and vision plans that such employees may be eligible to participate in after the Closing Date. Buyer shall use reasonable efforts to also provide such Continuing Employees and their eligible dependents with credit for any co-payments, deductibles and offsets (or similar payments) made under the Company Benefit Plans for the year in which the Closing Date occurs under the Company’s medical, dental and vision plans after the Closing Date for the purposes of satisfying any applicable deductible, out-of-pocket, or similar requirements under such Continuing Benefit Plans in the year in which the Closing Date occurs. Notwithstanding anything herein to the contrary, this Section 6.8(c) shall not operate to (i) duplicate any benefit provided to any such Continuing Employee or to fund any such benefit, (ii) require Buyer to continue to maintain any employee benefit plan in effect following the Closing Date for Buyer’s or the Company’s employees, including such Continuing Employees, or (iii) be construed to mean the employment of such Continuing Employees is not terminable by the Company at will at any time, with or without cause, for any reason or no reason.

 

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(d) No Employment Commitment or Plan Amendments . No provision of this Agreement is intended, or shall be interpreted, to provide nor create any third party beneficiary rights or any other rights of any kind or nature whatsoever in any shareholder, Key Employee, Other Employee, Employee, consultant, contractor or any other Person, including any rights of employment for any specified period and/or any employee benefits, in favor of any Person, union, association, continuing employee, Key Employee, Other Employee, Employee, consultant or contractor or any other Person, other than the parties hereto and their respective successors and permitted assigns, and all provisions hereof will be personal solely among the parties to this Agreement. In addition, no provision of this Agreement is intended, or shall be interpreted, to amend any term or condition of the Plan or any other employee related plan, program or policy of Buyer or any subsidiary of Buyer.

6.9 Tax Matters . Subject to the limitations in ARTICLE VIII , the following provisions shall govern the allocation of responsibility as between Buyer on the one hand, and the Sellers and Vested Optionholders on the other, for certain tax matters, including any indemnification of Buyer pursuant to Section 8.1 with regard to breaches of the representations and warranties set forth in Section 3.12 and all Losses in connection with the foregoing, following the Closing Date:

(a) Tax Indemnification . The Indemnifying Parties shall indemnify Buyer Indemnified Parties and hold them harmless from and against, any Loss attributable to (i) all Taxes (or the non-payment thereof) of the Company for all taxable periods ending on or before the Closing Date and the pre-Closing portion of any Straddle Period (as defined in Section 6.9(b) below) that includes (but does not end on) the Closing Date (“ Pre-Closing Tax Period ”), (ii) all Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Company is or was a member on or prior to the Closing Date, (iii) any and all Taxes of any person (other than the Company) imposed on the Company as a transferee or successor, by contract or pursuant to any law, rule or regulation, which Taxes relate to an event or transaction occurring before the Closing Date, and (iv) any breach of the representations in Section 3.12 ; provided, however , that in the case of clauses (i), (ii), (iii) and (iv) above, the Indemnifying Parties shall be liable only to the extent that such Taxes exceed the amount of such Taxes taken into account in the Post-Closing Adjustment made pursuant to Section 1.4(b) . Notwithstanding the immediately preceding sentence, the Indemnifying Parties shall not indemnify Buyer Indemnified Parties and hold them harmless from and against, any Loss attributable to any Taxes resulting from the Section 338(g) election, provided that there has been no breach of the representation in Section 3.12(n) . The Indemnifying Parties shall reimburse Buyer for any Taxes of the Company that are the responsibility of the Indemnifying Parties pursuant to this Section 6.9(a) at least five (5) Business Days before such Taxes are due to be paid.

(b) Straddle Period . In the case of any taxable period that includes (but does not end on) the Closing Date (a “ Straddle Period ”), the amount of Taxes that is allocable to the Pre-Closing Tax Period shall (i) in the case of Taxes that are imposed on a periodic basis (such as real property taxes), be deemed to be the amount of such Taxes for the entire period (or in the case of such Taxes determined on an arrears basis, the amount of such Taxes for the immediately preceding period) multiplied by a fraction the numerator of which is the number of calendar days in the portion of the Straddle Period ending on (and including) the Closing Date and the denominator of which is the number of calendar days in the entire relevant Straddle Period and (ii) in the case of Taxes that are not described in clause (i) above (such as income Taxes, Taxes imposed in connection with any sale or other transfer or assignment of property, and payroll and similar Taxes), be deemed to be equal to the amount that would have been payable if the taxable year or period of the Company ended on the Closing Date; provided , that, in determining such amount, exemptions, allowances or deductions that are calculated on a periodic basis, such as the deduction for depreciation, shall be taken into account on a pro-rated basis in the manner described in clause (i) above. In the case of any Tax based upon or measured by capital (including net worth or long-term debt) or intangibles, any amount thereof required to be allocated under this Section 6.9(b) shall be

 

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computed by reference to the level of such items on the Closing Date. All determinations necessary to give effect to the foregoing allocations shall be made in a manner consistent with past practice of the Company.

(c) Tax Returns . The Company shall include the income of the Company on the Company’s income Tax Returns that are required to be filed on or before the Closing Date and pay any income Taxes attributable to such income. The Company shall timely file all other Tax Returns of the Company required on or before the Closing Date. All such Tax Returns shall be prepared and filed in a manner consistent with prior practice, except as required by a change in applicable law. The Sellers shall provide any such income Tax Returns to Buyer for review and comment at least thirty (30) days prior to filing such Tax Returns with the applicable Governmental Authority and the Sellers shall incorporate all such reasonable comments therein.

(d) Cooperation on Tax Matters . Each of Buyer, the Company and the Sellers shall: (a) provide assistance to the other party or parties as reasonably requested in preparing and filing Tax Returns and responding to Tax audits or Tax authority disputes; (b) make available to the other party or parties as reasonably requested all information, records, and documents relating to Taxes concerning the Company (including copies of Tax Returns); and (c) retain any books and records that could reasonably be expected to be necessary or useful in connection with any preparation by any the other party or parties of any Tax Return, or for any audit, examination, or proceeding relating to Taxes.

(e) Tax Contests .

(i) In the event that Buyer or the Company becomes aware, the Buyer shall notify the Seller Representative in writing within ten (10) days of receipt of the proposed assessment or the commencement of any audit or administrative or judicial proceeding or of any demand or claim on the Buyer, its Affiliates or the Company with respect to Taxes and Tax Returns of the Company which, if determined adversely to the Buyer, its Affiliates, the Company or any Indemnifying Parties or after the lapse of time, could be grounds for indemnification by the Indemnifying Parties under Section 6.9(a) . Such notice shall contain factual information (to the extent known to the Buyer, its Affiliates or the Company) describing the asserted Tax liability in reasonable detail and shall include copies of any notice or other document received from any taxing authority in respect of any such asserted Tax liability. If the Buyer fails to give the Seller Representative notice of an asserted Tax liability as required by this Section 6.9(e) , then the Indemnifying Parties shall not have any obligation to indemnify for any loss arising out of such asserted Tax liability, but only to the extent that the Seller Representative demonstrates that the defense of such Tax liability is actually and materially prejudiced thereby.

(ii) In the case of a Tax audit or administrative or judicial proceeding that relates to a Pre-Closing Tax Period (excluding any Straddle Periods which shall be governed by Section 6.9(e)(iii)) and which could give rise to indemnification by the Sellers under Section 6.9(a) (a “ Pre-Closing Tax Contest ”), the Seller Representative shall have the right, at the Indemnifying Parties’ expense, to direct and control, through counsel of its own choosing the conduct of such Pre-Closing Tax Contest. The Seller Representative shall promptly notify the Buyer of the Indemnifying Parties’ intent to do so. Neither the Indemnifying Parties nor any of their respective Affiliates shall enter into any settlement of or otherwise compromise any Pre-Closing Tax Contest that adversely affects or may adversely affect the Tax liability of the Buyer, the Company or any of their Affiliates for any period ending after the Closing Date without the prior written consent of the Buyer, which consent shall not be unreasonably withheld or delayed. If the Seller Representative elects not to direct the Pre-Closing Tax Contest, the Buyer or the Company may assume control of such Pre-Closing Tax Contest.

 

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(iii) In the case of a Tax audit or administrative judicial proceeding that relates to a Straddle Period (a “ Straddle Period Tax Contest ”), the Company shall direct and control, through counsel of its own choosing, any Straddle Period Tax Contest involving any asserted Tax liability with respect to which indemnity may be sought from the Sellers pursuant to Section 6.9(a) . The Company shall notify the Seller Representative of such Straddle Period Tax Contest, and the Sellers shall cooperate in each phase of such Straddle Period Tax Contest, and the Company and the Seller Representative shall bear the cost of such Straddle Period Tax Contest pro rata based on the number of days in the Straddle Period. The Seller Representative may participate, at its own expense, in such Straddle Period Tax Contest. The Company may not settle or compromise any asserted liability to the extent such liability is attributable to a Pre-Closing Tax Period without prior written consent of the Seller Representative; provided , however , that consent to settlement or compromise shall not be unreasonably withheld or delayed.

(iv) The Buyer and the Sellers agree to cooperate reasonably, and the Buyer agrees to cause the Company to cooperate reasonably, in the defense against or compromise of any claim in any Pre-Closing Tax Contest and Straddle Period Tax Contest.

(f) Tax Refunds . Any Tax refunds for any Pre-Closing Tax Period (including the pre-Closing portion of any Straddle Period) shall be for the account of the Sellers and Vested Optionholders and the Buyer shall pay over such amount to the Seller Representative within ten (10) Business Days of receipt. Notwithstanding anything in this Agreement to the contrary, in the event that a Tax refund is subsequently determined by any Governmental Authority to be less than the amount paid by Buyer (or by the Company after the Closing Date) to the Seller Representative, the Seller Representative, Sellers, and Vested Optionholders shall promptly return any such disallowed amounts (plus any interest charged by the Governmental Authority in respect of such disallowed Tax refunds owed to a Governmental Authority) to Buyer or the Company pursuant to their obligations under their respective undertakings. The Buyer shall promptly pay any such disallowed amounts and interest to the Governmental Authority and provide evidence of such payment to the Seller Representative.

(g) Tax Reporting . Any payments made under this ARTICLE VI shall, to the extent permitted by applicable Law, be considered adjustments to the Purchase Price for tax reporting purposes.

(h) Transfer Taxes . All applicable real property transfer or gains Tax, stamp Tax, stock transfer Tax, or other similar Tax imposed on any of the Sellers or the Company, Buyer or any of Buyer’s Affiliates as a result of the transactions contemplated by this Agreement (collectively, “ Transfer Taxes ”), and any penalties or interest with respect to the Transfer Taxes shall be borne by Buyer. The Sellers agree to cooperate with Buyer in the filing of any returns with respect to the Transfer Taxes, including promptly supplying any information in their possession reasonably requested by Buyer that is reasonably necessary to complete such returns.

(i) Section 338(g) Election . The Sellers and the Company acknowledge that Buyer may make an election pursuant to Section 338(g) of the Code (a “ Section 338(g) Election ”) with respect to the Company in connection with the purchase and sale of the Shares pursuant to this Agreement. In the event that a Section 338(g) Election is made, Buyer shall be responsible for preparing any applicable purchase price allocation for Tax purposes, shall deliver to Seller Representative a statement showing any

 

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such purchase price allocation within thirty (30) days of completion of the allocation, and shall deliver to Seller Representative a copy of all executed documents required by any Governmental Entity to effectuate the Section 338(g) Election, including IRS Forms 8023 and 8883, and Buyer, the Company and the Sellers shall each file all Tax Returns, and execute such other documents as may be required by any Governmental Authority, in a manner consistent with the purchase price allocation. Buyer, the Company, and the Sellers agree not to take any position inconsistent with any Section 338(g) Election or related purchase price allocation.

6.10 Further Assurances . After the Closing, each party hereto shall cooperate with the others, and execute and deliver, or cause to be executed and delivered, all such other instruments, including instruments of conveyance, assignment and transfer, and use commercially reasonable efforts to take all such other actions as may be reasonably requested by the other parties hereto from time to time, consistent with the terms of this Agreement, to effectuate the purposes and provisions of this Agreement.

6.11 Transactions with Affiliates . The Sellers and the Company shall cause all agreements and accounts between the Sellers or any Affiliate of the Sellers (other than the Company), on the one hand, and the Company, on the other hand, other than employment arrangements, to be terminated or settled at or prior to the Closing.

6.12 Seller and Vested Optionholder Releases . For and in consideration of the amounts to be paid under this Agreement to the Sellers and Vested Optionholders who are a party to this Agreement, and the additional covenants and promises set forth in this Agreement, effective as of the Closing such Sellers and Vested Optionholders, on behalf of themselves and their assigns, heirs, beneficiaries, creditors, representatives, agents and Affiliates (the “ Releasing Parties ”), hereby fully, finally and irrevocably release, acquit and forever discharge the Company and its officers, directors, partners, general partners, limited partners, managing directors, members, stockholders, trustees, shareholders, representatives, employees, principals, agents, Affiliates, parents, subsidiaries, joint ventures, predecessors-in-interest, successors, assigns, beneficiaries, heirs, executors, personal or legal representatives, insurers and attorneys (collectively, the “ Released Parties ”) from any and all commitments, actions, debts, claims, counterclaims, suits, causes of action, damages, demands, Liabilities, obligations, costs, expenses, Losses and compensation of every kind and nature whatsoever, past, present, or future, at law or in equity, whether known or unknown, contingent or otherwise, which such Releasing Parties, or any of them, had, has, or may have had at any time in the past accruing prior to or as of the Closing Date against the Released Parties, or any of them, including but not limited to any claims which relate to or arise out of the Option Plan, the Company Options, such Releasing Party’s pre-Closing relationship with the Company or his or her rights or status as a shareholder, employee or other service provider, officer or director of the Company (collectively, “ Released Causes of Action ”); provided, however , that the Released Causes of Action shall not include (i) any rights and claims of any Releasing Party arising from or in connection with this Agreement or any Transaction Document, in each case arising after the Closing, (ii) any Inchoate Indemnity Claims, or (iii) any rights and claims not related to the Company that any Seller or Vested Optionholder who is a party to this Agreement may have against any other such Seller or Vested Optionholder. In executing this Agreement, such Sellers and Vested Optionholders acknowledge that they have been informed that the Company may from time to time enter into agreements for additional types of financing, including without limitation recapitalizations, mergers and initial public offerings of capital stock of the Company, and also may pursue acquisitions or enter into agreements for the sale of the Company or all or a portion of the Company’s assets, which may result in or reflect an increase in equity value or enterprise value, and that any and all claims arising from or relating to such transactions or such increases in equity value or enterprise value (without limitation) are encompassed within the scope of this release, and that the sole exceptions to the scope of this release are for claims arising after the Closing Date directly under this Agreement or any Transaction Document in accordance with their terms.

 

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(b) Each Seller and Vested Optionholder who is a party to this Agreement represents to the Released Parties that as of the Closing Date such Seller and Vested Optionholder (i) has not assigned any Released Causes of Action, (ii) fully intends to release all Released Causes of Action, and (iii) has consulted with counsel with respect to the execution and delivery of this general release and have been fully apprised of the consequences hereof. Furthermore, each such Seller and Vested Optionholder further agrees not to institute any litigation, lawsuit, claim or action against any Released Party with respect to the Released Causes of Action.

(c) Each Seller and Vested Optionholder who is a party to this Agreement hereby represents and warrants that they have access to adequate information regarding the terms of this Agreement, the scope and effect of the releases set forth herein, and all other matters encompassed by this Agreement to make an informed and knowledgeable decision with regard to entering into this Agreement, after receiving the advice of legal counsel. Each such Seller and Vested Optionholder further represents and warrants that they have not relied upon the Company, Buyer or the Released Parties in deciding to enter into this Agreement and have instead made their own independent analysis and decision to enter into this Agreement.

6.13 Spreadsheet; Allocation . Schedule 6.13 sets forth a spreadsheet (the “ Spreadsheet ”) which includes, among other things, as of the Closing Date, with respect to each Seller, holder of Company Stock Options and Retention Payment Recipient, (i) such Person’s address and, if available to the Company, social security number (or tax identification number, if applicable), (ii) the number of and class of Shares held by such Person, (iii) the respective certificate number(s) representing such Shares, (iv) the respective date(s) of acquisition of such Shares, (v) the number of Vested Company Options held by such Person (including the grant date, exercise price, and vesting schedule of such Vested Company Options), (vi) the Pro Rata Portion applicable to such Person, (vi) the aggregate amount of cash to be paid to such Person at the Closing in respect of such Shares, Vested Company Options or Retention Payment Amount, as applicable, (vii) the number of shares of Buyer Series B Common Stock issuable to such Person at the Closing in respect of such Shares, Vested Company Options or Retention Payment Amount, as applicable, (viii) the amount of cash and number of shares of Buyer Series B Common Stock comprising the Holdback Amount on behalf of such Person, (viii) any amounts required to be withheld, and (ix) such other information relevant thereto or that Buyer may reasonably request.

6.14 Tail Insurance Coverage . The Company may purchase tail insurance coverage (the “Tail Insurance Coverage”) for the directors and officers of the Company in a form reasonably acceptable to the Company, the Sellers and Buyer, which shall provide such directors and officers with coverage for six (6) years following the Closing Date in an amount not less than the existing coverage and that shall have other terms not materially less favorable to the insured persons than the directors’ and officers’ liability insurance coverage presently maintained by the Company, provided that the cost of such Tail Insurance Coverage is included as a Seller Expense. Buyer shall cause the Company (or its successor) to maintain the Tail Insurance Coverage in full force and effect during its period of coverage and continue to honor the obligations thereunder.

6.15 Disclosure to U.S. Authorities . Within 5 (five) business days of execution of this Agreement, the Company shall (and the Sellers shall cause the Company to) submit to the U.S. Government a letter disclosing certain information about the Company’s activities under U.S. export control and economic sanctions laws which letter shall be reasonably acceptable to Buyer and in the form of Exhibit L (“ Disclosure Letter ”). At any time prior to the Closing, the Company shall not (and the Sellers shall cause the Company not to), without the prior written consent of Buyer (not to be unreasonably withheld), make any other filings with the U.S. Government or engage in any other communications with the U.S. Government relating to, arising from or resulting from the Disclosure Letter and any legal compliance inquiry, investigation or other proceeding associated with the Disclosure Letter (collectively, “ Disclosure Matters ”). After the Closing, Buyer shall keep the Seller Representative reasonably informed about communications with the U.S. Government regarding Disclosure Matters.

 

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ARTICLE VII

CONDITIONS TO THE ACQUISITION

7.1 Conditions to Obligations of Each Party . The respective obligations of Buyer, the Sellers and the Company to effect the Acquisition shall be subject to the satisfaction, at or prior to the Closing, of the following conditions (any of which may be waived only with the written mutual consent of Buyer, the Seller Representative and the Company):

(a) Regulatory Approvals . All approvals of Governmental Entities required to be obtained prior to the Closing in connection with the Acquisition and the other transactions contemplated hereby shall have been obtained without any requirement for any Action of Divestiture.

(b) No Legal Impediments . No Legal Requirement (whether temporary, preliminary or permanent) shall be in effect which has the effect of making the Acquisition or any other transactions contemplated by this Agreement or the Related Agreements illegal or otherwise prohibiting or preventing consummation of the Acquisition or any other transactions contemplated by this Agreement or the Related Agreements.

7.2 Additional Conditions to the Obligations of Buyer . The obligations of Buyer to effect the Acquisition shall be subject to the satisfaction at or prior to the Closing of each of the following additional conditions (any of which may be waived, in writing, exclusively by Buyer):

(a) Representations and Warranties . The representations and warranties of the Company, the Sellers and the Vested Optionholders who are a party to this Agreement that are (i) set forth in Sections 2.1 , 2.2 , 3.1 and 3.4 shall have been true and correct in all respects on the date they were made and shall be true and correct in all respects on and as of the Closing Date as though such representations and warranties were made on and as of such date (other than any such representations and warranties made only as of a specified date, which shall be true and correct in all respects as of such date), (ii) set forth in ARTICLE II and ARTICLE III (other than as described in clause (i) above) that are qualified by materiality shall have been true and correct in all respects on the date they were made and shall be true and correct in all respects on and as of the Closing Date as though such representations and warranties were made on and as of such date (other than any such representations and warranties made only as of a specified date, which shall be true and correct in all respects as of such date), and (iii) set forth in ARTICLE II and ARTICLE III (other than as described in clause (i) above) that are not qualified by materiality shall have been true and correct in all material respects on the date they were made and shall be true and correct in all material respects on and as of the Closing Date as though such representations and warranties were made on and as of such date (other than the representations and warranties made only as of a specified date, which shall be true and correct in all material respects as of such date).

(b) Covenants . The Company, the Sellers and the Vested Optionholders who are a party to this Agreement shall have performed and complied in all material respects with all covenants and obligations under this Agreement required to be performed and complied with by the Company, the Sellers and such Vested Optionholders prior to the Closing. The Company, the Sellers and such Vested Optionholders shall have delivered to Buyer (and the Sellers shall have caused the Company to have delivered to Buyer) all certificates and other documents that they are required to deliver (or cause to be delivered) to Buyer pursuant to this Agreement prior to the Closing, including the Spreadsheet and the Closing Statement.

 

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(c) No Material Adverse Effect . There shall not have occurred a Material Adverse Effect with respect to the Company.

(d) No Litigation . No action, suit or proceeding shall be pending or threatened by or before any court, Governmental Authority or quasi-judicial or administrative agency of any federal, state, provincial, local or foreign jurisdiction or before any arbitrator wherein an unfavorable judgment, decree, injunction, order or ruling would prevent the performance of this Agreement or any of the transactions contemplated hereby, cause such transactions to be rescinded or adversely affect the right of Buyer to own or operate the Company in any material respect.

(e) Corporate Authorization . Any corporate action necessary to authorize (i) the execution, delivery and performance by the Company of this Agreement and (ii) the consummation of the transactions contemplated hereby shall have been obtained by the Company.

(f) Third Party Consents . The consents of the third parties listed on Schedule 6.7(a) shall have been obtained and Buyer shall have received evidence reasonably acceptable to Buyer that such approvals, consents and filings have been made or obtained, as appropriate, and copies of all such consents and approvals shall have been provided to Buyer.

(g) Officer’s Certificate . Buyer will have received a certificate, in the form set forth on Exhibit I-1 hereto, executed by an officer of the Company certifying: (a) the names of the officers of the Company authorized to sign this Agreement and the Transaction Documents, together with the true signatures of such officers; (b) evidence that the Sellers and Board of Directors of the Company have duly authorized the transactions contemplated by this Agreement and the Transaction Documents and authorized appropriate officers of the Company to execute and deliver this Agreement and the Transaction Documents executed by the Company pursuant hereto, and to consummate the transactions contemplated hereby; (c) as of the Closing the conditions set forth in Sections 7.2(a) , 7.2(b) , 7.2(c) and 7.2(d) have been satisfied and (d) the GAAP Company Interim Financial Statements delivered to Buyer by the Company pursuant to Section 7.2(r) are true, accurate and complete and present fairly the financial position of the Company at the date thereof, and the results of operations, changes in shareholders’ equity and cash flows of the Company for the period indicated.

(h) Seller and Vested Optionholder Certificates . Buyer will have received a certificate, in the form set forth on Exhibit I-2 hereto, executed by each Seller and Vested Optionholder who is a party to this Agreement certifying that as of the Closing, the conditions set forth in Sections 7.2(a) and 7.2(b) have been satisfied with respect to such Seller or Vested Optionholder;

(i) Employment Matters .

(i) Each of the Key Employee Employment Agreements and Non-Competition Agreements executed by the Key Employees concurrently with this Agreement shall be in full force and effect and shall not have been revoked, rescinded or otherwise repudiated by the respective signatories thereto, and no Key Employee shall have terminated his or her employment with the Company or expressed an intention or interest (whether formally or informally) in, or taken action toward terminating his or her employment with the Company at or prior to the Closing, or with Buyer following the Closing. All of the Key Employees (A) have executed Buyer’s proprietary information and inventions assignment agreement, (B) shall be eligible to work in the jurisdictions where they are employed, and (C) shall have executed a release of claims in form and substance acceptable to Buyer.

 

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(ii) Buyer shall have received from (A) all of the Employees of the Company listed on Schedule 7.2(i)(1) and (B) at least 80% of the Employees of the Company listed on Schedule 7.2(i)(2) (the “ Other Employees ”), a duly executed counterpart to an Employment Agreement with the Company and Buyer’s proprietary information and inventions assignment agreement; and no such Other Employee shall have terminated his or her employment with the Company or expressed an intention or interest (whether formally or informally) in, or taken action toward terminating his or her employment with the Company at or prior to the Closing, or with Buyer following the Closing. All of the Other Employees (A) shall be eligible to work in the jurisdictions where they are employed, and (B) shall have executed a release of claims in form and substance acceptable to Buyer.

(j) Retention Agreements . Buyer shall have received from each Retention Payment Recipient a duly executed counterpart to a Retention Agreement between such Retention Payment Recipient and Buyer.

(k) Buyer Stockholder Agreement . Buyer shall have received from each Seller who will be issued shares of Buyer Series B Common Stock a duly executed counterpart to a Buyer Stockholder Agreement in the form set forth on Exhibit D hereto.

(l) Form W-9 or W-8 . Buyer shall have received an original and duly executed IRS Form W-9 or the appropriate version of Form W-8, as applicable, and any other Tax forms requested by Buyer, from each Seller and Vested Optionholder.

(m) Director and Officer Resignation Letters . Buyer shall have received a duly executed Director and Officer Resignation Letter from each officer and director of the Company in the form attached hereto as Exhibit E , effective as of the Closing.

(n) Deed of Confirmation and Release . Buyer shall have received a duly executed Deed of Confirmation and Release from each officer and director of the Company in the form attached hereto as Exhibit H , effective as of the Closing.

(o) Legal Opinion . Buyer shall have received a legal opinion from Central Chambers Law Corporation, counsel to the Company, regarding the Company’s capitalization as of the Closing Date.

(p) Vested Optionholder Agreement . Buyer shall have received from each holder of Vested Company Options who is not a party hereto a duly executed Vested Optionholder Agreement in the form attached hereto as Exhibit K (the “ Vested Optionholder Agreements ”), each effective as of the Closing.

(q) Company Audit . The Company shall have received from Ernst & Young and delivered to Buyer an unqualified audit report with respect to an independent audit of the Company Interim Balance Sheet and Company Interim Financial Statements (the “ Audit ”).

(r) GAAP Reconciliation of Company Interim Financial Statements . The Company shall have delivered to Buyer a true, accurate and complete unaudited reconciliation of the Company Interim Financial Statements to US GAAP that presents fairly the financial position of the Company at the date thereof, and the results of operations, changes in shareholders’ equity and cash flows of the Company for the period indicated (the “ GAAP Company Interim Financial Statements ”).

 

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(s) Completion of the Financial Assistance Whitewash Procedure . The Company shall have completed the Whitewash Procedure in relation to the provision of financial assistance by the Company for the purposes of the Acquisition through (i) the Company bearing all fees, costs and expenses incurred by legal advisors, auditors, accountants, and/or financial advisors in connection with the Acquisition (including the costs of all documentation relating to or implementing the Acquisition) up to a maximum of S$800,000.00 and (ii) the provision by the Company of the representations, warranties, undertakings, covenants and obligations under this Agreement. Notwithstanding the foregoing, the Whitewash Procedure shall not be deemed incomplete for purposes of this Section 7.2(s) solely because objections were raised by the Accounting and Corporate Regulatory Authority of Singapore or Persons other than the Sellers, the Vested Optionholders and the Company or any Affiliates of the Sellers, the Vested Optionholders and the Company.

(t) Disclosure Letter . The Disclosure Letter shall have been timely submitted to the U.S. Government in accordance with the terms of Section 6.15 .

7.3 Additional Conditions to Obligations of the Company and the Sellers . The obligations of the Company and the Sellers to effect the Acquisition shall be subject to the satisfaction at or prior to the Closing of the following additional conditions (any of which may be waived, in writing, exclusively by the Seller Representative and the Company):

(a) Representations and Warranties . The representations and warranties of Buyer that are (i) set forth in Sections 4.1 and 4.2 shall have been true and correct in all respects on the date they were made and shall be true and correct in all respects on and as of the Closing Date as though such representations and warranties were made on and as of such date (other than any such representations and warranties made only as of a specified date, which shall be true and correct in all respects as of such date), (ii) set forth in ARTICLE IV (other than as described in clause (i) above) that are qualified by materiality shall have been true and correct in all respects on the date they were made and shall be true and correct in all respects on and as of the Closing Date as though such representations and warranties were made on and as of such date (other than any such representations and warranties of Buyer made only as of a specified date, which shall be true and correct in all respects as of such date), and (iii) set forth in ARTICLE IV (other than as described in clause (i) above) that are not qualified by materiality shall have been true and correct in all material respects on the date they were made and shall be true and correct in all material respects on and as of the Closing Date as though such representations and warranties were made on and as of such date (other than the representations and warranties of Buyer made only as of a specified date, which shall be true and correct in all material respects as of such date).

(b) Covenants . Buyer shall have performed and complied in all material respects with all covenants and obligations under this Agreement required to be performed and complied with by them prior to the Closing.

ARTICLE VIII

INDEMNIFICATION

8.1 Indemnification .

(a) Subject to the provisions of this ARTICLE VIII , after the Closing, the Sellers and Vested Optionholders (whether party hereto or pursuant to a Vested Optionholder Agreement)

 

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(collectively, the “ Indemnifying Parties ”) shall severally but not jointly, on the basis of such Indemnifying Party’s Pro Rata Portion, indemnify and hold harmless Buyer and the Company and their respective Affiliates, officers, directors, employees, representatives, advisors and agents, and their respective members, stockholders, directors, officers, employees and agents (collectively, the “ Buyer Indemnified Parties ”) from and against any and all Losses arising out of, related to or in connection with:

(i) any breach or inaccuracy of any representation or warranty made by (1) the Company, the Sellers or the Vested Optionholders in this Agreement or any certificate delivered at Closing by the Company, the Sellers or the Vested Optionholders or (2) the Vested Optionholders in the Vested Optionholder Agreements; provided that, notwithstanding the foregoing, with respect to any breach or inaccuracy of any representation or warranty made by the Indemnifying Parties in ARTICLE II of this Agreement or under the Vested Optionholder Agreements, such Indemnifying Party shall be solely liable for breaches or inaccuracies of its own representations and warranties;

(ii) the breach or nonperformance of any covenant or obligation in this Agreement to be performed by the Sellers, the Vested Optionholders or the Company hereunder or to be performed by the Vested Optionholders in the Vested Optionholder Agreements;

(iii) any inaccuracies in the Spreadsheet;

(iv) any Equityholder-Related Claims;

(v) any Third Party Claims, including the costs of defending against and settling any such Third Party Claims, if the facts and circumstances alleged in such Third Party Claims would give Buyer Indemnified Parties a right to indemnification under this ARTICLE VIII if it would be reasonably expected that such facts and circumstances were factually accurate;

(vi) any fraud, intentional misrepresentation or willful misconduct (such acts referred to herein as “ Intentional Bad Acts ”) of or by the Company, any director, officer, Employee or advisor of the Company (whether or not in such person’s capacity as such), the Sellers or any of its or their representatives;

(vii) without duplication, any Seller Expenses and any failure of the Company Closing Statement to be true and correct in all respects;

(viii) any matters disclosed on Schedule 8.1(a)(viii) ; and

(ix) any costs and expenses of enforcement to recover Losses finally determined to be due to any Buyer Indemnified Party under this ARTICLE VIII .

(b) The liability of the Indemnifying Parties under this Agreement shall be limited as follows:

(i) Except in connection with (w) any Intentional Bad Acts, (x) the breach of any Fundamental Representations, (y) the Indemnifying Parties obligations pursuant to Section 6.9 or (z) the breach of any representations and warranties set forth in Section 3.9 (“ IP Representations ”), the aggregate Liability of the Indemnifying Parties after Closing

 

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for all Losses claimed by Buyer Indemnified Parties pursuant to Section 8.1(a)(i) shall not exceed, in the aggregate, the Holdback Amount. For the avoidance of doubt, where the Indemnifying Parties have paid (whether from the Holdback Amount or otherwise) in the aggregate, a sum equal to or more than the Holdback Amount in respect of Losses claimed by Buyer Indemnified Parties pursuant to Section 8.1(a)(i) (including in connection with breaches of IP Representations and Fundamental Representations, but excluding amounts paid in connection with any Intentional Bad Acts), none of the Indemnifying Parties shall have any further liabilities in respect of breaches of General Representations (except in connection with any Intentional Bad Acts).

(ii) With respect to Losses in connection with breaches of the representations and warranties other than IP Representations and Fundamental Representations (the “ General Representations ”), and IP Representations, for which a Claim Certificate is delivered on or prior to the date that is twenty-four (24) months after the Closing Date (the “ First Cutoff Date ”), the aggregate liability of each Indemnifying Party for all such Losses claimed by Buyer Indemnified Parties pursuant to Section 8.1(a)(i) shall not exceed 50% of the portion of the Total Consideration received by such Indemnifying Party (inclusive of such Indemnifying Party’s Pro Rata Portion of the amount of any Losses accounted for in Section 8.1(b)(i) above).

(iii) With respect to Losses in connection with breaches of the IP Representations and General Representations for which a Claim Certificate is delivered after the First Cutoff Date but on or prior to the date that is thirty-six (36) months after the Closing Date (the “ Survival Date ”), the aggregate Liability of each Indemnifying Party for all such Losses claimed by Buyer Indemnified Parties pursuant to Section 8.1(a)(i) shall not exceed 30% of the portion of the Total Consideration received by such Indemnifying Party (inclusive of such Indemnifying Party’s Pro Rata Portion of the amount of Losses accounted for in Section 8.1(b)(i) and the amount of Losses accounted for with respect to such Indemnifying Party in Section 8.1(b)(ii) above).

(iv) With respect to Losses in connection with breaches of the Fundamental Representations, the aggregate liability of each Indemnifying Party for all such Losses claimed by Buyer Indemnified Parties pursuant to Section 8.1(a) shall not exceed the portion of the Total Consideration received by such Indemnifying Party (inclusive of such Indemnifying Party’s Pro Rata Portion of the amount of Losses accounted for in Section 8.1(b)(i) and the amount of Losses accounted for with respect to such Indemnifying Party in Section 8.1(b)(ii) and Section 8.1(b)(iii) above).

(v) With respect to Losses in connection with Intentional Bad Acts, the aggregate liability for each Indemnifying Party (other than the Indemnifying Party that committed the Intentional Bad Act) for all such Losses claimed by Buyer Indemnified Parties pursuant to Section 8.1(a) shall not exceed the portion of the Total Consideration received by such Indemnifying Party (inclusive of such Indemnifying Party’s Pro Rata Portion of the amount of any other Losses accounted for with respect to such Indemnifying Party in Section 8.1(b)(i) and the amount of Losses accounted for with respect to such Indemnifying Party in Section 8.1(b)(ii) - (iv)  above); provided , that nothing in this Section 8.1(b)(v) shall limit the liability of any Indemnifying Party for Losses in connection with claims of Intentional Bad Acts by such Indemnifying Party, or Intentional Bad Acts of others of which such Indemnifying Party had actual knowledge.

 

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(vi) For purposes of this Section 8.1(b) , the term “received” shall mean the sum of (A) any portion of the Total Consideration actually paid to such Indemnifying Party and (B) any portion of the Total Consideration which becomes due to be paid to such Indemnifying Party (e.g., by vesting of Retention Payment Amounts, release of Holdback Amounts, etc.) and shall be measured without regard to whether such portion of the Total Consideration becomes due to be paid before or after the measurement date. For clarity, any portion of the Total Consideration which becomes due to be paid to an Indemnifying Party shall be subject to set-off by Buyer to the extent such Indemnifying Party has been determined to be liable for such amount in accordance with this ARTICLE VIII , including in the event such determination was made prior to the date that such portion of the Total Consideration became due to be paid to such Indemnifying Party. No claim for indemnification by a Buyer Indemnified Party under this ARTICLE VIII shall be prejudiced by the fact that at the time a Claim Certificate is filed with respect to such claim or at the time of resolution of such claim, the amount of Total Consideration actually paid is less than the amount of Total Consideration that may later become due to be paid and the applicable cap on liability to which any such claim shall be limited by this Section 8.1(b) will be determined in accordance with the foregoing principles.

(c) Except in connection with any Intentional Bad Acts or the breach of any of the representations and warranties set forth in ARTICLE II , Buyer Indemnified Parties shall seek recovery for any amounts due to it pursuant to this Section 8.1 first from the Holdback Amount, and then directly from the Indemnifying Parties (including by set-off against vested Retention Payment Amounts, if applicable). The Holdback Amount shall be the sole and exclusive remedy for Buyer Indemnified Parties for indemnification pursuant to Sections 8.1(a)(i) , except in connection with (w) any Intentional Bad Acts, (x) the breach of any Fundamental Representations, (y) the Indemnifying Parties obligations pursuant to Section 6.9 or (z) the breach of any IP Representations.

(d) Notwithstanding anything else in this Agreement to the contrary, (i) nothing in this Agreement shall limit the Liability of any Indemnifying Party in connection with claims of Intentional Bad Acts by such Indemnifying Party, or Intentional Bad Acts of others of which such Indemnifying Party had actual knowledge, and for any Losses as a result of such Intentional Bad Acts; (ii) none of the Buyer Indemnified Parties’ legal claims (whether in contract, tort or otherwise) arising out of or in connection with any such Intentional Bad Acts shall be limited or waived by this ARTICLE VIII or this Agreement with respect to any Indemnifying Party committing, or with actual knowledge of, such Intentional Bad Acts; and (iii) none of the Buyer Indemnified Parties’ equitable claims in connection with this Agreement or the transactions contemplated hereby shall be limited or waived by this ARTICLE VIII or this Agreement.

(e) For purposes of this ARTICLE VIII and Section 6.9(a) , any representation, warranty, covenant, undertaking or agreement given or made by the Company, any Seller or any Vested Optionholder in this Agreement containing words of materiality, “Material Adverse Effect” or similar qualifications shall be deemed to be made or given without such qualification for purposes of determining the amount of Losses suffered as a result of any inaccuracy, breach, nonfulfillment or nonperformance of any such representation, warranty, covenant, undertaking or agreement given or made by the Company, any Seller or any Vested Optionholder (but not, for the avoidance of doubt, for purposes of determining whether any such inaccuracy, breach, nonfulfillment or nonperformance exists or has occurred).

 

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8.2 Additional Indemnity Provisions . The indemnification obligations of the Indemnifying Parties hereunder shall be subject to the following additional limitations:

(a) Threshold . No claim for indemnification may be made under Section 8.1(a)(i) (other than recovery under Section 8.1(a)(i) in connection with any Intentional Bad Acts or for any breach or inaccuracy of the Fundamental Reps) unless and until the aggregate amount of Losses of the Buyer Indemnified Parties that may be claimed thereunder (together with any Losses that may be claimed under any other subsection of Section 8.1(a)) exceeds $300,000 (the “ Threshold ”), and once such Threshold has been reached, the Indemnifying Parties shall be liable to the Buyer Indemnified Parties for the full amount of all Losses, including those that comprised any portion of the Threshold.

(b) Sole and Exclusive Remedy . Except in connection with any Intentional Bad Acts, or for any claim for specific performance or other equitable remedies after the Closing, the sole recourse and exclusive remedy of Buyer against the Indemnifying Parties arising out of the matters referred to in Section 8.1(a) shall be to assert a claim for indemnification under the indemnification provisions of this ARTICLE VIII and the remedies provided in Section 10.9 .

(c) No Double Recovery . Notwithstanding anything herein to the contrary, no party shall be entitled to indemnification pursuant to this ARTICLE VIII for any Loss (and such Loss shall not be included in meeting the Threshold) to the extent such party or its Affiliate has been indemnified or reimbursed for such Loss under any other provision of this Agreement, including but not limited to (i) any Loss that is otherwise accounted for in the Final Closing Adjustment, or (ii) any Post-Closing Adjustment pursuant to Section 1.7(c) .

(d) Tax Reporting . Any payments made as indemnification under this ARTICLE VIII shall, to the extent permitted by applicable Law, be considered adjustments to the Purchase Price for tax reporting purposes.

(e) Limited Waiver . The right to indemnification based on representations, warranties, covenants and obligations in this Agreement will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or obligation. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of or compliance with any covenant or obligation, will not affect the right to indemnification based on such representations and warranties (subject to the Disclosure Schedule), covenants and obligations.

(f) No Right of Contribution . None of the Indemnifying Parties shall have any right of contribution from nor may any Indemnifying Party seek indemnification or advancement of expenses (under Contract, pursuant to applicable Law or otherwise) from, the Company or Buyer with respect to any Loss claimed by a Buyer Indemnified Party.

8.3 Claims Procedure .

(a) In the event that Buyer has made a determination that a Buyer Indemnified Party may have a right to indemnification under this ARTICLE VIII (other than a Third-Party Claim covered by Section 8.3(c) below), then Buyer (on behalf of such Buyer Indemnified Party) shall deliver to the Seller Representative a certificate (a “ Claim Certificate ”) (i) stating that a Buyer Indemnified Party has suffered or incurred, or reasonably anticipates that it may suffer or incur, Losses, and (ii) specifying in reasonable detail the basis for the claim(s), as well as the Losses relating thereto (which, if not determinable at such time, may be a reasonable good faith estimate thereof) (the aggregate amount of

 

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such Losses in a Claim Certificate being referred to as the “ Claimed Amount ”). Following delivery of the Claim Certificate to the Seller Representative, the Buyer shall give the Seller Representative (and the financial, accounting and legal advisors of the Seller Representative) reasonable access to (1) physical and electronic books and records of the Company related to the matters that are the subject of the Claim Certificate, and (2) the individuals who were responsible prior to the Closing for the matters that are the subject of the Claim Certificate. The Seller Representative shall have thirty (30) days after receipt of a Claim Certificate (the “ Objection Period ”) to deliver to Buyer a certificate (an “ Objection Certificate ”), pursuant to which the Seller Representative shall, on behalf of the Indemnifying Parties: (A) agree that Buyer Indemnified Party is entitled to receive all of the Claimed Amount (in which case, Buyer shall deduct from the Holdback Amount an amount equal to the Claimed Amount or the applicable portion thereof as determined by Buyer, and, if in whole or in part against the Indemnifying Parties, the Indemnifying Parties shall promptly cause to be paid to Buyer an amount equal to the product of (x) such Indemnifying Party’s Pro Rata Portion, multiplied by (y) the Claimed Amount), (B) agree that Buyer Indemnified Party is entitled to receive part, but not all, of the Claimed Amount (the “ Agreed Amount ”) (in which case, Buyer shall deduct from the Holdback Amount an amount equal to the Agreed Amount or the applicable portion thereof as determined by Buyer, and, if in whole or in part against the Indemnifying Parties, the Indemnifying Parties shall promptly cause to be paid to Buyer an amount equal to the product of (x) such Indemnifying Party’s Pro Rata Portion, multiplied by (y) the Agreed Amount), or (C) contest that Buyer Indemnified Party is entitled to receive any of the Claimed Amount and specify, in reasonable detail, any objections to the claims in such Claim Certificate or the Claimed Amount. If the Seller Representative fails to deliver an Objection Certificate within the Objection Period, then the Seller Representative shall be deemed, for and on behalf of the Indemnifying Parties, to agree that Buyer Indemnified Party is entitled to receive all of the Claimed Amount (which deemed agreement shall be deemed final, binding and conclusive with respect to all of the Indemnifying Parties) (in which case, Buyer shall deduct from the Holdback Amount an amount equal to the Claimed Amount or the applicable portion thereof as determined by Buyer, and, if in whole or in part against the Indemnifying Parties, the Indemnifying Parties shall promptly cause to be paid to Buyer an amount equal to the product of (x) such Indemnifying Party’s Pro Rata Portion, multiplied by (y) the Claimed Amount).

(b) In addition to the foregoing, to the extent permitted under this ARTICLE VIII , any Buyer Indemnified Party may make a claim directly against the Indemnifying Parties. In the event a Buyer Indemnified Party pursues indemnity directly against the Indemnifying Parties, and provided the Indemnifying Parties are determined to be liable in accordance with this ARTICLE VIII , each Indemnifying Party shall promptly, and in no event later than ten (10) days after such determination, pay to Buyer an amount equal to the product of (x) such Indemnifying Party’s Pro Rata Portion, multiplied by (y) the aggregate amount of such Loss. In the event that any Indemnifying Party is required to pay a portion of any Claimed Amount or Agreed Amount directly to Buyer pursuant to Sections 8.3(a) , 8.3(b) or 8.3(d) , such Indemnifying Party shall satisfy such obligation in cash; provided, that such Indemnifying Party may substitute for cash the forfeiture to Buyer of up to a number of shares of Buyer Series B Common Stock then held by such Indemnifying Party with an aggregate value (as determined in accordance with Section 10.11 ) equal to the product of (x) the amount of such Indemnifying Party’s portion of such Loss, multiplied by (y) a fraction, the numerator of which is the aggregate value (as determined in accordance with Section 10.11 ) of the shares of Buyer Series B Common Stock received by such Indemnifying Party as part of the Total Consideration, and the denominator of which is the aggregate value of the portion of the Total Consideration received by such Indemnifying Party.

(c) In the event that Buyer becomes aware of a third party claim (other than a claim that is the subject of a Claimed Amount or an Agreed Amount) (each, a “ Third Party Claim ”) which Buyer reasonably believes may result in a demand for indemnification pursuant to this ARTICLE VIII , Buyer shall notify the Seller Representative of such claim (the “ Third Party Claim Notice ”), and the Seller Representative shall be entitled on behalf of the Indemnifying Parties, at its sole option and

 

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expense, to participate in, but not to determine or conduct, the defense of such Third Party Claim; provided, however , that, for the sake of clarity, it is agreed that the Seller Representative shall not have the ability, without the prior written consent of Buyer, to petition, make any motion to, or take any other procedural action in connection with such Third Party Claim by or before, any Governmental Authority. The failure to so notify the Seller Representative shall not relieve the Indemnifying Parties of any liability, except to the extent the Seller Representative demonstrates that the defense of such Third Party Claim is actually and materially prejudiced thereby. Buyer shall have the right in its sole discretion to conduct the defense of, and to settle, any Third Party Claim; provided, however , that, in the event that the consent of the Seller Representative (which consent shall not be unreasonably withheld or delayed) is not obtained, no settlement of any such claim with third-party claimants will be determinative of the amount of Losses relating to such matter; provided, further, however , the consent of the Seller Representative with respect to any settlement of any such Third Party Claim shall be deemed to have been given unless the Seller Representative shall have objected within thirty (30) days after a written request for such consent by Buyer. In the event that the Seller Representative has consented to or deemed to have consented to any such settlement, the Indemnifying Parties shall have no power or authority to object under any provision of this ARTICLE VIII to the amount of any claim by Buyer with respect to such settlement.

(d) Resolution of Conflicts .

(i) In case the Seller Representative shall timely deliver an Objection Certificate, then for a period of thirty (30) days after delivery of such Objection Certificate, the Seller Representative and Buyer shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims objected to in the Objection Certificate. Either party may, but shall not be obligated to, initiate non-binding mediation of the dispute with the assistance of a neutral arbitrator belonging to and under the rules of the CPR Institute for Dispute Resolution. The party requesting the mediation shall arrange for mediation services, subject to the approval of the other party, which shall not be unreasonably withheld. Mediation shall take place in San Francisco, California during reasonable business hours and upon reasonable advance notice. Mediation may be scheduled to begin at any time, but with at least ten (10) Business Days’ written notice to all parties. If one party initiates mediation, the parties (A) shall participate in the mediation in good faith and shall commit reasonable time and energy to the mediation so as to promptly resolve the dispute or conclude that they cannot resolve the dispute and (B) shall not pursue other remedies while such mediation is proceeding. If the Seller Representative and Buyer should so agree (whether by mediation or otherwise), a memorandum setting forth such agreement shall be prepared and signed by both parties and, in the case of a claim against the Holdback Amount, Buyer shall deduct from the Holdback Amount an amount equal to the Losses so agreed or the applicable portion thereof as determined by Buyer, and, if in whole or in part against the Indemnifying Parties, each Indemnifying Party shall promptly cause to be paid to Buyer an amount equal to the product of (x) such Indemnifying Party’s Pro Rata Portion, multiplied by (y) the aggregate amount of such Loss so agreed.

(ii) Should Buyer and the Seller Representative be unable to agree as to any particular item or items or amount or amounts specified in an Objection Certificate within the time periods specified in Section 8.3(d)(i) , then Buyer Indemnified Party shall be permitted to submit such dispute for resolution in accordance with Section 10.9 . Upon resolution of such dispute, Buyer shall deduct from the Holdback Amount, an amount equal to the Losses so determined or the applicable portion thereof as determined by Buyer, and, if in whole or in part against the Indemnifying Parties, the Indemnifying

 

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Parties shall promptly cause to be paid, as applicable, by wire transfer to Buyer an amount equal to the product of (x) such Indemnifying Party’s Pro Rata Portion, multiplied by (y) the Losses determined in such resolution.

8.4 Survival of Representations and Warranties, etc . All representations, warranties, covenants, and agreements of the Sellers, the Vested Optionholders who are a party to this Agreement, the Company and Buyer made in this Agreement shall survive the Closing, subject to the following provisions of this Section 8.4 with respect to the expiration of representations and warranties. The respective representations and warranties of the parties contained herein (including the General Representations) shall survive the Closing and shall expire and terminate on the date that is eighteen (18) months after the Closing Date (the “ General Survival Date ”). Notwithstanding the foregoing, (a) any claims for the breach of any representation or warranty of the Indemnifying Parties contained in ARTICLE II or ARTICLE III that have been timely made pursuant to ARTICLE VIII on or prior to the expiration date of such representation or warranty, which claims shall survive until the liability is finally determined; (b) the representations and warranties contained in ARTICLE II , Section 3.1 ( Corporate Organization; Authorization ), Section 3.2 ( No Violation ), Section 3.3 ( Consents and Approvals of Governmental Authorities ), Section 3.4 ( Capitalization ), Section 3.12 ( Taxes ), and Section 3.20 ( Title to Properties; Encumbrances; Capital Leases ) (collectively, the “ Fundamental Representations ”) shall survive the Closing and shall expire on the date thirty (30) days following the expiration of the applicable statute of limitations and the applicable limitation periods in the Income Tax Act, Chapter 134 of Singapore) for the subject matter of such representations and warranties (including any extensions thereof); and (c) the IP Representations shall survive the Closing and shall expire on the Survival Date; provided, however , that, notwithstanding the foregoing, claims in connection with Intentional Bad Acts may be made at any time notwithstanding the fact that any representation or warranty relating thereto may have already expired pursuant to the terms of this Section 8.4 . It is the express intent of the Parties that, other than in connection with Intentional Bad Acts, if the applicable survival period for an item as contemplated by this Section 8.4 is shorter than the statute of limitations that would otherwise have been applicable to such item, then, by contract, the applicable statute of limitations with respect to such item shall be reduced to the shortened survival period contemplated by this Agreement. The covenants and agreements contained herein to be performed or complied with after the Closing shall survive in accordance with their respective terms or, absent a specific term, indefinitely (including any claims in connection with Intentional Bad Acts in relation thereto). Notwithstanding anything herein to the contrary, in the event of any Intentional Bad Acts in connection with the breach of any representations or warranties of the Sellers, the Vested Optionholders who are a party to this Agreement and/or the Company set forth in this Agreement, or in any agreement, document, certificate or other instrument delivered by the Sellers, such Vested Optionholders or the Company under or pursuant to this Agreement or in connection with the transactions contemplated hereby, such representations and warranties shall survive the Closing and shall remain in full force and effect in perpetuity and without limitation, regardless of any investigation or disclosure made by or on behalf of any of the parties hereto.

8.5 Holdback Arrangements .

(a) Holdback . From and after the Closing, the Indemnifying Parties agree that, subject to the other provisions of this ARTICLE VIII , the Holdback Amount shall be fully available to indemnify, defend and hold harmless Buyer Indemnified Parties from and against any and all Losses in respect of which such Buyer Indemnified Parties may be indemnified, defended or held harmless under this ARTICLE VIII or Section 6.9 (including the limitations set forth in Sections 8.1(b) et seq. ).

(b) Satisfaction of Claims . Recovery against the Holdback Amount shall be the Buyer Indemnified Parties’ sole and exclusive remedy for indemnification claims under Section 8.1(a)(i) , except in the case of Losses arising out of or resulting from a breach or inaccuracy of the Fundamental

 

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Representations or the IP Representations, the Indemnifying Parties obligations pursuant to Section 6.9 , or any Intentional Bad Acts in connection with the breach of any representation or warranty in this Agreement or any certificates delivered pursuant hereto or thereto (with respect to which the limitations set forth in this sentence shall not apply). Any amounts to be distributed from the Holdback Amount shall be distributed pro rata from such Seller’s or Vested Optionholder’s proportional contribution to the Holdback Amount (as set forth in the Spreadsheet), in the same form (stock or cash) as such Seller’s or Vested Optionholder’s proportional contribution to the Holdback Amount, except in respect of recoveries for Losses related to a breach of any individual Seller’s or Vested Optionholder’s representations and warranties set forth in ARTICLE II , in which case, such amounts shall be satisfied solely out of such Seller’s or Vested Optionholder’s proportional contribution to the Holdback Amount.

(c) Holdback Periods; Distribution Upon Termination of Holdback Periods . Subject to the following requirements, the Holdback Amount shall be withheld by Buyer at the Closing and thereafter pursuant to the terms contained herein. On the third (3rd) Business Day following the date that is twelve (12) months after the Closing Date (the “ Initial Holdback Release Date ”), Buyer shall release to the Sellers and Vested Optionholders (in accordance with their respective Pro Rata Portions, subject to the last sentence of Section 8.5(b)) , a portion of the Holdback Amount equal to the result of (i) fifty percent (50%) of the Holdback Amount (comprised of cash and equity on a pro rata basis), minus (ii) all amounts previously distributed from the Holdback Amount, minus (iii) any amount which is subject to any unresolved claims specified in any Claim Certificate that is delivered to the Seller Representative prior to the Initial Holdback Release Date. On the third (3rd) Business Day following the date that is eighteen (18) months after the Closing Date (the “ Final Holdback Release Date ”), Buyer shall release to the Sellers and Vested Optionholders (in accordance with their respective Pro Rata Portions, subject to the last sentence of Section 8.5(b)) a portion of the Holdback Amount equal to the result of (i) the then-remaining Holdback Amount, minus (ii) any amount which is subject to any unresolved claims specified in any Claim Certificate that is delivered to the Seller Representative prior to the Final Holdback Release Date. Buyer shall deliver to each of the Sellers and Vested Optionholders such Person’s Pro Rata Portion (if any) of the remaining portion of the Holdback Amount not required to satisfy any then pending claims against the Holdback Amount and shall deliver to each of the Sellers and Vested Optionholders such Person’s Pro Rata Portion (if any) of the remaining portion of the Holdback Amount, if any, following resolution of all such claims.

ARTICLE IX

PRE-CLOSING TERMINATION OF AGREEMENT

9.1 Termination . Except as provided in Section 9.2 , this Agreement may be terminated and the Acquisition abandoned at any time prior to Closing:

(a) by mutual agreement of the Seller Representative and Buyer;

(b) by Buyer, if a Material Adverse Effect has occurred;

(c) by Buyer, if the Closing Date shall not have occurred by March 30, 2014 (the “ Buyer End Date ”); provided , however , that the right to terminate this Agreement under this Section 9.1(c) shall not be available if any action of Buyer or failure to act by Buyer has been a proximate cause of, or resulted in, the failure of the Acquisition to occur on or before such date and such action or failure to act constitutes a breach of this Agreement;

(d) by Seller Representative, if the Closing Date shall not have occurred by April 30, 2014 (the “ Seller End Date ”); provided , however , that the right to terminate this Agreement under this

 

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Section 9.1(d) shall not be available any action of a Seller, Vested Optionholder or the Seller Representative or failure to act by any of the foregoing has been a proximate cause of, or resulted in, the failure of the Acquisition to occur on or before such date and such action or failure to act constitutes a breach of this Agreement;

(e) by Buyer or the Seller Representative, if any Legal Requirement shall be in effect which has the effect of making the Acquisition illegal or otherwise prohibits prevents consummation of the Acquisition, provided that in the case of any such Legal Requirement that is an Order, such Order has become final and non-appealable;

(f) by Buyer, if there shall be any action taken, or any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Acquisition by any Governmental Entity, which would require an Action of Divestiture;

(g) by Buyer, if there has been a breach of or inaccuracy in any representation, warranty, covenant or agreement of the Company, the Sellers or the Vested Optionholders who are a party to this Agreement set forth in this Agreement, or of the Vested Optionholders set forth in the Vested Optionholder Agreements, such that the conditions set forth in Sections 7.2(a) and 7.2(b) would not be satisfied as of the time of such breach or inaccuracy and such breach or inaccuracy has not been cured within ten (10) calendar days after written notice thereof to the Company and the Seller Representative; provided , however , that no cure period shall be required (i) for a breach or inaccuracy which by its nature cannot be cured or (ii) if any of the conditions to Closing in ARTICLE VII for the benefit of Buyer are incapable of being satisfied on or before the Buyer End Date; or

(h) by the Seller Representative if there has been a breach of or inaccuracy in any representation, warranty, covenant or agreement of Buyer set forth in this Agreement or in the Vested Optionholder Agreements such that the conditions set forth in Sections 7.3(a) and 7.3(b) would not be satisfied as of the time of such breach or inaccuracy and such breach or inaccuracy has not been cured within ten (10) calendar days after written notice thereof to Buyer; provided , however , that no cure period shall be required (i) for a breach or inaccuracy which by its nature cannot be cured or (ii) if any of the conditions to Closing in ARTICLE VII for the benefit of the Company are incapable of being satisfied on or before the Seller End Date.

9.2 Effect of Termination . In the event of termination of this Agreement as provided in Section 9.1 , this Agreement shall forthwith become void and there shall be no Liability or obligation on the part of Buyer, the Company, the Sellers, the Vested Optionholders or their respective officers, directors or shareholders, if applicable; provided, however , that each party hereto and each Person shall remain liable for any willful and intentional breaches of this Agreement, Transaction Documents or in any certificate or other instruments delivered pursuant to this Agreement prior to its termination; and provided further, however, that, the provisions of ARTICLE X (General Provisions) and this Section 9.2 shall remain in full force and effect and survive any termination of this Agreement pursuant to the terms of this ARTICLE IX .

ARTICLE X

MISCELLANEOUS PROVISIONS

10.1 Amendment and Modification . This Agreement may be amended, modified and supplemented only by written agreement of Buyer, the Company and the Seller Representative.

 

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10.2 Waiver of Compliance . The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any such party in exercising any right, power, or privilege under this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by any of the Sellers or by the Buyer, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other; (b) no waiver that may be given by a party to this Agreement will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party to this Agreement will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement.

10.3 Notices . All notices, requests, consents and other communications hereunder shall be deemed given: (i) when delivered if delivered personally (including by courier); (ii) on the third day after mailing, if mailed, postage prepaid, by registered or certified mail (return receipt requested); (iii) on the day after mailing if sent by a nationally recognized overnight delivery service which maintains records of the time, place, and recipient of delivery; or (iv) upon receipt of a confirmed transmission, if sent by email or facsimile transmission, in each case to the parties at the following addresses or to other such addresses as may be furnished in writing (in accordance with this Section 10.3) by one party to the others:

if to the Company (before the Closing), the Sellers or the Seller Representative, then to:

Zopim Pte Ltd

1 Commonwealth Lane, #03-01

Singapore 149544

Attn: Royston Tay

Email: royston@zopim.com

with a copy (which shall not constitute notice) to:

Orrick, Herrington & Sutcliffe LLP

1000 Marsh Road

Menlo Park, California 94025

Attention:   

John V. Bautista

Augie Rakow

Facsimile No.: (650) 614-7401

if to the Company (after the Closing) or to Buyer, then to:

Zendesk, Inc.

989 Market Street

San Francisco CA 94103

Attention: General Counsel

with a copy to (which shall not constitute notice):

Goodwin Procter LLP

135 Commonwealth Drive

Menlo Park, California 94025

Attention:   

William J. Schnoor

Lawrence M. Chu

Facsimile No.: (650) 471-6098

 

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10.4 Binding Nature; Assignment . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without prior written consent of the other parties. Nothing contained herein, express or implied, is intended to confer on any Person other than the parties hereto or their successors and permitted assigns, any rights, claims, benefits, remedies, obligations or Liabilities under or by reason of this Agreement. Each Vested Optionholder who is not a party hereto shall be deemed a party hereto to the extent set forth in the Vested Optionholder Agreements and shall be subject to the terms and conditions of each section of this Agreement to the extent set forth in the Vested Optionholder Agreements.

10.5 Entire Agreement . This Agreement, along with the other Transaction Documents and the Schedules and Exhibits hereto and thereto, embodies the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein; provided, however , that this provision shall in no way limit a party’s rights against any other party in connection with any Intentional Bad Acts.

10.6 Expenses . Except as otherwise expressly provided in Section 6.9(h) and elsewhere herein, each party to this Agreement will pay its own costs and expenses in connection with the negotiation of this Agreement, the performance of its obligations hereunder, and the consummation of the transactions contemplated herein.

10.7 Press Releases and Announcements . No press release related to this Agreement or the transactions contemplated herein, or other public announcement or announcement to the employees, customers, or suppliers of the Company, will be issued without the approval of Buyer, except as otherwise required by law, in each case not to be unreasonably withheld, conditioned or delayed.

10.8 Governing Law . This Agreement and the legal relations between the parties hereto shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to any law or rule that would cause the laws of any jurisdiction other than the State of Delaware to be applied.

10.9 Arbitration . Any controversy, dispute or claim between the parties to this Agreement, including any claim arising out of, in connection with, or in relation to the interpretation, performance or breach of this Agreement, shall be resolved exclusively and finally by confidential binding arbitration in accordance with the following procedures:

(a) The arbitration shall be conducted in San Francisco, California, or such other location as the parties mutually agree. The arbitration proceedings will be conducted in accordance with, and pursuant to, the then most applicable rules (the “ Arbitration Rules ”) of the American Arbitration Association. In the event of any conflict between the Arbitration Rules and the provisions of this Section 10.9 , the provisions of this Section 10.9 shall control.

(b) There will be a single neutral arbitrator (“ Arbitrator ”) who will be selected pursuant to the Arbitration Rules; provided, however , that, notwithstanding the Arbitration Rules, each party shall have the right to preemptively challenge any Arbitrator that has previously arbitrated any matter for either party. The Arbitrator will have the same power (but no greater power) to grant all appropriate legal and equitable relief, both by way of interim relief and as a part of the final award, as may be granted by any court of competent jurisdiction, in order to carry out the terms of this Agreement (including declaratory and injunctive relief and damages). All awards and orders of the Arbitrator, including interim relief, may be enforced by any court of competent jurisdiction.

 

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(c) The parties intend that appropriate rights of discovery (including the right to depose witnesses, submit interrogatories and request documents) be granted to each party. In that regard, the parties agree to work together in good faith and with the Arbitrator to arrive upon mutually acceptable procedures regarding the time limits for, and type, amount, scope and degree of, such rights of discovery and the periods of time within which the matters submitted to arbitration must be heard and determined by the Arbitrator. If the parties are unable to so agree, such issues will be submitted to the Arbitrator for his or her determination. If proper notice of any hearing has been given, the Arbitrator will have full power to proceed to take evidence or to perform any other acts necessary to arbitrate the matter in the absence of any party who fails to appear. At the request of any party, the Arbitrator, attorneys, parties to the arbitration, witnesses, experts, court reporters or other persons present at the arbitration shall agree in writing to maintain strict confidentiality regarding the arbitration proceedings. Following such request, in rendering an award, the Arbitrator shall endeavor not to include confidential information in his or her written opinion explaining the award or shall redact such opinion to the standards required by the parties.

(d) Notwithstanding the foregoing, a party may apply to a court of competent jurisdiction for provisional relief in the form of a temporary restraining order or preliminary injunction, or other provisional remedy pending appointment of an Arbitrator or pending final determination of a claim through arbitration in accordance with this Section 10.9 . In the event a dispute is submitted to arbitration hereunder during the term of this Agreement, the parties shall continue to perform their respective obligations hereunder, subject to any interim relief that may be ordered by the Arbitrator or by a court of competent jurisdiction pursuant to the previous sentence.

(e) To the extent permitted by applicable Law, the prevailing party (if a prevailing party is determined to exist by the Arbitrator) in any proceeding or action under this Section 10.9 shall be entitled, in addition to any other damages or relief awarded, to an award of reasonable attorneys’ and accounting fees, expenses and other out-of-pocket costs incurred by such party (including any costs and fees incurred by and payable to the Arbitrator and any costs incurred in enforcing any such award), not to exceed such fees incurred by the non-prevailing party. The parties shall share equally all fees and expenses of the arbitrator to the extent permitted by applicable Law and each party shall personally bear all other costs and fees, including attorney’s fees, incurred by that party in the course of the arbitration, except, in each case, to the extent that such fees and expenses are Losses that are indemnifiable pursuant to ARTICLE VIII , in which case they shall be treated as provided in ARTICLE VIII .

(f) The Arbitrator shall render an award and written opinion explaining the award, and the decisions and award of the Arbitrator shall be final and binding upon the parties. The parties hereto hereby waive to the fullest extent permitted by applicable Law any rights to appeal or to review of such award by any court or tribunal. The parties agree that the award of the Arbitrator may be enforced against the parties or their assets wherever they may be found and that a judgment upon such award may be entered in any court having jurisdiction thereof.

10.10 Interpretation . All references to immediately available funds or dollar amounts contained in this Agreement shall mean United States dollars except where specifically provided to the contrary and in determining or measuring against any such amounts contained in this Agreement, all amounts that are in a currency other than United States dollars shall be converted into United States Dollars at the prevailing exchange rate between the respective currencies as set forth in the Eastern Edition of The Wall Street Journal on the Business Day immediately preceding the applicable date. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. The parties acknowledge and agree that (i) each party and its counsel

 

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have reviewed the terms and provisions of this Agreement and have contributed to its revision, (ii) the normal rule of construction, to the effect that any ambiguities are resolved against the drafting party, shall not be employed in the interpretation of it, and (iii) the terms and provisions of this Agreement shall be constructed fairly as to all parties hereto and not in favor or against any party, regardless of which party was generally responsible for the preparation of this Agreement. All references to Schedules and Exhibits refer to the Schedules and Exhibits of this Agreement, unless otherwise expressly provided. The term “including” means “including without limitation.”

10.11 Fair Market Value of Buyer Series B Common Stock . The value of shares of Buyer Series B Common Stock shall be determined according to the following valuation method for any purpose in connection with this Agreement or any Transaction Document (the “ Agreed Valuation Method ”): such shares shall be valued at USD $6.04 per share; provided, however , if Buyer completes an Initial Public Offering within nine (9) months after the Closing, the shares of Buyer Series B Common Stock shall be valued at the initial offering price per share for any such determination made in connection with any Claim Certificate delivered to Seller Representative after the completion of the Initial Public Offering; provided, further , if Buyer has not completed an Initial Public Offering within nine (9) months after the Closing, the shares of Buyer Series B Common Stock shall be valued at the fair market value thereof as of the date that is nine (9) months after the Closing, as then-most recently determined by Buyer’s Board of Directors, for any such determination made in connection with any Claim Certificate delivered to Seller Representative after such date.

10.12 Specific Performance . Each of the parties hereto acknowledges and agrees that the other parties hereto would be irreparably damaged in the event any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each of the parties hereto agrees that, in addition to any other remedy to which such party may be entitled at law or in equity, they each shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement, the terms and provisions hereof.

10.13 Severability . If any provision of this Agreement or the application of any such provision to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof. The parties further agree to replace any such invalid or unenforceable provisions of this Agreement with valid and enforceable provisions which will achieve, to the extent possible, the economic, business and other purposes of the invalid or unenforceable provisions.

10.14 Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. Any such counterpart may be executed by facsimile signature or other electronic means of delivery (including via portable document format (.pdf)) with only verbal confirmation, and when so executed and delivered shall be deemed an original and such counterpart(s) together shall constitute only one original.

10.15 Seller Representative .

(a) Each Indemnifying Party, by the adoption of this Agreement, irrevocably and unconditionally authorizes the Seller Representative (i) to take any and all additional action as is contemplated to be taken or otherwise may be taken by or on behalf of the Indemnifying Parties by or under the terms of this Agreement, including any actions in connection with any Post-Closing Adjustment or Objection Notice contained in Section 1.7 , any waivers of Closing conditions or waivers of other Indemnifying Party rights and any agreement to terminate or alter this Agreement, (ii) to take all action necessary to the defense and/or settlement of any claims for which the Indemnifying Parties may be required to indemnify Buyer pursuant to ARTICLE VIII hereof, and (iii) to give and receive all notices

 

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required to be given or received by the Indemnifying Parties under this Agreement. Seller Representative may take the foregoing actions, with full power of substitution, as Seller Representative may in its sole discretion determine to be necessary, desirable or appropriate in connection with any claim for indemnification.

(b) All decisions and actions by the Seller Representative, including without limitation any agreement between the Seller Representative and Buyer (i) relating to the determination of the existence of any Post-Closing Adjustment or the settlement of any disputes or disagreements with regard to any Post-Closing Adjustment pursuant to Section 1.7 or (ii) relating to the defense or settlement of any claims for which the Indemnifying Parties may be required to indemnify Buyer pursuant to ARTICLE VIII hereof, shall be binding upon all Indemnifying Parties, and no Indemnifying Party shall have the right to object, dissent, protest or otherwise contest the same.

(c) The Seller Representative shall not have any liability to any of the parties hereto for any act done or omitted hereunder as Seller Representative while acting in good faith and in the exercise of reasonable judgment, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. The Indemnifying Parties shall severally but not jointly indemnify the Seller Representative and hold it harmless against any loss, liability or expense incurred without gross negligence or bad faith on the part of the Seller Representative and arising out of or in connection with the acceptance or administration of its duties hereunder. The Seller Representative shall be entitled to be reimbursed for reasonable expenses incurred in the performance of its duties (including, without limitation, the reasonable fees of counsel) by the Indemnifying Parties.

(d) The Seller Representative shall have reasonable access to relevant information about the Company and the reasonable assistance of the Company’s employees for purposes of performing its duties and exercising his rights hereunder; provided that the Seller Representative shall treat confidentially and not disclose any nonpublic information from or about the Company or Buyer to anyone (except on a need-to-know basis to individuals who agree to treat such information confidentially) and execute a non-disclosure agreement in the form provided by Buyer.

(e) By his, her or its adoption of this Agreement, each Indemnifying Party agrees, in addition to the foregoing, that:

(i) Buyer shall be entitled to rely conclusively on the instructions and decisions of the Seller Representative as to (i) the settlement of any disputes or disagreements in connection with any Post-Closing Adjustments pursuant to Section 1.7 and (ii) the settlement of any claims for indemnification by Buyer pursuant to ARTICLE VIII hereof, or any other actions required or permitted to be taken by the Seller Representative hereunder, and no party hereunder shall have any cause of action against Buyer for any action taken by Buyer in reliance upon the instructions or decisions of the Seller Representative;

(ii) all actions, decisions and instructions of the Seller Representative shall be conclusive and binding upon all of the Indemnifying Parties and no Indemnifying Party shall have any cause of action against the Seller Representative for any action taken, decision made or instruction given by the Seller Representative under this Agreement, except for fraud or willful misconduct by the Seller Representative in connection with the matters described in this Section 10.15 ;

(iii) the provisions of this Section 10.15 are independent and severable, are irrevocable and coupled with an interest and shall be enforceable notwithstanding any rights or remedies that any Indemnifying Party may have in connection with the transactions contemplated by this Agreement; and

 

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(iv) the provisions of this Section 10.15 shall be binding upon the executors, heirs, legal representatives, personal representatives, successor trustees and successors of each Indemnifying Party, and any references in this Agreement to an Indemnifying Party shall mean and include the successors to the rights of each applicable Indemnifying Party hereunder, whether pursuant to testamentary disposition, the laws of descent and distribution or otherwise.

(v) the Sellers shall indemnify, defend and hold harmless the Seller Representative and its successors and assigns from and against any and all claims, demands, suits, actions, causes of action, losses, damages, obligations, liabilities, costs and expenses and other Losses (including attorneys’ fees and court costs) (collectively, “ Seller Representative Losses ”) arising as a result of or incurred in connection with any actions taken or omitted to be taken by the Seller Representative pursuant to the terms of this Agreement or any Transaction Document, in each case as such Seller Representative Loss is incurred or suffered. Notwithstanding the foregoing, in the event it is finally adjudicated that a Seller Representative Loss or any portion thereof was primarily caused by the bad faith, gross negligence or willful misconduct of the Seller Representative, the preceding sentence will not apply to the amount of the seller Representative Loss attributable to such bad faith, gross negligence or willful misconduct.

(f) Royston Tay hereby accepts his appointment as Seller Representative.

(g) Each party to this Agreement agrees that Royston Tay may resign as the Seller Representative at any time and in his sole discretion, provided that Shareholder Representative Services LLC or other individual or entity mutually agreed on by (i) the Buyer, and (ii) the Sellers representing at least the majority of the aggregated Pro Rata Portions, has been appointed as the Seller Representative and made a party to this Agreement.

[ Remainder of page intentionally left blank ]

 

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IN WITNESS WHEREOF , the parties have executed this Share Purchase and Sale Agreement as of the date first written above.

 

COMPANY:
By:  

/s/ Royston Tay

  Name:   Royston Tay
  Title:   Chief Executive Officer

ROYSTON TAY

As Seller Representative:

By:  

/s/ Royston Tay

  Royston Tay

 

S IGNATURE PAGE TO S HARE P URCHASE AND S ALE A GREEMENT


IN WITNESS WHEREOF , the parties have executed this Share Purchase and Sale Agreement as of the date first written above.

 

SELLERS:
Royston Tay Zhing Keak

/s/ Royston Tay Zhing Keak

Wu Wenxiang

/s/ Wu Wenxiang

Kwok Yang Bin
By:  

/s/ Kwok Yang Bin

Low Junliang
By:  

/s/ Low Junliang

Lim Qing Ru
By:  

/s/ Lim Qing Ru

NUS Technology Holdings Pte Ltd
By:  

/s/ Tan Tiong Gie Bernard

  Name:   Prof. Tan Tiong Gie Bernard
  Title:   Director

 

S IGNATURE PAGE TO S HARE P URCHASE AND S ALE A GREEMENT


IN WITNESS WHEREOF , the parties have executed this Share Purchase and Sale Agreement as of the date first written above.

 

VESTED OPTIONHOLDERS:
Ang Jun Han

/s/ Ang Jun Han

Ng Wenchao

/s/ Ng Wenchao

Nguyen Si Thong

/s/ Nguyen Si Thong

Quek Teng Wan

/s/ Quek Teng Wan

 

S IGNATURE PAGE TO S HARE P URCHASE AND S ALE A GREEMENT


IN WITNESS WHEREOF , the parties have executed this Share Purchase and Sale Agreement as of the date first written above.

 

BUYER:
ZENDESK, INC.
By:  

/s/ Alan Black

  Name:   Alan Black
  Title:   Chief Financial Officer

 

S IGNATURE PAGE TO S HARE P URCHASE AND S ALE A GREEMENT

Exhibit 3.1

SIXTH AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

ZENDESK, INC.

(Pursuant to Sections 242 and 245 of the

General Corporation Law of the State of Delaware)

Zendesk, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “General Corporation Law”),

DOES HEREBY CERTIFY:

1. That the name of this corporation is Zendesk, Inc., and that this corporation was originally incorporated pursuant to the General Corporation Law on March 3, 2009 under the name Zendesk, Inc.

2. That the Board of Directors duly adopted resolutions proposing to amend and restate the Fifth Amended and Restated Certificate of Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which proposed amendment and restatement is as set forth on Exhibit A hereto.

3. That the foregoing amendment and restatement was approved by the holders of the requisite number of shares of this corporation in accordance with Section 228 of the General Corporation Law.

4. That this Sixth Amended and Restated Certificate of Incorporation, which restates and integrates and further amends the provisions of this corporation’s Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law.

IN WITNESS WHEREOF , this Sixth Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this Corporation on this 4 th  day of September, 2012.

 

By:   /s/ Mikkel Svane
  Mikkel Svane
  President

 


EXHIBIT A

SIXTH AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

ZENDESK, INC.

FIRST : The name of this corporation is Zendesk, Inc. (the “ Corporation ”).

SECOND : The address of the registered office of the Corporation in the State of Delaware is One Rodney Square, 10 th  Floor, Tenth and King Streets, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is RL&F Service Corp.

THIRD : The nature of the business or purposes to be conducted or promoted 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 (the “ General Corporation Law ”).

FOURTH : The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 200,000,000 shares of Common Stock, $0.01 par value per share (“ Common Stock ”) of which (a) 150,000,000 shares of the Common Stock are designated “Series A Common Stock” (the “ Series A Common Stock ”) and (b) 50,000,000 shares of the Common Stock are designated “Series B Common Stock” (the “ Series B Common Stock ”); and (ii) 24,016,041 shares of Preferred Stock, $0.01 par value per share (“ Preferred Stock ”) of which (a) 4,786,463 shares of the Preferred Stock are designated “Series A Preferred Stock” (the “ Series A Preferred Stock ”), (b) 6,843,299 shares of the Preferred Stock are designated “Series B Preferred Stock” (the “ Series B Preferred Stock ”), (c) 3,386,279 shares of the Preferred Stock are designated “Series C Preferred Stock” (the “ Series C Preferred Stock ”) and (d) 9,000,000 shares of the Preferred Stock are designated “Series D Preferred Stock” (the “ Series D Preferred Stock ”).

The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation.

A. COMMON STOCK

I. Series A Common Stock.

1. General . The voting, dividend and liquidation rights of the holders of the Series A Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.

2. Voting . The holders of the Series A Common Stock are entitled to one (1) vote for each share of Series A Common Stock held at all meetings of stockholders (and written actions in lieu of meetings); provided, however , that, except as otherwise required by law, holders of Series A Common Stock, as such, shall not be entitled to vote on any amendment to this Sixth Amended and Restated Certificate of Incorporation (the “ Certificate of

 


Incorporation ”) that relates solely to the terms of one (1) 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 (1) or more other such series, to vote thereon pursuant to the Certificate of Incorporation or pursuant to the General Corporation Law. There shall be no cumulative voting. The number of authorized shares of Common Stock (including any series thereof) may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one (1) or more series of Preferred Stock that may be required by the terms of the Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.

II. Series B Common Stock.

The rights, preferences, powers, privileges and restrictions, qualifications and limitations of, and other matters relating to, the Series B Common Stock are as set forth herein. Unless otherwise indicated, references to “Sections” or “Subsections” in this Part A.II of this Article Fourth refer to sections and subsections of Part A.II of this Article Fourth .

1. General . The Series B Common Stock shall be identical to the Series A Common Stock in all respects, except with respect to the right to vote (as set forth below). The voting, dividend and liquidation rights of the holders of the Series B Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein.

2. Voting . The holders of Series B Common Stock shall not be entitled to vote on any matters except and to the extent otherwise required under the General Corporation Law. The number of authorized shares of Common Stock (including any series thereof) may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one (1) or more series of Preferred Stock that may be required by the terms of the Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law.

3. Optional Conversion . The holders of Series B Common Stock shall have no optional conversion rights.

4. Mandatory Conversion .

4.1 Trigger Events . Each outstanding share of Series B Common Stock shall automatically be converted into one share of Series A Common Stock upon the earliest to occur of (A) the closing of the sale of shares of Series A Common Stock to the public, in a firm-commitment underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least thirty million dollars ($30,000,000) of gross proceeds, net of the underwriting discount and commissions, to the Corporation (a “ Qualified Public Offering ”); (B) the approval by the Board of Directors of a transaction that

 

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would constitute either a Deemed Liquidation Event or a Reorganization; or (C) the approval by the holders of a majority of the Corporation’s outstanding Preferred Stock (voting together as a single class and not as a separate Series and on an as-converted basis) of a transaction that would constitute either a Deemed Liquidation Event or a Reorganization. The time of any of the events described in clauses (A), (B) and (C) above is referred to herein as the “ Series B Common Stock Mandatory Conversion Time .”

4.2 Procedural Requirements . All holders of record of shares of the Series B Common Stock shall be sent written notice of the Series B Common Stock Mandatory Conversion Time and the place designated for mandatory conversion of all such shares of Series B Common Stock pursuant to this Section 4 . Such notice need not be sent in advance of the occurrence of the Series B Common Stock Mandatory Conversion Time. Upon receipt of such notice, each holder of shares of Series B Common Stock shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice, and shall thereafter receive certificates for the number of shares of Series A Common Stock to which such holder is entitled pursuant to this Section 4 . At the Series B Common Stock Mandatory Conversion Time, all outstanding shares of Series B Common Stock shall be deemed to have been converted into shares of Series A Common Stock, which shall be deemed to be outstanding of record, and all rights with respect to the Series B Common Stock so converted, including the rights, if any, to receive notices and vote (other than as a holder of Series A Common Stock), will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the last sentence of this Section 4.2 . If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. As soon as practicable after the Series B Common Stock Mandatory Conversion Time and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for such shares of Series B Common Stock, the Corporation shall issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Series A Common Stock issuable on such conversion in accordance with the provisions hereof.

4.3 Effect of Mandatory Conversion . All certificates evidencing shares of Series B Common Stock which are required to be surrendered for conversion in accordance with the provisions hereof shall, from and after the Series B Common Stock Mandatory Conversion Time, be deemed to have been retired and cancelled and the shares of Series B Common Stock represented thereby converted into Series A Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date. Such converted shares of Series B Common Stock may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series B Common Stock accordingly.

 

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B. PREFERRED STOCK

The rights, preferences, powers, privileges and restrictions, qualifications and limitations of, and other matters relating to, the Preferred Stock are as set forth herein. Unless otherwise indicated, references to “Sections” or “Subsections” in this Part B of this Article Fourth refer to sections and subsections of Part B of this Article Fourth .

1. Dividends . The Corporation shall not declare, pay or set aside any dividends on shares of any class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Certificate of Incorporation) the holders of shares of Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Preferred Stock in an amount at least equal to (i) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of Preferred Stock as would equal the product of (A) the dividend payable on each share of such class or Series Determined, if applicable, as if all shares of such class or series had been converted into Common Stock and (B) the number of shares of Common Stock issuable upon conversion of a share of Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (ii) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share for each series of Preferred Stock determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (B) multiplying such fraction by an amount equal to the applicable original issue price of such series of Preferred Stock (as set forth below); provided that, if the Corporation declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Corporation, the dividend payable to the holders of Preferred Stock pursuant to this Section 1 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest dividend for each series of Preferred Stock. The “ Series A Original Issue Price ” shall mean $0.32383 per share, as adjusted in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock. The “ Series B Original Issue Price ” shall mean $0.87677 per share, as adjusted in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series B Preferred Stock. The “ Series C Original Issue Price ” shall mean $5.610875 per share, as adjusted in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series C Preferred Stock. The “ Series D Original Issue Price ” shall mean $5.24352 per share, as adjusted in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series D Preferred Stock.

2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations and Asset Sales.

2.1 Payments to Holders of Preferred Stock . In the event of any Deemed Liquidation Event, the holders of shares of Preferred Stock then outstanding shall be entitled, on a pari passu basis, to be paid out of the assets of the Corporation lawfully available for distribution to its stockholders before any payment shall be made to the holders of any class or

 

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series of Common Stock by reason of their ownership thereof, an amount per share equal to the greater of (a) with respect to each share of Series A Preferred Stock, the Series A Original Issue Price, with respect to each share of Series B Preferred Stock, the Series B Original Issue Price, with respect to each share of Series C Preferred Stock, the Series C Original Issue Price and with respect to each share of Series D Preferred Stock, the Series D Original Issue Price plus, in each case, any declared but unpaid dividends on each such share or (b) such amount per share as would have been payable had each such share of Preferred Stock been converted into Series A Common Stock pursuant to Section 4 immediately prior to such Deemed Liquidation Event (the amount payable pursuant to this sentence is hereinafter referred to as the “ Liquidation Amount ”). If upon any such Deemed Liquidation Event, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Preferred Stock the full amount to which they shall be entitled under this Section 2.1 , the holders of shares of Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full pursuant to clause (a) above.

2.2 Payments to Holders of Common Stock . In the event of any Deemed Liquidation Event, after the full payment of all preferential amounts required to be paid to the holders of shares of Preferred Stock, the remaining assets of the Corporation available for distribution to its stockholders shall be distributed among the holders of shares of Common Stock, pro rata based on the number of shares held by each such holder.

2.3 Deemed Liquidation Events .

2.3.1 Definition . Each of the following events shall be considered a “ Deemed Liquidation Event ” unless the holders of at least fifty-one percent (51%) of the then outstanding shares of Preferred Stock (voting together as a single class, on an as-converted basis, and not as separate series) (a “ Preferred Interest ”) elect otherwise by written notice sent to the Corporation at least five (5) days prior to the effective date of any such event; provided, however , in the event the assets of the Corporation available for distribution to its stockholders in respect of such event shall be insufficient to pay the holders of shares of Preferred Stock the full amount to which they shall be entitled under clause (a) of Section 2.1 , the consent of the holders of at least eighty-five percent (85%) of the then outstanding shares of Preferred Stock (voting together as a single class, on an as-converted basis, and not as separate series) (a “ Supermajority Interest ”) shall be required to elect that such event not be deemed to be a Deemed Liquidation Event:

(a) a merger or consolidation in which (i) the Corporation is a constituent party or (ii) a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation, except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of (A) the surviving or resulting corporation or (B) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation;

 

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(b) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets or intellectual property of the Corporation and its subsidiaries taken as a whole, or the sale or disposition (whether by merger or otherwise) of one (1) or more subsidiaries of the Corporation if substantially all of the assets or intellectual property of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation; or

(c) any voluntary or involuntary liquidation, dissolution or winding up of the Corporation.

2.3.2 Effecting a Deemed Liquidation Event .

(a) Unless otherwise elected by a Preferred Interest or Supermajority Interest, in accordance with the terms of Section 2.3.1, the Corporation shall not have the power to effect a Deemed Liquidation Event unless the agreement or plan of merger or consolidation for such transaction (the “ Merger Agreement ”) provides that the consideration payable to the stockholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Section 2.1 and Section 2.2 .

(b) In the event of a Deemed Liquidation Event referred to in Section 2.3.1(a)(ii) or Section 2.3.1(b) , if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within ninety (90) days after such Deemed Liquidation Event, then (i) the Corporation shall send a written notice to each holder of Preferred Stock no later than the ninetieth (90th) day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (ii) to require the redemption of such shares of Preferred Stock, and (ii) if the holders of at least a Preferred Interest so request in a written instrument delivered to the Corporation not later than one hundred twenty (120) days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation, including the approval of at least two of the Preferred Directors (as defined below)) (the “ Net Proceeds ”), to the extent legally available therefor, on the one hundred fiftieth (150 th ) day after such Deemed Liquidation Event (the “ Liquidation Redemption Date ”), to redeem all outstanding shares of Preferred Stock, on a pari passu basis as set forth in Section 2.1 above, at a price per share equal to the applicable Liquidation Amount for each such outstanding share of Preferred Stock. Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence, if the Net Proceeds are not sufficient to redeem all outstanding shares of Preferred Stock, or if the Corporation does not have sufficient lawfully available funds to effect such redemption, the Corporation shall redeem a pro rata portion of each holder’s shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, on a pari passu basis, to the fullest extent of such Net Proceeds or such lawfully available funds, as the case may

 

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be, based on the respective amounts which would otherwise be payable in respect of the shares to be redeemed if the legally available funds were sufficient to redeem all such shares, and shall redeem the remaining shares to have been redeemed as soon as practicable after the Corporation has funds legally available therefor. Prior to the distribution or redemption provided for in this Section 2.3.2(b) , the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in connection with such Deemed Liquidation Event or in the ordinary course of business.

2.3.3 Amount Deemed Paid or Distributed . The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such Deemed Liquidation shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation, including the approval of at least two of the Preferred Directors.

2.3.4 Allocation of Escrow . In the event of a Deemed Liquidation Event pursuant to Section  2.3.1(a)(i) , if any portion of the consideration payable to the stockholders of the Corporation is placed into escrow and/or is payable to the stockholders of the Corporation subject to contingencies, the Merger Agreement shall provide that (a) the portion of such consideration that is not placed in escrow and not subject to any contingencies (the “ Initial Consideration ”) shall be allocated among the holders of capital stock of the Corporation in accordance with Section 2.1 and Section 2.2 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event and (b) any additional consideration (the “ Additional Consideration ”) which becomes payable to the stockholders of the Corporation upon release from escrow or satisfaction of contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Section 2.1 and Section 2.2 after taking into account the previous payment of the Initial Consideration as part of the same transaction. For clarity, a holder of Preferred Stock may receive a distribution pursuant to Section 2.1(a) above while participating in a distribution of the Initial Consideration and then participate in the Additional Consideration pursuant to Section 2.1(b) above ( however the amounts paid to such holder pursuant to the distribution of the Initial Consideration shall be factored).

3. Voting.

3.1 General . On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Series A Common Stock into which such shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter (with the number of whole shares of Series A Common Stock based on the total number of shares of Preferred Stock held by the holder). Except as provided by law or by the other provisions of the Certificate of Incorporation, holders of Preferred Stock shall vote together with the holders of Series A Common Stock as a single class and on an as converted basis.

 

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3.2 Election of Directors . The holders of record of the shares of Series A Preferred Stock, exclusively and as a separate class, shall be entitled to elect one (1) director of the Corporation (the “ Series A Director ”); the holders of record of the shares of Series B Preferred Stock, exclusively and as a separate class, shall be entitled to elect one (1) director of the Corporation (the “ Series B Director ); the holders of record of the shares of Series C Preferred Stock, exclusively and as a separate class, shall be entitled to elect one (1) director of the Corporation (the “ Series C Director ; and together with the Series A Director and Series B Director, the “ Preferred Directors ”) and the holders of record of the shares of Series A Common Stock, exclusively and as a separate class, shall be entitled to elect one (1) director of the Corporation. Any director elected as provided in the preceding sentence may be removed without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders. If the holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series A Common Stock, as the case may be, fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, voting exclusively and as a separate class, pursuant to the first sentence of this Section 3.2 , then any directorship not so filled shall remain vacant until such time as the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series A Common Stock, as the case may be, elect a person to fill such directorship by vote or written consent in lieu of a meeting; and no such directorship may be filled by the stockholders of the Corporation other than by the stockholders of the Corporation that are entitled to elect a person to fill such directorship, voting exclusively and as a separate class. The holders of record of the shares of Series A Common Stock and Preferred Stock (exclusively and voting together as a single class on as converted basis and not as separate series) shall be entitled to elect the balance of the total number of directors of the Corporation. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director. Except as otherwise provided in this Section 3.2 , a vacancy in any directorship filled by the holders of any class or series shall be filled only by vote or written consent in lieu of a meeting of the holders of such class or series or by any remaining director or directors elected by the holders of such class or series pursuant to this Section 3.2 .

3.3 Preferred Stock Protective Provisions . At any time when shares of Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, reclassification, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Certificate of Incorporation) the written consent or affirmative vote of the holders of a Preferred Interest, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class:

(a) effect any Deemed Liquidation Event or any other merger, consolidation, reorganization or statutory plan of exchange (a “ Reorganization ”), or consent to any of the foregoing;

(b) amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Corporation;

 

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(c) (i) create, or authorize the creation of, any shares of capital stock unless the same ranks junior to each then outstanding series of Preferred Stock with respect to voting, the distribution of assets on a Deemed Liquidation Event, the payment of dividends and rights of redemption, (ii) increase or decrease (other than in accordance with the provisions of Section 4.3.3 or Section 5.3 herein) the authorized number of shares of Preferred Stock, or any series thereof, or Common Stock, or any class or series thereof, or (iii) increase the authorized number of shares of any additional class or series of capital stock unless the same ranks junior to each then outstanding series of Preferred Stock with respect to voting, the distribution of assets on a Deemed Liquidation Event, the payment of dividends and rights of redemption

(d) (i) reclassify, alter or amend any existing security of the Corporation that is pari passu with either the Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock in respect of voting, the distribution of assets on a Deemed Liquidation Event, the payment of dividends and rights of redemption, if such reclassification, alteration or amendment would render such other security senior to either the Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock in respect of any such right, preference or privilege or (ii) reclassify, alter or amend any existing security of the Corporation that is junior to either the Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock in respect of voting, the distribution of assets on a Deemed Liquidation Event, the payment of dividends or rights of redemption, if such reclassification, alteration or amendment would render such other security senior to or pari passu with either the Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock in respect of any such right, preference or privilege;

(e) purchase or redeem (or permit any subsidiary to purchase or redeem) or pay or declare any dividend or make any distribution on, any shares of capital stock of the Corporation, other than (i) redemptions of or dividends or distributions on the Preferred Stock as expressly authorized herein, (ii) dividends or other distributions payable on the Common Stock solely in the form of additional shares of Common Stock for which adjustment is made to the Conversion Price of the Preferred Stock pursuant to Section 4.6 below or (iii) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof;

(f) adversely alter or change the powers, preferences, privileges or special rights of the shares of Preferred Stock or increase the restrictions, qualifications or limitations of the shares of Preferred Stock;

(g) adopt an incentive stock or option plan of the Corporation or amend, alter or repeal an existing incentive stock or option plan of the Corporation (including, without limitation, any amendment to increase the number of shares of the capital stock reserved for issuance under any such existing plan); or

(h) increase or decrease the authorized number of directors constituting the Board of Directors.

 

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4. Optional Conversion . The holders of Preferred Stock shall have conversion rights as follows (the “ Conversion Rights ”):

4.1 Right to Convert .

(a) Conversion Ratio . Each share of Preferred Stock shall be convertible at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Series A Common Stock as is determined by dividing (i) with respect to shares of Series A Preferred Stock, the Series A Original Issue Price by the Series A Conversion Price (as defined below) in effect at the time of conversion; (ii) with respect to shares of Series B Preferred Stock, the Series B Original Issue Price by the Series B Conversion Price (as defined below) in effect at the time of conversion, (iii) with respect to shares of Series C Preferred Stock, the Series C Original Issue Price by the Series C Conversion Price (as defined below) in effect at the time of conversion and (iv) with respect to shares of Series D Preferred Stock, the Series D Original Issue Price by the Series D Conversion Price (as defined below) in effect at the time of conversion. The “ Series A Conversion Price ” shall initially be $0.0809575. The “ Series B Conversion Price ” shall initially be $0.2191925. The “ Series C Conversion Price ” shall initially be $1.40271875. The “ Series D Conversion Price ” shall initially be $5.24352. Such initial Series A Conversion Price, Series B Conversion Price, Series C Conversion Price and Series D Conversion Price, and the rate at which shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock may be converted into shares of Series A Common Stock, shall be subject to adjustment as provided below. The Series A Conversion Price, Series B Conversion Price, Series C Conversion Price and Series D Conversion Price are each referred to herein as a “ Conversion Price .”

(b) Termination of Conversion Right. In the event of a notice of redemption of any shares of Preferred Stock pursuant to Section 6 , the Conversion Rights of the shares designated for redemption shall terminate at the close of business on the last full day preceding the date fixed for redemption, unless the redemption price is not fully paid on such redemption date, in which case the Conversion Rights for such shares shall continue until such price is paid in full. In the event of a Deemed Liquidation Event, and conditioned upon the consummation of such Deemed Liquidation Event, the Conversion Rights shall be deemed terminated at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Preferred Stock; provided, however , that this provision shall in no way limit the rights of the holders of Preferred Stock under Section 2.1 , including, without limitation, Section 2.1(b) .

4.2 Fractional Shares . No fractional shares of Series A Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Series A Common Stock as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Series A Common Stock and the aggregate number of shares of Series A Common Stock issuable upon such conversion.

 

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4.3 Mechanics of Conversion .

4.3.1 Notice of Conversion . In order for a holder of Preferred Stock to voluntarily convert shares of Preferred Stock into shares of Series A Common Stock, such holder shall surrender the certificate or certificates for such shares of Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent. Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Series A Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such certificates (or lost certificate affidavit and agreement) and notice shall be the time of conversion (the “ Conversion Time ”), and the shares of Series A Common Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date and time. The Corporation shall, as soon as practicable after the Conversion Time, issue and deliver to such holder of Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of full shares of Series A Common Stock issuable upon such conversion in accordance with the provisions hereof, a certificate for the number (if any) of the shares of Preferred Stock represented by the surrendered certificate that were not converted into Series A Common Stock, and cash as provided in Section 4.2 in lieu of any fraction of a share of Series A Common Stock otherwise issuable upon such conversion and payment of any declared but unpaid dividends on the shares of Preferred Stock converted.

4.3.2 Reservation of Shares . The Corporation shall at all times when Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of Preferred Stock, such number of its duly authorized shares of Series A Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Series A Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Series A Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of Series A Common Stock issuable upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Series A Common Stock at such adjusted Conversion Price.

 

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4.3.3 Effect of Conversion . All shares of Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote (other than as a holder of Series A Common Stock), shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Series A Common Stock in exchange therefor and to receive payment of any dividends declared but unpaid thereon. Any shares of Preferred Stock so converted shall be retired and cancelled and shall not be reissued as shares of such series, and the Corporation (without the need for stockholder action) may from time to time take such appropriate action as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.

4.3.4 No Further Adjustment . Upon any such conversion, no adjustment to the Conversion Price shall be made for any declared but unpaid dividends on the Preferred Stock surrendered for conversion or on the Series A Common Stock delivered upon conversion.

4.3.5 Taxes . The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Series A Common Stock upon conversion of shares of Preferred Stock pursuant to this Section 4 . The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Series A Common Stock in a name other than that in which the shares of Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.

4.4 Adjustments to Conversion Price for Diluting Issues .

4.4.1 Special Definitions . For purposes of this Article Fourth , the following definitions shall apply:

(a) “ Option ” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

(b) “ Series D Original Issue Date ” shall mean the date on which the first share of Series D Preferred Stock was issued.

(c) “ Convertible Securities ” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for any class or series of Common Stock, but excluding Options.

(d) “ Additional Shares of Common Stock ” shall mean all shares of Common Stock issued (or, pursuant to Section 4.4.3 , deemed to be issued) by the Corporation after the Series D Original Issue Date, other than the following shares of Common Stock, and shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (collectively “ Exempted Securities ”):

 

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(i) shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on Preferred Stock;

(ii) shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Section 4.5 , Section 4.6 , Section 4.7 or Section 4.8 ;

(iii) shares of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Corporation;

(iv) shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case outstanding as of the date hereof, and in each case provided such issuance is pursuant to the terms of such Option or Convertible Security;

(v) shares of Common Stock, Options or Convertible Securities issued pursuant to (A) the bona fide acquisition of another corporation by the Corporation by merger, purchase of substantially all of the assets or other reorganization or a joint venture agreement approved by the Corporation’s Board of Directors including at least two of the Preferred Directors or (B) the consummation of a Qualified Public Offering;

(vi) shares of Common Stock, Options or Convertible Securities issued in connection with sponsored research, collaboration, technology license, development, OEM, marketing or other similar agreements or strategic partnerships; provided that such issuances are for primarily non-equity financing purposes and approved by the Corporation’s Board of Directors including at least two of the Preferred Directors;

(vii) shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction; provided that such issuances are for primarily non-equity financing purposes and approved by the Corporation’s Board of Directors including at least two of the Preferred Directors; or

(viii) up to 50,000,000 shares of Series A Common Stock issued upon the conversion or exchange of any shares of Series B Common Stock.

4.4.2 No Adjustment of Conversion Price . No adjustment in the Conversion Price shall be made as the result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from the holders of at least a Preferred Interest agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock; provided, however , that if the

 

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issuance or deemed issuance of Additional Shares of Common Stock would result in an adjustment to the Conversion Price of one or more series of Preferred Stock but not the Conversion Price of all series of Preferred Stock, any notice delivered pursuant to this Subsection 4.4.2 must be given by the holders of at least a Supermajority Interest; provided, further , that if the issuance or deemed issuance of Additional Shares of Common Stock would result in an adjustment to the Series D Conversion Price but not the Conversion Price of any other series of Preferred Stock, any notice delivered pursuant to this Subsection 4.4.2 must be given by the holders of a majority of the then outstanding shares of Series D Preferred Stock.

4.4.3 Deemed Issue of Additional Shares of Common Stock.

(a) If the Corporation at any time or from time to time after the Series D Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class or series of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent anti-dilution or similar adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date.

(b) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to a Conversion Price pursuant to the terms of Section 4.4.4 , are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (i) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (ii) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, as applicable, computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this Section 4.4.3(b) shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (i) the Conversion Price in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date.

 

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(c) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to a Conversion Price pursuant to the terms of Section 4.4.4 (either because the consideration per share (determined pursuant to Section 4.4.5 ) of the Additional Shares of Common Stock subject thereto was equal to or greater than such Conversion Price then in effect, or because such Option or Convertible Security was issued before the Series D Original Issue Date), are revised after the Series D Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase and/or decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Section 4.4.3(a) ) shall be deemed to have been issued effective upon such increase or decrease becoming effective.

(d) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, pursuant to the terms of Section 4.4.4 , the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, as applicable, shall be readjusted to such Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued.

(e) If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to a Conversion Price provided for in this Section 4.4 shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in Section 4.4.3(b) and Section 4.4.3(c) . If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to such Conversion Price that would result under the terms of this Section 4.4 at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (assuming for purposes of calculating such adjustment to the Conversion Price that such issuance or amendment took place at the time such calculation can first be made).

 

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4.4.4 Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock . In the event the Corporation shall at any time after the Series D Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 4.4.3 ), without consideration or for a consideration per share less than the applicable Conversion Price in effect immediately prior to such issue, then the Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth (1/100) of a cent) determined in accordance with the following formula:

CP 2 = CP 1 * (A + B) ÷ (A + C).

For purposes of the foregoing formula, the following definitions shall apply:

(a) “ CP2 ” shall mean the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, as applicable, in effect immediately after such issue of Additional Shares of Common Stock;

(b) “ CP1 ” shall mean the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price, as applicable, in effect immediately prior to such issue of Additional Shares of Common Stock;

(c) “ A ” shall mean the number of shares of Common Stock outstanding immediately prior to such issue of Additional Shares of Common Stock, treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issue or upon conversion or exchange of Convertible Securities (including the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issue;

(d) “ B ” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to CPCP 1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CPCP 1 ); and

(e) “ C ” shall mean the number of such Additional Shares of Common Stock issued in such transaction.

4.4.5 Determination of Consideration . For purposes of this Section 4.4 , the consideration received (or deemed received) by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:

(a) Cash and Property . Such consideration shall:

(i) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest;

(ii) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and

 

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(iii) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors of the Corporation to be applicable to such Additional Shares of Common Stock.

(b) Options and Convertible Securities . The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 4.4.3 , relating to Options and Convertible Securities, shall be determined by dividing:

(i) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration and excluding amounts related to cancellation of convertible debt) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion and/or exchange of such Convertible Securities, by

(ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number as a result of antidilution or similar provisions) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion and/or exchange of such Convertible Securities.

4.4.6 Multiple Closing Dates . In the event the Corporation shall issue on more than one (1) date Additional Shares of Common Stock that are a part of one (1) transaction or a series of related transactions and that would result in an adjustment to a Conversion Price pursuant to the terms of Section 4.4.4 , then, upon the final such issuance, such Conversion Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such related subsequent issuances within such period).

4.5 Adjustment for Stock Splits and Combinations . If the Corporation shall at any time or from time to time after the Series D Original Issue Date effect a subdivision of the outstanding Common Stock, or any class or series thereof, each of the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price and Series D Conversion Price, in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Series A Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Series D Original

 

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Issue Date combine the outstanding shares of Common Stock, or any class or series thereof, each of the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price and Series D Conversion Price in effect immediately before the combination shall be proportionately increased so that the number of shares of Series A Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective.

4.6 Adjustment for Certain Dividends and Distributions . In the event the Corporation at any time or from time to time after the Series D Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock, or any class or series thereof, entitled to receive, a dividend or other distribution payable on the Common Stock, or any class or series thereof, in additional shares of Common Stock, then and in each such event the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price and Series D Conversion Price in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the applicable Conversion Price then in effect by a fraction:

(1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and

(2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.

Notwithstanding the foregoing, (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, each of the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price and Series D Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price and Series D Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (b) no such adjustment shall be made if the holders of Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Preferred Stock had been converted into Common Stock on the date of such event.

4.7 Adjustments for Other Dividends and Distributions . In the event the Corporation at any time or from time to time after the Series D Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock, or any class or series thereof, entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock, or any class or series thereof, provided for in Section 4.6 above) or in

 

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other property and the provisions of Section 1 and Section 2 do not apply to such dividend or distribution, then and in each such event the holders of Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, as applicable, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Preferred Stock had been converted into Series A Common Stock on the date of such event.

4.8 Adjustment for Merger or Reorganization, etc . Subject to the provisions of Section 2 , if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Preferred Stock), or any class or series thereof, is converted into or exchanged for securities, cash or other property (other than a transaction covered by Section 4.4 , Section 4.6 or Section 4.7 , then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of Preferred Stock shall thereafter be convertible in lieu of the Series A Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Series A Common Stock of the Corporation issuable upon conversion of one share of Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of any Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Preferred Stock.

4.9 Certificate as to Adjustments . Upon the occurrence of each adjustment or readjustment of a Conversion Price pursuant to this Section 4 , the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, as applicable, a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, as applicable, is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Preferred Stock (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, as applicable, then in effect, and (ii) the number of shares of Series A Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of such shares of Preferred Stock.

 

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4.10 Notice of Record Date . In the event:

(a) the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or

(b) of any capital reorganization of the Corporation, any reclassification of the Common Stock, or any class or series thereof, or any Deemed Liquidation Event;

then, and in each such case, the Corporation will send or cause to be sent to the holders of the Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Series A Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the Preferred Stock) shall be entitled to exchange their shares of Series A Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Preferred Stock and the Series A Common Stock. Such notice shall be sent at least ten (10) days prior to the record date or effective date for the event specified in such notice.

5. Mandatory Conversion .

5.1 Trigger Events . Upon either (i) the closing of the sale of shares of Series A Common Stock to the public in a Qualified Public Offering or (ii) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least a Preferred Interest (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the “ Preferred Stock Mandatory Conversion Time ”), (A) all outstanding shares of Preferred Stock shall automatically be converted into shares of Series A Common Stock, at the then effective conversion rate applicable to such shares and (B) such shares may not be reissued by the Corporation. Notwithstanding the foregoing sentence, if such conversion is to be effected in connection with the consummation of a transaction or series of related transactions (whether directly or indirectly by amendment, merger, reclassification, consolidation or otherwise) that will result in the distribution of the assets of the Corporation to its stockholders but such assets shall be insufficient to pay the holders of shares of Preferred Stock the full amount to which they shall be entitled under clause (a) of Section 2.1 , the consent of a Supermajority Interest shall be required to effect an automatic conversion of the outstanding shares of Preferred Stock in accordance with the terms of this Section 5.1 .

5.2 Procedural Requirements . All holders of record of shares of Preferred Stock shall be sent written notice of the Preferred Stock Mandatory Conversion Time and the place designated for mandatory conversion of all such shares of Preferred Stock pursuant to this Section 5 . Such notice need not be sent in advance of the occurrence of the Preferred Stock Mandatory Conversion Time. Upon receipt of such notice, each holder of shares of Preferred Stock shall surrender his, her or its certificate or certificates for all such shares (or, if such holder

 

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alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice, and shall thereafter receive certificates for the number of shares of Series A Common Stock to which such holder is entitled pursuant to this Section 5 . At the Preferred Stock Mandatory Conversion Time, all outstanding shares of Preferred Stock shall be deemed to have been converted into shares of Series A Common Stock, which shall be deemed to be outstanding of record, and all rights with respect to the Preferred Stock so converted, including the rights, if any, to receive notices and vote (other than as a holder of Series A Common Stock), will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the last sentence of this Section 5.2 . If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. As soon as practicable after the Preferred Stock Mandatory Conversion Time and the surrender of the certificate or certificates (or lost certificate affidavit and agreement) for such shares of Preferred Stock, the Corporation shall issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Series A Common Stock issuable on such conversion in accordance with the provisions hereof, together with cash as provided in Section 4.2 in lieu of any fraction of a share of Series A Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of Preferred Stock converted.

5.3 Effect of Mandatory Conversion . All certificates evidencing shares of Preferred Stock which are required to be surrendered for conversion in accordance with the provisions hereof shall, from and after the Preferred Stock Mandatory Conversion Time, be deemed to have been retired and cancelled and the shares of Preferred Stock represented thereby converted into Series A Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date. Such converted shares of Preferred Stock may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Preferred Stock accordingly.

6. Redemption.

6.1 Redemption . All shares of Preferred Stock shall be redeemed by the Corporation out of funds lawfully available therefor at a price equal to (a) with respect to shares of Series A Preferred Stock, the Series A Original Issue Price per share, plus any dividends declared but unpaid thereon (the “ Series A Redemption Price ”), (b) with respect to shares of Series B Preferred Stock, the Series B Original Issue Price per share, plus any dividends declared but unpaid thereon (the “ Series B Redemption Price ”), (c) with respect to shares of Series C Preferred Stock, the Series C Original Issue Price per share, plus any dividends declared but unpaid thereon (the “ Series C Redemption Price ”) and (d) with respect to shares of Series D Preferred Stock, the Series D Original Issue Price per share, plus any dividends declared but unpaid thereon (the “ Series D Redemption Price ,” and each of the Series A Redemption Price, Series B Redemption Price, Series C Redemption Price and Series D Redemption Price, a

 

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“Redemption Price ”), in three (3) annual installments commencing not more than sixty (60) days after receipt by the Corporation at any time on or after September 5, 2017, from the holders of at least a Preferred Interest, of written notice requesting redemption of all shares of Preferred Stock. The date of each such installment shall be referred to as a “ Redemption Date .” On each Redemption Date, the Corporation shall redeem, on a pro rata basis in accordance with the number of shares of Preferred Stock owned by each holder, that number of outstanding shares of Preferred Stock determined by dividing (a) the total number of shares of Preferred Stock outstanding immediately prior to such Redemption Date by (b) the number of remaining Redemption Dates (including the Redemption Date to which such calculation applies). If the Corporation does not have sufficient funds legally available to redeem on any Redemption Date all shares of Preferred Stock to be redeemed on such Redemption Date, the Corporation shall redeem a pro rata portion of each holder’s redeemable shares of such capital stock out of funds legally available therefor, based on the respective amounts which would otherwise be payable in respect of the shares to be redeemed if the legally available funds were sufficient to redeem all such shares, and shall redeem the remaining shares to have been redeemed as soon as practicable after the Corporation has funds legally available therefor.

6.2 Redemption Notice . The Corporation shall send written notice of the mandatory redemption (the “ Redemption Notice ”) to each holder of record of Preferred Stock not less than forty (40) days prior to each Redemption Date. Each Redemption Notice shall state:

(a) the number of shares of Preferred Stock held by the holder that the Corporation shall redeem on the Redemption Date specified in the Redemption Notice;

(b) the Redemption Date and the Redemption Price;

(c) the date upon which the holder’s right to convert such shares terminates (as determined in accordance with Section 4.1) ; and

(d) that the holder is to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares of Preferred Stock to be redeemed.

If the Corporation receives, on or prior to the twentieth (20 th ) day after the date of delivery of the Redemption Notice to a holder of Preferred Stock, written notice from such holder that such holder elects to be excluded from the redemption provided in this Section 6 , then the shares of Preferred Stock registered on the books of the Corporation in the name of such holder at the time of the Corporation’s receipt of such notice shall thereafter be “ Excluded Shares .” Excluded Shares shall not be redeemed or redeemable pursuant to this Section 6 , whether on such Redemption Date or thereafter.

6.3 Surrender of Certificates; Payment . On or before the applicable Redemption Date, each holder of shares of Preferred Stock to be redeemed on such Redemption Date, unless such holder has exercised his, her or its right to convert such shares as provided in Section 4 or unless such shares are Excluded Shares, shall surrender the certificate or certificates representing such shares (or, if such registered holder alleges that such certificate has been lost,

 

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stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof. In the event less than all of the shares of Preferred Stock represented by a certificate are redeemed, a new certificate representing the unredeemed shares of Preferred Stock shall promptly be issued to such holder.

6.4 Rights Subsequent to Redemption . If the Redemption Notice shall have been duly given, and if on the applicable Redemption Date the Redemption Price payable upon redemption of the shares of Preferred Stock to be redeemed on such Redemption Date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor in a timely manner, then notwithstanding that the certificates evidencing any of the shares of Preferred Stock so called for redemption shall not have been surrendered, dividends with respect to such shares of Preferred Stock shall cease to accrue after such Redemption Date and all rights with respect to such shares shall forthwith after the Redemption Date terminate, except only the right of the holders to receive the Redemption Price without interest upon surrender of their certificate or certificates therefore.

7. Redeemed or Otherwise Acquired Shares . Any shares of Preferred Stock which are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Preferred Stock following redemption.

8. Waiver . Any of the rights, powers, preferences and other terms of the Preferred Stock set forth herein may be waived on behalf of all holders of Preferred Stock by the affirmative written consent or vote of the holders of at least a Preferred Interest of the shares of Preferred Stock then outstanding; provided , however , that the following terms shall not be waived without the affirmative written consent or vote of the holders of at least a Supermajority Interest of the shares of Preferred Stock then outstanding: (a) the proviso set forth in Subsection 2.3.1 above, (b) the first proviso set forth in Subsection 4.4.2 above, (c) the second sentence of Section 5.1 above, and (d) this first proviso set forth in this Section 8 ; provided, further , that the following terms shall not be waived without the affirmative written consent or vote of the holders of a majority of the then outstanding shares of Series D Preferred Stock: (a) the second proviso set forth in Subsection 4.4.2 above and (b) this second proviso set forth in this Section 8.

9. Notices . Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission.

 

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FIFTH : Subject to any additional vote required by the Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.

SIXTH : Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

SEVENTH : Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

EIGHTH: To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article Eighth to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended.

Any repeal or modification of the foregoing provisions of this Article Eighth 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, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification.

NINTH : To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which General Corporation Law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law.

Any amendment, repeal or modification of the foregoing provisions of this Article Ninth shall not adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal or modification.

TENTH : The Corporation renounces any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity. An “ Excluded Opportunity ” is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Preferred Stock or any partner, member, director, stockholder, employee or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, “ Covered Persons ”), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a director of the Corporation.

 

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CERTIFICATE OF AMENDMENT TO

THE SIXTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF

ZENDESK, INC.

Zendesk, Inc. (the “ Corporation ”) , a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”),

DOES HEREBY CERTIFY :

FIRST : That the name of this Corporation is Zendesk, Inc. and that this Corporation was originally incorporated pursuant to the General Corporation Law on March 3, 2009 under the name Zendesk, Inc.

SECOND : That the Board of Directors of the Corporation adopted resolutions setting forth a proposed amendment to the Sixth Amended and Restated Certificate of Incorporation of the Corporation (the “ Restated Certificate ”), declaring said amendment to be advisable and in the best interests of the Corporation and its stockholders and authorizing the appropriate officers of the Corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment is substantially as follows:

RESOLVED , that the first paragraph of Article FOURTH of the Restated Certificate be amended and restated in its entirety as follows:

“FOURTH : The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 220,000,000 shares of Common Stock, $0.01 par value per share (“ Common Stoc k”) of which (a) 160,000,000 shares of the Common Stock are designated “Series A Common Stock” (the “ Series A Common Stock ”) and (b) 60,000,000 shares of the Common Stock are designated “Series B Common Stock” (the “ Series B Common Stock ”); and (ii) 24,016,041 shares of Preferred Stock, $0.01 par value per share (“ Preferred Stock ”) of which (a) 4,786,463 shares of the Preferred Stock are designated “Series A Preferred Stock” (the “ Series A Preferred Stock ”), (b) 6,843,299 shares of the Preferred Stock are designated “Series B Preferred Stock” (the “ Series B Preferred Stock ”), (c) 3,386,279 shares of the Preferred Stock are designated “Series C Preferred Stock” (the “ Series C Preferred Stock ”) and (d) 9,000,000 shares of the Preferred Stock are designated “Series D Preferred Stock” (the “ Series D Preferred Stock ”).”

RESOLVED , that Section 4.4.1(d)(viii) of Article FOURTH(B) of the Restated Certificate be amended and restated in its entirety as follows:

“(viii) up to 60,000,000 shares of Series A Common Stock issued upon the conversion or exchange of any shares of Series B Common Stock”

 

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THIRD : That thereafter said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law by written consent of the stockholders holding the requisite number of shares required by statute given in accordance with and pursuant to Section 228 of the General Corporation Law.

 

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IN WITNESS WHEREOF , this Certificate of Amendment to the Sixth Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 3rd day of May, 2013.

 

ZENDESK, INC.
By:   /s/ Mikkel Svane
  Mikkel Svane, President

 

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CERTIFICATE OF AMENDMENT TO

THE SIXTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF ZENDESK, INC.

Zendesk, Inc. (the “ Corporation ”) , a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”),

DOES HEREBY CERTIFY:

FIRST : That the name of this Corporation is Zendesk, Inc. and that this Corporation was originally incorporated pursuant to the General Corporation Law on March 3, 2009 under the name Zendesk, Inc.

SECOND : That the Board of Directors of the Corporation adopted resolutions setting forth a proposed amendment to the Sixth Amended and Restated Certificate of Incorporation of the Corporation as amended by that (the “ Restated Certificate ”), declaring said amendment to be advisable and in the best interests of the Corporation and its stockholders and authorizing the appropriate officers of the Corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment is substantially as follows:

RESOLVED , that the first paragraph of Article FOURTH of the Restated Certificate be amended and restated in its entirety as follows:

FOURTH : The total number of shares of all classes of stock which the Corporation shall have authority to issue is (i) 250,000,000 shares of Common Stock, $0.01 par value per share (“ Common Stock ”) of which (a) 175,000,000 shares of the Common Stock are designated “Series A Common Stock” (the “ Series A Common Stock ”) and (b) 75,000,000 shares of the Common Stock are designated “Series B Common Stock” (the “ Series B Common Stock ”); and (ii) 24,016,041 shares of Preferred Stock, $0.01 par value per share (“ Preferred Stock ”) of which (a) 4,786,463 shares of the Preferred Stock are designated “Series A Preferred Stock” (the “ Series A Preferred Stock ”), (b) 6,843,299 shares of the Preferred Stock are designated “Series B Preferred Stock” (the “ Series B Preferred Stock ”), (c) 3,386,279 shares of the Preferred Stock are designated “Series C Preferred Stock” (the “ Series C Preferred Stock ”) and (d) 9,000,000 shares of the Preferred Stock are designated “Series D Preferred Stock” (the “ Series D Preferred Stock ”).”

RESOLVED , that Section 4.4.1(d)(viii) of Article FOURTH(B) of the Restated Certificate be amended and restated in its entirety as follows:

“(viii) up to 75,000,000 shares of Series A Common Stock issued upon the conversion or exchange of any shares of Series B Common Stock”

THIRD : That thereafter said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law by written consent of the stockholders holding the requisite number of shares required by statute given in accordance with and pursuant to Section 228 of the General Corporation Law.

 

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IN WITNESS WHEREOF , this Certificate of Amendment to the Sixth Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this 13 day of February, 2014.

 

ZENDESK, INC.
By:    /s/ Mikkel Svane
Name:    Mikkel Svane
Title:    Chief Executive Officer

 

 

 

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Exhibit 3.2

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

ZENDESK, INC.

Zendesk, Inc., a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), hereby certifies as follows:

1. The name of the Corporation is Zendesk, Inc. The date of the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware was March 3, 2009 (the “ Original Certificate ”). The name under which the Corporation filed the Original Certificate was Zendesk, Inc.

2. This Amended and Restated Certificate of Incorporation (the “ Certificate ”) amends, restates and integrates the provisions of the Amended and Restated Certificate of Incorporation that was filed with the Secretary of State of the State of Delaware on September 5, 2012, as amended on May 6, 2013 (the “ Existing Certificate ”), and was duly adopted in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware (the “ DGCL ”).

3. The text of the Existing Certificate is hereby amended and restated in its entirety to provide as herein set forth in full.

ARTICLE I

The name of the Corporation is Zendesk, Inc.

ARTICLE II

The address of the Corporation’s registered office in the State of Delaware is One Rodney Square, 10 th Floor, Tenth and King Streets, City of Wilmington, County of New Castle, 19801. The name of its registered agent at that address is RL&F Service Corp.

ARTICLE III

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.

ARTICLE IV

CAPITAL STOCK

The total number of shares of capital stock which the Corporation shall have authority to issue is four hundred and ten million (410,000,000), of which (i) four hundred million (400,000,000) shares shall be a class designated as common stock, par value $0.01 per share (the


Common Stock ”), and (ii) ten million (10,000,000) shares shall be a class designated as undesignated preferred stock, par value $0.01 per share (the “ Undesignated Preferred Stock ”).

Except as otherwise provided in any certificate of designations of any series of Undesignated Preferred Stock, the number of authorized shares of the class of Common Stock or Undesignated Preferred Stock may from time to time be increased or decreased (but not below the number of shares of such class outstanding) by the affirmative vote of the holders of a majority in voting power of the outstanding shares of capital stock of the Corporation irrespective of the provisions of Section 242(b)(2) of the DGCL.

Immediately upon the filing of Certificate with the Secretary of State of the State of Delaware (the “ Effective Time ”), and without further action on the part of the holders of Series A Common Stock of the Corporation outstanding immediately prior to the Effective Time, each then outstanding share of the Corporation’s Series A Common Stock shall convert, immediately and automatically, into one (1) share of Common Stock.

The powers, preferences and rights of, and the qualifications, limitations and restrictions upon, each class or series of stock shall be determined in accordance with, or as set forth below in, this Article IV.

A. COMMON STOCK

Subject to all the rights, powers and preferences of the Undesignated Preferred Stock and except as otherwise provided by law or in this Certificate (or in any certificate of designations of any series of Undesignated Preferred Stock):

(a) the holders of the Common Stock shall have the exclusive right to vote for the election of directors of the Corporation (the “ Directors ”) and on all other matters requiring stockholder action, each outstanding share entitling the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote; 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 (or on any amendment to a certificate of designations of any series of Undesignated Preferred Stock) that alters or changes the powers, preferences, rights or other terms of one or more outstanding series of Undesignated Preferred Stock if the holders of such affected series of Undesignated Preferred Stock are entitled to vote, either separately or together with the holders of one or more other such series, on such amendment pursuant to this Certificate (or pursuant to a certificate of designations of any series of Undesignated Preferred Stock) or pursuant to the DGCL;

(b) dividends may be declared and paid or set apart for payment upon the Common Stock out of any assets or funds of the Corporation legally available for the payment of dividends, but only when and as declared by the Board of Directors or any authorized committee thereof; and

(c) upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the net assets of the Corporation shall be distributed pro rata to the holders of the Common Stock.

 

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B. UNDESIGNATED PREFERRED STOCK

The Board of Directors or any authorized committee thereof is expressly authorized, to the fullest extent permitted by law, to provide by resolution or resolutions for, out of the unissued shares of Undesignated Preferred Stock, the issuance of the shares of Undesignated Preferred Stock in one or more series of such stock, and by filing a certificate of designations pursuant to applicable law of the State of Delaware, to establish or change from time to time the number of shares of each such series, and to fix the designations, powers, including voting powers, full or limited, or no voting powers, preferences and the relative, participating, optional or other special rights of the shares of each series and any qualifications, limitations and restrictions thereof.

ARTICLE V

STOCKHOLDER ACTION

1. No Action without Meeting . Any action required or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders and may not be taken or effected by a written consent of stockholders in lieu thereof.

2. Special Meetings . Except as otherwise required by statute and subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock, special meetings of the stockholders of the Corporation may be called only by the Board of Directors, Chairman of the Board of Directors, or the Chief Executive Officer acting pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office, and special meetings of stockholders may not be called by any other person or persons. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders of the Corporation.

ARTICLE VI

DIRECTORS

1. General . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided herein or required by law.

2. Election of Directors . Election of Directors need not be by written ballot unless the By-laws of the Corporation (the “ By-laws ”) shall so provide.

3. Number of Directors; Term of Office . The number of Directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors. The Directors, other than those who may be elected by the holders of any series of Undesignated Preferred Stock, shall be classified, with respect to the term for which they severally hold office, into three classes. The initial Class I Directors of the Corporation shall be Devdutt Yellurkar and Caryn Marooney; the initial Class II Directors of the Corporation shall be Peter Fenton and Dana Stalder; and the initial Class III Directors of the Corporation shall

 

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be Elizabeth Nelson, Mikkel Svane and Michelle Wilson. The initial Class I Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2015, the initial Class II Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2016, and the initial Class III Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2017. At each annual meeting of stockholders, Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Notwithstanding the foregoing, the Directors elected to each class shall hold office until their successors are duly elected and qualified or until their earlier resignation, death or removal.

Notwithstanding the foregoing, whenever, pursuant to the provisions of Article IV of this Certificate, the holders of any one or more series of Undesignated Preferred Stock shall have the right, voting separately as a series or together with holders of other such 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 directorships shall be governed by the terms of this Certificate and any certificate of designations applicable to such series.

4. Vacancies . Subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock to elect Directors and to fill vacancies in the Board of Directors relating thereto, any and all vacancies in the Board of Directors, however occurring, including, without limitation, by reason of an increase in the size of the Board of Directors, or the death, resignation, disqualification or removal of a Director, shall be filled solely and exclusively by the affirmative vote of a majority of the remaining Directors then in office, even if less than a quorum of the Board of Directors, and not by the stockholders. Any Director appointed in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of Directors in which the new directorship was created or the vacancy occurred and until such Director’s successor shall have been duly elected and qualified or until his or her earlier resignation, death or removal. Subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock to elect Directors, when the number of Directors is increased or decreased, the Board of Directors shall, subject to Article VI.3 hereof, determine the class or classes to which the increased or decreased number of Directors shall be apportioned; provided , however , that no decrease in the number of Directors shall shorten the term of any incumbent Director. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, shall exercise the powers of the full Board of Directors until the vacancy is filled.

5. Removal . Subject to the rights, if any, of any series of Undesignated Preferred Stock to elect Directors and to remove any Director whom the holders of any such series have the right to elect, any Director (including persons elected by Directors to fill vacancies in the Board of Directors) may be removed from office (i) only for cause and (ii) only by the affirmative vote of the holders of 75% or more of the outstanding shares of capital stock then entitled to vote at an election of Directors. At least forty-five (45) days prior to any annual or special meeting of stockholders at which it is proposed that any Director be removed from office, written notice of such proposed removal and the alleged grounds thereof shall be sent to the Director whose removal will be considered at the meeting.

 

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6. No Cumulative Voting . No stockholder will be permitted to cumulate votes at any election of director.

ARTICLE VII

LIMITATION OF LIABILITY

A Director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except for liability (a) for any breach of the Director’s duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL or (d) for any transaction from which the Director derived an improper personal benefit. If the DGCL is amended after the effective date of this Certificate to authorize corporate action further eliminating or limiting the personal liability of Directors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.

Any amendment, repeal or modification of this Article VII by either of (i) the stockholders of the Corporation or (ii) an amendment to the DGCL, shall not adversely affect any right or protection existing at the time of such amendment, repeal or modification with respect to any acts or omissions occurring before such amendment, repeal or modification of a person serving as a Director at the time of such amendment, repeal or modification.

ARTICLE VIII

EXCLUSIVE JURISDICTION OF DELAWARE COURTS

Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall 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 or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the Corporation’s Certificate of Incorporation or By-laws, or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article VIII.

ARTICLE IX

AMENDMENT OF BY-LAWS

1. Amendment by Directors . Except as otherwise provided by law, the By-laws of the Corporation may be amended or repealed by the Board of Directors by the affirmative vote of a majority of the Directors then in office.

2. Amendment by Stockholders . The By-laws of the Corporation may be amended or repealed at any annual meeting of stockholders, or special meeting of stockholders called for

 

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such purpose, by the affirmative vote of at least 75% of the outstanding shares of capital stock entitled to vote on such amendment or repeal, voting together as a single class; provided , however , that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote on such amendment or repeal, voting together as a single class.

ARTICLE X

AMENDMENT OF CERTIFICATE OF INCORPORATION

The Corporation reserves the right to amend or repeal this Certificate in the manner now or hereafter prescribed by statute and this Certificate, and all rights conferred upon stockholders herein are granted subject to this reservation. Whenever any vote of the holders of capital stock of the Corporation is required to amend or repeal any provision of this Certificate, and in addition to any other vote of holders of capital stock that is required by this Certificate or by law, such amendment or repeal shall require the affirmative vote of the majority of the outstanding shares of capital stock entitled to vote on such amendment or repeal, and the affirmative vote of the majority of the outstanding shares of each class entitled to vote thereon as a class, at a duly constituted meeting of stockholders called expressly for such purpose; provided , however , that the affirmative vote of not less than 75% of the outstanding shares of capital stock entitled to vote on such amendment or repeal, and the affirmative vote of not less than 75% of the outstanding shares of each class entitled to vote thereon as a class, shall be required to amend or repeal any provision of Article IV.B, Article V, Article VI, Article VII, Article VIII, Article IX or Article X of this Certificate.

 

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THIS AMENDED AND RESTATED CERTIFICATE OF INCORPORATION is executed as of this     th day of             , 2014.

 

Zendesk, Inc.
By:  

 

  Mikkel Svane
  Chief Executive Officer

Exhibit 3.3

BY-LAWS

OF

ZENDESK INC.

 

 

ARTICLE I

Meetings of Stockholders

Section 1.1. Annual Meetings . If required by applicable law, an annual meeting of stockholders shall be held for the election of directors at such date, time and place, if any, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors from time to time. Any other proper business may be transacted at the annual meeting.

Section 1.2. Special Meetings . Special meetings of stockholders for any purpose or purposes may be called at any time by the Board of Directors, but such special meetings may not be called by any other person or persons. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.

Section 1.3. Notice of Meetings . Whenever stockholders are required or permitted to take any action at a meeting, a notice of the meeting shall be given that shall state the place, if any, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the certificate of incorporation or these by-laws, the notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the corporation.

Section 1.4. Adjournments . Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such 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 thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 1.5. Quorum . Except as otherwise provided by law, the certificate of incorporation or these by-laws, at each meeting of stockholders the presence in person or by proxy of the holders of a majority in voting power of the outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. In the absence of a quorum, the stockholders so present may, by a majority in voting power thereof, adjourn the meeting from time to time in the manner provided in Section 1.4 of these by-laws until a quorum


shall attend. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by the corporation, shall neither be entitled to vote nor be counted for quorum purposes; provided, however, that the foregoing shall not limit the right of the corporation or any subsidiary of the corporation to vote stock, including but not limited to its own stock, held by it in a fiduciary capacity.

Section 1.6. Organization . Meetings of stockholders shall be presided over by the Chairperson of the Board, if any, or in his or her absence by the Vice Chairperson of the Board, if any, or in his or her absence by the President, or in his or her absence by a Vice President, or in the absence of the foregoing persons by a chairperson designated by the Board of Directors, or in the absence of such designation by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.

Section 1.7. Voting; Proxies . Except as otherwise provided by or pursuant to the provisions of the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. 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 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 stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary of the corporation a revocation of the proxy or a new proxy bearing a later date. Voting at meetings of stockholders need not be by written ballot. At all meetings of stockholders for the election of directors at which a quorum is present a plurality of the votes cast shall be sufficient to elect. All other elections and questions presented to the stockholders at a meeting at which a quorum is present shall, unless otherwise provided by the certificate of incorporation, these by-laws, the rules or regulations of any stock exchange applicable to the corporation, or applicable law or pursuant to any regulation applicable to the corporation or its securities, be decided by the affirmative vote of the holders of a majority in voting power of the shares of stock of the corporation which are present in person or by proxy and entitled to vote thereon.

Section 1.8. Fixing Date for Determination of Stockholders of Record . In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, 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 by the Board of Directors, and which record date: (1) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting; (2) in the case of determination of stockholders

 

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entitled to express consent to corporate action in writing without a meeting, shall not be more than ten (10) days from the date upon which the resolution fixing the record date is adopted by the Board of Directors; and (3) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action of the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation in accordance with applicable law, or, if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. 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.

Section 1.9. List of Stockholders Entitled to Vote . The officer who has charge of the stock ledger shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting at least ten (10) days prior to the meeting (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of meeting or (ii) during ordinary business hours at the principal place of business of the corporation. The list of stockholders must also be open to examination at the meeting as required by applicable law. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 1.9 or to vote in person or by proxy at any meeting of stockholders.

Section 1.10. Action By Written Consent of Stockholders . Unless otherwise restricted by the certificate of incorporation, any action required or permitted to be taken at any annual or special meeting of the 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, shall be 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 entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which minutes of proceedings of stockholders are recorded. Delivery made to the corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall, to the extent required by law, be given 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

 

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record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the corporation.

Section 1.11. Inspectors of Election . The corporation may, and shall if required by law, in advance of any meeting of stockholders, appoint one or more inspectors of election, who may be employees of the corporation, to act at the meeting or any adjournment thereof and to make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. In the event that no inspector so appointed or designated is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed or designated shall (i) ascertain the number of shares of capital stock of the corporation outstanding and the voting power of each such share, (ii) determine the shares of capital stock of the corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of capital stock of the corporation represented at the meeting and such inspectors’ count of all votes and ballots. Such certification and report shall specify such other information as may be required by law. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the corporation, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for an office at an election may serve as an inspector at such election.

Section 1.12. Conduct of Meetings . The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the person presiding over any meeting of stockholders shall have the right and authority to convene and to adjourn the meeting, to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding person, 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 presiding person 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 presiding person 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 presiding person at any 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 matter or business was not properly brought before the meeting and if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered.

 

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Unless and to the extent determined by the Board of Directors or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

 

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ARTICLE II

Board of Directors

Section 2.1. Number; Qualifications . The Board of Directors shall consist of one or more members, the number thereof to be determined from time to time by resolution of the Board of Directors. Directors need not be stockholders.

Section 2.2. Election; Resignation; Vacancies . The Board of Directors shall initially consist of the persons named as directors in the certificate of incorporation or elected by the incorporator of the corporation, and each director so elected shall hold office until the first annual meeting of stockholders or until his or her successor is duly elected and qualified. At the first annual meeting of stockholders and at each annual meeting thereafter, the stockholders shall elect directors each of whom shall hold office for a term of one year or until his or her successor is duly elected and qualified, subject to such director’s earlier death, resignation, disqualification or removal. Any director may resign at any time upon notice to the corporation. Unless otherwise provided by law or the certificate of incorporation, any newly created directorship or any vacancy occurring in the Board of Directors for any cause may be filled by a majority of the remaining members of the Board of Directors, although such majority is less than a quorum, or by a plurality of the votes cast at a meeting of stockholders, and each director so elected shall hold office until the expiration of the term of office of the director whom he or she has replaced or until his or her successor is elected and qualified.

Section 2.3. Regular Meetings . Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board of Directors may from time to time determine.

Section 2.4. Special Meetings . Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the President, any Vice President, the Secretary, or by any member of the Board of Directors. Notice of a special meeting of the Board of Directors shall be given by the person or persons calling the meeting at least twenty-four hours before the special meeting.

Section 2.5. Telephonic Meetings Permitted . Members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting thereof by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting.

Section 2.6. Quorum; Vote Required for Action . At all meetings of the Board of Directors the directors entitled to cast a majority of the votes of the whole Board of Directors shall constitute a quorum for the transaction of business. Except in cases in which the certificate of incorporation, these by-laws or applicable law otherwise provides, a majority of the votes entitled to be cast by the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

 

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Section 2.7. Organization . Meetings of the Board of Directors shall be presided over by the Chairperson of the Board, if any, or in his or her absence by the Vice Chairperson of the Board, if any, or in his or her absence by the President, or in their absence by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.

Section 2.8. Action by Unanimous Consent of Directors . Unless otherwise restricted by the certificate of incorporation or these by-laws, 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 transmissions are filed with the minutes of proceedings of the board or committee in accordance with applicable law.

 

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ARTICLE III

Committees

Section 3.1. Committees . The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. 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. In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they 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. Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it.

Section 3.2. Committee Rules . Unless the Board of Directors otherwise provides, each committee designated by the Board of Directors may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board of Directors conducts its business pursuant to Article II of these by-laws.

 

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ARTICLE IV

Officers

Section 4.1. Officers; Election; Qualifications; Term of Office; Resignation; Removal; Vacancies . The Board of Directors shall elect a President and Secretary, and it may, if it so determines, choose a Chairperson of the Board and a Vice Chairperson of the Board from among its members. The Board of Directors may also choose one or more Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers and such other officers as it shall from time to time deem necessary or desirable. Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his or her election, and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any officer may resign at any time upon written notice to the corporation. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the corporation. Any number of offices may be held by the same person. Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting.

Section 4.2. Powers and Duties of Officers . The officers of the corporation shall have such powers and duties in the management of the corporation as may be prescribed in a resolution by 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. The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his or her duties.

Section 4.3. Appointing Attorneys and Agents; Voting Securities of Other Entities . Unless otherwise provided by resolution adopted by the Board of Directors, the Chairperson of the Board, the President or any Vice President may from time to time appoint an attorney or attorneys or agent or agents of the corporation, in the name and on behalf of the corporation, to cast the votes which the corporation may be entitled to cast as the holder of stock or other securities in any other corporation or other entity, any of whose stock or other securities may be held by the corporation, at meetings of the holders of the stock or other securities of such other corporation or other entity, or to consent in writing, in the name of the corporation as such holder, to any action by such other corporation or other entity, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consents, and may execute or cause to be executed in the name and on behalf of the corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he or she may deem necessary or proper. Any of the rights set forth in this Section 4.3 which may be delegated to an attorney or agent may also be exercised directly by the Chairperson of the Board, the President or the Vice President.

 

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ARTICLE V

Stock

Section 5.1. Certificates . The shares of the corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of 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. Every holder of stock represented by certificates shall be entitled to have a certificate signed by or in the name of the corporation by the Chairperson or Vice Chairperson of the Board of Directors, if any, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the corporation certifying the number of shares owned by such holder in the corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent, or registrar at the date of issue.

Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates . The corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

 

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ARTICLE VI

Indemnification and Advancement of Expenses

Section 6.1. Right to Indemnification . The corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a “Covered Person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”), by reason of the fact that he or she, or a person for whom he or she is the legal representative, 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, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Covered Person. Notwithstanding the preceding sentence, except as otherwise provided in Section 6.3, the corporation shall be required to indemnify a Covered Person in connection with a proceeding (or part thereof) commenced by such Covered Person only if the commencement of such proceeding (or part thereof) by the Covered Person was authorized in the specific case by the Board of Directors of the corporation.

Section 6.2. Prepayment of Expenses . The corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees) incurred by a Covered Person in defending any proceeding in advance of its final disposition, provided , however , that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to be indemnified under this Article VI or otherwise.

Section 6.3. Claims . If a claim for indemnification (following the final disposition of such proceeding) or advancement of expenses under this Article VI is not paid in full within thirty days after a written claim therefor by the Covered Person has been received by the corporation, the Covered Person may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by law. In any such action the corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law.

Section 6.4. Nonexclusivity of Rights . The rights conferred on any Covered Person by this Article VI shall not be exclusive of any other rights which such Covered Person may have or hereafter acquire under any statute, provision of the certificate of incorporation, these by-laws, agreement, vote of stockholders or disinterested directors or otherwise.

Section 6.5. Other Sources . The corporation’s obligation, if any, to indemnify or to advance expenses to any Covered Person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such Covered Person may collect as

 

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indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or non-profit enterprise.

Section 6.6. Amendment or Repeal . Any repeal or modification of the provisions of this Article VI shall not adversely affect any right or protection hereunder of any Covered Person 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 repeal or modification.

Section 6.7. Other Indemnification and Advancement of Expenses . This Article VI shall not limit the right of the corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Covered Persons when and as authorized by appropriate corporate action.

 

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ARTICLE VII

Miscellaneous

Section 7.1. Fiscal Year . The fiscal year of the corporation shall be determined by resolution of the Board of Directors.

Section 7.2. Seal . The corporate seal shall have the name of the corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors.

Section 7.3. Manner of Notice . Except as otherwise provided herein or permitted by applicable law, notices to directors and stockholders shall be in writing and delivered personally or mailed to the directors or stockholders at their addresses appearing on the books of the corporation. Without limiting the manner by which notice otherwise may be given effectively to stockholders, and except as prohibited by applicable law, any notice to stockholders given by the corporation under any provision of applicable law, the certificate of incorporation, or these by-laws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any stockholder who fails to object in writing to the corporation, within 60 days of having been given written notice by the corporation of its intention to send the single notice permitted under this Section 7.3, shall be deemed to have consented to receiving such single written notice. Notice to directors may be given by telecopier, telephone or other means of electronic transmission.

Section 7.4. Waiver of Notice of Meetings of Stockholders, Directors and Committees . Any waiver of notice, given by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting 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. Neither the business to be transacted at nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in a waiver of notice.

Section 7.5. Form of Records . Any records maintained by the corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or by means of, or be in the form of, any information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time.

Section 7.6. Amendment of By-Laws . These by-laws may be altered, amended or repealed, and new by-laws made, by the Board of Directors, but the stockholders may make additional by-laws and may alter and repeal any by-laws whether adopted by them or otherwise.

 

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Exhibit 3.4

AMENDED AND RESTATED

BY-LAWS

OF

ZENDESK, INC.

(the “Corporation”)

Adopted [ ], 2014

ARTICLE I

Stockholders

SECTION 1. Annual Meeting . The annual meeting of stockholders of the Corporation (any such meeting being referred to in these By-laws as an “Annual Meeting”) shall be held at the hour, date and place within or without the United States which is fixed by the Board of Directors, which time, date and place may subsequently be changed at any time by vote of the Board of Directors. If no Annual Meeting has been held for a period of thirteen (13) months after the Corporation’s last Annual Meeting, a special meeting in lieu thereof may be held, and such special meeting shall have, for the purposes of these By-laws or otherwise, all the force and effect of an Annual Meeting. Any and all references hereafter in these By-laws to an Annual Meeting or Annual Meetings shall be deemed to also refer to any special meeting(s) in lieu thereof.

SECTION 2. Notice of Stockholder Business and Nominations .

(a) Annual Meetings of Stockholders .

(1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of other business to be considered by the stockholders may be brought before an Annual Meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this By-law, who is entitled to vote at the meeting, who is present (in person or by proxy) at the meeting and who complies with the notice procedures set forth in this By-law as to such nomination or business. For the avoidance of doubt, the foregoing clause (ii) shall be the exclusive means for a stockholder to bring nominations or business properly before an Annual Meeting (other than matters properly brought under Rule 14a-8 (or any successor rule) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), and such stockholder must comply with the notice and other procedures set forth in Article I, Section 2(a)(2) and (3) of this By-law to bring such nominations or business properly before an Annual Meeting. In addition to the other requirements set forth in this By-law, for any proposal of business to be considered at an Annual Meeting, it must be a proper subject for action by stockholders of the Corporation under Delaware law.


(2) For nominations or other business to be properly brought before an Annual Meeting by a stockholder pursuant to clause (ii) of Article I, Section 2(a)(1) of this By-law, the stockholder must (i) have given Timely Notice (as defined below) thereof in writing to the Secretary of the Corporation, (ii) have provided any updates or supplements to such notice at the times and in the forms required by this By-law and (iii) together with the beneficial owner(s), if any, on whose behalf the nomination or business proposal is made, have acted in accordance with the representations set forth in the Solicitation Statement (as defined below) required by this By-law. To be timely, a stockholder’s written notice shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the one-year anniversary of the preceding year’s Annual Meeting; provided , however , that in the event the Annual Meeting is first convened more than thirty (30) days before or more than sixty (60) days after such anniversary date, or if no Annual Meeting were held in the preceding year, notice by the stockholder to be timely must be received by the Secretary of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made (such notice within such time periods shall be referred to as “Timely Notice”). Notwithstanding anything to the contrary provided herein, for the first Annual Meeting following the initial public offering of common stock of the Corporation, a stockholder’s notice shall be timely if received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the later of the ninetieth (90th) day prior to the scheduled date of such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such Annual Meeting is first made or sent by the Corporation. Such stockholder’s Timely Notice shall set forth:

(A) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected);

(B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, and any material interest in such business of each Proposing Person (as defined below);

(C) (i) the name and address of the stockholder giving the notice, as they appear on the Corporation’s books, and the names and addresses of the other Proposing Persons (if any) and (ii) as to each Proposing Person, the following information: (a) the class or series and number of all shares of capital stock of the Corporation which are, directly or indirectly, owned beneficially or of record by such Proposing Person or any of its affiliates or associates (as such terms are defined in Rule 12b-2 promulgated under the Exchange Act), including any shares

 

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of any class or series of capital stock of the Corporation as to which such Proposing Person or any of its affiliates or associates has a right to acquire beneficial ownership at any time in the future; (b) all Synthetic Equity Interests (as defined below) in which such Proposing Person or any of its affiliates or associates, directly or indirectly, holds an interest including a description of the material terms of each such Synthetic Equity Interest, including without limitation, identification of the counterparty to each such Synthetic Equity Interest and disclosure, for each such Synthetic Equity Interest, as to (x) whether or not such Synthetic Equity Interest conveys any voting rights, directly or indirectly, in such shares to such Proposing Person, (y) whether or not such Synthetic Equity Interest is required to be, or is capable of being, settled through delivery of such shares and (z) whether or not such Proposing Person and/or, to the extent known, the counterparty to such Synthetic Equity Interest has entered into other transactions that hedge or mitigate the economic effect of such Synthetic Equity Interest; (c) any proxy (other than a revocable proxy given in response to a public proxy solicitation made pursuant to, and in accordance with, the Exchange Act), agreement, arrangement, understanding or relationship pursuant to which such Proposing Person has or shares a right to, directly or indirectly, vote any shares of any class or series of capital stock of the Corporation; (d) any rights to dividends or other distributions on the shares of any class or series of capital stock of the Corporation, directly or indirectly, owned beneficially by such Proposing Person that are separated or separable from the underlying shares of the Corporation; and (e) any performance-related fees (other than an asset based fee) that such Proposing Person, directly or indirectly, is entitled to based on any increase or decrease in the value of shares of any class or series of capital stock of the Corporation or any Synthetic Equity Interests (the disclosures to be made pursuant to the foregoing clauses (a) through (e) are referred to, collectively, as “Material Ownership Interests”) and (iii) a description of the material terms of all agreements, arrangements or understandings (whether or not in writing) entered into by any Proposing Person or any of its affiliates or associates with any other person for the purpose of acquiring, holding, disposing or voting of any shares of any class or series of capital stock of the Corporation;

(D) (i) a description of all agreements, arrangements or understandings by and among any of the Proposing Persons, or by and among any Proposing Persons and any other person (including with any proposed nominee(s)), pertaining to the nomination(s) or other business proposed to be brought before the meeting of stockholders (which description shall identify the name of each other person who is party to such an agreement, arrangement or understanding), and (ii) identification of the names and addresses of other stockholders (including beneficial owners) known by any of the Proposing Persons to support such nominations or other business proposal(s), and to the extent known the class and number of all shares of the Corporation’s capital stock owned beneficially or of record by such other stockholder(s) or other beneficial owner(s); and

 

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(E) a statement whether or not the stockholder giving the notice and/or the other Proposing Person(s), if any, will deliver a proxy statement and form of proxy to holders of, in the case of a business proposal, at least the percentage of voting power of all of the shares of capital stock of the Corporation required under applicable law to approve the proposal or, in the case of a nomination or nominations, at least the percentage of voting power of all of the shares of capital stock of the Corporation reasonably believed by such Proposing Person to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder (such statement, the “Solicitation Statement”).

For purposes of this Article I of these By-laws, the term “Proposing Person” shall mean the following persons: (i) the stockholder of record providing the notice of nominations or business proposed to be brought before a stockholders’ meeting, and (ii) the beneficial owner(s), if different, on whose behalf the nominations or business proposed to be brought before a stockholders’ meeting is made. For purposes of this Section 2 of Article I of these By-laws, the term “Synthetic Equity Interest” shall mean any transaction, agreement or arrangement (or series of transactions, agreements or arrangements), including, without limitation, any derivative, swap, hedge, repurchase or so-called “stock borrowing” agreement or arrangement, the purpose or effect of which is to, directly or indirectly: (a) give a person or entity economic benefit and/or risk similar to ownership of shares of any class or series of capital stock of the Corporation, in whole or in part, including due to the fact that such transaction, agreement or arrangement provides, directly or indirectly, the opportunity to profit or avoid a loss from any increase or decrease in the value of any shares of any class or series of capital stock of the Corporation, (b) mitigate loss to, reduce the economic risk of or manage the risk of share price changes for, any person or entity with respect to any shares of any class or series of capital stock of the Corporation, (c) otherwise provide in any manner the opportunity to profit or avoid a loss from any decrease in the value of any shares of any class or series of capital stock of the Corporation, or (d) increase or decrease the voting power of any person or entity with respect to any shares of any class or series of capital stock of the Corporation.

(3) A stockholder providing Timely Notice of nominations or business proposed to be brought before an Annual Meeting shall further update and supplement such notice, if necessary, so that the information (including, without limitation, the Material Ownership Interests information) provided or required to be provided in such notice pursuant to this By-law shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to such Annual Meeting, 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 (5th) business day after the record date for the Annual Meeting (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 (8th) business day prior to the date of the Annual Meeting (in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting).

 

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(4) Notwithstanding anything in the second sentence of Article I, Section 2(a)(2) of this By-law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least ten (10) days before the last day a stockholder may deliver a notice of nomination in accordance with the second sentence of Article I, Section 2(a)(2), a stockholder’s notice required by this By-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the Secretary of the Corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the Corporation.

(b) General .

(1) Only such persons who are nominated in accordance with the provisions of this By-law shall be eligible for election and to serve as directors and only such business shall be conducted at an Annual Meeting as shall have been brought before the meeting in accordance with the provisions of this By-law or in accordance with Rule 14a-8 under the Exchange Act. The Board of Directors or a designated committee thereof shall have the power to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the provisions of this By-law. If neither the Board of Directors nor such designated committee makes a determination as to whether any stockholder proposal or nomination was made in accordance with the provisions of this By-law, the presiding officer of the Annual Meeting shall have the power and duty to determine whether the stockholder proposal or nomination was made in accordance with the provisions of this By-law. If the Board of Directors or a designated committee thereof or the presiding officer, as applicable, determines that any stockholder proposal or nomination was not made in accordance with the provisions of this By-law, such proposal or nomination shall be disregarded and shall not be presented for action at the Annual Meeting.

(2) Except as otherwise required by law, nothing in this Article I, Section 2 shall obligate the Corporation or the Board of Directors to include in any proxy statement or other stockholder communication distributed on behalf of the Corporation or the Board of Directors information with respect to any nominee for director or any other matter of business submitted by a stockholder.

(3) Notwithstanding the foregoing provisions of this Article I, Section 2, if the nominating or proposing stockholder (or a qualified representative of the stockholder) does not appear at the Annual Meeting to present a nomination or any business, such nomination or business shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Article I, Section 2, to be considered a qualified representative of the proposing stockholder, a person must be authorized by a written instrument 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 written instrument or

 

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electronic transmission, or a reliable reproduction of the written instrument or electronic transmission, to the presiding officer at the meeting of stockholders.

(4) For purposes of this By-law, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

(5) Notwithstanding the foregoing provisions of this By-law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-law. Nothing in this By-law shall be deemed to affect any rights of (i) stockholders to have proposals included in the Corporation’s proxy statement pursuant to Rule 14a-8 (or any successor rule), as applicable, under the Exchange Act and, to the extent required by such rule, have such proposals considered and voted on at an Annual Meeting or (ii) the holders of any series of Undesignated Preferred Stock to elect directors under specified circumstances.

SECTION 3. Special Meetings . Except as otherwise required by statute and subject to the rights, if any, of the holders of any series of Undesignated Preferred Stock, special meetings of the stockholders of the Corporation may be called only by the Board of Directors, the Chairperson of the Board of Directors, or the Chief Executive Officer acting pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office. The Board of Directors may postpone or reschedule any previously scheduled special meeting of stockholders. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders of the Corporation. Nominations of persons for election to the Board of Directors of the Corporation and stockholder proposals of other business shall not be brought before a special meeting of stockholders to be considered by the stockholders unless such special meeting is held in lieu of an annual meeting of stockholders in accordance with Article I, Section 1 of these By-laws, in which case such special meeting in lieu thereof shall be deemed an Annual Meeting for purposes of these By-laws and the provisions of Article I, Section 2 of these By-laws shall govern such special meeting.

SECTION 4. Notice of Meetings; Adjournments .

(a) A notice of each Annual Meeting stating the hour, date and place, if any, of such Annual Meeting and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given not less than ten (10) days nor more than sixty (60) days before the Annual Meeting, to each stockholder entitled to vote thereat by delivering such notice to such stockholder or by mailing it, postage prepaid, addressed to such stockholder at the address of such stockholder as it appears on the Corporation’s stock transfer books. Without limiting the manner by which notice may otherwise be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law (“DGCL”).

 

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(b) Notice of all special meetings of stockholders shall be given in the same manner as provided for Annual Meetings, except that the notice of all special meetings shall state the purpose or purposes for which the meeting has been called.

(c) Notice of an Annual Meeting or special meeting of stockholders need not be given to a stockholder if a waiver of notice is executed, or waiver of notice by electronic transmission is provided, before or after such meeting by such stockholder or if such stockholder attends such meeting, unless such attendance is for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened.

(d) The Board of Directors may postpone and reschedule any previously scheduled Annual Meeting or special meeting of stockholders and any record date with respect thereto, regardless of whether any notice or public disclosure with respect to any such meeting has been sent or made pursuant to Section 2 of this Article I of these By-laws or otherwise. In no event shall the public announcement of an adjournment, postponement or rescheduling of any previously scheduled meeting of stockholders commence a new time period for the giving of a stockholder’s notice under this Article I of these By-laws.

(e) When any meeting is convened, the presiding officer may adjourn the meeting if (i) no quorum is present for the transaction of business, (ii) the Board of Directors determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information which the Board of Directors determines has not been made sufficiently or timely available to stockholders, or (iii) the Board of Directors determines that adjournment is otherwise in the best interests of the Corporation. When any Annual Meeting or special meeting of stockholders is adjourned to another hour, date or place, notice need not be given of the adjourned meeting other than an announcement at the meeting at which the adjournment is taken of the hour, date and place, if any, to which the meeting is adjourned and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting; provided, however, that if the adjournment is for more than thirty (30) days from the meeting date, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting shall be given to each stockholder of record entitled to vote thereat and each stockholder who, by law or under the Certificate of Incorporation of the Corporation (as the same may hereafter be amended and/or restated, the “Certificate”) or these By-laws, is entitled to such notice.

SECTION 5. Quorum . A majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders. If less than a quorum is present at a meeting, the holders of voting stock representing a majority of the voting power present at the meeting or the presiding officer may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice, except as provided in Section 4 of this Article I. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly constituted meeting may continue to transact business until

 

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adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

SECTION 6. Voting and Proxies . Stockholders shall have one vote for each share of stock entitled to vote owned by them of record according to the stock ledger of the Corporation as of the record date, unless otherwise provided by law or by the Certificate. Stockholders may vote either (i) in person, (ii) by written proxy or (iii) by a transmission permitted by Section 212(c) of the DGCL. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission permitted by Section 212(c) of the DGCL may be substituted for or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Proxies shall be filed in accordance with the procedures established for the meeting of stockholders. Except as otherwise limited therein or as otherwise provided by law, proxies authorizing a person to vote at a specific meeting shall entitle the persons authorized thereby to vote at any adjournment of such meeting, but they shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by or on behalf of any one of them unless at or prior to the exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them.

SECTION 7. Action at Meeting . When a quorum is present at any meeting of stockholders, any matter before any such meeting (other than an election of a director or directors) shall be decided by a majority of the votes properly cast for and against such matter, except where a larger vote is required by law, by the Certificate or by these By-laws. Any election of directors by stockholders shall be determined by a plurality of the votes properly cast on the election of directors.

SECTION 8. Stockholder Lists . The Secretary or an Assistant Secretary (or the Corporation’s transfer agent or other person authorized by these By-laws or by law) shall prepare and make, at least ten (10) days before every Annual Meeting or special meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for a period of at least ten (10) days prior to the meeting in the manner provided by law. The list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law.

SECTION 9. Presiding Officer . The Board of Directors shall designate a representative to preside over all Annual Meetings or special meetings of stockholders, provided that if the Board of Directors does not so designate such a presiding officer, then the Chairperson of the Board, if one is elected, shall preside over such meetings. If the Board of Directors does not so designate such a presiding officer and there is no Chairperson of the Board or the Chairperson of the Board is unable to so preside or is absent, then the Chief Executive Officer, if one is elected, shall preside over such meetings, provided further that if there is no Chief Executive Officer or the Chief Executive Officer is unable to so preside or is absent, then the President shall preside

 

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over such meetings. The presiding officer at any Annual Meeting or special meeting of stockholders shall have the power, among other things, to adjourn such meeting at any time and from time to time, subject to Sections 4 and 5 of this Article I. The order of business and all other matters of procedure at any meeting of the stockholders shall be determined by the presiding officer.

SECTION 10. Inspectors of Elections . The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons 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 presiding officer shall appoint one or more inspectors to act at the meeting. Any inspector may, but need not, be an officer, employee or agent of the Corporation. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall perform such duties as are required by the DGCL, including the counting of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. The presiding officer may review all determinations made by the inspectors, and in so doing the presiding officer shall be entitled to exercise his or her sole judgment and discretion and he or she shall not be bound by any determinations made by the inspectors. All determinations by the inspectors and, if applicable, the presiding officer, shall be subject to further review by any court of competent jurisdiction.

ARTICLE II

Directors

SECTION 1. Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided by the Certificate or required by law.

SECTION 2. Number and Terms . The number of directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board of Directors. The directors shall hold office in the manner provided in the Certificate.

SECTION 3. Qualification . No director need be a stockholder of the Corporation.

SECTION 4. Vacancies . Vacancies in the Board of Directors shall be filled in the manner provided in the Certificate.

SECTION 5. Removal . Directors may be removed from office only in the manner provided in the Certificate.

 

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SECTION 6. Resignation . A director may resign at any time by giving written notice to the Chairperson of the Board, if one is elected, the President or the Secretary. A resignation shall be effective upon receipt, unless the resignation otherwise provides.

SECTION 7. Regular Meetings . The regular annual meeting of the Board of Directors shall be held, without notice other than this Section 7, on the same date and at the same place as the Annual Meeting following the close of such meeting of stockholders. Other regular meetings of the Board of Directors may be held at such hour, date and place as the Board of Directors may by resolution from time to time determine and publicize by means of reasonable notice given to any director who is not present at the meeting at which such resolution is adopted.

SECTION 8. Special Meetings . Special meetings of the Board of Directors may be called, orally or in writing, by or at the request of a majority of the directors, the Chairperson of the Board, if one is elected, or the President. The person calling any such special meeting of the Board of Directors may fix the hour, date and place thereof.

SECTION 9. Notice of Meetings . Notice of the hour, date and place of all special meetings of the Board of Directors shall be given to each director by the Secretary or an Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the Chairperson of the Board, if one is elected, or the President or such other officer designated by the Chairperson of the Board, if one is elected, or the President. Notice of any special meeting of the Board of Directors shall be given to each director in person, by telephone, or by facsimile, electronic mail or other form of electronic communication, sent to his or her business or home address, at least twenty-four (24) hours in advance of the meeting, or by written notice mailed to his or her business or home address, at least forty-eight (48) hours in advance of the meeting. Such notice shall be deemed to be delivered when hand-delivered to such address, read to such director by telephone, deposited in the mail so addressed, with postage thereon prepaid if mailed, dispatched or transmitted if sent by facsimile transmission or by electronic mail or other form of electronic communications. A written waiver of notice signed before or after a meeting by a director and filed with the records of the meeting shall be deemed to be equivalent to notice of the meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because such meeting is not lawfully called or convened. Except as otherwise required by law, by the Certificate or by these By-laws, neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

SECTION 10. Quorum . At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business, but if less than a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice. Any business which might have been transacted at the meeting as originally noticed may be transacted at such adjourned meeting at which a quorum is present. For purposes of this section, the total number of directors includes any unfilled vacancies on the Board of Directors.

 

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SECTION 11. Action at Meeting . At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of the directors present shall constitute action by the Board of Directors, unless otherwise required by law, by the Certificate or by these By-laws.

SECTION 12. Action by Consent . Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the records of the meetings of the Board of Directors. 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. Such consent shall be treated as a resolution of the Board of Directors for all purposes.

SECTION 13. Manner of Participation . Directors may participate in meetings of the Board of Directors by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting for purposes of these By-laws.

SECTION 14. Presiding Director . The Board of Directors shall designate a representative to preside over all meetings of the Board of Directors, provided that if the Board of Directors does not so designate such a presiding director or such designated presiding director is unable to so preside or is absent, then the Chairperson of the Board, if one is elected, shall preside over all meetings of the Board of Directors. If both the designated presiding director, if one is so designated, and the Chairperson of the Board, if one is elected, are unable to preside or are absent, the Board of Directors shall designate an alternate representative to preside over a meeting of the Board of Directors.

SECTION 15. Committees . The Board of Directors, by vote of a majority of the directors then in office, may elect one or more committees, including, without limitation, a Compensation Committee, a Nominating & Corporate Governance Committee and an Audit Committee, and may delegate thereto some or all of its powers except those which by law, by the Certificate or by these By-laws may not be delegated. Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by these By-laws for the Board of Directors. All members of such committees shall hold such offices at the pleasure of the Board of Directors. The Board of Directors may abolish any such committee at any time. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its action to the Board of Directors.

SECTION 16. Compensation of Directors . Directors shall receive such compensation for their services as shall be determined by a majority of the Board of Directors, or a designated committee thereof, provided that directors who are serving the Corporation as employees and

 

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who receive compensation for their services as such, shall not receive any salary or other compensation for their services as directors of the Corporation.

ARTICLE III

Officers

SECTION 1. Enumeration . The officers of the Corporation shall consist of a President, a Treasurer, a Secretary and such other officers, including, without limitation, a Chairperson of the Board of Directors, a Chief Executive Officer and one or more Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board of Directors may determine.

SECTION 2. Election . At the regular annual meeting of the Board of Directors following the Annual Meeting, the Board of Directors shall elect the President, the Treasurer and the Secretary. Other officers may be elected by the Board of Directors at such regular annual meeting of the Board of Directors or at any other regular or special meeting.

SECTION 3. Qualification . No officer need be a stockholder or a director. Any person may occupy more than one office of the Corporation at any time.

SECTION 4. Tenure . Except as otherwise provided by the Certificate or by these By-laws, each of the officers of the Corporation shall hold office until the regular annual meeting of the Board of Directors following the next Annual Meeting and until his or her successor is elected and qualified or until his or her earlier resignation or removal.

SECTION 5. Resignation . Any officer may resign by delivering his or her written resignation to the Corporation addressed to the President or the Secretary, and such resignation shall be effective upon receipt, unless the resignation otherwise provides.

SECTION 6. Removal . Except as otherwise provided by law, the Board of Directors may remove any officer with or without cause by the affirmative vote of a majority of the directors then in office.

SECTION 7. Absence or Disability . In the event of the absence or disability of any officer, the Board of Directors may designate another officer to act temporarily in place of such absent or disabled officer.

SECTION 8. Vacancies . Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.

 

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SECTION 9. President . The President shall, subject to the direction of the Board of Directors, have such powers and shall perform such duties as the Board of Directors may from time to time designate.

SECTION 10. Chairperson of the Board . The Chairperson of the Board, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

SECTION 11. Chief Executive Officer . The Chief Executive Officer, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

SECTION 12. Vice Presidents and Assistant Vice Presidents . Any Vice President (including any Executive Vice President or Senior Vice President) and any Assistant Vice President shall have such powers and shall perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

SECTION 13. Treasurer and Assistant Treasurers . The Treasurer shall, subject to the direction of the Board of Directors and except as the Board of Directors or the Chief Executive Officer may otherwise provide, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. The Treasurer shall have custody of all funds, securities, and valuable documents of the Corporation. He or she shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. Any Assistant Treasurer shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

SECTION 14. Secretary and Assistant Secretaries . The Secretary shall record all the proceedings of the meetings of the stockholders and the Board of Directors (including committees of the Board of Directors) in books kept for that purpose. In his or her absence from any such meeting, a temporary secretary chosen at the meeting shall record the proceedings thereof. The Secretary shall have charge of the stock ledger (which may, however, be kept by any transfer or other agent of the Corporation). The Secretary shall have custody of the seal of the Corporation, and the Secretary, or an Assistant Secretary shall have authority to affix it to any instrument requiring it, and, when so affixed, the seal may be attested by his or her signature or that of an Assistant Secretary. The Secretary shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. In the absence of the Secretary, any Assistant Secretary may perform his or her duties and responsibilities. Any Assistant Secretary shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

SECTION 15. Other Powers and Duties . Subject to these By-laws and to such limitations as the Board of Directors may from time to time prescribe, the officers of the Corporation shall each have such powers and duties as generally pertain to their respective

 

13


offices, as well as such powers and duties as from time to time may be conferred by the Board of Directors or the Chief Executive Officer.

ARTICLE IV

Capital Stock

SECTION 1. Certificates of Stock . Each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by the Chairperson of the Board, the President or a Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. The Corporation seal and the signatures by the Corporation’s officers, the transfer agent or the registrar may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. Notwithstanding anything to the contrary provided in these Bylaws, the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares (except that the foregoing shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation), and by the approval and adoption of these Bylaws the Board of Directors has determined that all classes or series of the Corporation’s stock may be uncertificated, whether upon original issuance, re-issuance, or subsequent transfer.

SECTION 2. Transfers . Subject to any restrictions on transfer and unless otherwise provided by the Board of Directors, shares of stock that are represented by a certificate may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate theretofore properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require. Shares of stock that are not represented by a certificate may be transferred on the books of the Corporation by submitting to the Corporation or its transfer agent such evidence of transfer and following such other procedures as the Corporation or its transfer agent may require.

SECTION 3. Record Holders . Except as may otherwise be required by law, by the Certificate or by these By-laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-laws.

 

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SECTION 4. Record Date . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, 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 by the Board of Directors, and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders, shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting and (b) in the case of any other action, shall not be more than sixty (60) days prior to such other action. If no record date is fixed: (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

SECTION 5. Replacement of Certificates . In case of the alleged loss, destruction or mutilation of a certificate of stock of the Corporation, a duplicate certificate may be issued in place thereof, upon such terms as the Board of Directors may prescribe.

ARTICLE V

Indemnification

SECTION 1. Definitions . For purposes of this Article:

(a) “Corporate Status” describes the status of a person who is serving or has served (i) as a Director of the Corporation, (ii) as an Officer of the Corporation, (iii) as a Non-Officer Employee of the Corporation, or (iv) as a director, partner, trustee, officer, employee or agent of any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan, foundation, association, organization or other legal entity which such person is or was serving at the request of the Corporation. For purposes of this Section 1(a), a Director, Officer or Non-Officer Employee of the Corporation who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to be serving at the request of the Corporation. Notwithstanding the foregoing, “Corporate Status” shall not include the status of a person who is serving or has served as a director, officer, employee or agent of a constituent corporation absorbed in a merger or consolidation transaction with the Corporation with respect to such person’s activities prior to said transaction, unless specifically authorized by the Board of Directors or the stockholders of the Corporation;

(b) “Director” means any person who serves or has served the Corporation as a director on the Board of Directors of the Corporation;

 

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(c) “Disinterested Director” means, with respect to each Proceeding in respect of which indemnification is sought hereunder, a Director of the Corporation who is not and was not a party to such Proceeding;

(d) “Expenses” means all attorneys’ fees, retainers, court costs, transcript costs, fees of expert witnesses, private investigators and professional advisors (including, without limitation, accountants and investment bankers), travel expenses, duplicating costs, printing and binding costs, costs of preparation of demonstrative evidence and other courtroom presentation aids and devices, costs incurred in connection with document review, organization, imaging and computerization, telephone charges, postage, delivery service fees, and all other disbursements, costs or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settling or otherwise participating in, a Proceeding;

(e) “Liabilities” means judgments, damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement;

(f) “Non-Officer Employee” means any person who serves or has served as an employee or agent of the Corporation, but who is not or was not a Director or Officer;

(g) “Officer” means any person who serves or has served the Corporation as an officer of the Corporation appointed by the Board of Directors of the Corporation;

(h) “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, inquiry, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative, arbitrative or investigative; and

(i) “Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, trust or other entity of which the Corporation owns (either directly or through or together with another Subsidiary of the Corporation) either (i) a general partner, managing member or other similar interest or (ii) (A) fifty percent (50%) or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other entity, or (B) fifty percent (50%) or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other entity.

SECTION 2. Indemnification of Directors and Officers .

(a) Subject to the operation of Section 4 of this Article V of these By-laws, each Director and 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 such law permitted the Corporation to provide prior to such amendment), and to the extent authorized in this Section 2.

 

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(1) Actions, Suits and Proceedings Other than By or In the Right of the Corporation . Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses and Liabilities that are incurred or paid by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein (other than an action by or in the right of the Corporation), which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.

(2) Actions, Suits and Proceedings By or In the Right of the Corporation . Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses that are incurred by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein by or in the right of the Corporation, which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be made under this Section 2(a)(2) in respect of any claim, issue or matter as to which such Director or Officer shall have been finally adjudged by a court of competent jurisdiction to be liable to the Corporation, unless, and only to the extent that, the Court of Chancery or another court in which such Proceeding was brought shall determine upon application that, despite adjudication of liability, but in view of all the circumstances of the case, such Director or Officer is fairly and reasonably entitled to indemnification for such Expenses that such court deems proper.

(3) Survival of Rights . The rights of indemnification provided by this Section 2 shall continue as to a Director or Officer after he or she has ceased to be a Director or Officer and shall inure to the benefit of his or her heirs, executors, administrators and personal representatives.

(4) Actions by Directors or Officers . Notwithstanding the foregoing, the Corporation shall indemnify any Director or Officer seeking indemnification in connection with a Proceeding initiated by such Director or Officer only if such Proceeding (including any parts of such Proceeding not initiated by such Director or Officer) was authorized in advance by the Board of Directors of the Corporation, unless such Proceeding was brought to enforce such Officer’s or Director’s rights to indemnification or, in the case of Directors, advancement of Expenses under these By-laws in accordance with the provisions set forth herein.

SECTION 3. Indemnification of Non-Officer Employees . Subject to the operation of Section 4 of this Article V of these By-laws, each Non-Officer Employee may, in the discretion

 

17


of the Board of Directors of the Corporation, be indemnified by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against any or all Expenses and Liabilities that are incurred by such Non-Officer Employee or on such Non-Officer Employee’s behalf in connection with any threatened, pending or completed Proceeding, or any claim, issue or matter therein, which such Non-Officer Employee is, or is threatened to be made, a party to or participant in by reason of such Non-Officer Employee’s Corporate Status, if such Non-Officer Employee acted in good faith and in a manner such Non-Officer Employee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 3 shall exist as to a Non-Officer Employee after he or she has ceased to be a Non-Officer Employee and shall inure to the benefit of his or her heirs, personal representatives, executors and administrators. Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer Employee seeking indemnification in connection with a Proceeding initiated by such Non-Officer Employee only if such Proceeding was authorized in advance by the Board of Directors of the Corporation.

SECTION 4. Determination . Unless ordered by a court, no indemnification shall be provided pursuant to this Article V to a Director, to an Officer or to a Non-Officer Employee unless a determination shall have been made that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal Proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. Such determination shall be made by (a) a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (b) a committee comprised of Disinterested Directors, such committee having been designated by a majority vote of the Disinterested Directors (even though less than a quorum), (c) if there are no such Disinterested Directors, or if a majority of Disinterested Directors so directs, by independent legal counsel in a written opinion, or (d) by the stockholders of the Corporation.

SECTION 5. Advancement of Expenses to Directors Prior to Final Disposition .

(a) The Corporation shall advance all Expenses incurred by or on behalf of any Director in connection with any Proceeding in which such Director is involved by reason of such Director’s Corporate Status within thirty (30) days after the receipt by the Corporation of a written statement from such Director 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 such Director and shall be preceded or accompanied by an undertaking by or on behalf of such Director to repay any Expenses so advanced if it shall ultimately be determined that such Director is not entitled to be indemnified against such Expenses. Notwithstanding the foregoing, the Corporation shall advance all Expenses incurred by or on behalf of any Director seeking advancement of expenses hereunder in connection with a Proceeding initiated by such Director only if such Proceeding (including any parts of such Proceeding not initiated by such Director) was (i) authorized by the Board of Directors of the Corporation, or (ii) brought to enforce such Director’s rights to indemnification or advancement of Expenses under these By-laws.

 

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(b) If a claim for advancement of Expenses hereunder by a Director is not paid in full by the Corporation within thirty (30) days after receipt by the Corporation of documentation of Expenses and the required undertaking, such Director may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, such Director shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such advancement of Expenses under this Article V shall not be a defense to an action brought by a Director for recovery of the unpaid amount of an advancement claim and shall not create a presumption that such advancement is not permissible. The burden of proving that a Director is not entitled to an advancement of expenses shall be on the Corporation.

(c) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Director has not met any applicable standard for indemnification set forth in the DGCL.

SECTION 6. Advancement of Expenses to Officers and Non-Officer Employees Prior to Final Disposition .

(a) The Corporation may, at the discretion of the Board of Directors of the Corporation, advance any or all Expenses incurred by or on behalf of any Officer or any Non-Officer Employee in connection with any Proceeding in which such person is involved by reason of his or her Corporate Status as an Officer or Non-Officer Employee upon the receipt by the Corporation of a statement or statements from such Officer or Non-Officer Employee 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 such Officer or Non-Officer Employee and shall be preceded or accompanied by an undertaking by or on behalf of such person to repay any Expenses so advanced if it shall ultimately be determined that such Officer or Non-Officer Employee is not entitled to be indemnified against such Expenses.

(b) In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Officer or Non-Officer Employee has not met any applicable standard for indemnification set forth in the DGCL.

SECTION 7. Contractual Nature of Rights .

(a) The provisions of this Article V shall be deemed to be a contract between the Corporation and each Director and Officer entitled to the benefits hereof at any time while this Article V is in effect, in consideration of such person’s past or current and any future performance of services for the Corporation. Neither amendment, repeal or modification of any provision of this Article V nor the adoption of any provision of the Certificate of Incorporation inconsistent with this Article V shall eliminate or reduce any right conferred by this Article V in

 

19


respect of any act or omission occurring, or any cause of action or claim that accrues or arises or any state of facts existing, at the time of or before such amendment, repeal, modification or adoption of an inconsistent provision (even in the case of a proceeding based on such a state of facts that is commenced after such time), and all rights to indemnification and advancement of Expenses granted herein or arising out of any act or omission shall vest at the time of the act or omission in question, regardless of when or if any proceeding with respect to such act or omission is commenced. The rights to indemnification and to advancement of expenses provided by, or granted pursuant to, this Article V shall continue notwithstanding that the person has ceased to be a director or officer of the Corporation and shall inure to the benefit of the estate, heirs, executors, administrators, legatees and distributees of such person.

(b) If a claim for indemnification hereunder by a Director or Officer is not paid in full by the Corporation within sixty (60) days after receipt by the Corporation of a written claim for indemnification, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such indemnification under this Article V shall not be a defense to an action brought by a Director or Officer for recovery of the unpaid amount of an indemnification claim and shall not create a presumption that such indemnification is not permissible. The burden of proving that a Director or Officer is not entitled to indemnification shall be on the Corporation.

(c) In any suit brought by a Director or Officer to enforce a right to indemnification hereunder, it shall be a defense that such Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.

SECTION 8. Non-Exclusivity of Rights . The rights to indemnification and to advancement of Expenses set forth in this Article V shall not be exclusive of any other right which any Director, Officer, or Non-Officer Employee may have or hereafter acquire under any statute, provision of the Certificate or these By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise.

SECTION 9. Insurance . The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Corporation or any such Director, Officer or Non-Officer Employee, or arising out of any such person’s Corporate Status, whether or not the Corporation would have the power to indemnify such person against such liability under the DGCL or the provisions of this Article V.

SECTION 10. Other Indemnification . The Corporation’s obligation, if any, to indemnify or provide advancement of Expenses to any person under this Article V as a result of such person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount such person may collect as indemnification or

 

20


advancement of Expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or enterprise (the “Primary Indemnitor”). Any indemnification or advancement of Expenses under this Article V owed by the Corporation as a result of a person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall only be in excess of, and shall be secondary to, the indemnification or advancement of Expenses available from the applicable Primary Indemnitor(s) and any applicable insurance policies.

ARTICLE VI

Miscellaneous Provisions

SECTION 1. Fiscal Year . The fiscal year of the Corporation shall be determined by the Board of Directors.

SECTION 2. Seal . The Board of Directors shall have power to adopt and alter the seal of the Corporation.

SECTION 3. Execution of Instruments . All deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without director action may be executed on behalf of the Corporation by the Chairperson of the Board, if one is elected, the President or the Treasurer or any other officer, employee or agent of the Corporation as the Board of Directors or the executive committee of the Board may authorize.

SECTION 4. Voting of Securities . Unless the Board of Directors otherwise provides, the Chairperson of the Board, if one is elected, the President or the Treasurer may waive notice of and act on behalf of the Corporation, or appoint another person or persons to act as proxy or attorney in fact for the Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by the Corporation.

SECTION 5. Resident Agent . The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation.

SECTION 6. Corporate Records . The original or attested copies of the Certificate, By-laws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock transfer books, which shall contain the names of all stockholders, their record addresses and the amount of stock held by each, may be kept outside the State of Delaware and shall be kept at the principal office of the Corporation, at an office of its counsel, at an office of its transfer agent or at such other place or places as may be designated from time to time by the Board of Directors.

 

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SECTION 7. Certificate . All references in these By-laws to the Certificate shall be deemed to refer to the Amended and Restated Certificate of Incorporation of the Corporation, as amended and/or restated and in effect from time to time.

SECTION 8. Exclusive Jurisdiction of Delaware Courts . Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall 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 or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or the Certificate or By-laws, or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Section 8.

SECTION 9. Amendment of By-laws .

(a) Amendment by Directors . Except as provided otherwise by law, these By-laws may be amended or repealed by the Board of Directors by the affirmative vote of a majority of the directors then in office.

(b) Amendment by Stockholders . These By-laws may be amended or repealed at any Annual Meeting, or special meeting of stockholders called for such purpose in accordance with these By-Laws, by the affirmative vote of at least seventy-five percent (75%) of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of the majority of the outstanding shares entitled to vote on such amendment or repeal, voting together as a single class. Notwithstanding the foregoing, stockholder approval shall not be required unless mandated by the Certificate, these By-laws, or other applicable law.

SECTION 10. Notices . If mailed, notice to stockholders shall be deemed given when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. Without limiting the manner by which notice otherwise may be given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the DGCL.

SECTION 11. Waivers . A written waiver of any notice, signed by a stockholder or director, or waiver by electronic transmission by such person, whether given before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such person. Neither the business to be transacted at, nor the purpose of, any meeting need be specified in such a waiver.

 

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Exhibit 4.2

ZENDESK, INC.

THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

SEPTEMBER 5, 2012


TABLE OF CONTENTS

 

1.

  Definitions      1   

2.

 

Registration Rights

     5   
 

2.1

   Demand Registration      5   
 

2.2

   Company Registration      6   
 

2.3

   Underwriting Requirements      7   
 

2.4

   Obligations of the Company      8   
 

2.5

   Furnish Information      10   
 

2.6

   Expenses of Registration      10   
 

2.7

   Delay of Registration      10   
 

2.8

   Indemnification      10   
 

2.9

   Reports Under Exchange Act      13   
 

2.10  

   Limitations on Subsequent Registration Rights      13   
 

2.11

   “Market Stand-off” Agreement      13   
 

2.12

   Restrictions on Transfer      14   
 

2.13

   Termination of Registration Rights      15   

3.

 

Information Rights

     16   
 

3.1

   Delivery of Financial Statements      16   
 

3.2

   Inspection      17   
 

3.3

   Termination of Information Rights      17   
 

3.4

   Confidentiality      18   

4.

 

Rights to Future Stock Issuances

     18   
 

4.1

   Right of First Offer      18   
 

4.2

   Termination      19   

5.

 

Additional Covenants

     19   
 

5.1

   Insurance      19   
 

5.2

   Employee Agreements      20   
 

5.3

   Vesting of Shares      20   
 

5.4

   Board Matters      20   
 

5.5

   Matters Requiring Approval of the Preferred Directors      20   
 

5.6

   Successor Indemnification      21   
 

5.7

   Termination of Covenants      21   

6.

 

Miscellaneous

     22   
 

6.1

   Successors and Assigns      22   
 

6.2

   Governing Law      22   
 

6.3

   Counterparts; Facsimile      22   
 

6.4

   Titles and Subtitles      22   
 

6.5

   Notices      22   
 

6.6

   Amendments and Waivers      23   

 

(i)


 

6.7

   Severability      23   
 

6.8

   Aggregation of Stock      23   
 

6.9

   Additional Investors      23   
 

6.10  

   Entire Agreement; Termination of the Prior Agreement      24   
 

6.11

   Arbitration      24   
 

6.12

   Delays or Omissions      24   
 

6.13

   Acknowledgment      24   

Schedule A - Schedule of Investors

 

(ii)


THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

THIS THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (this “ Agreement ”) is made and entered into as of September 5, 2012, by and among Zendesk, Inc., a Delaware corporation (including its predecessors, the “ Company ”), and each of the investors listed on Schedule A hereto (each, an “ Investor ,” and collectively, the “ Investors ”).

RECITALS

WHEREAS, the Company and certain of the Investors have entered into a Series D Preferred Stock Purchase Agreement, dated as of the date hereof (the “ Purchase Agreement ”);

WHEREAS, the Company and those Investors who hold shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are parties to a Second Amended and Restated Investors’ Rights Agreement, dated November 30, 2010 (the “ Prior Agreement ”);

WHEREAS, in connection with the purchase and sale of shares of the Series D Preferred Stock pursuant to the Purchase Agreement, the Company and the other parties to the Prior Agreement desire to amend and restate the Prior Agreement in its entirety as set forth herein; and

WHEREAS, it is a condition precedent to the Company’s and Investors’ obligations under the Purchase Agreement that the Company and the Investors enter into this Agreement in order, among other things, to provide the Investors with certain rights to cause the Company to register shares of Series A Common Stock issuable to the Investors, to receive certain information from the Company and to participate in future equity offerings by the Company;

AGREEMENT

NOW, THEREFORE, in consideration of these premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Definitions . For purposes of this Agreement:

1.1 “ Affiliate ” means, with respect to any specified Person, any other Person who or which, directly or indirectly, controls, is controlled by, or is under common control with such specified Person, including without limitation any general partner, member, officer, director, or manager of such Person and any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company or advisory company with, such Person.

1.2 “ Common Stock ” means shares of Series A Common Stock and Series B Common Stock.

 

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1.3 “ Damages ” means any loss, damage, or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such loss, damage, or liability (or any action in respect thereof) arises out of or is based upon (a) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto or any free writing prospectus; (b) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (c) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law.

1.4 “ Derivative Securities ” means any securities or rights convertible into, or exercisable or exchangeable for (in each case, directly or indirectly), Common Stock, including, without limitation, options and warrants.

1.5 “ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

1.6 “ Excluded Registration ” means (a) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase or similar plan; (b) a registration relating to an SEC Rule 145 transaction; (c) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities; or (d) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.

1.7 “ Form S-1 ” means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.

1.8 “ Form S-3 ” means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits incorporation of substantial information by reference to other documents filed by the Company with the SEC.

1.9 “ GAAP ” means generally accepted accounting principles in the United States.

1.10 “ Holder ” means any holder of Registrable Securities who is a party to this Agreement.

1.11 “ Immediate Family Member ” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, of a natural person referred to herein.

 

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1.12 “ Initiating Holders ” means, collectively, Holders who properly initiate a registration request under this Agreement.

1.13 “ IPO ” means the Company’s first firm-commitment underwritten public offering of its Series A Common Stock under the Securities Act.

1.14 “ Major Investor ” means any Investor that, individually or together with such Investor’s Affiliates, holds at least 1,200,000 shares of Registrable Securities (as adjusted for any stock split, stock dividend, combination, or other recapitalization or reclassification effected after the date hereof).

1.15 “ New Securities ” means any shares of equity securities of the Company, whether or not currently authorized, as well as rights, options or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities.

1.16 “ Person ” means any individual, corporation, partnership, trust, limited liability company, association or other entity.

1.17 “ Preferred Directors ” means, collectively, the Series A Director, Series B Director and Series C Director.

1.18 “ Preferred Stock ” means, collectively, the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock.

1.19 “ Registrable Securities ” means (a) the Series A Common Stock issuable or issued upon conversion of the Preferred Stock held by the Investors; (b) any Series A Common Stock, or any Series A Common Stock issued or issuable (directly or indirectly) upon conversion and/or exercise of any other securities of the Company (including, for purposes of clarity, any shares of Series B Common Stock), acquired by the Investors after the date hereof; and (c) any Series A Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clauses (a) and (b) above; excluding, in all cases, however, any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not assigned pursuant to Section 6.1 , and excluding for purposes of Section 2 any shares for which registration rights have terminated pursuant to Section 2.13 .

1.20 “ Registrable Securities then outstanding ” means the number of shares at a point in time determined by adding the number of shares of outstanding Series A Common Stock that are Registrable Securities at such time and the number of shares of Series A Common Stock issuable (directly or indirectly) at such time pursuant to then exercisable and/or convertible securities that are Registrable Securities.

1.21 “ Restated Certificate ” means the Company’s Sixth Amended and Restated Certificate of Incorporation, as may be amended from time to time.

 

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1.22 “ Restricted Securities ” means the securities of the Company required to bear the legend set forth in Section 2.12(b) .

1.23 “ SEC ” means the Securities and Exchange Commission.

1.24 “ SEC Rule 144 ” means Rule 144 promulgated by the SEC under the Securities Act, or any successor provisions.

1.25 “ SEC Rule 144(b)(1) ” means Rule 144(b)(1) promulgated by the SEC under the Securities Act, or any successor provisions.

1.26 “ SEC Rule 145 ” means Rule 145 promulgated by the SEC under the Securities Act, or any successor provisions.

1.27 “ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

1.28 “ Selling Expenses ” means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any Holder, except for the fees and disbursements of the Selling Holder Counsel borne and paid by the Company as provided in Section 2.6 .

1.29 “ Selling Holder Counsel ” shall have the meaning assigned to it in Section 2.6 .

1.30 “ Series A Common Stock ” means shares of the Company’s Series A Common Stock, par value $0.01 per share.

1.31 “ Series A Director ” means any director of the Company that has been solely designated by the holders of record of the Series A Preferred Stock pursuant to the Restated Certificate or the Third Amended and Restated Voting Agreement, dated as of the date hereof, between the Company, the Investors and certain other stockholders of the Company or otherwise.

1.32 “ Series A Preferred Stock ” means shares of the Company’s Series A Preferred Stock, par value $0.01 per share.

1.33 “ Series B Common Stock ” means shares of the Company’s Series B Common Stock, par value $0.01 per share.

1.34 “ Series B Director ” means any director of the Company that has been solely designated by the holders of record of the Series B Preferred Stock pursuant to the Restated Certificate or the Third Amended and Restated Voting Agreement, dated as of the date hereof, between the Company, the Investors and certain other stockholders of the Company or otherwise.

1.35 “ Series B Preferred Stock ” means shares of the Company’s Series B Preferred Stock, par value $0.01 per share.

 

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1.36 “ Series C Director ” means any director of the Company that has been solely designated by the holders of record of the Series C Preferred Stock pursuant to the Restated Certificate or the Third Amended and Restated Voting Agreement, dated as of the date hereof, between the Company, the Investors and certain other stockholders of the Company or otherwise.

1.37 “ Series C Preferred Stock ” means shares of the Company’s Series C Preferred Stock, par value $0.01 per share.

1.38 “ Series D Preferred Stock ” means shares of the Company’s Series D Preferred Stock, par value $0.01 per share.

2. Registration Rights . The Company covenants and agrees as follows:

2.1 Demand Registration .

(a) Form S-1 Demand . Beginning upon the earlier of (i) five (5) years after the date of this Agreement or (ii) one hundred eighty (180) days after the effective date of the registration statement for the IPO, if the Company receives a request from Holders of at least fifty-one percent (51%) of the Registrable Securities then outstanding (a “ Preferred Interest ”) that the Company file a Form S-1 registration statement with respect to all or part of the Registrable Securities of such Holders having an anticipated aggregate offering price, net of Selling Expenses, of at least thirty million dollars ($30,000,000), then the Company shall (i) within ten (10) days after the date such request is given, give notice thereof (the “ Demand Notice ”) to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within sixty (60) days after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Section 2.1(c) and Section 2.3.

(b) Form S-3 Demand . If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from Holders of at least a Preferred Interest that the Company file a Form S-3 registration statement with respect to all or part of the Registrable Securities of such Holders having an anticipated aggregate offering price, net of Selling Expenses, of at least ten million dollars ($10,000,000), then the Company shall (i) within ten (10) days after the date such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within forty-five (45) days after the date such request is given by the Initiating Holders, file a Form S-3 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and an additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within twenty (20) days of the date the Demand Notice is given, and in each case, subject to the limitations of Section 2.1(c) and Section 2.3 .

 

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(c) Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Section 2.1 a certificate signed by the Company’s chief executive officer stating that, in the good faith judgment of the Company’s Board of Directors, it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly, for a period of not more than sixty (60) days after the request of the Initiating Holders is given; provided , however , that the Company may not invoke this right more than once in any twelve (12) month period; provided , further that the Company shall not register any securities for its own account or that of any other stockholder during such sixty (60) day period, other than an Excluded Registration.

(d) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 2.1(a) (i) during the period that is sixty (60) days before the Company’s good faith estimate of the date of filing of, and ending on a date that is one hundred eighty (180) days after the effective date of, a Company-initiated registration, subject to Section 2.2 below, provided , that the Company is actively employing its good faith commercially reasonable efforts to cause such registration statement to become effective; (ii) after the Company has effected two (2) registrations pursuant to Section 2.1(a) ; or (iii) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 2.1(b) . The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 2.1(b) (i) during the period that is thirty (30) days before the Company’s good faith estimate of the date of filing of, and ending on a date that is ninety (90) days after the effective date of, a Company-initiated registration relating to shares to be sold by the Company, subject to Section 2.2 below, provided , that the Company is actively employing its good faith commercially reasonable efforts to cause such registration statement to become effective; or (ii) if the Company has effected two (2) registrations pursuant to Section 2.1(b) within the twelve (12) month period immediately preceding the date of such request. A registration shall not be counted as “effected” for purposes of this Section 2.1(d) until such time as the applicable registration statement has been declared effective by the SEC, unless the Initiating Holders withdraw their request for such registration (other than as a result of a material adverse change to the Company, in which case such registration shall not be deemed to have been “effected”), elect not to pay the registration expenses therefor, and forfeit their right to one demand registration statement pursuant to Section 2.6, in which case such withdrawn registration statement shall be counted as “effected” for purposes of this Section 2.1(d) .

2.2 Company Registration . If the Company proposes to register (including, for this purpose, a registration effected by the Company for stockholders other than the Holders) any of its securities under the Securities Act in connection with a public offering of such securities solely for cash (other than in an Excluded Registration), the Company shall, at such

 

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time, promptly give each Holder notice of such registration. Upon the request of each Holder given within twenty (20) days after such notice is given by the Company, the Company shall, subject to the provisions of Section 2.3 , cause to be registered all of the Registrable Securities that each such Holder has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration shall be borne by the Company in accordance with Section 2.6 .

2.3 Underwriting Requirements .

(a) If, pursuant to Section 2.1 , the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Section 2.1, and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Company and shall be reasonably acceptable to a two-thirds interest of the Initiating Holders. In such event, the right of any Holder to include such Holder’s Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 2.4(e) ) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Section 2.3, if the underwriter(s) advise(s) the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that otherwise would be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated among such Holders of Registrable Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Registrable Securities owned by each such selling Holder or in such other proportion as shall mutually be agreed to by all such selling Holders; provided , however , that the number of Registrable Securities held by the Holders to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares.

(b) In connection with any offering involving an underwriting of shares of the Company’s capital stock pursuant to Section 2.2 , the Company shall not be required to include any of the Holders’ Registrable Securities in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriter(s), and then only in such quantity as the underwriter(s) determine in good faith will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriter(s) in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriter(s) determine in good faith will not

 

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jeopardize the success of the offering. If the underwriter(s) determine in good faith that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Registrable Securities owned by each such selling Holder or in such other proportions as shall mutually be agreed to by all such selling Holders. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriter(s) may round the number of shares allocated to any Holder to the nearest one hundred (100) shares. Notwithstanding the foregoing, in no event shall (i) the number of Registrable Securities included in the offering be reduced unless all other securities (other than securities to be sold by the Company) are first entirely excluded from the offering, or (ii) the number of Registrable Securities included in the offering be reduced below thirty percent (30%) of the total number of securities included in such offering, unless such offering is the IPO, in which case the selling Holders may be excluded further if the underwriter(s) make the determination described above and no other stockholder’s securities are included in such offering. For purposes of the provision in this Section 2.3(b) concerning apportionment, for any selling Holder that is a partnership, limited liability company or corporation, the partners, members, retired partners, retired members, stockholders and Affiliates of such Holder, or the estates and Immediate Family Members of any such partners, retired partners, members, and retired members and any trusts for the benefit of any of the foregoing Persons, shall be deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling Holder” shall be based upon the aggregate number of Registrable Securities owned by all Persons included in such “selling Holder,” as defined in this sentence.

(c) For purposes of Section 2.1, a registration shall not be counted as “effected” if, as a result of an exercise of the underwriter’s cutback provisions in Section 2.3(a), fewer than fifty percent (50%) of the total number of Registrable Securities that Holders have requested to be including in such registration statement are actually included.

2.4 Obligations of the Company . Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective and, upon the request of the Holders of at least a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the registration statement has been completed; provided , however , that (i) such one hundred twenty (120) day period shall be extended for a period of time equal to the period the Holder refrains, at the request of an underwriter of Series A Common Stock (or other securities) of the Company, from selling any securities included in such registration and (ii) in the case of a registration of Registrable Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such one hundred twenty (120) day period shall be extended up to one hundred eighty (180) days, if necessary, to keep the registration statement effective until all such Registrable Securities are sold;

 

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(b) prepare and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement;

(c) furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate their disposition of their Registrable Securities;

(d) use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders; provided , however, that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;

(e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;

(f) use its commercially reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed;

(g) provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;

(h) promptly make available for inspection by the selling Holders, any underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Company’s officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;

(i) notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and

(j) after such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement such registration statement or prospectus.

 

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2.5 Furnish Information . It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as is reasonably required to effect the registration of such Holder’s Registrable Securities.

2.6 Expenses of Registration . All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 2 , including all registration, filing and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one (1) counsel for the selling Holders (“ Selling Holder Counsel ”) selected by the Holders of a majority of the Registrable Securities to be registered in such registration, shall be borne and paid by the Company; provided , however , that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2.1 if the registration request is subsequently withdrawn at the request of the Holders of at least a majority of the Registrable Securities to be registered (in which case all selling Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of at least a Preferred Interest of the Registrable Securities agree to forfeit their right to one (1) registration pursuant to Section 2.1(a) or Section 2.1(b) , as the case may be; provided , further that if, at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness after learning of such information, then the Holders shall not be required to pay any of such expenses and shall not forfeit their right to one (1) registration pursuant to Section 2.1(a) or Section 2.1(b) . All Selling Expenses relating to Registrable Securities registered pursuant to this Section 2 shall be borne and paid by the Holders of the Registrable Securities to which such Selling Expenses relate.

2.7 Delay of Registration . No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2 .

2.8 Indemnification . If any Registrable Securities are included in a registration statement under this Section 2 :

(a) To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and the partners, members, officers, directors and stockholders of each such Holder, legal counsel and accountants for each such Holder, any underwriter (as defined in the Securities Act) for each such Holder and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to each such Holder, underwriter, controlling Person or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided , however , that the indemnity agreement contained in this Section 2.8(a) shall not apply to amounts paid in settlement of any

 

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such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of any such Holder, underwriter, controlling Person or other aforementioned Person expressly for use in connection with such registration.

(b) To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), any other Holder selling securities in such registration statement and any controlling Person of any such underwriter or other Holder, against any Damages, in each case, only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such selling Holder expressly for use in connection with such registration; and each such selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided , however , that the indemnity agreement contained in this Section 2.8(b) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided , further that in no event shall any indemnity under this Section 2.8(b) , when combined with any amounts paid or payable under Section 2.8(e) , exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of fraud or willful misconduct by such Holder.

(c) Promptly after receipt by an indemnified party under this Section 2.8 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.8 , give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided , however , that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one (1) separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action. The failure to give notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.8 , to the extent that such failure materially prejudices the indemnifying party’s ability to defend such action. The failure to give notice to the indemnifying party will not relieve the indemnifying party of any liability that it may have to any indemnified party otherwise than under this Section 2.8 .

 

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(d) Notwithstanding anything else herein to the contrary, the foregoing indemnity agreements of the Company and the selling Holders are subject to the condition that, insofar as they relate to any Damages arising from any untrue statement or alleged untrue statement of a material fact contained in, or omission or alleged omission of a material fact from, a preliminary prospectus (or necessary to make the statements therein not misleading) that has been corrected in the form of prospectus included in the registration statement at the time it becomes effective, or any amendment or supplement thereto filed with the SEC pursuant to Rule 424(b) under the Securities Act (the “ Final Prospectus ”), such indemnity agreement shall not inure to the benefit of any Person if a copy of the Final Prospectus was furnished to the indemnified party and such indemnified party failed to deliver, at or before the confirmation of the sale of the shares registered in such offering, a copy of the Final Prospectus to the Person asserting the loss, liability, claim, or damage in any case in which such delivery was required by the Securities Act and such delivery would have prevented such Damages.

(e) To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Section 2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that this Section 2.8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Section 2.8 , then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage, liability, or expense, as well as to reflect any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact, or the omission or alleged omission of 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; provided , however , that, in any such case, (x) no Holder will be required to contribute any amount in excess of the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), and (y) 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 was not guilty of such fraudulent misrepresentation; provided , further that in no event shall a Holder’s liability pursuant to this Section 2.8(e) , when combined with the amounts paid or payable by such Holder pursuant to Section 2.8(b) , exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of willful misconduct or fraud by such Holder.

(f) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

 

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(g) Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Section 2.8 shall survive the completion of any offering of Registrable Securities in a registration under this Section 2 , and otherwise shall survive the termination of this Agreement.

2.9 Reports Under Exchange Act . With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company shall:

(a) make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the registration statement filed by the Company for the IPO;

(b) use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements); and

(c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the registration statement filed by the Company for the IPO), the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements) or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after the Company so qualifies); (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company; and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S-3 (at any time after the Company so qualifies to use such form).

2.10 Limitations on Subsequent Registration Rights . From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least a Preferred Interest, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (a) to include such securities in any registration unless, under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the number of the Registrable Securities of the Holders that are included or (b) to demand registration of any securities held by such holder or prospective holder; provided , however , that this limitation shall not apply to any additional Investor who becomes a party to this Agreement in accordance with Section 6.9.

2.11 “ Market Stand-off” Agreement . Each Holder hereby agrees that, if required by the managing underwriter, it will not, during the period commencing on the date of

 

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the final prospectus relating to the IPO and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days, which period may be extended upon the request of the managing underwriter for an additional period of up to fifteen (15) days if the Company issues or proposes to issue an earnings or other public release within fifteen (15) days of the expiration of the one hundred eighty (180) day lockup period), lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of Series A Common Stock or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Series A Common Stock held immediately before the effective date of the registration statement for such offering. The foregoing provisions of this Section 2.11 shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement and shall be applicable to the Holders only if all officers, directors and stockholders individually owning more than one percent (1%) of the Company’s outstanding Series A Common Stock (after giving effect to conversion into Series A Common Stock of all outstanding shares of Preferred Stock and Series B Common Stock) are subject to the same restrictions. The underwriters in connection with such registration are intended third-party beneficiaries of this Section 2.11 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in connection with such registration that are consistent with this Section 2.11 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply pro rata to all Holders subject to such agreements, based on the number of shares subject to such agreements.

2.12 Restrictions on Transfer .

(a) The Preferred Stock and the Registrable Securities shall not be sold, pledged or otherwise transferred, and the Company shall not recognize any such sale, pledge or transfer, except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. A transferring Holder will cause any proposed purchaser, pledgee or transferee of the Preferred Stock and the Registrable Securities held by such Holder to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement.

(b) Each certificate or instrument representing (i) the Preferred Stock, (ii) the Registrable Securities and (iii) any other securities issued in respect of the securities referenced in clauses (i) and (ii) above, upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, shall (unless otherwise permitted by the provisions of Section 2.12(c) ) be stamped or otherwise imprinted with a legend substantially in the following form:

THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD, PLEDGED, OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.

 

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THE SECURITIES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD AFTER THE EFFECTIVE DATE OF THE ISSUER’S REGISTRATION STATEMENT FILED UNDER THE ACT, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.

The Holders consent to the Company making a notation in its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer set forth in this Section 2.12 .

(c) The holder of each certificate representing Restricted Securities, by acceptance thereof, agrees to comply in all respects with the provisions of this Section 2 . Before any proposed sale, pledge or transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transaction, the Holder thereof shall give notice to the Company of such Holder’s intention to effect such sale, pledge or transfer. Each such notice shall describe the manner and circumstances of the proposed sale, pledge or transfer in sufficient detail and, if reasonably requested by the Company, shall be accompanied at such Holder’s expense by either (i) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company, addressed to the Company, to the effect that the proposed transaction may be effected without registration under the Securities Act; (ii) a “no action” letter from the SEC to the effect that the proposed sale, pledge, or transfer of such Restricted Securities without registration will not result in a recommendation by the staff of the SEC that action be taken with respect thereto; or (iii) any other evidence reasonably satisfactory to counsel to the Company to the effect that the proposed sale, pledge, or transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the Holder of such Restricted Securities shall be entitled to sell, pledge, or transfer such Restricted Securities in accordance with the terms of the notice given by the Holder to the Company. The Company will not require such a legal opinion or “no action” letter (x) in any transaction in compliance with SEC Rule 144 or (y) in any transaction in which such Holder distributes Restricted Securities to an Affiliate of such Holder for no consideration; provided that each transferee pursuant to clause (y) agrees in writing to be subject to the terms of this Section 2.12 . Each certificate or instrument evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to SEC Rule 144, the appropriate restrictive legend set forth in Section 2.12(b) , except that such certificate shall not bear such restrictive legend if, in the opinion of counsel for such Holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act.

2.13 Termination of Registration Rights . The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Section 2.1 or

 

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Section 2.2 shall terminate upon the closing of a Deemed Liquidation Event (as defined in the Restated Certificate) pursuant to which the Investors receive cash and/or marketable securities, or the later to occur of:

(a) such time following the IPO when all of such Holder’s Registrable Securities could be sold without restriction under SEC Rule 144(b)(1) within any ninety (90) day period; or

(b) the fifth (5 th ) anniversary of the Company’s first Qualified Public Offering (as defined in the Restated Certificate).

3. Information Rights .

3.1 Delivery of Financial Statements . The Company shall deliver (i) to each Major Investor (in each case including a copy to crvfinance@crv.com ) the information set forth in Subsections (a) – (f) below and (ii) to GS Direct, L.L.C. (“ GS ”) the information set forth in Subsections (a) and (b) below:

(a) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, (i) a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year, and a comparison between (x) the actual amounts as of and for such fiscal year and (y) the comparable amounts for the prior year and as included in the Budget (as defined in Section 3.1(e) ) for such year, with an explanation of any material differences between such amounts and a schedule as to the sources and applications of funds for such year; and (iii) a statement of stockholders’ equity as of the end of such year, all such financial statements audited and certified by independent public accountants selected by the Company and approved by the Board of Directors, which approval shall include the approval of at least two of the Preferred Directors;

(b) as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, unaudited statements of income and of cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholders’ equity as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that such financial reports may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP);

(c) as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the Common Stock issuable upon conversion or exercise of any outstanding securities convertible or exercisable for Common Stock and the exchange ratio or exercise price applicable thereto, and the number of shares of issued stock options and stock options not yet issued but reserved for issuance, if any, all in sufficient detail as to permit the Investors to calculate their respective percentage equity ownership in the Company, and certified by the chief financial officer or chief executive officer of the Company as being true, complete, and correct;

 

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(d) as soon as practicable, but in any event within thirty (30) days of the end of each month, an unaudited income statement and statement of cash flows for such month, and an unaudited balance sheet as of the end of such month (“ Monthly Financials ”), all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP); provided , however , that the Company shall have no obligation to deliver such Monthly Financials until such time that the Company undertakes to prepare monthly financials reports;

(e) as soon as practicable, but in any event thirty (30) days before the end of each fiscal year, a budget and business plan for the next fiscal year (collectively, the “ Budget ”), prepared on a monthly basis, including balance sheets, income statements, and statements of cash flow for such months and, promptly after prepared, any other budgets or revised budgets or forecasts prepared by the Company; and including, in each case, any revisions thereto; and

(f) as soon as practicable, any reports or analyses concerning the fair market value of the Common Stock, whether prepared by Company employees or third parties; provided , however , the Company shall have no obligation to disclose any report prepared by third parties if such disclosure is prohibited by the terms of such report or analysis.

If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.

Notwithstanding anything in this Section 3.1 to the contrary, the Company may cease providing the information set forth in this Section 3.1 during the period starting with the date thirty (30) days before the Company’s good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided , however , that the Company’s covenants under this Section 3.1 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective.

3.2 Inspection . The Company shall permit each Major Investor, at such Major Investor’s expense, to visit and inspect the Company’s properties, examine its books of account and records and discuss the Company’s affairs, finances, and accounts with its officers, during normal business hours of the Company as may be reasonably requested by the Major Investor; provided , however , that the Company shall not be obligated pursuant to this Section 3.2 to provide access to any information that it reasonably considers to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in form acceptable to the Company) or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.

3.3 Termination of Information Rights . The covenants set forth in Section 3.1 and Section 3.2 shall terminate and be of no further force or effect (a) immediately before, but

 

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subject to, the consummation of the IPO or (b) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, whichever event occurs first.

3.4 Confidentiality . Each Investor agrees that such Investor will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) any confidential information obtained from the Company pursuant to the terms of this Agreement (including notice of the Company’s intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Section 3.4 by such Investor), (b) is or has been independently developed or conceived by the Investor without use of the Company’s confidential information or (c) is or has been made known or disclosed to the Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided , however , that an Investor may disclose confidential information (i) to its attorneys, accountants, consultants and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company; (ii) to any existing or prospective purchaser of any Registrable Securities from such Investor, if such purchaser agrees to be bound by the provisions of this Section 3.4 ; (iii) to any existing or prospective Affiliate, partner, member, stockholder, or wholly owned subsidiary of such Investor in the ordinary course of business, provided that such Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information; or (iv) as may otherwise be required by law or pursuant to regulatory requests, provided that the Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure. Notwithstanding the foregoing, nothing in this Section 3.4 shall restrict the ability of any Investor that is an investment fund to disclose the existence and nature of its relationship with the Company to its affiliates, members or partners, or to provide its affiliates, members, limited partners or partners with periodic reports and such other financial information about the Company prepared by such Investor in the ordinary course of its business.

4. Rights to Future Stock Issuances .

4.1 Right of First Offer . Subject to the terms and conditions of this Section 4.1 and applicable securities laws, if the Company proposes to offer or sell any New Securities, the Company shall first offer such New Securities to each Major Investor and GS. A Major Investor and GS shall be entitled to apportion the right of first offer hereby granted to it among itself and its Affiliates in such proportions as it deems appropriate.

(a) The Company shall give notice (the “ Offer Notice ”) to each Investor, stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered and (iii) the price and terms, if any, upon which it proposes to offer such New Securities.

(b) By notification to the Company within twenty (20) days after the Offer Notice is given, each Major Investor and GS may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the proportion that the Registrable Securities and any other Derivative Securities

 

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then held by such Investor bears to the total Common Stock then outstanding (assuming full conversion and/or exercise, as applicable, of all Preferred Stock and other Derivative Securities). At the expiration of such twenty (20) day period, the Company shall promptly notify each Major Investor that elects, and GS if it elects, to purchase or acquire all the shares available to it (each, a “ Fully Exercising Investor ”) of any other Major Investor’s or GS’s failure to do likewise. During the ten (10) day period commencing after the Company has given such notice, each Fully Exercising Investor may, by giving notice to the Company, elect to purchase or acquire, in addition to the number of shares specified above, up to that portion of the New Securities for which Major Investors and GS were entitled to subscribe but that were not subscribed for by the Major Investors and GS which is equal to the proportion that the Registrable Securities and any other Derivative Securities then held by such Fully Exercising Investor bears to the Registrable Securities and any other Derivative Securities then held, by all Fully Exercising Investors who wish to purchase such unsubscribed shares or in such other proportion as shall be agreed among the Fully Exercising Investors. The closing of any sale pursuant to this Section 4.1(b) shall occur within the later of one hundred twenty (120) days of the date that the Offer Notice is given and the date of initial sale of New Securities pursuant to Section 4.1(d) .

(c) If all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Section 4.1(b) , the Company may, during the ninety (90) day period following the expiration of the periods provided in Section 4.1(b) , offer and sell the remaining unsubscribed portion of such New Securities to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Major Investors and GS in accordance with this Section 4.1 .

(d) The right of first offer in this Section 4.1 shall not be applicable to (i) Exempted Securities (as defined in the Restated Certificate), (ii) shares of Series A Common Stock issued in a Qualified Public Offering (as defined in the Restated Certificate) and (iii) shares of Series D Preferred Stock issued pursuant to the Purchase Agreement.

4.2 Termination . The covenants set forth in Section 4.1 shall terminate and be of no further force or effect (i) immediately before, but subject to, the consummation of a Qualified Public Offering (as defined in the Restated Certificate) or (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, whichever event occurs first.

5. Additional Covenants .

5.1 Insurance . The Company shall use its commercially reasonable efforts to obtain, from financially sound and reputable insurers (a) directors and officers’ liability insurance and (b) term “key-person” insurance on each of Alexander Aghassipour, Morten Primdahl and Mikkel Svane (each, a “ Founder ”), in each case, in an amount and on terms and conditions satisfactory to the Board of Directors (including at least two of the Preferred Directors), and will use commercially reasonable efforts to cause such insurance policies to be

 

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maintained until such time as the Board of Directors (including at least two of the Preferred Directors) determines that such insurance should be discontinued. The “key-person” insurance policy shall name the Company as loss payee, and neither policy shall be cancelable by the Company without the prior approval of the Board of Directors (including at least two of the Preferred Directors).

5.2 Employee Agreements . The Company will cause each person now or hereafter employed by it or by any subsidiary (or engaged by the Company or any subsidiary as a consultant or independent contractor) with access to confidential information and/or trade secrets of the Company to enter into a nondisclosure and proprietary rights assignment agreement in the form approved by the Company’s Board of Directors.

5.3 Vesting of Shares . Unless otherwise approved by the Board of Directors (including at least two of the Preferred Directors), all future employees and consultants of the Company who purchase, receive options to purchase, or receive awards of shares of the Company’s capital stock after the date hereof shall be required to execute restricted stock or option agreements, as applicable, providing for (a) vesting of shares over a four (4) year period, with the first twenty-five percent (25%) of such shares vesting following twelve (12) months of continued employment or service and the remaining shares vesting in equal monthly installments over the following thirty-six (36) months and (b) a market stand-off provision substantially similar to that in Section 2.11 . The Company shall retain a right of first refusal on transfers until the Company’s IPO and the right to repurchase unvested shares at cost.

5.4 Board Matters . Unless otherwise determined by the vote of a majority of the directors then in office (including at least two of the Preferred Directors), the Board of Directors shall meet at least quarterly in accordance with an agreed-upon schedule. The Company shall reimburse the non-employee directors for all reasonable out-of-pocket travel expenses incurred (consistent with the Company’s travel policy) in connection with attending meetings of the Board of Directors. Except to the extent its fiduciary duties require otherwise, the Board of Directors shall cause each of the Preferred Directors, if each such person so elects, to be appointed to each committee of the Board of Directors.

5.5 Matters Requiring Approval of the Preferred Directors . So long as (i) the holders of Series A Preferred Stock are entitled to elect a Series A Director, (ii) the holders of Series B Preferred Stock are entitled to elect a Series B Director or (iii) the holders of Series C Preferred Stock are entitled to elect a Series C Director, the Company hereby covenants and agrees with each of the Investors that it shall not, without approval of the Board of Directors, which approval must include the affirmative vote a majority of the Preferred Directors:

(a) make, or permit any subsidiary to make, any loan or advance to, or own any stock or other securities of, any subsidiary or other corporation, partnership or other entity unless it is wholly owned by the Company;

(b) make, or permit any subsidiary to make, any loan or advance in excess of $100,000 to any Person, including, without limitation, any employee or director of the Company or any subsidiary, except advances and similar expenditures in the ordinary course of

 

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business or under the terms of an employee stock or option plan approved by the Board of Directors;

(c) guarantee, directly or indirectly, or permit any subsidiary to guarantee, directly or indirectly, any indebtedness, except for trade accounts of the Company or any subsidiary arising in the ordinary course of business;

(d) implement (or amend) any cash investment policy or make any investment inconsistent with any such investment policy;

(e) incur any aggregate indebtedness in excess of $500,000 that is not already included in a budget approved by the Board of Directors, other than trade credit incurred in the ordinary course of business;

(f) otherwise enter into or be a party to any transaction with any director, officer or employee of the Company or any “associate” (as defined in Rule 12b-2 promulgated under the Exchange Act) of any such Person, except for transactions contemplated by this Agreement or the Purchase Agreement;

(g) hire, terminate, or materially change the compensation of any executive officer of the Company, including approving any option grants or stock awards to any executive officer of the Company;

(h) change the principal business of the Company, enter into new lines of business or exit the current line of business; or

(i) sell, assign, license, pledge or encumber material technology or intellectual property of the Company or any subsidiary, other than licenses granted in the ordinary course of business.

5.6 Successor Indemnification . If the Company or any of its successors or assignees consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper provision shall be made so that the successors and assignees of the Company assume the obligations of the Company with respect to indemnification of members of the Board of Directors as in effect immediately before such transaction, whether such obligations are contained in the Company’s Bylaws, the Restated Certificate or elsewhere, as the case may be.

5.7 Termination of Covenants . The covenants set forth in this Section 5 , except for Section 5.6 , shall terminate and be of no further force or effect (i) immediately before but subject to the consummation of a Qualified Public Offering, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a Deemed Liquidation Event (as defined in the Restated Certificate) pursuant to which the Investors receive cash and/or marketable securities, whichever event occurs first.

 

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6. Miscellaneous .

6.1 Successors and Assigns . The rights under this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee of Registrable Securities that (a) is an Affiliate, partner, member, limited partner, retired partner, retired member, or stockholder of a Holder; (b) is a Holder’s Immediate Family Member or trust for the benefit of an individual Holder or one or more of such Holder’s Immediate Family Members; or (c) after such transfer, holds at least four hundred thousand (400,000) shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations); provided , however , that (i) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such rights are being transferred; and (ii) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement, including the provisions of Section 2.11 . For the purposes of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee (A) that is an Affiliate, limited partner, retired partner, member, retired member, or stockholder of a Holder; (B) who is a Holder’s Immediate Family Member; or (C) that is a trust for the benefit of an individual Holder or such Holder’s Immediate Family Member shall be aggregated together and with those of the transferring Holder; provided further that all transferees who would not qualify individually for assignment of rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices, or taking any action under this Agreement. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.

6.2 Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of the State of Delaware, without regard to its principles of conflicts of laws.

6.3 Counterparts; Facsimile . This Agreement may also be executed and delivered by facsimile signature and in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

6.4 Titles and Subtitles . The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.

6.5 Notices . All notices, requests, and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given, delivered and received (a) upon personal delivery to the party to be notified; (b) 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; (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (d) one (1) business day after the business day of deposit with a nationally recognized overnight courier, specifying next-day delivery, with written verification of receipt, and for international parties, when sent with an internationally recognized courier, three (3) days after deposit. All communications shall be sent to the respective parties at their addresses as set forth on the signature pages hereto or to such

 

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email address, facsimile number, or address as subsequently modified by written notice given in accordance with this Section 6.5 . All communications to the Company shall be sent to 989 Market St., Ste. 300, San Francisco, California, 94103, Attention: General Counsel, with a copy (which shall not constitute notice) to Goodwin Procter LLP, Exchange Place, 53 State Street, Boston, MA 02109, Attention: William J. Schnoor, Jr., Esq., Facsimile No: 617-523-1231.

6.6 Amendments and Waivers . Any term of this Agreement, including without limitation Section 4.1 , may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Company and the holders of at least a fifty-one percent (51%) of the Registrable Securities then outstanding; provided , however , that the Company may in its sole discretion waive compliance with Section 2.12(c) (and the Company’s failure to object promptly in writing after notification of a proposed assignment allegedly in violation of Section 2.12(c) shall be deemed to be a waiver); provided , further , that any provision hereof may be waived by any waiving party on such party’s own behalf, without the consent of any other party. Notwithstanding the foregoing, this Agreement may not be amended or terminated and the observance of any term hereof may not be waived with respect to any Investor without the written consent of such Investor, unless such amendment, termination, or waiver applies to all Investors in the same fashion (it being agreed that a waiver of the provisions of Section 4 with respect to a particular transaction shall be deemed to apply to all Investors in the same fashion if such waiver does so by its terms, notwithstanding the fact that certain Investors may nonetheless, by agreement with the Company, purchase securities in such transaction). The Company shall give prompt notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination, or waiver. Any amendment, termination, or waiver effected in accordance with this Section 6.6 shall be binding on all parties hereto, regardless of whether any such party has consented thereto. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.

6.7 Severability . In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.

6.8 Aggregation of Stock . All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

6.9 Additional Investors . Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of the Company’s Preferred Stock after the date hereof, any purchaser of such shares of Preferred Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter shall be deemed an “Investor” for all purposes hereunder. No action or consent by the Investors shall be required for such joinder to this Agreement by such additional Investor, so

 

23


long as such additional Investor has agreed in writing to be bound by all of the obligations as an “Investor” hereunder.

6.10 Entire Agreement; Termination of the Prior Agreement . This Agreement (including any Schedules and Exhibits hereto) constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled. Upon the effectiveness of this Agreement, the Prior Agreement shall terminate and be of no further force and effect, and shall be superseded and replaced in its entirety by this Agreement.

6.11 Arbitration . The parties agree first to negotiate in good faith to resolve any disputes arising out of or relating to or affecting the subject matter of this Agreement. Any dispute arising out of or relating to or affecting the subject matter of this Agreement not resolved by negotiation shall be settled by binding arbitration in Santa Clara County, California before the Judicial Arbitration and Mediation Services, Inc. (“ JAMS ”) under the JAMS Rules of Practice and Procedure. The arbitrator shall be a former judge of a court of California. Discovery and other procedural matters shall be governed as though the proceeding were an arbitration. Any judgment upon the award may be confirmed and entered in any court having jurisdiction thereof. The arbitrator shall be required to, in all determinations, apply California law without regard to its conflicts of law provisions. Notwithstanding the foregoing, the arbitrator shall apply the substantive law of the state of incorporation of the Company, where applicable. The arbitrator is afforded the jurisdiction to order any provisional remedies, including, without limitation, injunctive relief. The arbitrator may award the prevailing party the costs of arbitration, including reasonable attorneys’ fees and expenses. The arbitrator’s award shall be in writing and shall state the reasons for the award. The parties stipulate that a JAMS employee may be appointed as a judge pro tempore of the Superior Court of Santa Clara County if required to carry out the terms of this provision. Arbitration shall be the sole and exclusive means to resolve any dispute.

6.12 Delays or Omissions . No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching or nondefaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

6.13 Acknowledgment . The Company acknowledges that the Investors are in the business of venture capital investing and therefore review the business plans and related proprietary information of many enterprises, including enterprises which may have products or services which compete directly or indirectly with those of the Company. Nothing in this Agreement shall preclude or in any way restrict the Investors from investing or participating in any particular enterprise whether or not such enterprise has products or services which compete with those of the Company.

[Signature Pages Follow]

 

24


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

 

COMPANY :
ZENDESK, INC.
By:   /s/ Mikkel Svane
Name: Mikkel Svane
Title: Chief Executive Officer

 

[Signature Page to Third Amended and Restated Investors’ Rights Agreement]


INVESTORS :

Redpoint Omega II, L.P., by its General Partner Redpoint Omega II, LLC

By:   /s/ Satish Dharmaraj
  Satish Dharmaraj, Managing Director

Redpoint Omega Associates II, LLC , as nominee

By:   /s/ Satish Dharmaraj
  Satish Dharmaraj, Managing Director

 

[Signature Page to Third Amended and Restated Investors’ Rights Agreement]


INVESTORS :
INDEX VENTURES GROWTH II (JERSEY), L.P

By: its Managing General Partner:

Index Venture Growth Associates II Limited

/s/ N. P. Ginnis

N.P. Ginnis

Director

INDEX VENTURES GROWTH II PARALLEL

ENTREPRENEUR FUND (JERSEY), L.P

By: its Managing General Partner:

Index Venture Growth Associates II Limited

/s/ N. P. Ginnis

N.P. Ginnis

Director

 

Address:

 

Index Venture Growth Associates II Limited

No 1 Seaton Place

St Helier

Jersey JE4 8YJ

Channel Islands

Attention: Nicky Barthorp

Fax + 44 (0) 1534 605605

 

[Signature Page to Third Amended and Restated Investors’ Rights Agreement]


INVESTORS :

 

YUCCA PARTNERS LP JERSEY BRANCH

 

By: Ogier Employee Benefit Services Limited as Authorised Signatory of Yucca Partners LP Jersey Branch in its capacity as administrator of the Index Co-Investment Scheme,

/s/ Giles Johnstone-Scott and Alex Di Santo

Authorised Signatory - Ogier Employee Benefit Services Limited

 

Address:

 

Ogier Employee Benefit Services Limited

Ogier House

The Esplanade

St Helier

Jersey JE4 9WG

Channel Islands

Facsimile +44 (0) 1534 504444

Attention: Peter Mitchell/Shane Hugill

 

With copies to:

Index Venture Management S.A.

2 rue de Jargonnant

1207 Geneva

Switzerland

Fax: +41 22 737 0099

Attention: Andre Dubois

 

[Signature Page to Third Amended and Restated Investors’ Rights Agreement]


INVESTORS :

GGV Capital IV L.P.

By: GGV Capital IV L.L.C., its General Partner

By:  

/s/ Glenn Solomon

 

Glenn Solomon

Managing Director

GGV Capital IV Entrepreneurs Fund L.P.

By: GGV Capital IV L.L.C., its General Partner

By:  

/s/ Glenn Solomon

 

Glenn Solomon

Managing Director

 

[Signature Page to Third Amended and Restated Investors’ Rights Agreement]


INVESTORS :

 

GS DIRECT, L.L.C.

By:   /s/ Anthony Noto
Name:   Anthony Noto
Title:   Vice President

 

[Signature Page to Third Amended and Restated Investors’ Rights Agreement]


INVESTORS :

 

MATRIX PARTNERS IX, L.P.

By:  

Matrix IX Management Co., L.L.C.,

its General Partner

By:   /s/ Dana Stalder
Name:   Dana Stalder
  Managing Member

 

Address:  

Bay Colony Corporate Center

1000 Winter Street, Suite 4500

Waltham, MA 02451

 

WESTON & CO. IX LLC, as Nominee
By:  

Matrix Partners Management Services, L.P.,

Sole Member

By:  

Matrix Partners Management Services GP, LLC,

its General Partner

By:   /s/ Dana Stalder
Name:   Dana Stalder
  Authorized Member

 

[Signature Page to Third Amended and Restated Investors’ Rights Agreement]


INVESTORS :

 

CHARLES RIVER PARTNERSHIP XIII, LP

By:   Charles River XIII GP, LP
  Its   General Partner
    By:   Charles River XIII GP, LLC
    Its:   General Partner

 

By:   /s/ Devdutt Yellurkar
 

Authorized Manager

 

CHARLES RIVER FRIENDS XIII-A, LP
By:   Charles River XIII GP, LLC
  Its:   General Partner

 

By:   /s/ Devdutt Yellurkar
 

Authorized Manager

 

Address:

 

Charles River Ventures

One Broadway, 15th Floor

Cambridge, MA 02142

 

Attention: General Counsel

Facsimile: (781) 768-6100

 

with a copy (which shall not constitute notice) to:

 

Sarah Reed, Esq.

Charles River Ventures, LLC

One Broadway, 15th Floor

Cambridge, MA 02142

Facsimile: 781-768-6230

 

[Signature Page to Third Amended and Restated Investors’ Rights Agreement]


INVESTORS :

 

BENCHMARK CAPITAL PARTNERS VI, L.P.

as nominee for

Benchmark Capital Partners VI, L.P.,

Benchmark Founders’ Fund VI, L.P.,

Benchmark Founders’ Fund VI-B, L.P.

and related individuals

 

By:   Benchmark Capital Management Co. VI,
L.L.C., its general partner

 

By:   /s/ Steven M. Spurlock
Managing Member

 

Address:

 

2480 Sand Hill Road, Suite 200

Menlo Park, CA 94025

 

with a copy (which shall not constitute notice) to:

 

Gunderson Dettmer Stough Villeneuve

Franklin & Hachigian, LLP

1200 Seaport Blvd.

Redwood City, CA 94063

 

[Signature Page to Third Amended and Restated Investors’ Rights Agreement]


INVESTORS :

RJ Beteiligungsgesellschaft mbH

By: Christoph Janz, Managing Director

/s/ Christoph Janz

Christoph Janz

 

Address:

 

RJ Beteiligungsgesellschaft mbH

Albert-Schöchle-Weg 3

D-71640 Ludwigsburg Germany

 

[Signature Page to Third Amended and Restated Investors’ Rights Agreement]


SCHEDULE A

Investors

Charles River Partnership XIII, LP

Charles River Friends XIII-A, LP

Benchmark Capital Partners VI, L.P.

RJ Beteiligungsgesellschaft mbH

Matrix Partners IX, L.P.

Weston & Co. IX LLC, as Nominee

Redpoint Omega II, L.P.

Redpoint Omega Associates II, LLC

Index Ventures Growth II (Jersey), L.P

Index Ventures Growth II Parallel Entrepreneur Fund (Jersey), L.P

Yucca Partners LP Jersey Branch

GGV Capital IV L.P.

GGV Capital IV Entrepreneurs Fund L.P.

GS Direct, L.L.C.

Exhibit 4.3

EXECUTION VERSION

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AS SET FORTH IN SECTIONS 5.3 AND 5.4 BELOW, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND LAWS OR IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY, SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

WARRANT TO PURCHASE STOCK

 

Company:    Zendesk, Inc.
Number of Shares:    250,000 (the Initial Shares ), plus all Additional Shares which Holder is entitled to purchase pursuant to Section 1.7
Type/Series of Stock:    Series B Common Stock
Warrant Price:    $0.96 per share, with respect to the Initial Shares, and the price per share calculated in accordance with Section 1.7, with respect to any Additional Shares
Issue Date:    June 12, 2012
Expiration Date:    June 11, 2019
Credit Facility:    This Warrant to Purchase Stock ( Warrant ) is issued in connection with that certain Loan and Security Agreement of even date herewith between Silicon Valley Bank and the Company (the Loan Agreement ).

THIS WARRANT CERTIFIES THAT, for good and valuable consideration, SILICON VALLEY BANK (together with any successor or permitted assignee or transferee of this Warrant or of any shares issued upon exercise hereof, “ Holder ”) is entitled to purchase the number of fully paid and non-assessable shares (the “ Shares ”) of the above-stated Type/Series of Stock (the “ Class ”) of the above-named company (the “ Company ”) at the above-stated Warrant Price, all as set forth above and as adjusted pursuant to Section 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant. Reference is made to Section 5.4 of this Warrant whereby Silicon Valley Bank shall transfer this Warrant to its parent company, SVB Financial Group.

SECTION 1. EXERCISE .

1.1 Method of Exercise . Holder may at any time and from time to time exercise this Warrant, in whole or in part, by delivering to the Company the original of this Warrant together with a duly executed Notice of Exercise in substantially the form attached hereto as Appendix 1 and, unless Holder is exercising this Warrant pursuant to a cashless exercise set forth in Section 1.2, a check, wire transfer of same-day funds (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.

1.2 Cashless Exercise . On any exercise of this Warrant, in lieu of payment of the aggregate Warrant Price in the manner as specified in Section 1.1 above, but otherwise in accordance with the requirements of Section 1.1, Holder may elect to receive Shares equal to the


value of this Warrant, or portion hereof as to which this Warrant is being exercised. Thereupon, the Company shall issue to the Holder such number of fully paid and non-assessable Shares as are computed using the following formula:

X = Y(A-B)/A

where:

 

  X =    the number of Shares to be issued to the Holder;
  Y =    the number of Shares with respect to which this Warrant is being exercised (inclusive of the Shares surrendered to the Company in payment of the aggregate Warrant Price);
  A =    the Fair Market Value (as determined pursuant to Section 1.3 below) of one Share; and
  B =    the Warrant Price.

1.3 Fair Market Value . If the Company’s common stock is then traded or quoted on a nationally recognized securities exchange, inter-dealer quotation system or over-the-counter market (a “ Trading Market ”) and the Class is common stock, the fair market value of a Share shall be the closing price or last sale price of a share of common stock reported for the Business Day immediately before the date on which Holder delivers this Warrant together with its Notice of Exercise to the Company. If the Company’s common stock is then traded in a Trading Market and the Class is a series of the Company’s convertible preferred stock, the fair market value of a Share shall be the closing price or last sale price of a share of the Company’s common stock reported for the Business Day immediately before the date on which Holder delivers this Warrant together with its Notice of Exercise to the Company multiplied by the number of shares of the Company’s common stock into which a Share is then convertible. If the Company’s common stock is not traded in a Trading Market, the Board of Directors of the Company shall determine the fair market value of a Share in its reasonable good faith judgment.

1.4 Delivery of Certificate and New Warrant . Within a reasonable time after Holder exercises this Warrant in the manner set forth in Section 1.1 or 1.2 above, the Company shall deliver to Holder a certificate representing the Shares issued to Holder upon such exercise and, if this Warrant has not been fully exercised and has not expired, a new warrant of like tenor representing the Shares not so acquired.

1.5 Replacement of Warrant . On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form, substance and amount to the Company or, in the case of mutilation, on surrender of this Warrant to the Company for cancellation, the Company shall, within a reasonable time, execute and deliver to Holder, in lieu of this Warrant, a new warrant of like tenor and amount.

 

2


1.6 Treatment of Warrant Upon Acquisition of Company .

(a) Acquisition . For the purpose of this Warrant, “ Acquisition ” means any transaction or series of related transactions involving: (i) the sale, lease, exclusive license, or other disposition of all or substantially all of the assets of the Company (ii) any merger or consolidation of the Company into or with another person or entity (other than a merger or consolidation effected exclusively to change the Company’s domicile), or any other corporate reorganization, in which the stockholders of the Company in their capacity as such immediately prior to such merger, consolidation or reorganization, own less than a majority of the Company’s (or the surviving or successor entity’s) outstanding voting power immediately after such merger, consolidation or reorganization; or (iii) any sale or other transfer by the stockholders of the Company of shares representing at least a majority of the Company’s then-total outstanding combined voting power.

(b) Treatment of Warrant at Acquisition . In the event of an Acquisition in which the consideration to be received by the Company’s stockholders consists solely of cash, solely of Marketable Securities or a combination of cash and Marketable Securities (a “ Cash/Public Acquisition ”), either (i) Holder shall exercise this Warrant pursuant to Section 1.1 and/or 1.2 and such exercise will be deemed effective immediately prior to and contingent upon the consummation of such Acquisition or (ii) if Holder elects not to exercise the Warrant, this Warrant will expire immediately prior to the consummation of such Acquisition.

(c) The Company shall provide Holder with written notice of its request relating to the Cash/Public Acquisition (together with such reasonable information as Holder may reasonably require regarding the treatment of this Warrant in connection with such contemplated Cash/Public Acquisition giving rise to such notice), which is to be delivered to Holder not less than seven (7) Business Days prior to the closing of the proposed Cash/Public Acquisition. In the event the Company does not provide such notice, then if, immediately prior to the Cash/Public Acquisition, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above would be greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be exercised pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised, and the Company shall promptly notify the Holder of the number of Shares (or such other securities) issued upon such exercise to the Holder and Holder shall be deemed to have restated each of the representations and warranties in Section 4 of the Warrant as the date thereof.

(d) Upon the closing of any Acquisition other than a Cash/Public Acquisition defined above, the acquiring, surviving or successor entity shall assume the obligations of this Warrant, and this Warrant shall thereafter be exercisable for the same securities and/or other property as would have been paid for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on and as of the closing of such Acquisition, subject to further adjustment from time to time in accordance with the provisions of this Warrant.

(e) As used in this Warrant, Marketable Securities means securities meeting all of the following requirements: (i) the issuer thereof is then subject to the reporting

 

3


requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act ), and is then current in its filing of all required reports and other information under the Act and the Exchange Act; (ii) the class and series of shares or other security of the issuer that would be received by Holder in connection with the Acquisition were Holder to exercise this Warrant on or prior to the closing thereof is then traded in Trading Market, and (iii) Holder would be able to publicly re-sell, within six (6) months following the closing of such Acquisition, all of the issuer’s shares and/or other securities that would be received by Holder in such Acquisition were Holder to exercise this Warrant in full on or prior to the closing of such Acquisition.

1.7 Additional Shares . In addition to the Initial Shares granted to Holder on the Issue Date, on the first Funding Date of any extension under the Mezzanine Term Loan, the Company shall be deemed to have automatically granted to Holder, in addition to the number of Initial Shares which this Warrant can otherwise be exercised for by Holder, the right to purchase 300,000 additional Shares at the price per share equal to (a) $0.96 or (b) to the extent the Company’s 409(a) valuation is completed on or prior to July 31, 2012, then the average of $0.96 and such valuation (such additional Shares, the “ Additional Shares ”). Capitalized terms used but not defined in this Section 1.7 shall have the meanings given to them in the Loan Agreement.

SECTION 2. ADJUSTMENTS TO THE SHARES AND WARRANT PRICE .

2.1 Stock Dividends, Splits, Etc . If the Company declares or pays a dividend or distribution on the outstanding shares of the Class payable in common stock or other securities or property (other than cash), then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without additional cost to Holder, the total number and kind of securities and property which Holder would have received had Holder owned the Shares of record as of the date the dividend or distribution occurred. If the Company subdivides the outstanding shares of the Class by reclassification or otherwise into a greater number of shares, the number of Shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding shares of the Class are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.

2.2 Reclassification, Exchange, Combinations or Substitution . Upon any event whereby all of the outstanding shares of the Class are reclassified, exchanged, combined, substituted, or replaced for, into, with or by Company securities of a different class and/or series, then from and after the consummation of such event, this Warrant will be exercisable for the number, class and series of Company securities that Holder would have received had the Shares been outstanding on and as of the consummation of such event, and subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, combinations substitutions, replacements or other similar events.

2.3 No Fractional Share . No fractional Share shall be issuable upon exercise of this Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional Share interest arises upon any exercise of the Warrant, the Company shall eliminate such fractional Share interest by paying Holder in cash the amount computed by

 

4


multiplying the fractional interest by (i) the fair market value (as determined in accordance with Section 1.3 above) of a full Share, less (ii) the then-effective Warrant Price.

2.4 Notice/Certificate as to Adjustments . Upon each adjustment of the Warrant Price, Class and/or number of Shares, the Company, at the Company’s expense, shall notify Holder in writing within a reasonable time setting forth the adjustments to the Warrant Price, Class and/or number of Shares and facts upon which such adjustment is based. The Company shall, upon written request from Holder, furnish Holder with a certificate of its Chief Financial Officer, including computations of such adjustment and the Warrant Price, Class and number of Shares in effect upon the date of such adjustment.

SECTION 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY .

3.1 Representations and Warranties . The Company represents and warrants to, and agrees with, the Holder as follows:

(a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the price per share at which shares of the Class were last sold and issued prior to the Issue Date hereof in an arms-length transaction in which at least $500,000 of such shares were sold.

(b) All Shares which may be issued upon the exercise of this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. The Company covenants that it shall at all times cause to be reserved and kept available out of its authorized and unissued capital stock such number of shares of the Class, common stock and other securities as will be sufficient to permit the exercise in full of this Warrant and the conversion of the Shares into common stock or such other securities.

(c) The Company’s capitalization table attached hereto as Schedule 1 is true and complete, in all material respects, as of the Issue Date.

3.2 Notice of Certain Events . If the Company proposes at any time to:

(a) declare any dividend or distribution upon the outstanding shares of the Class or common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend;

(b) offer for subscription or sale pro rata to the holders of the outstanding shares of the Class any additional shares of any class or series of the Company’s stock (other than pursuant to contractual pre-emptive rights);

(c) effect any reclassification, exchange, combination, substitution, reorganization or recapitalization of the outstanding shares of the Class;

(d) effect an Acquisition or to liquidate, dissolve or wind up; or

 

5


(e) effect an initial, underwritten public offering and sale of the Company’s common stock pursuant to an effective registration statement under the Act (the “ IPO ”);

then, in connection with each such event, the Company shall give Holder:

(1) at least seven (7) Business Days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of outstanding shares of the Class will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (a) and (b) above;

(2) in the case of the matters referred to in (c) and (d) above at least seven (7) Business Days prior written notice of the date when the same will take place (and specifying the date on which the holders of outstanding shares of the Class will be entitled to exchange their shares for the securities or other property deliverable upon the occurrence of such event); and

(3) with respect to the IPO, at least seven (7) Business Days prior written notice of the date on which the Company proposes to file its registration statement in connection therewith.

3.3 Annual Audited Financial Statements . The Company shall deliver to Holder, as soon as available, but no later than (i) in the case of the fiscal year ended December 31, 2011, no later than two hundred and seventy (270) days of the end of such fiscal year, and (ii) for each fiscal year of the Company ending thereafter, no later than one hundred and eighty (180) days after the last day of the Company’s fiscal year, in each case audited consolidated financial statements prepared under GAAP (as defined in the Loan Agreement) consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to Holder in its reasonable discretion.

Reference is made to Section 1.6(c) whereby this Warrant will be deemed to be exercised pursuant to Section 1.2 hereof if the Company does not give written notice to Holder of a Cash/Public Acquisition as required by the terms hereof. Company will also provide information requested by Holder that is reasonably necessary to enable Holder to comply with Holder’s accounting or reporting requirements.

SECTION 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER .

The Holder represents and warrants to the Company as follows:

4.1 Purchase for Own Account . This Warrant and the securities to be acquired upon exercise of this Warrant by Holder are being acquired for investment for Holder’s account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act. Holder also represents that it has not been formed for the specific purpose of acquiring this Warrant or the Shares.

 

6


4.2 Disclosure of Information . Holder is aware of the Company’s business affairs and financial condition and has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.

4.3 Investment Experience . Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. Holder has experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic risk of such Holder’s investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.

4.4 Accredited Investor Status . Holder is an “accredited investor” within the meaning of Regulation D promulgated under the Act.

4.5 The Act . Holder understands that this Warrant and the Shares issuable upon exercise hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holder’s investment intent as expressed herein. Holder understands that this Warrant and the Shares issued upon any exercise hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available. Holder is aware of the provisions of Rule 144 promulgated under the Act.

4.6 Market Stand-off Agreement . The Holder agrees that the Shares shall be subject to the Market Standoff provisions in Section 2.11 of the Company’s Amended and Restated Investors’ Rights Agreement, dated November 30, 2010.

4.7 No Voting Rights . Holder, as a Holder of this Warrant, will not have any voting rights until the exercise of this Warrant.

SECTION 5. MISCELLANEOUS .

5.1 Term and Automatic Cashless Exercise Upon Expiration .

(a) Term . Subject to the provisions of Section 1.6 above, this Warrant is exercisable in whole or in part at any time and from time to time on or before 6:00 PM, Pacific time, on the Expiration Date and shall be void thereafter.

 

7


(b) Automatic Cashless Exercise upon Expiration . In the event that, upon the Expiration Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be exercised pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised, and the Company shall, within a reasonable time, deliver a certificate representing the Shares (or such other securities) issued upon such exercise to Holder.

5.2 Legends . The Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:

THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AS SET FORTH IN THAT CERTAIN WARRANT TO PURCHASE STOCK ISSUED BY THE ISSUER TO SILICON VALLEY BANK DATED JUNE 12, 2012, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND LAWS OR IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

5.3 Compliance with Securities Laws on Transfer . This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part except in compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to SVB Financial Group (Silicon Valley Bank’s parent company) or any other affiliate of Holder, provided that any such transferee is an “accredited investor” as defined in Regulation D promulgated under the Act. Additionally, the Company shall also not require an opinion of counsel if there is no material question as to the availability of Rule 144 promulgated under the Act.

5.4 Transfer Procedure . After receipt by Silicon Valley Bank of the executed Warrant, Silicon Valley Bank will transfer all of this Warrant to its parent company, SVB Financial Group. By its acceptance of this Warrant, SVB Financial Group hereby makes to the Company each of the representations and warranties set forth in Section 4 hereof and agrees to be bound by all of the terms and conditions of this Warrant as if the original Holder hereof. Subject to the provisions of Section 5.3 and upon providing the Company with written notice, SVB Financial Group and any subsequent Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee, provided, however, in connection with

 

8


any such transfer, SVB Financial Group or any subsequent Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable); and provided further, that any subsequent transferee other than SVB Financial Group shall agree in writing with the Company to be bound by all of the terms and conditions of this Warrant. Notwithstanding any contrary provision herein, at all times prior to the IPO, Holder may not, without the Company’s prior written consent, transfer this Warrant or any portion hereof, or any Shares issued upon any exercise hereof, or any shares or other securities issued upon any conversion of any Shares issued upon any exercise hereof, to any person or entity who directly competes with the Company, except in connection with an Acquisition of the Company by such a direct competitor.

5.5 Notices . All notices and other communications hereunder from the Company to the Holder, or vice versa, shall be deemed delivered and effective (i) when given personally, (ii) on the third (3rd) Business Day after being mailed by first-class registered or certified mail, postage prepaid, (iii) upon actual receipt if given by facsimile or electronic mail and such receipt is confirmed in writing by the recipient, or (iv) on the first Business Day following delivery to a reliable overnight courier service, courier fee prepaid, in any case at such address as may have been furnished to the Company or Holder, as the case may be, in writing by the Company or such Holder from time to time in accordance with the provisions of this Section 5.5. All notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:

SVB Financial Group

Attn: Treasury Department

3003 Tasman Drive, HC 215

Santa Clara, CA 95054

Telephone: (408) 654-7400

Facsimile: (408) 988-8317

Email address: derivatives@svb.com

Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:

Zendesk, Inc.

Attn: Chief Financial Officer

989 Market Street, Suite 300

San Francisco, CA 94103

Telephone: (415) 418-7506

Facsimile: (415) 778-9355

Email: ablack@zendesk.com

5.6 Waiver . This Warrant and any term hereof may be changed, waived, discharged or terminated (either generally or in a particular instance and either retroactively or prospectively) only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

 

9


5.7 Attorney’s Fees . In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys’ fees.

5.8 Counterparts; Facsimile/Electronic Signatures . This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement. Any signature page delivered electronically or by facsimile shall be binding to the same extent as an original signature page with regards to any agreement subject to the terms hereof or any amendment thereto.

5.9 Governing Law . This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law.

5.10 Headings . The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant.

5.11 Business Days . “ Business Day ” is any day that is not a Saturday, Sunday or a day on which Silicon Valley Bank is closed.

[Remainder of page left blank intentionally]

[Signature page follows]

 

10


IN WITNESS WHEREOF, the parties have caused this Warrant to Purchase Stock to be executed by their duly authorized representatives effective as of the Issue Date written above.

 

“COMPANY”
ZENDESK, INC.
By:   /s/ Alan Black
Name:    Alan Black
  (Print)
Title:   CFO

 

“HOLDER”
SILICON VALLEY BANK
By:   /s/ Brian Fitzpatrick
Name:    Brian Fitzpatrick
  (Print)
Title:   Relationship Manager

 

11


APPENDIX 1

NOTICE OF EXERCISE

1. The undersigned Holder hereby exercises its right purchase                      shares of the Common Stock of Zendesk, Inc. (the “ Company ”) in accordance with the attached Warrant To Purchase Stock, and tenders payment of the aggregate Warrant Price for such shares as follows:

 

[    ]

  check in the amount of $              payable to order of the Company enclosed herewith

[    ]

  Wire transfer of immediately available funds to the Company’s account

[    ]

  Cashless Exercise pursuant to Section 1.2 of the Warrant

[    ]

  Other [Describe]                                                                                   

2. Please issue a certificate or certificates representing the Shares in the name specified below:

 

     
 

Holder’s Name

 

 
     
 

(Address)

 

3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Section 4 of the Warrant to Purchase Stock as of the date hereof.

 

HOLDER:
 
By:    
Name:     
Title:    
(Date):    

 

Appendix 1

Exhibit 10.1

ZENDESK, INC.

Indemnification Agreement

This Indemnification Agreement (“ Agreement ”) is made as of                      by and between Zendesk, Inc., a Delaware corporation (the “ Company ”), and                      (“ Indemnitee ”).

RECITALS

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company;

WHEREAS, in order to induce Indemnitee to [ provide or continue to provide ] services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law;

WHEREAS, the Certificate of Incorporation (the “ Charter ”) and the Bylaws (the “ Bylaws ”) of the Company require indemnification of the officers and directors of the Company, and Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the “ DGCL ”);

WHEREAS, the Charter, 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 of directors, officers and other persons with respect to indemnification;

WHEREAS, the Board of Directors of the Company (the “ Board ”) has determined that the increased difficulty in attracting and retaining highly qualified persons such as Indemnitee is detrimental to the best interests of the Company’s stockholders;

WHEREAS, it is reasonable and prudent 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, regardless of any amendment or revocation of the Charter or the Bylaws, 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 indemnification provided in the Charter, 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 has certain rights to indemnification and/or insurance provided by [Name of Fund/Sponsor] which Indemnitee and [Name of Fund/Sponsor] intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided in this Agreement, with the Company’s acknowledgment and agreement to the


foregoing being a material condition to Indemnitee’s willingness to [serve or continue to serve] on the Board. ] 1

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

Section 1. Services to the Company . Indemnitee agrees to serve as a director of the Company. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any other Enterprise) and Indemnitee.

Section 2. Definitions .

As used in this Agreement:

(a) “ Change in Control ” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

(b) “ Corporate Status ” describes the status of a person as a current or former director of the Company or current or former director, manager, partner, officer, employee, agent or trustee of any other Enterprise which such person is or was serving at the request of the Company.

(c) “ Enforcement Expenses ” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with an action to enforce indemnification or advancement rights, or an appeal from such action. Expenses, however, shall not include fees, salaries, wages or benefits owed to Indemnitee.

(d) “ Enterprise ” shall mean any corporation (other than the Company), partnership, joint venture, trust, employee benefit plan, limited liability company, or other legal

 

1   This recital should be included if the director is affiliated with a fund or other entity that provides indemnification to the director that is intended to backstop the indemnification provided by the Company.

 

2


entity of which Indemnitee is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee, including without limitation, any subsidiary of the Company.

(e) “ Expenses ” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding or an appeal resulting from a Proceeding. Expenses, however, shall not include amounts paid in settlement by Indemnitee, the amount of judgments or fines against Indemnitee or fees, salaries, wages or benefits owed to Indemnitee.

(f) “ Independent Counsel ” means a law firm, or a partner (or, if applicable, member or shareholder) of such a law firm, that is experienced in matters of Delaware corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company, any subsidiary of the Company, any Enterprise or Indemnitee in any matter material to any such party; 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 Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses 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.

(g) The term “ Proceeding ” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature, and whether formal or informal, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was a director of the Company or is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise or by reason of any action taken by Indemnitee or of any action taken on his or her part while acting as a director of the Company or while serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement or advancement of expenses can be provided under this Agreement; provided , however , that the term “Proceeding” shall not include any action, suit or arbitration, or part thereof, initiated by Indemnitee to enforce Indemnitee’s rights under this Agreement as provided for in Section 12(a) of this Agreement.

Section 3. Indemnity in Third-Party Proceedings . The Company shall indemnify Indemnitee to the extent set forth in this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be

 

3


indemnified against all Expenses, judgments, fines, penalties, excise taxes, and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful.

Section 4. Indemnity in Proceedings by or in the Right of the Company . The Company shall indemnify Indemnitee to the extent set forth in this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter 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 Delaware Court of Chancery (the “ Delaware Court ”) shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court shall deem proper.

Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful . Notwithstanding any other provisions of this Agreement and except as provided in Section 7, to the extent that Indemnitee is a party to or a participant in any Proceeding and is successful in such Proceeding or in defense of any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful 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 Indemnitee or on his or her behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section 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.

Section 6. Reimbursement for Expenses of a Witness or in Response to a Subpoena . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee, by reason of his or her Corporate Status, (i) is a witness in any Proceeding to which Indemnitee is not a party and is not threatened to be made a party or (ii) receives a subpoena with respect to any Proceeding to which Indemnitee is not a party and is not threatened to be made a party, the Company shall reimburse Indemnitee for all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

Section 7. Exclusions . Notwithstanding any provision in this Agreement to the contrary, the Company shall not be obligated under this Agreement:

 

4


(a) to indemnify for amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such amounts under any insurance policy, contract, agreement or otherwise[; provided that the foregoing shall not affect the rights of Indemnitee or the Fund Indemnitors as set forth in Section 13(c) ];

(b) to indemnify 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 Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law;

(c) to indemnify with respect to any Proceeding, or part thereof, brought by Indemnitee against the Company, any legal entity which it controls, any director or officer thereof or any third party, unless (i) the Board has consented to the initiation of such Proceeding or part thereof and (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; provided , however , that this Section 7(c) shall not apply to (A) counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee or (B) any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought as described in Section 12; or

(d) to provide any indemnification or advancement of expenses that is prohibited by applicable law (as such law exists at the time payment would otherwise be required pursuant to this Agreement).

Section 8. Advancement of Expenses . Subject to Section 9(b), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay the expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement which shall constitute an undertaking providing that Indemnitee undertakes to the fullest extent required by law to repay the advance if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. The right to advances under this paragraph shall in all events continue until final disposition of any Proceeding, including any appeal therein. Nothing in this Section 8 shall limit Indemnitee’s right to advancement pursuant to Section 12(e) of this Agreement.

 

5


Section 9. Procedure for Notification and Defense of Claim .

(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor specifying the basis for the claim, the amounts for which Indemnitee is seeking payment under this Agreement, and all documentation related thereto as reasonably requested by the Company.

(b) In the event that the Company shall be obligated hereunder to provide indemnification for or make any advancement of Expenses with respect to any Proceeding, the Company shall be entitled to assume the defense of such Proceeding, or any claim, issue or matter therein, with counsel approved by Indemnitee (which approval shall not be unreasonably withheld or delayed) upon the delivery to Indemnitee of written notice of the Company’s election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee shall have the right to employ separate counsel in any such Proceeding at Indemnitee’s expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of such defense, or (C) the Company shall not continue to retain such counsel to defend such Proceeding, then the fees and expenses actually and reasonably incurred by Indemnitee with respect to his or her separate counsel shall be Expenses hereunder.

(c) In the event that the Company does not assume the defense in a Proceeding pursuant to paragraph (b) above, then the Company will be entitled to participate in the Proceeding at its own expense.

(d) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed). The Company shall not, without the prior written consent of Indemnitee (which consent shall not be unreasonably withheld or delayed), enter into any settlement which (i) includes an admission of fault of Indemnitee, any non-monetary remedy imposed on Indemnitee or any monetary damages for which Indemnitee is not wholly and actually indemnified hereunder or (ii) with respect to any Proceeding with respect to which Indemnitee may be or is made a party or may be otherwise entitled to seek indemnification hereunder, does not include the full release of Indemnitee from all liability in respect of such Proceeding.

Section 10. Procedure Upon Application for Indemnification .

(a) Upon written request by Indemnitee for indemnification pursuant to Section 9(a), a determination, if such determination is required by applicable law, with respect to Indemnitee’s entitlement to indemnification hereunder shall be made in the specific case by one of the following methods: (x) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board; or (y) if a Change in Control shall not have occurred: (i) by a majority vote of the disinterested directors, even though less than a quorum; (ii) by a

 

6


committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum; or (iii) if there are no disinterested directors or if the disinterested directors so direct, by Independent Counsel in a written opinion to the Board. 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. In the case that such determination is made by Independent Counsel, a copy of Independent Counsel’s written opinion shall be delivered to Indemnitee and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within thirty (30) days after such determination. Indemnitee shall cooperate with the Independent Counsel or the Company, as applicable, in making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such counsel or the Company, 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 out-of-pocket costs or expenses (including reasonable attorneys’ fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the Independent Counsel or the Company shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(b) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(a), the Independent Counsel shall be selected by the Board if a Change in Control shall not have occurred or, if a Change in Control shall have occurred, by Indemnitee. Indemnitee or the Company, as the case may be, may, within ten (10) days after written notice of such selection, deliver to the Company or Indemnitee, as the case may be, 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 2 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 such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit. If, within twenty (20) days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 9(a), and (ii) the final disposition of the Proceeding, including any appeal therein, no Independent Counsel shall have been selected without objection, either Indemnitee or the Company may petition the Delaware Court for resolution of any objection which shall have been made by Indemnitee or the Company to the 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. The person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

 

7


Section 11. Presumptions and Effect of Certain Proceedings .

(a) To the extent permitted by applicable law, in making a determination with respect to entitlement to indemnification hereunder, it shall be presumed that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.

(b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of guilty, 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 or she 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 or her conduct was unlawful.

(c) The knowledge and/or actions, or failure to act, of any director, manager, partner, officer, employee, agent or trustee of the Company, any subsidiary of the Company, or any Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

Section 12. Remedies of Indemnitee .

(a) Subject to Section 12(f), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(a) of this Agreement within sixty (60) days after receipt by the Company of the request for indemnification for which a determination is to be made other than by Independent Counsel, (iv) payment of indemnification or reimbursement of expenses is not made pursuant to Section 5 or 6 or the last sentence of Section 10(a) of this Agreement within thirty (30) days after receipt by the Company of a written request therefor (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) or (v) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within thirty (30) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Delaware Court of his or her entitlement to such indemnification or advancement. Alternatively, Indemnitee, at his or her 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. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided , however , that the foregoing time limitation shall not apply in respect of a proceeding brought by Indemnitee to enforce his or her rights under Section 5 of this Agreement. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

 

8


(b) In the event that a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 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 that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement, as the case may be.

(c) If a determination shall have been made pursuant to Section 10(a) 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 12, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 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.

(e) The Company shall indemnify Indemnitee to the fullest extent permitted by law against any and all Enforcement Expenses and, if requested by Indemnitee, shall (within thirty (30) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Enforcement Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought. Such written request for advancement shall include invoices received by Indemnitee in connection with such Enforcement Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law need not be included with the invoice.

(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, including any appeal therein.

Section 13. Non-exclusivity; Survival of Rights; Insurance; [ Primacy of Indemnification; ] Subrogation .

(a) The rights of indemnification and to receive advancement 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 Charter, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. 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 or her Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in

 

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Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement 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) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, managers, partners, officers, employees, agents or trustees of the Company or of any other Enterprise, 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 director, manager, partner, officer, employee, agent or trustee under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, 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.

(c) [ The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by [Name of Fund/Sponsor] and certain of [its][their] affiliates (collectively, the “ Fund Indemnitors ”). The Company hereby agrees (i) that it is the indemnitor of first resort ( 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 are 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 and/or Bylaws (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 13(c). ] 2

(d) [ Except as provided in paragraph (c) above, ] [ I/i ]n 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

 

2   This provision should be included if the director is affiliated with a fund or other entity that provides indemnification to the director that is intended to backstop the indemnification provided by the Company.

 

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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 paragraph (c) above, ] [ T/t ]he Company’s obligation to provide indemnification or advancement hereunder to Indemnitee who is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement from such other Enterprise.

Section 14. Duration of Agreement . This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director of the Company and any other Enterprise for which Indemnitee is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee or (b) one (1) year after the final termination of any Proceeding, including any appeal, then pending in respect of which Indemnitee is granted rights of indemnification or advancement hereunder and of any proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his or her heirs, executors and administrators. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to 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.

Section 15. Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section 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; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section 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.

Section 16. Enforcement .

(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 or continue to serve] as a director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director of the Company.

 

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(b) 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; provided , however , that this Agreement is a supplement to and in furtherance of the Charter, the Bylaws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

Section 17. Modification and Waiver . No supplement, modification or amendment, or waiver of any provision, of this Agreement shall be binding unless executed in writing by the parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver. No supplement, modification or amendment 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 prior to such supplement, modification or amendment.

Section 18. Notice by Indemnitee . Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification, reimbursement or advancement as provided hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.

Section 19. Notices . All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (iii) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (iv) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:

(a) If to Indemnitee, at such address as Indemnitee shall provide to the Company.

(b) If to the Company to:

 

 

 

 
 

 

 
 

 

 
  Attention:  

 

 

or to any other address as may have been furnished to Indemnitee by the Company.

Section 20. Contribution . To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason

 

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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 Proceeding in such proportion as is deemed fair and reasonable in light of all of the circumstances in order to reflect (i) the relative benefits received by the Company and Indemnitee in connection with the event(s) and/or transaction(s) giving rise 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 transactions.

Section 21. Internal Revenue Code Section 409A . The Company intends for this Agreement to comply with the Indemnification exception under Section 1.409A-1(b)(10) of the regulations promulgated under the Internal Revenue Code of 1986, as amended (the “ Code ”), which provides that indemnification of, or the purchase of an insurance policy providing for payments of, all or part of the expenses incurred or damages paid or payable by Indemnitee with respect to a bona fide claim against Indemnitee or the Company do not provide for a deferral of compensation, subject to Section 409A of the Code, where such claim is based on actions or failures to act by Indemnitee in his or her capacity as a service provider of the Company. The parties intend that this Agreement be interpreted and construed with such intent.

Section 22. Applicable 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 12(a) 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 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, (iii) consent to service of process at the address set forth in Section 19 of this Agreement with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

Section 23. 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.

Section 24. Identical Counterparts . This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

[ Remainder of Page Intentionally Left Blank ]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

 

ZENDESK, INC.
By:  

 

  Name:
  Title:

 

[ Name of Indemnitee ]


ZENDESK, INC.

Indemnification Agreement

This Indemnification Agreement (“ Agreement ”) is made as of                      by and between Zendesk, Inc., a Delaware corporation (the “ Company ”), and                      (“ Indemnitee ”).

RECITALS

WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company;

WHEREAS, in order to induce Indemnitee to [ provide or continue to provide ] services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law;

WHEREAS, the Certificate of Incorporation (the “ Charter ”) and the Bylaws (the “ Bylaws ”) of the Company require indemnification of the officers and directors of the Company, and Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the “ DGCL ”);

WHEREAS, the Charter, 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 of directors, officers and other persons with respect to indemnification;

WHEREAS, the Board of Directors of the Company (the “ Board ”) has determined that the increased difficulty in attracting and retaining highly qualified persons such as Indemnitee is detrimental to the best interests of the Company’s stockholders;

WHEREAS, it is reasonable and prudent 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, regardless of any amendment or revocation of the Charter or the Bylaws, so that they will [ serve or continue to serve ] the Company free from undue concern that they will not be so indemnified; and

WHEREAS, this Agreement is a supplement to and in furtherance of the indemnification provided in the Charter, 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.

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

Section 1. Services to the Company . Indemnitee agrees to serve as [ a director and ] an officer of the Company. Indemnitee may at any time and for any reason resign from [ any ] such position (subject to any other contractual obligation or any obligation imposed by law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any other Enterprise) and Indemnitee.


Section 2. Definitions .

As used in this Agreement:

(a) “ Change in Control ” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

(b) “ Corporate Status ” describes the status of a person as a current or former [ director or ] officer of the Company or current or former director, manager, partner, officer, employee, agent or trustee of any other Enterprise which such person is or was serving at the request of the Company.

(c) “ Enforcement Expenses ” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with an action to enforce indemnification or advancement rights, or an appeal from such action. Expenses, however, shall not include fees, salaries, wages or benefits owed to Indemnitee.

(d) “ Enterprise ” shall mean any corporation (other than the Company), partnership, joint venture, trust, employee benefit plan, limited liability company, or other legal entity of which Indemnitee is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee, including without limitation, any subsidiary of the Company.

(e) “ Expenses ” shall include all reasonable attorneys’ fees, court costs, transcript costs, fees of experts, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other out-of-pocket disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding or an appeal resulting from a Proceeding. Expenses, however, shall not include amounts paid in settlement by Indemnitee, the amount of judgments or fines against Indemnitee or fees, salaries, wages or benefits owed to Indemnitee.

 

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(f) “ Independent Counsel ” means a law firm, or a partner (or, if applicable, member or shareholder) of such a law firm, that is experienced in matters of Delaware corporation law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company, any subsidiary of the Company, any Enterprise or Indemnitee in any matter material to any such party; 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 Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses 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.

(g) The term “ Proceeding ” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, regulatory or investigative nature, and whether formal or informal, in which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that Indemnitee is or was [ a director or ] an officer of the Company or is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise or by reason of any action taken by Indemnitee or of any action taken on his or her part while acting as [ a director or ] an officer of the Company or while serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement or advancement of expenses can be provided under this Agreement; provided , however , that the term “Proceeding” shall not include any action, suit or arbitration, or part thereof, initiated by Indemnitee to enforce Indemnitee’s rights under this Agreement as provided for in Section 12(a) of this Agreement.

Section 3. Indemnity in Third-Party Proceedings . The Company shall indemnify Indemnitee to the extent set forth in this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties, excise taxes, and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe that his or her conduct was unlawful.

Section 4. Indemnity in Proceedings by or in the Right of the Company . The Company shall indemnify Indemnitee to the extent set forth in this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee

 

3


acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter 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 Delaware Court of Chancery (the “ Delaware Court ”) shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such expenses as the Delaware Court shall deem proper.

Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful . Notwithstanding any other provisions of this Agreement and except as provided in Section 7, to the extent that Indemnitee is a party to or a participant in any Proceeding and is successful in such Proceeding or in defense of any claim, issue or matter therein, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful 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 Indemnitee or on his or her behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section 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.

Section 6. Reimbursement for Expenses of a Witness or in Response to a Subpoena . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee, by reason of his or her Corporate Status, (i) is a witness in any Proceeding to which Indemnitee is not a party and is not threatened to be made a party or (ii) receives a subpoena with respect to any Proceeding to which Indemnitee is not a party and is not threatened to be made a party, the Company shall reimburse Indemnitee for all Expenses actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

Section 7. Exclusions . Notwithstanding any provision in this Agreement to the contrary, the Company shall not be obligated under this Agreement:

(a) to indemnify for amounts otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the extent that Indemnitee has otherwise actually received such amounts under any insurance policy, contract, agreement or otherwise;

(b) to indemnify 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 Securities Exchange Act of 1934, as amended, or similar provisions of state statutory law or common law;

(c) to indemnify for any reimbursement of, or payment to, the Company by Indemnitee 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 pursuant to Section 304 of SOX or any formal policy of the Company adopted by the Board (or a committee thereof), or any other remuneration paid to Indemnitee if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law;

 

4


(d) to indemnify with respect to any Proceeding, or part thereof, brought by Indemnitee against the Company, any legal entity which it controls, any director or officer thereof or any third party, unless (i) the Board has consented to the initiation of such Proceeding or part thereof and (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; provided , however , that this Section 7(d) shall not apply to (A) counterclaims or affirmative defenses asserted by Indemnitee in an action brought against Indemnitee or (B) any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought as described in Section 12; or

(e) to provide any indemnification or advancement of expenses that is prohibited by applicable law (as such law exists at the time payment would otherwise be required pursuant to this Agreement).

Section 8. Advancement of Expenses . Subject to Section 9(b), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay the expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement which shall constitute an undertaking providing that Indemnitee undertakes to the fullest extent required by law to repay the advance if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. The right to advances under this paragraph shall in all events continue until final disposition of any Proceeding, including any appeal therein. Nothing in this Section 8 shall limit Indemnitee’s right to advancement pursuant to Section 12(e) of this Agreement.

Section 9. Procedure for Notification and Defense of Claim .

(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor specifying the basis for the claim, the amounts for which Indemnitee is seeking payment under this Agreement, and all documentation related thereto as reasonably requested by the Company.

(b) In the event that the Company shall be obligated hereunder to provide indemnification for or make any advancement of Expenses with respect to any Proceeding, the Company shall be entitled to assume the defense of such Proceeding, or any claim, issue or matter therein, with counsel approved by Indemnitee (which approval shall not be unreasonably

 

5


withheld or delayed) upon the delivery to Indemnitee of written notice of the Company’s election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees or expenses of separate counsel subsequently employed by or on behalf of Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee shall have the right to employ separate counsel in any such Proceeding at Indemnitee’s expense and (ii) if (A) the employment of separate counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of such defense, or (C) the Company shall not continue to retain such counsel to defend such Proceeding, then the fees and expenses actually and reasonably incurred by Indemnitee with respect to his or her separate counsel shall be Expenses hereunder.

(c) In the event that the Company does not assume the defense in a Proceeding pursuant to paragraph (b) above, then the Company will be entitled to participate in the Proceeding at its own expense.

(d) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed). The Company shall not, without the prior written consent of Indemnitee (which consent shall not be unreasonably withheld or delayed), enter into any settlement which (i) includes an admission of fault of Indemnitee, any non-monetary remedy imposed on Indemnitee or any monetary damages for which Indemnitee is not wholly and actually indemnified hereunder or (ii) with respect to any Proceeding with respect to which Indemnitee may be or is made a party or may be otherwise entitled to seek indemnification hereunder, does not include the full release of Indemnitee from all liability in respect of such Proceeding.

Section 10. Procedure Upon Application for Indemnification .

(a) Upon written request by Indemnitee for indemnification pursuant to Section 9(a), a determination, if such determination is required by applicable law, with respect to Indemnitee’s entitlement to indemnification hereunder shall be made in the specific case by one of the following methods: (x) if a Change in Control shall have occurred and indemnification is being requested by Indemnitee hereunder in his or her capacity as a director of the Company, by Independent Counsel in a written opinion to the Board; or (y) in any other case, (i) by a majority vote of the disinterested directors, even though less than a quorum; (ii) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum; or (iii) if there are no disinterested directors or if the disinterested directors so direct, by Independent Counsel in a written opinion to the Board. 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. In the case that such determination is made by Independent Counsel, a copy of Independent Counsel’s written opinion shall be delivered to Indemnitee and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within thirty (30) days after such determination. Indemnitee shall cooperate with the Independent Counsel or the Company, as applicable, in making such determination with respect to Indemnitee’s entitlement to indemnification,

 

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including providing to such counsel or the Company, 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 out-of-pocket costs or expenses (including reasonable attorneys’ fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the Independent Counsel or the Company shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(b) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 10(a), the Independent Counsel shall be selected by the Board; provided that, if a Change in Control shall have occurred and indemnification is being requested by Indemnitee hereunder in his or her capacity as a director of the Company, the Independent Counsel shall be selected by Indemnitee. Indemnitee or the Company, as the case may be, may, within ten (10) days after written notice of such selection, deliver to the Company or Indemnitee, as the case may be, 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 2 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 such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit. If, within twenty (20) days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 9(a), and (ii) the final disposition of the Proceeding, including any appeal therein, no Independent Counsel shall have been selected without objection, either Indemnitee or the Company may petition the Delaware Court for resolution of any objection which shall have been made by Indemnitee or the Company to the 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. The person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 10(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 12(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

Section 11. Presumptions and Effect of Certain Proceedings .

(a) To the extent permitted by applicable law, in making a determination with respect to entitlement to indemnification hereunder, it shall be presumed that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 9(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making of any determination contrary to that presumption.

(b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of guilty, nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself

 

7


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 or she 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 or her conduct was unlawful.

(c) The knowledge and/or actions, or failure to act, of any director, manager, partner, officer, employee, agent or trustee of the Company, any subsidiary of the Company, or any Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

Section 12. Remedies of Indemnitee .

(a) Subject to Section 12(f), in the event that (i) a determination is made pursuant to Section 10 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(a) of this Agreement within sixty (60) days after receipt by the Company of the request for indemnification for which a determination is to be made other than by Independent Counsel, (iv) payment of indemnification or reimbursement of expenses is not made pursuant to Section 5 or 6 or the last sentence of Section 10(a) of this Agreement within thirty (30) days after receipt by the Company of a written request therefor (including any invoices received by Indemnitee, which such invoices may be redacted as necessary to avoid the waiver of any privilege accorded by applicable law) or (v) payment of indemnification pursuant to Section 3 or 4 of this Agreement is not made within thirty (30) days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication by the Delaware Court of his or her entitlement to such indemnification or advancement. Alternatively, Indemnitee, at his or her 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. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided , however , that the foregoing time limitation shall not apply in respect of a proceeding brought by Indemnitee to enforce his or her rights under Section 5 of this Agreement. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

(b) In the event that a determination shall have been made pursuant to Section 10(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 12 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 that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 12, the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement, as the case may be.

(c) If a determination shall have been made pursuant to Section 10(a) 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 12,

 

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absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 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.

(e) The Company shall indemnify Indemnitee to the fullest extent permitted by law against any and all Enforcement Expenses and, if requested by Indemnitee, shall (within thirty (30) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Enforcement Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company in the suit for which indemnification or advancement is being sought. Such written request for advancement shall include invoices received by Indemnitee in connection with such Enforcement Expenses but, in the case of invoices in connection with legal services, any references to legal work performed or to expenditures made that would cause Indemnitee to waive any privilege accorded by applicable law need not be included with the invoice.

(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, including any appeal therein.

Section 13. Non-exclusivity; Survival of Rights; Insurance; Subrogation .

(a) The rights of indemnification and to receive advancement 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 Charter, the Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. 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 or her Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement 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) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, managers, partners, officers, employees, agents or trustees of the Company or of any other Enterprise, Indemnitee shall be covered by such policy

 

9


or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, manager, partner, officer, employee, agent or trustee under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, 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.

(c) 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, 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.

(d) The Company’s obligation to provide indemnification or advancement hereunder to Indemnitee who is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement from such other Enterprise.

Section 14. Duration of Agreement . This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as [ both a director and ] an officer of the Company and any other Enterprise for which Indemnitee is or was serving at the request of the Company as a director, manager, partner, officer, employee, agent or trustee or (b) one (1) year after the final termination of any Proceeding, including any appeal, then pending in respect of which Indemnitee is granted rights of indemnification or advancement hereunder and of any proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee and his or her heirs, executors and administrators. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to 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.

Section 15. Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section 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; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section 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.

 

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Section 16. Enforcement .

(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 or continue to serve ] as [ a director and ] an officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as [ a director and ] an officer of the Company.

(b) 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; provided , however , that this Agreement is a supplement to and in furtherance of the Charter, the Bylaws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

Section 17. Modification and Waiver . No supplement, modification or amendment, or waiver of any provision, of this Agreement shall be binding unless executed in writing by the parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver. No supplement, modification or amendment 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 prior to such supplement, modification or amendment.

Section 18. Notice by Indemnitee . Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification, reimbursement or advancement as provided hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.

Section 19. Notices . All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (iii) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (iv) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:

(a) If to Indemnitee, at such address as Indemnitee shall provide to the Company.

 

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(b) If to the Company to:

 

 

 

 

 

 

        Attention:                                                                     

or to any other address as may have been furnished to Indemnitee by the Company.

Section 20. Contribution . 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 Proceeding in such proportion as is deemed fair and reasonable in light of all of the circumstances in order to reflect (i) the relative benefits received by the Company and Indemnitee in connection with the event(s) and/or transaction(s) giving rise 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 transactions.

Section 21. Internal Revenue Code Section 409A . The Company intends for this Agreement to comply with the Indemnification exception under Section 1.409A-1(b)(10) of the regulations promulgated under the Internal Revenue Code of 1986, as amended (the “ Code ”), which provides that indemnification of, or the purchase of an insurance policy providing for payments of, all or part of the expenses incurred or damages paid or payable by Indemnitee with respect to a bona fide claim against Indemnitee or the Company do not provide for a deferral of compensation, subject to Section 409A of the Code, where such claim is based on actions or failures to act by Indemnitee in his or her capacity as a service provider of the Company. The parties intend that this Agreement be interpreted and construed with such intent.

Section 22. Applicable 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 12(a) 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 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, (iii) consent to service of process at the address set forth in Section 19 of this Agreement with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

 

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Section 23. 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.

Section 24. Identical Counterparts . This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

[ Remainder of Page Intentionally Left Blank ]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

 

ZENDESK, INC.
By:  

 

  Name:
  Title:
 

 

  [Name of Indemnitee]

Exhibit 10.2

ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

Last Amended by Board of Directors: February 13, 2014

Last Amended by Stockholders: February 13, 2014

 

SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS

The name of the plan is the Zendesk, Inc. 2009 Stock Option and Grant Plan (the “Plan”). The purpose of the Plan is to encourage and enable the officers, employees, directors, Consultants and other key persons (including prospective employees, but conditioned on their employment) of Zendesk, Inc., a Delaware corporation (including any successor entity, the “Company”) and any Subsidiary, upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business, to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests with those of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.

The following terms shall be defined as set forth below:

Affiliate ” of any Person means a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with the first mentioned Person. A Person shall be deemed to control another Person if such first Person possesses directly or indirectly the power to direct, or cause the direction of, the management and policies of the second Person, whether through the ownership of voting securities, by contract or otherwise.

Award ” or “ Awards, ” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Unrestricted Stock Awards, Restricted Stock Units or any combination of the foregoing.

Award Agreement ” means a written or electronic agreement setting forth the terms and provisions applicable to an Award granted under the Plan. Each Award Agreement may contain terms and conditions in addition to those set forth in the Plan; provided , however , that except to the extent explicitly provided to the contrary, in the event of any conflict in the terms of the Plan and the Award Agreement, the terms of the Plan shall govern.

Bankruptcy ” shall mean (i) the filing of a voluntary petition under any bankruptcy or insolvency law, or a petition for the appointment of a receiver or the making of an assignment for the benefit of creditors, with respect to the Holder, or (ii) the Holder being subjected involuntarily to such a petition or assignment or to an attachment or other legal or equitable


interest with respect to the Holder’s assets, which involuntary petition or assignment or attachment is not discharged within 60 days after its date, and (iii) the Holder being subject to a transfer of its Issued Shares or Award(s) by operation of law (including by divorce, even if not insolvent), except by reason of death.

Board ” means the Board of Directors of the Company.

Cause ” shall have the meaning as set forth in the Award Agreement(s). In the case that any Award Agreement does not contain a definition of “Cause,” it shall mean (i) dishonest statements or acts of the grantee with respect to the Company or any Affiliate of the Company, or any of the Company’s current or prospective customers, suppliers vendors or other third parties with which such entity does business; (ii) the grantee’s commission of (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud; (iii) failure to perform to the reasonable satisfaction of the Company the grantee’s duties and responsibilities assigned or delegated which failure continues, in the reasonable judgment of the Company, after written notice given to the grantee by the Company; (iv) gross negligence, willful misconduct or insubordination of the grantee with respect to the Company or any Affiliate of the Company; or (v) a violation of any provision of any agreement(s) between grantee and the Company relating to noncompetition, nondisclosure and/or assignment of inventions.

Chief Executive Officer ” means the Chief Executive Officer of the Company or, if there is no Chief Executive Officer, then the President of the Company.

Code ” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.

Committee ” means the Committee of the Board referred to in Section 2.

Consultant ” means any natural person that provides bona fide services to the Company (including a Subsidiary), and such services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.

Disability ” means “disability” as defined in Section 422(c) of the Code.

Effective Date ” means the date on which the Plan is approved by stockholders as set forth on the final page of the Plan.

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

Fair Market Value ” of the Stock on any given date means the fair market value of the Stock determined in good faith by the Committee based on the reasonable application of a reasonable valuation method not inconsistent with Section 409A of the Code. If the Stock is admitted to quotation on a national securities exchange, the determination shall be made by reference to market quotations. If the date for which Fair Market Value is determined is the first day when trading prices for the Stock are reported on a national securities exchange, the Fair

 

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Market Value shall be the “Price to the Public” (or equivalent) set forth on the cover page for the final prospectus relating to the Company’s Initial Public Offering.

Good Reason ” shall have the meaning as set forth in the Award Agreement(s). In the case that any Award Agreement does not contain a definition of “Good Reason,” it shall mean (i) a material diminution in the grantee’s base salary except for across-the-board salary reductions based on the Company’s financial performance similarly affecting all or substantially all senior management employees of the Company or (ii) a change of more than 50 miles in the geographic location at which the grantee provides services to the Company.

Grant Date ” means the date that the Committee designates in its approval of an Award in accordance with applicable law, which date may not precede the date of such Committee approval.

Holder ” means, with respect to an Award or any Issued Shares, the Person holding such Award or Issued Shares, including the initial recipient of the Award or any Permitted Transferee.

Incentive Stock Option ” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.

Initial Public Offering ” means the consummation of the first fully underwritten, firm commitment public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale by the Company of its equity securities, as a result of or following which the Stock shall be publicly held.

Issued Shares ” means, collectively, all outstanding Shares issued pursuant to Restricted Stock Awards, Unrestricted Stock Awards and Restricted Stock Units and all Option Shares.

NASDAQ ” means the NASDAQ Stock Market LLC.

Non-Qualified Stock Option ” means any Stock Option that is not an Incentive Stock Option.

Option ” or “ Stock Option ” means any option to purchase shares of Stock granted pursuant to Section 5.

Option Shares ” means outstanding shares of Stock that were issued to a Holder upon the exercise of a Stock Option.

Permitted Transferees ” shall mean any of the following to whom a Holder may transfer Issued Shares hereunder (as set forth in Section 9(a)(ii)(A)): the Holder’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Holder’s household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the beneficial interest, a foundation in which these persons control the management of assets, and any other entity in which these persons own more than fifty percent of the voting interests ; provided , however , that any such trust does not require or permit distribution of any Issued Shares during

 

3


the term of the Award Agreement unless subject to its terms. Upon the death of the Holder, the term Permitted Transferees shall also include such deceased Holder’s estate, executions, administrations, personal representations, heirs, legatees and distributees, as the case may be.

Person ” shall mean any individual, corporation, partnership (limited or general), limited liability company, limited liability partnership, association, trust, joint venture, unincorporated organization or any similar entity.

Repurchase Event ” means (i) a Sale Event or (ii) the Holder’s Bankruptcy.

Restricted Stock Award ” means Awards granted pursuant to Section 6 and “ Restricted Stock ” means Shares granted pursuant to such Awards.

Restricted Stock Unit ” means an Award of phantom stock units to a grantee, which may be settled in cash or stock as determined by the Committee, pursuant to Section 8.

Sale Event ” means the consummation of (i) the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation involving the Company in which the shares of capital stock outstanding immediately prior to such transaction represent or are converted into or exchanged for securities of the surviving or resulting entity immediately upon completion of such transaction which represent less than 50% of the outstanding voting power of such surviving or resulting entity, (iv) the acquisition of all or a majority of the outstanding capital stock of the Company in a single transaction or a series of related transactions by a Person or group of Persons, or (v) any other acquisition of the business of the Company, as determined by the Board; provided , however , that the Company’s Initial Public Offering, any subsequent public offering or another capital raising event, or a merger effected solely to change the Company’s domicile shall not constitute a “Sale Event.”

Section 409A ” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

Series A Common Stock ” means the Series A Common Stock, par value $0.01 per share, of the Company, subject to adjustments pursuant to Section 3.

Series B Common Stock ” means the Series B Common Stock, $0.01 par value per share, of the Company, subject to adjustments pursuant to Section 3.

Service Relationship ” means any relationship as an employee, part-time employee, director or other key person (including consultants) of the Company or any Subsidiary or any successor entity such that, for example, a Service Relationship shall be deemed to continue without interruption in the event an individual’s status changes from full-time employee to part-time employee or consultant.

Shares ” means shares of Stock.

 

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Stock ” means either the Series A Common Stock or the Series B Common Stock, subject to adjustments pursuant to Section 3.

Subsidiary ” means any corporation or other entity (other than the Company) in which the Company has more than a 50 percent interest, either directly or indirectly.

Ten Percent Owner ” means an employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent of the Company or any Subsidiary.

Termination Event ” means the termination of the Award recipient’s Service Relationship with the Company and its Subsidiaries for any reason whatsoever, regardless of the circumstances thereof, and including, without limitation, upon death, disability, retirement, discharge or resignation for any reason, whether voluntarily or involuntarily. The following shall not constitute a Termination Event: (i) a transfer to the service of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another Subsidiary or (ii) an approved leave of absence for military service or sickness, or for any other purpose approved by the Committee, if the individual’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing.

Unrestricted Stock Award ” means any Award granted pursuant to Section 7 and “Unrestricted Stock” means Shares granted pursuant to such Awards.

 

SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS

(a) Administration of Plan . The Plan shall be administered by the Board, or at the discretion of the Board, by a committee of the Board, comprised, except as contemplated by Section 2(c), of not less than two Directors. All references herein to the “Committee” shall be deemed to refer to the group then responsible for administration of the Plan at the relevant time (i.e., either the Board of Directors or a committee or committees of the Board, as applicable).

(b) Powers of Committee . The Committee shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:

(i) to select the individuals to whom Awards may from time to time be granted;

(ii) to determine the time or times of grant, and the amount, if any, of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Unrestricted Stock Awards, Restricted Stock Units, or any combination of the foregoing, granted to any one or more grantees;

(iii) to determine the series of Stock and the number of shares of Stock to be covered by any Award and, subject to the provisions of Section 5(a)(i) below, the price, exercise price, conversion ratio or other price relating thereto; provided , however , that any grant of Series A Common Stock shall require the approval of the Board;

 

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(iv) to determine and, subject to Section 13, to modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the form of Award Agreements;

(v) to accelerate at any time the exercisability or vesting of all or any portion of any Award;

(vi) to impose any limitations on Awards granted under the Plan, including limitations on transfers, repurchase provisions and the like, and to exercise repurchase rights or obligations;

(vii) subject to any restrictions imposed by Section 409A, to extend at any time the period in which Stock Options may be exercised; and

(viii) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.

All decisions and interpretations of the Committee shall be binding on all persons, including the Company and Plan grantees.

(c) Delegation of Authority to Grant Options . Subject to applicable law, the Committee, in its discretion, may delegate to the Chief Executive Officer of the Company the power to designate officers or employees to be recipients of Options of Series B Common Stock, and to determine the number of such Options of Series B Common Stock to be received by such officers or employees; provided , however , that the resolution so authorizing the Chief Executive Officer shall specify the total number of Options of Series B Common Stock the Chief Executive Officer may so award and may not delegate to the Chief Executive Officer the authority to set the strike price or the vesting terms of such Options. Any such delegation by the Committee shall also provide that the Chief Executive Officer may not grant awards to himself or herself (or other members of senior management) without the approval of the Committee. The Committee may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Committee’s delegate or delegates that were consistent with the terms of the Plan.

(d) Award Agreement . Awards under the Plan shall be evidenced by Award Agreements that set forth the terms, conditions and limitations for each Award and may include, without limitation, the term of an Award, the provisions applicable in the event the Service Relationship terminates, and the Company’s authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind an Award. To the extent permitted by the Committee, Award Agreements may be executed electronically by the Award recipient.

(e) Indemnification . Neither the Board nor the Committee, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or

 

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determination made in good faith in connection with the Plan, and the members of the Board and the Committee (and any delegate thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s governing documents, including its certificate of incorporation or bylaws, or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.

(f) Foreign Award Recipients . Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and any Subsidiary operate or have employees or other individuals eligible for Awards, the Committee, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries, if any, shall be covered by the Plan; (ii) determine which individuals, if any, outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent the Committee determines such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to the Plan as appendices); provided , however , that no such subplans and/or modifications shall increase the share limitation contained in Section 3(a) hereof; and (v) take any action, before or after an Award is made, that the Committee determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals. Notwithstanding the foregoing, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act or any other applicable United States securities law, the Code, or any other applicable United States governing statute or law.

 

SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS AND OTHER TRANSACTIONS; SUBSTITUTION

(a) Stock Issuable . The maximum number of shares of Stock reserved and available for issuance under the Plan, subject to adjustment as provided in Section 3(b), shall be (i) up to 49,530,320 shares of Series A Common Stock and (ii) up to 49,530,320 shares of Series B Common Stock; provided , however, that the maximum aggregate number of shares authorized for issuance under the Plan shall not exceed 49,530,320 shares. For purposes of this limitation, the shares of Stock underlying any Awards that are forfeited, canceled, withheld upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise), in each case shall be added back to the shares of Stock available for issuance under the Plan. Subject to such overall limitations, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award, provided that no more than 60,000,000 shares may be issued pursuant to Incentive Stock Options. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company. Beginning on the date that the Company becomes subject to Section 162(m) of the Code, no more than 10,000,000 Options shall be granted to any one individual in any calendar year period.

 

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(b) Changes in Stock . Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization, reclassification, combination, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger or consolidation, or sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for securities of the Company or any successor entity (or a parent or subsidiary thereof), the Committee shall make an appropriate and equitable or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, (ii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, (iii) the repurchase price, if any, per share subject to each outstanding Award, and (iv) the exercise price for each share subject to any then outstanding Stock Options under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options) as to which such Stock Options remain exercisable. The Committee shall also make equitable or proportionate adjustments in the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration cash dividends paid other than in the ordinary course or any other extraordinary corporate event. The adjustment by the Committee shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Committee in its discretion may make a cash payment in lieu of fractional shares.

(c) Sale Events .

(i) Options .

(A) In the case of and subject to the consummation of a Sale Event, the Plan and all Options issued hereunder shall terminate upon the effective time of any such Sale Event unless provision is made in connection with the Sale Event for the assumption or continuation of Options theretofore granted by the successor entity, or the substitution of such Options with new Options of the successor entity or parent thereof, with an equitable or proportionate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree (after taking into account any acceleration hereunder and/or pursuant to the terms of any Award Agreement).

(B) In the event of the termination of the Plan and all Options issued hereunder pursuant to Section 3(c), each Holder of Options shall be permitted, within a specified period of time prior to the consummation of the Sale Event as determined by the Committee, to exercise all such Options which are then exercisable or will become exercisable as of the effective time of the Sale Event; provided , however , that the exercise of Options not exercisable prior to the Sale Event shall be subject to the consummation of the Sale Event.

(C) Notwithstanding anything to the contrary in Section 3(c)(i)(A), in the event of a Sale Event, the Company shall have the right, but not the obligation, to

 

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make or provide for a cash payment to the grantees holding Options in exchange for the cancellation thereof, in an amount equal to the difference between (A) the value as determined by the Committee of the consideration payable per share of Stock pursuant to the Sale Event (the “Sale Price”) times the number of shares of Stock subject to outstanding Options (to the extent then vested exercisable, including by reason of acceleration in connection with such Sale Event, at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding vested Options.

(ii) Option Shares . Unless otherwise provided in an Award Agreement, in the case of and subject to the consummation of a Sale Event, Option Shares shall be subject to the repurchase right set forth in Section 9(c)(i).

(iii) Restricted Stock and Restricted Stock Unit Awards .

(A) In the case of and subject to the consummation of a Sale Event, all Restricted Stock and Restricted Stock Unit Awards issued hereunder shall terminate upon the effective time of any such Sale Event unless provision is made in connection with the Sale Event for the assumption or continuation of such Awards by the successor entity, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with an equitable or proportionate adjustment as to the number and kind of shares subject to such Awards as such parties shall agree (after taking into account any acceleration hereunder and/or pursuant to the terms of any Award Agreement).

(B) In the event of the termination of shares of Restricted Stock issued hereunder pursuant to Section 3(c), such shares of Restricted Stock shall be subject to the repurchase right set forth in Section 9(c)(2).

(C) Notwithstanding anything to the contrary in Section 3(c)(iii)(A), in the event of a Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the grantees holding Restricted Stock or Restricted Stock Unit Awards in exchange for the cancellation thereof, in an amount equal to the Sale Price times the number of shares of Stock subject to such Awards, to be paid at the time of such Sale Event or upon the later vesting of such Awards.

(iv) Unrestricted Stock Awards . Unless otherwise provided in an Award Agreement, any shares of Unrestricted Stock shall be treated in a Sale Event the same as all other Shares then outstanding.

 

SECTION 4. ELIGIBILITY

Grantees under the Plan will be such full or part-time officers and other employees, directors, Consultants and key persons (including prospective employees, but conditioned on their employment) of the Company and any Subsidiary who are selected from time to time by the Committee in its sole discretion; provided , however , that an Incentive Stock Option may be granted only to a person who, at the time the Incentive Stock Option is granted, is an employee of the Company or any Subsidiary.

 

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SECTION 5. STOCK OPTIONS

The grant of a Stock Option is contingent on the grantee executing a Stock Option Award Agreement. The terms and conditions of each such Stock Option Award Agreement shall be determined by the Committee, and such terms and conditions may differ among individual Awards and grantees, all of whom must be eligible persons under Section 4 hereof.

Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.

No Incentive Stock Option shall be granted under the Plan after the date which is ten years from the date the Plan is approved by the Board.

(a) Terms of Stock Options . The Committee in its discretion may grant Stock Options to eligible officers, employees, directors, Consultants and key persons of the Company or any Subsidiary. Stock Options granted pursuant to this Section 5(a) shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable. If the Committee so determines, Stock Options may be granted in lieu of cash compensation at the optionee’s election, subject to such terms and conditions as the Committee may establish.

(i) Exercise Price . The exercise price per share for the Stock covered by a Stock Option granted pursuant to Section 5(a) shall be determined by the Committee at the time of grant but shall not be less than 100 percent of the Fair Market Value on the Grant Date. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the option price of such Incentive Stock Option shall not be less than 110 percent of the Fair Market Value on the Grant Date.

(ii) Option Term . The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than ten years after the date the Stock Option is granted. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the Grant Date.

(iii) Exercisability; Rights of a Stockholder . Stock Options shall become exercisable and/or vested at such time or times, whether or not in installments, as shall be determined by the Committee at or after the Grant Date. The Award Agreement may permit an optionee to exercise all or a portion of a Stock Option immediately at grant; provided that the Option Shares issued upon such exercise shall be subject to restrictions and a vesting schedule identical to the vesting schedule of the related Stock Option and the optionee shall be required to enter into a Restricted Stock Award Agreement and any other similar documentation required by the Company as a condition to exercise of such Stock Option; provided further that, in the case of an Award Agreement granting a Stock Option to purchase Series A Common Stock, such Award Agreement may only permit an optionee to exercise such Stock Option immediately at grant if such early exercise is explicitly approved by the Board. An optionee shall have the

 

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rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options. An optionee shall not be deemed to have acquired any such shares unless and until a Stock Option shall have been exercised pursuant to the terms hereof and the optionee’s name shall have been entered on the books of the Company as a stockholder.

(iv) Method of Exercise . Stock Options may be exercised by an optionee in whole or in part, by the optionee giving written notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods (or any combination thereof) to the extent provided in the Option Award Agreement:

(A) In cash, by certified or bank check, by wire transfer of immediately available funds, or other instrument acceptable to the Committee;

(B) If permitted by the Committee, by the optionee delivering to the Company a promissory note, if the Board has expressly authorized the loan of funds to the optionee for the purpose of enabling or assisting the optionee to effect the exercise of his or her Stock Option; provided , that at least so much of the exercise price as represents the par value of the Stock shall be paid other than with a promissory note if required by state law;

(C) If permitted by the Committee and the Initial Public Offering has occurred (or the Stock otherwise becomes publicly traded), through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the optionee on the open market or that are beneficially owned by the optionee and are not then subject to restrictions under any Company plan. To the extent required to avoid variable accounting treatment under FAS 123R or other applicable accounting rules, such surrendered shares if originally purchased from the Company shall have been owned by the optionee for at least six months. Such surrendered shares shall be valued at Fair Market Value on the exercise date;

(D) If permitted by the Committee and the Initial Public Offering has occurred (or the Stock otherwise becomes publicly traded), by the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Committee shall prescribe as a condition of such payment procedure; and

(E) If permitted by the Committee with respect to Stock Options that are not Incentive Stock Options, by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price.

 

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Payment instruments will be received subject to collection. No certificates for shares of Stock so purchased will be issued to the optionee or, with respect to uncertificated Stock, no transfer to the optionee on the records of the Company will take place, until the Company has completed all steps required by law to be taken in connection with the issuance and sale of the shares, including without limitation (i) receipt of a representation from the optionee at the time of exercise of the Option that the optionee is purchasing the shares for the optionee’s own account and not with a view to any sale or distribution thereof, (ii) the legending of any certificate (or notation on any book entry) representing the shares to evidence the foregoing restrictions, and (iii) obtaining from optionee payment or provision for all withholding taxes due as a result of the exercise of the Option. The delivery of certificates representing the shares of Stock (or the transfer to the optionee on the records of the Company with respect to uncertificated Stock) to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the optionee (or a purchaser acting in his or her stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Option Award Agreement or applicable provisions of laws. In the event an optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of the Stock Option shall be net of the number of shares attested to.

(b) Annual Limit on Incentive Stock Options . To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under the Plan and any other plan of the Company or its parent and any Subsidiary that become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000 or such other limit as may be in effect from time to time under Section 422 of the Code. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.

(c) Termination of the Service Relationship . In the event that an optionee’s Service Relationship terminates, such optionee may thereafter exercise his, her or its Stock Option, to the extent that it was vested and exercisable on the date of such termination, until the date specified below. Any portion of the Stock Option that is not exercisable on the date of termination of such Service Relationship shall immediately expire and be null and void. Once any portion of the Stock Option becomes vested and exercisable, the optionee’s right to exercise such portion of the Stock Option (or the optionee’s representatives and legatees as applicable) in the event of a termination of the optionee’s Service Relationship shall continue until the earliest of: (i) the date which is: (A) six months following the date on which the optionee’s Service Relationship terminates due to death or Disability (or such longer period of time as determined by the Committee and set forth in the applicable Option Agreement), or (B) 30 days following the date on which the optionee’s Service Relationship terminates if the termination is due to any other reason (or such longer period of time as determined by the Committee and set forth in the applicable Option Agreement), or (ii) the Expiration Date set forth in the Option Agreement; provided that notwithstanding the foregoing, an Option Agreement may provide that if the optionee’s Service Relationship is terminated for Cause, the Stock Option shall terminate immediately and be null and void upon the date of the optionee’s termination and shall not thereafter be exercisable.

 

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SECTION 6. RESTRICTED STOCK AWARDS

(a) Nature of Restricted Stock Awards . The Committee may, in its sole discretion, grant (or sell at par value or such higher purchase price determined by the Committee) to an eligible person under Section 4 hereof a Restricted Stock Award under the Plan. The Committee shall determine the restrictions and conditions applicable to each Restricted Stock Award at the time of grant. Conditions may be based on continuing employment (or other Service Relationship), achievement of pre-established performance goals and objectives and/or such other criteria as the Committee may determine. The grant of a Restricted Stock Award is contingent on the grantee executing a Restricted Stock Award Agreement. The terms and conditions of each such Award Agreement shall be determined by the Committee, and such terms and conditions may differ among individual Awards and grantees, all of whom must be eligible persons under Section 4 hereof.

(b) Rights as a Stockholder . Upon execution of a Restricted Stock Award Agreement and payment of any applicable purchase price, a grantee of Restricted Stock shall be considered the record owner of and shall be entitled to vote the Shares of Restricted Stock if, and to the extent, such Shares are entitled to voting rights, subject to such conditions contained in the Restricted Stock Award Agreement. The grantee shall be entitled to receive all dividends and any other distributions declared on the Shares; provided , however , that the Company is under no duty to declare any such dividends or to make any such distribution. The Restricted Stock Award Agreement may require or permit the immediate payment, waiver, deferral or investment of dividends paid on the Restricted Stock. Unless the Committee shall otherwise determine, certificates evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in subsection (d) below of this Section, and the grantee shall be required, as a condition of the grant, to deliver to the Company a stock power endorsed in blank and such other instruments of transfer as the Committee may prescribe.

(c) Restrictions . Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Restricted Stock Award Agreement. Except as may otherwise be provided by the Committee either in the Award Agreement or, subject to Section 13 below, in writing after the Award Agreement is issued, if any, if a grantee’s employment (or other Service Relationship) with the Company and any Subsidiary terminates, the Company or its assigns shall have the right, as may be specified in the relevant instrument, to repurchase some or all of the Shares subject to the Award at such purchase price as is set forth in the Restricted Stock Award Agreement or Section 9(c)(ii) of the Plan.

(d) Vesting of Restricted Stock . The Committee at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the substantial risk of forfeiture imposed shall lapse and the Restricted Stock shall become vested, subject to such further rights of the Company or its assigns as may be specified in the Restricted Stock Award Agreement.

 

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SECTION 7. UNRESTRICTED STOCK AWARDS

(a) Grant or Sale of Unrestricted Stock . The Committee may, in its sole discretion, grant (or sell at par value or such higher purchase price determined by the Committee) to an eligible person under Section 4 hereof an Unrestricted Stock Award under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.

(b) Elections to Receive Unrestricted Stock In Lieu of Compensation . Upon the request of an eligible person under Section 4 hereof and with the consent of the Committee, each such grantee may, pursuant to an advance written election delivered to the Company no later than the date specified by the Committee, receive a portion of any cash compensation otherwise due to such grantee in the form of shares of Unrestricted Stock.

 

SECTION 8. RESTRICTED STOCK UNITS

(a) Nature of Restricted Stock Units . The Committee shall determine the restrictions and conditions applicable to each Restricted Stock Unit at the time of grant. Vesting conditions may be based on continuing employment (or other Service Relationship), achievement of pre-established performance goals and objectives and/or other such criteria as the Committee may determine. The grant of Restricted Stock Unit(s) is contingent on the grantee executing a Restricted Stock Unit Award Agreement. The terms and conditions of each such Award Agreement shall be determined by the Committee and may differ among individual Awards and grantees. On or promptly following the vesting date or dates applicable to any Restricted Stock Unit, such Restricted Stock Unit(s) shall be settled in the form of cash or shares of Stock, as specified in the Award Agreement.

(b) Rights as a Stockholder . A grantee shall have the rights of a stockholder only as to shares of Stock, if any, acquired upon settlement of a Restricted Stock Unit. A grantee shall not be deemed to have acquired any such shares unless and until a Restricted Stock Unit shall have been settled in Stock pursuant to the terms hereof, the Company shall have issued and delivered a certificate representing the shares to the grantee, and the grantee’s name shall have been entered in the books of the Company as a stockholder.

(c) Termination . Except as may otherwise be provided by the Committee either in the Award Agreement or in writing after the Award Agreement is issued, a grantee’s right in all Restricted Stock Units that have not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of Service Relationship) with the Company and any Subsidiary for any reason.

 

SECTION 9. TRANSFER RESTRICTIONS; COMPANY RIGHT OF FIRST REFUSAL; COMPANY REPURCHASE RIGHTS

(a) Restrictions on Transfer .

(i) Non-Transferability of Stock Options . No Stock Option shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution and all Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee, or by

 

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the optionee’s legal representative or guardian in the event of the optionee’s incapacity. Notwithstanding the foregoing, the Committee, in its sole discretion, may provide in the Award Agreement regarding a given Stock Option that the optionee may transfer, without consideration for the transfer, his or her Non-Qualified Stock Options to members of his or her immediate family, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Option.

(ii) Issued Shares . No Issued Shares shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of or encumbered, whether voluntarily or by operation of law, unless (i) such transfer is in compliance with the terms of the applicable Award Agreement, all applicable securities laws (including, without limitation, the Securities Act), and with the terms and conditions of this Section 9, (ii) such transfer does not cause the Company to become subject to the reporting requirements of the Exchange Act, and (iii) the transferee consents in writing to be bound by the provisions of the Plan, including this Section 9. In connection with any proposed transfer, the Committee may require the transferor to provide at the transferor’s own expense an opinion of counsel to the transferor, satisfactory to the Committee, that such transfer is in compliance with all foreign, federal and state securities laws (including, without limitation, the Securities Act). Any attempted disposition of Issued Shares not in accordance with the terms and conditions of this Section 9 shall be null and void, and the Company shall not reflect on its records any change in record ownership of any Issued Shares as a result of any such disposition, shall otherwise refuse to recognize any such disposition and shall not in any way give effect to any such disposition of Issued Shares. Subject to the foregoing general provisions, and unless otherwise provided in the applicable Award Agreement, Issued Shares may be transferred pursuant to the following specific terms and conditions (provided that with respect to any transfer of Restricted Stock, all vesting and forfeiture provisions shall continue to apply only with respect to the original recipient):

(A) Transfers to Permitted Transferees . The Holder may sell, assign, transfer or give away any or all of the Issued Shares to Permitted Transferees; provided , however , that following such sale, assignment, or other transfer, such Issued Shares shall continue to be subject to the terms of this Plan (including this Section 9) and such Permitted Transferee(s) shall, as a condition to any such transfer, deliver a written acknowledgment to that effect to the Company.

(B) Transfers Upon Death . Upon the death of the Holder, any Issued Shares then held by the Holder at the time of such death and any Issued Shares acquired thereafter by the Holder’s legal representative shall be subject to the provisions of this Plan, and the Holder’s estate, executors, administrators, personal representatives, heirs, legatees and distributees shall be obligated to convey such Issued Shares to the Company or its assigns under the terms contemplated hereby.

(b) Right of First Refusal . In the event that a Holder desires at any time to sell or otherwise transfer all or any part of such Holder’s Issued Shares (other than shares of Restricted Stock which by their terms are not transferable), the Holder first shall give written notice to the Company of the Holder’s intention to make such transfer. Such notice shall state the number of Issued Shares which the Holder proposes to sell (the “Offered Shares”), the price and the terms

 

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at which the proposed sale is to be made and the name and address of the proposed transferee. At any time within 30 days after the receipt of such notice by the Company, the Company or its assigns may elect to purchase all or any portion of the Offered Shares at the price and on the terms offered by the proposed transferee and specified in the notice. The Company or its assigns shall exercise this right by mailing or delivering written notice to the Holder within the foregoing 30-day period. If the Company or its assigns elect to exercise its purchase rights under this Section 9(b), the closing for such purchase shall, in any event, take place within 45 days after the receipt by the Company of the initial notice from the Holder. In the event that the Company or its assigns do not elect to exercise such purchase right, or in the event that the Company or its assigns do not pay the full purchase price within such 45-day period, the Holder may, within 60 days thereafter, sell the Offered Shares to the proposed transferee and at the same price and on the same terms as specified in the Holder’s notice. Any Shares purchased by such proposed transferee shall no longer be subject to the terms of the Plan. Any Shares not sold to the proposed transferee shall remain subject to the Plan.

(c) Company’s Right of Repurchase .

(i) Right of Repurchase for Option Shares . The Company or its assigns shall have the right and option upon a Repurchase Event to repurchase from a Holder of Option Shares some or all (as determined by the Company) of the Option Shares held or subsequently acquired upon exercise of a Stock Option by such Holder at the price per share specified below. Such repurchase right may be exercised by the Company within the later of (A) six months following the date of such Repurchase Event or (B) seven months after the acquisition of such Option Shares upon exercise of a Stock Option (the “Option Shares Repurchase Period”). The “Option Shares Repurchase Price” shall be equal to the Fair Market Value of the Option Shares, determined as of the date the Committee elects to exercise its repurchase rights in connection with a Repurchase Event.

(ii) Right of Repurchase With Respect to Restricted Stock and Shares issued pursuant to an Unrestricted Stock Award or Restricted Stock Unit Award . Unless otherwise set forth in the agreement entered into by the recipient and the Company in connection with a Restricted Stock Award, Unrestricted Stock Award or Restricted Stock Unit Award, the Company or its assigns shall have the right and option upon a Repurchase Event to repurchase from a Holder of Issued Shares received pursuant to a Restricted Stock Award, Unrestricted Stock Award or Restricted Stock Unit Award some or all (as determined by the Company) of such Issued Shares at the price per share specified below. In addition, upon a Termination Event, the Company or its assigns shall have the right and option to repurchase from a Holder of Issued Shares received pursuant to a Restricted Stock Award any Issued Shares which have not vested as of the Termination Event. Such repurchase right may be exercised by the Company within six months following the date of such Repurchase Event or Termination Event as applicable (the “Non-Option Shares Repurchase Period”). The “Non-Option Shares Repurchase Price” shall be (i) in the case of Issued Shares which are vested as of the date of the Repurchase Event, the Fair Market Value of such Issued Shares as of the date the Company elects to exercise its repurchase rights in connection with a Repurchase Event and (ii) in the case of Issued Shares which have not vested as of the date of the Repurchase Event or Termination Event (as applicable), the lower of the original per share purchase price paid by the recipient subject to adjustment as provided in Section 3(b) or the current Fair Market Value of such Issued Shares as

 

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of the date the Company elects to exercise its repurchase rights in connection with a Repurchase Event or Termination Event (as applicable).

(iii) Procedure . Any repurchase right of the Company shall be exercised by the Company or its assigns by giving the Holder written notice on or before the last day of the Option Shares Repurchase Period or Non-Option Shares Repurchase Period, as applicable, of its intention to exercise such repurchase right. Upon such notification, the Holder shall promptly surrender to the Company, free and clear of any liens or encumbrances, any certificates representing the Shares being purchased, together with a duly executed stock power for the transfer of such Shares to the Company or the Company’s assignee or assignees. Upon the Company’s or its assignee’s receipt of the certificates from the Holder, the Company or its assignee or assignees shall deliver to him, her or them a check for the Option Shares Repurchase Price or the Non-Option Shares Repurchase Price, as applicable; provided , however , that the Company may pay the Option Shares Repurchase Price or Non-Option Shares Repurchase Price, as applicable, by offsetting and canceling any indebtedness then owed by the Holder to the Company.

(d) Drag Along Right . In the event the holders of a majority of the Company’s equity securities then outstanding (the “Majority Shareholders”) determine to enter into a Sale Event in a bona fide negotiated transaction (a “Sale”), with any non-Affiliate of the Company or any majority shareholder (in each case, the “Buyer”), a Holder of Issued Shares, including any Permitted Transferees, shall be obligated to and shall upon the written request of the Majority Shareholders: (a) sell, transfer and deliver, or cause to be sold, transferred and delivered, to the Buyer, his or her Issued Shares (including for this purpose all of such Holder’s or his or her Permitted Transferee’s Issued Shares that presently or as a result of any such transaction may be acquired upon the exercise of an Option (following the payment of the exercise price therefor)) on substantially the same terms applicable to the Majority Shareholders (with appropriate adjustments to reflect the conversion of convertible securities, the redemption of redeemable securities and the exercise of exercisable securities as well as the relative preferences and priorities of preferred stock); and (b) execute and deliver such instruments of conveyance and transfer and take such other action, including voting such Issued Shares in favor of any Sale proposed by the Majority Shareholders and executing any purchase agreements, merger agreements, indemnity agreements, escrow agreements or related documents as the Majority Shareholders or the Buyer may reasonably require in order to carry out the terms and provisions of this Section 9(d).

(e) Escrow Arrangement .

(i) Escrow . In order to carry out the provisions of Sections 9(b), (c), and (d) of this Agreement more effectively, the Company shall hold any Issued Shares in escrow together with separate stock powers executed by the Holder in blank for transfer, and any Permitted Transferee shall, as an additional condition to any transfer of Issued Shares, execute a like stock power as to such Issued Shares. The Company shall not dispose of the Issued Shares except as otherwise provided in this Agreement. In the event of any repurchase by the Company (or any of its assigns), the Company is hereby authorized by the Holder and any Permitted Transferee, as the Holder’s and each such Permitted Transferee’s attorney-in-fact, to date and complete the stock powers necessary for the transfer of the Issued Shares being purchased and to

 

17


transfer such Issued Shares in accordance with the terms hereof. At such time as any Issued Shares are no longer subject to the Company’s repurchase, first refusal and drag along rights, the Company shall, at the written request of the Holder, deliver to the Holder (or the relevant Permitted Transferee) a certificate representing such Issued Shares with the balance of the Issued Shares to be held in escrow pursuant to this Section 9(e).

(ii) Remedy . Without limitation of any other provision of this Agreement or other rights, in the event that a Holder, any Permitted Transferees or any other Person is required to sell a Holder’s Issued Shares pursuant to the provisions of Sections 9(b), (c), or (d) hereof and in the further event that he or she refuses or for any reason fails to deliver to the Company or its designated purchaser of such Issued Shares the certificate or certificates evidencing such Issued Shares together with a related stock power, the Company or such designated purchaser may deposit the applicable purchase price for such Issued Shares with a bank designated by the Company, or with the Company’s independent public accounting firm, as agent or trustee, or in escrow, for such Holder, any Permitted Transferees or other Person, to be held by such bank or accounting firm for the benefit of and for delivery to him, her, them or it, and/or, in its discretion, pay such purchase price by offsetting any indebtedness then owed by such Holder as provided above. Upon any such deposit and/or offset by the Company or its designated purchaser of such amount and upon notice to the Person who was required to sell the Issued Shares to be sold pursuant to the provisions of Sections 9(b), (c), or (d), such Issued Shares shall at such time be deemed to have been sold, assigned, transferred and conveyed to such purchaser, such Holder shall have no further rights thereto (other than the right to withdraw the payment thereof held in escrow, if applicable), and the Company shall record such transfer in its stock transfer book or in any appropriate manner.

(f) Lockup Provision . A Holder agrees, if requested by the Company and any underwriter engaged by the Company, not to sell or otherwise transfer or dispose of any Issued Shares (including, without limitation, pursuant to Rule 144 under the Securities Act) held by him or her for such period following the effective date of any registration statement of the Company filed under the Securities Act as the Company or such underwriter shall specify reasonably and in good faith (such period not to exceed 210 days). The underwriters in connection with such registration are intended third-party beneficiaries of this Section 9(f) and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in connection with such registration that are consistent with this Section 9(f) or that are necessary to give further effect thereto.

(g) Adjustments for Changes in Capital Structure . If, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares of the Company’s Stock, the restrictions contained in this Section 9 shall apply with equal force to additional and/or substitute securities, if any, received by Holder in exchange for, or by virtue of his or her ownership of, Issued Shares.

(h) Termination . The terms and provisions of Section 9(b), Section 9(c) (except for the Company’s right to repurchase unvested Restricted Stock Awards upon a Termination Event) and Section 9(d) shall terminate upon the closing of the Company’s Initial Public Offering or

 

18


upon consummation of any Sale Event, in either case as a result of which shares of the Company (or a successor entity) of the same class as the Issued Shares are registered under Section 12 of the Exchange Act and publicly traded on NASDAQ or any national security exchange.

 

SECTION 10. TAX WITHHOLDING

(a) Payment by Grantee . Each grantee shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld by the Company with respect to such income. The Company and any Subsidiary shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company’s obligation to deliver stock certificates (or evidence of book entry) to any grantee is subject to and conditioned on any such tax withholding obligations being satisfied by the grantee.

(b) Payment in Stock . Subject to approval by the Committee, a grantee may elect to have the Company’s minimum required tax withholding obligation satisfied, in whole or in part, by authorizing the Company to withhold from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the minimum withholding amount due.

 

SECTION 11. SECTION 409A AWARDS.

To the extent that any Award is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A (a “409A Award”), the Award shall be subject to such additional rules and requirements as specified by the Committee from time to time in order to comply with Section 409A. In this regard, if any amount under a 409A Award is payable upon a “separation from service” (within the meaning of Section 409A) to a grantee who is considered a “specified employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A.

 

SECTION 12. TRANSFER, LEAVE OF ABSENCE, ETC.

For purposes of the Plan, the following events shall not be deemed a termination of a Service Relationship:

(a) a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or

(b) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing.

 

19


SECTION 13. AMENDMENTS AND TERMINATION

The Board may, at any time, amend or discontinue the Plan and the Committee may, at any time, amend or cancel any outstanding Award (or provide substitute Awards at the same or a reduced exercise or purchase price or with no exercise or purchase price in a manner not inconsistent with the terms of the Plan; provided , that such price, if any, must satisfy the requirements which would apply to the substitute or amended Award if it were then initially granted under the Plan for the purpose of satisfying changes in law or for any other lawful purpose), but no such action shall adversely affect rights under any outstanding Award without the consent of the holder of the Award. The Committee may exercise its discretion to reduce the exercise price of outstanding Stock Options or effect repricing through cancellation of outstanding Awards and by granting such holders new Awards in replacement of the cancelled Awards. To the extent determined by the Committee to be required either by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code or otherwise, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders. Nothing in this Section 13 shall limit the Board’s or Committee’s authority to take any action permitted pursuant to Section 3(c).

 

SECTION 14. STATUS OF PLAN

With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Committee shall otherwise expressly so determine in connection with any Award or Awards. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the Company’s obligations to deliver Stock or make payments with respect to Awards hereunder; provided , that the existence of such trusts or other arrangements is consistent with the foregoing sentence.

 

SECTION 15. GENERAL PROVISIONS

(a) No Distribution; Compliance with Legal Requirements . The Committee may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares of Stock without a view to distribution thereof. No shares of Stock shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied. The Committee may require the placing of such stop-orders and restrictive legends on certificates for Stock and Awards as it deems appropriate. The Committee may also condition the issuance of Stock pursuant to an Award on the recipient becoming a party to the Company’s Right of First Refusal and Co-Sale Agreement, Voting Agreement or other similar agreements.

(b) Delivery of Stock Certificates . Stock certificates to grantees under the Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company. Uncertificated Stock shall be deemed delivered for all purposes when the Company or a Stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company,

 

20


notice of issuance and recorded the issuance in its records (which may include electronic “book entry” records).

(c) Other Compensation Arrangements; No Employment Rights . Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan and the grant of Awards do not confer upon any employee any right to continued employment or Service Relationship with the Company or any Subsidiary.

(d) Trading Policy Restrictions . Option exercises and other Awards under the Plan shall be subject to such Company’s insider trading policy-related restrictions, terms and conditions as may be established by the Committee, or in accordance with policies set by the Committee, from time to time.

(e) Designation of Beneficiary . Each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award on or after the grantee’s death or receive any payment under any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the Committee and shall not be effective until received by the Committee. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.

(f) Legend . Any certificate(s) representing the Issued Shares shall carry substantially the following legend (and with respect to uncertificated Stock, the book entries evidencing such shares shall contain the following notation):

The transferability of this certificate and the shares of stock represented hereby are subject to the restrictions, terms and conditions (including repurchase and restrictions against transfers) contained in the Zendesk, Inc. 2009 Stock Option and Grant Plan and any agreement entered into thereunder by and between the company and the holder of this certificate (a copy of which is available at the offices of the company for examination).

 

SECTION 16. EFFECTIVE DATE OF PLAN

The Plan shall become effective upon approval of stockholders, within 12 months following the adoption of the Plan by the Board, in accordance with applicable state law, and the Company’s articles of incorporation and bylaws. Subject to such approval by the stockholders and to the requirement that no Stock Option or other Award may be issued hereunder prior to such approval, Stock Options and other Awards may be granted hereunder on and after adoption of the Plan by the Board. No grants of Stock Options and other Awards may be made hereunder after the tenth anniversary of the Effective Date or the date the Plan is approved by the Board, whichever is earlier.

 

21


SECTION 17. GOVERNING LAW

This Plan, all Awards and any controversy arising out of or relating to this Plan and all Awards shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of Massachusetts, without regard to conflict of law principles that would result in the application of any law other than the law of the State of Massachusetts.

 

Date Originally Approved by Board of Directors:    July 24, 2009
Date Originally Approved by the Stockholders:    July 24, 2009

 

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NON-QUALIFIED STOCK OPTION AGREEMENT

UNDER THE ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

Pursuant to the Zendesk, Inc. 2009 Stock Option and Grant Plan, as amended (the “Plan,” attached herein and marked Appendix A ), Zendesk, Inc., a Delaware corporation (together with any successor thereto, the “Company”), hereby grants to the undersigned optionee (the “Optionee”), who is an employee of the Company or any of its Subsidiaries, an option (the “Stock Option”) to purchase all or any part of the number of shares of Series B Common Stock, par value $0.01 per share (“Series B Common Stock”) of the Company indicated on the Stock Option Grant Notice (“Grant Notice,” attached herein and marked Appendix D ) (the “Underlying Shares,”), at the exercise price per share indicated in the Grant Notice (the “Option Exercise Price”), by filing a Stock Option Exercise Notice (“Exercise Notice”) in the form attached herein and marked Appendix B . Such Exercise Notice may be filed on or prior to the expiration date (“Expiration Date”) indicated in Grant Notice, or such earlier date as is specified herein, subject to the terms and conditions set forth in this Non-Qualified Stock Option Agreement (this “Agreement”) and in the Plan. This Stock Option is intended to be a non-qualified stock option.

All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Non-Qualified Stock Option Grant Notice and the Plan.

1. Vesting, Exercisability and Termination .

(a) This Stock Option shall be immediately exercisable, regardless of whether the Underlying Shares are vested.

(b) Except as set forth below, and subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, the Underlying Shares shall be vested on the respective dates indicated below:

(i) All Underlying Shares shall initially be unvested.

(ii) The Underlying Shares shall vest in accordance with the Vesting Schedule set forth in the Grant Notice.

(c) Termination . Except as may otherwise be provided by the Committee, if the Optionee’s Service Relationship is terminated, the period within which to exercise this Stock Option will be subject to earlier termination as set forth below (and if not exercised within such period, shall thereafter terminate subject, in each case to Section 3(c) of the Plan):

(i) Termination Due to Death or Disability . If the Optionee’s Service Relationship terminates by reason of such Optionee’s death or disability (as defined in Section 422(c) of the Code), this Stock Option may continue to be exercised, to the extent the Underlying Shares are vested on the date of termination, by the Optionee, the Optionee’s legal representative or legatee for a period of 12 months from the date of


death or disability (as defined in Section 422(c) of the Code) or until the Expiration Date, if earlier.

(ii) Other Termination . If the Optionee’s Service Relationship terminates for any reason other than death or disability (as defined in Section 422(c) of the Code), and unless otherwise determined by the Committee, this Stock Option may continue to be exercised, to the extent the Underlying Shares are vested on the date of termination, for a period of 90 days from the date of termination or until the Expiration Date, if earlier; provided however , if the Optionee’s Service Relationship is terminated for Cause, this Stock Option shall terminate immediately upon the date of such termination.

For purposes hereof, the Committee’s determination of the reason for termination of the Optionee’s Service Relationship shall be conclusive and binding on the Optionee and his or her representatives or legatees. Any portion of this Stock Option with respect to Underlying Shares that are not vested on the date of termination of the Service Relationship shall terminate immediately and be null and void.

2. Exercise of Stock Option . The Optionee may exercise this Stock Option only in the following manner:

(a) Prior to the Expiration Date, the Optionee may deliver an Exercise Notice indicating his or her election to purchase some or all of the Underlying Shares. Such notice shall specify the number of Underlying Shares to be purchased. To the extent this Stock Option is only partially exercised, such exercise shall first be with respect to the Underlying Shares, if any, that have previously vested, and then with respect to the Underlying Shares that will next vest, with the Underlying Shares that vest at the latest date being exercised last. Payment of the purchase price may be made by one or more of the methods described in Section 5 of the Plan, subject to the limitations contained in such Section of the Plan, including the requirement that the Committee specifically approve in advance certain payment methods.

(b) In the event the Optionee exercises a portion of this Stock Option with respect to Underlying Shares that have not vested, the Optionee shall also deliver a Restricted Stock Agreement covering such unvested Underlying Shares in the form attached herein and marked Appendix C (the “Restricted Stock Agreement”) with the same vesting schedule for such Underlying Shares as set forth for the Underlying Shares herein. The Restricted Stock Agreement shall be deemed a Restricted Stock Award and all Underlying Shares so acquired pursuant to such Restricted Stock Agreement shall be deemed Restricted Stock for all purposes under the Plan.

(c) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.

3. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan.

4. Transferability of Stock Option . This Stock Option is personal to the Optionee and is not transferable by the Optionee in any manner other than by will or by the laws of descent and distribution. The Stock Option may be exercised during the Optionee’s lifetime only by the Optionee (or by the Optionee’s guardian or personal representative in the event of the


Optionee’s incapacity). The Optionee may elect to designate a beneficiary by providing written notice of the name of such beneficiary to the Company, and may revoke or change such designation at any time by filing written notice of revocation or change with the Company; such beneficiary may exercise the Optionee’s Stock Option in the event of the Optionee’s death to the extent provided herein. If the Optionee does not designate a beneficiary, or if the designated beneficiary predeceases the Optionee, the legal representative of the Optionee may exercise this Stock Option to the extent provided herein in the event of the Optionee’s death.

5. Restrictions on Transfer of Underlying Shares . The Underlying Shares acquired upon exercise of the Stock Option may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Optionee may transfer the Underlying Shares without such consent (i) to a Permitted Transferee or upon the death of the Optionee, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) following an Initial Public Offering. In addition, such Underlying Shares shall be subject to certain additional transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan and, if applicable, the Restricted Stock Agreement.

6. Repurchase Right . Upon a Termination Event, the Company shall have the right to repurchase the Underlying Shares deemed Restricted Stock as of the date of such Termination Event as set forth in Section 9(c) of the Plan.

7. Miscellaneous Provisions .

(a) Equitable Relief . The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(b) Adjustments for Changes in Capital Structure . If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Series B Common Stock, the outstanding shares of Series B Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Optionee in exchange for, or by virtue of his or her ownership of, this Stock Option or Underlying Shares acquired pursuant thereto.

(c) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.

(d) Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.


(e) Headings . The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(f) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(g) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(h) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, permitted assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

(i) Counterparts . For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

(j) Integration . This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

8. Dispute Resolution .

(a) Except as provided below, any dispute arising out of or relating to the Plan or this Stock Option, this Agreement, or the breach, termination or validity of the Plan, this Stock Option or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a


party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(c) The Company, the Optionee, each party to the Agreement and any other holder of Underlying Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 7 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

[SIGNATURE PAGE FOLLOWS]


The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.

 

ZENDESK, INC., San Francisco, CA
By:  

 

  Alan Black, CFO

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that the Stock Option granted hereby is subject to the terms of the Plan and of this Agreement.

The undersigned also hereby acknowledges and agrees that the Underlying Shares are subject to transfer restrictions as set forth in Section 5 of the Agreement.

This Agreement is hereby accepted, and the terms and conditions thereof and of the Plan, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS IN SECTION 8 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date first above written.

 

OPTIONEE (Sign)  

 

Printed name:  

 

Address:  

 

 

SPOUSE’S CONSENT (if Optionee’s state of residence is Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin)

I acknowledge that I have read the foregoing Non-Qualified Stock Option Agreement and understand the contents thereof.

 

Sign:  

 

DESIGNATED BENEFICIARY (if Optionee wishes to designate in accordance with Sec. 4)

 

Beneficiary Name:    
Address:    


APPENDIX A

ZENDESK, INC. 2009 STOCK OPTION AND GRANT PLAN


APPENDIX B

STOCK OPTION EXERCISE NOTICE FOR VESTED AND EARLY EXERCISE

 

To: Zendesk, Inc., attention Chief Financial Officer

Pursuant to the terms of my stock option agreement(s) between the undersigned and Zendesk, Inc. (the “Company”) under the Zendesk, Inc. 2009 Stock Option and Grant Plan, I hereby exercise such option by including herein payment in the form of a personal check representing the purchase price for the Underlying Shares.

 

   Name of Optionee:  

 

     Today’s Date   

 

 

     # of
Underlying
Shares
   Strike Price
per
Underlying
Share
     Aggregate
exercise price
 

Number of Underlying Shares underlying options originally granted on _____________, 20___

      $        

 

(if multiple options are involved, please list separately)

        

Vested Underlying Shares that I am acquiring

      $         $     

Unvested Underlying Shares that I am acquiring by exercising early

      $         $     

Unvested Underlying Shares that I am not acquiring now

        

Payment to Zendesk

         $     

In connection with my exercise of the option as set forth above, I hereby represent and warrant to the Company as follows:

(i) I am purchasing the Underlying Shares for my own account for investment only, and not for resale or with a view to the distribution thereof.


(ii) I have had such an opportunity as I have deemed adequate to obtain from the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company and have consulted with my own advisers with respect to my investment in the Company, including tax advisers with regards to any tax implications involved with exercising a Non-Qualified Stock Option.

(iii) I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Underlying Shares and to make an informed investment decision with respect to such purchase.

(iv) I can afford a complete loss of the value of the Underlying Shares and am able to bear the economic risk of holding such Underlying Shares for an indefinite period of time.

(v) I understand that the shares of Series B Common Stock that I acquire upon exercise of the Options (using Appendix B ) as well as any shares of Series A Common Stock and Series B Common Stock that I have previously purchased, been granted, or that are subject to other awards made to you under the Plan, may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that I may transfer any such shares without such consent (i) to a Permitted Transferee (as defined in the Plan) or upon my death, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) subject to the other transfer restrictions as set forth in Section 9 of the Plan, upon an Initial Public Offering.

(vi) I understand that the Underlying Shares may not be registered under the Securities Act of 1933 (it being understood that the Underlying Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act of 1933 and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirement thereof). I further acknowledge that certificates representing Underlying Shares will bear restrictive legends reflecting the foregoing and/or that book entries for uncertificated Underlying Shares will include similar restrictive notations.

(vii) To the extent required, I have executed and delivered to the Company the Restricted Stock Agreement, attached as Appendix C to the Agreement.

(viii) I have read and understand the Plan and acknowledge and agree that the Underlying Shares are subject to all of the relevant terms of the Plan, including without limitation, the transfer restrictions set forth in Section 9 of the Plan.

(ix) I understand and agree that the Company has a right of first refusal with respect to the Underlying Shares pursuant to Section 9(b) of the Plan.

(x) I understand and agree that the Company has certain repurchase rights with respect to the Underlying Shares (including, without limitation, Underlying Shares deemed Restricted Stock issued pursuant to a Restricted Stock Award) pursuant to Section 9(c) of the Plan.


(xi) I understand and agree that I may not sell or otherwise transfer or dispose of the Underlying Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.

 

Sincerely yours,
OPTIONEE:

 

Name:
Address:

 

 

 


APPENDIX C

RESTRICTED STOCK AGREEMENT FOR EARLY EXERCISE OF NON-QUALIFIED STOCK OPTION

UNDER THE ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

 

Optionee Name

    

Date of Original Grant

    

Date of Early Exercise Notice

    

Number of Restricted Shares purchased herein

    

Price paid per share

    

Aggregate purchase price

    

All capitalized terms used in this Restricted Stock Agreement for Early Exercise Option (“Agreement”) and not otherwise defined shall have the respective meanings set forth in the Non-Qualified Stock Option Agreement (including Appendices thereto) (the “Option Agreement”) between Zendesk, Inc. (the “Company”) and undersigned Optionee granting Optionee Stock Options to purchase shares of Series B Common Stock under the Zendesk, Inc. 2009 Stock Option and Grant Plan (the “Plan”), as amended by the Amendment to Stock Option Agreement signed by the Optionee (collectively, the “Option Agreement”). This Agreement shall be considered a Restricted Stock Award for all purposes under the Plan.

Upon signing this Agreement and delivering the Stock Option Notice (“Exercise Notice”) to the Company, Company shall deliver to Optionee Underlying Shares to be acquired upon exercise, subject to the following terms:

1. Purchase and Sale of Underlying Shares; Vesting.

(a) Purchase and Sale . The Company hereby sells to the Optionee, and the Optionee is purchasing from the Company, the number of Underlying Shares set forth in the Exercise Notice, pursuant to the Option Agreement, for the aggregate Option Exercise Price for the Underlying Shares so purchased.

(b) Vesting . The risk of forfeiture shall lapse with respect to the Underlying Shares, and such Underlying Shares shall become vested, on the respective dates indicated on the Vesting Schedule set forth in Appendix D to the Option Agreement. The Underlying Shares shall be considered Shares of Restricted Stock (as defined in the Plan) for purposes of this Agreement and the Plan.


2. Repurchase Right . Upon a Termination Event or Repurchase Event, the Company shall have the right to repurchase the Underlying Shares deemed to be Restricted Stock as set forth in Section 9(c) of the Plan.

3. Restrictions on Transfer of Underlying Shares . The Underlying Shares (whether or not vested) may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Underlying Shares may be transferred without such consent (i) to a Permitted Transferee or upon death, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) subject to the other transfer restrictions as set forth in Section 9 of the Plan, following a Initial Public Offering. The Underlying Shares (whether or not vested) shall remain subject to the other transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan.

4. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Restricted Stock Agreement shall be subject to and governed by all the terms and conditions of the Plan.

5. Escrow and Stock Assignment . The certificates for any Underlying Shares shall be deposited in escrow with the Company to be held in escrow with the Company. Each deposited certificate shall be accompanied by a duly executed stock assignment separate from certificate in the form attached hereto as Appendix C-1 (the “Assignment”). The deposited certificates and the Assignment, together with any other assets or securities from time to time deposited with the Company pursuant to this Agreement shall remain in escrow until such time or times as the Underlying Shares are released from the Company’s right to repurchase the Underlying Shares as set forth in Section 9(c) of the Plan. If the Company (or its assignees) elects to exercise its right to repurchase the Underlying Shares as set forth in Section 9(c) of the Plan then the escrowed certificates for such Underlying Shares being repurchased (together with any other assets or securities issued with respect thereto) shall be delivered to the Company, concurrently with the payment to the Holder, in cash or cash equivalent (including the cancellation of any purchase-money indebtedness), of an amount equal to the applicable repurchase price for the Underlying Shares being repurchased, and the Optionee shall cease to have any further rights or claims with respect to such Underlying Shares (or other assets or securities attributable to such Underlying Shares).

6. Miscellaneous Provisions .

(a) Record Owner; Dividends . The Optionee and any Permitted Transferees, during the duration of this Agreement, shall be considered the record owners of and shall be entitled to vote the Underlying Shares if and to the extent the Underlying Shares are entitled to voting rights. The Optionee and any Permitted Transferees shall be entitled to receive all dividends and any other distributions declared on the Underlying Shares; provided , however , that the Company is under no duty to declare any such dividends or to make any such distribution.

(b) Section 83(b) Election . The Optionee shall consult with the Optionee’s tax advisor to determine whether it would be appropriate for the Optionee to make an election


under Section 83(b) of the Code with respect to the Underlying Shares. Any such election must be filed with the Internal Revenue Service within 30 days of the date of exercise. If the Optionee makes an election under Section 83(b) of the Code, the Optionee shall give prompt notice to the Company (and provide a copy of such election to the Company).

(c) Equitable Relief . The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(d) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.

(e) Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.

(f) Headings . The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(g) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(h) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(i) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

(j) Counterparts . For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.


7. Dispute Resolution .

(a) Except as provided below, any dispute arising out of or relating to the Plan or the Underlying Shares, this Agreement, or the breach, termination or validity of the Plan, the Underlying Shares or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 - 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(c) The Company, the Optionee, each party to the Agreement and any other holder of Underlying Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 7 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction


and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

[SIGNATURE PAGE FOLLOWS]


The foregoing Restricted Stock Agreement is hereby accepted and the terms and conditions thereof are hereby agreed to by the undersigned as of the date first above written.

 

ZENDESK, INC.
By:  

 

  Chief Financial Officer

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof and understands that the Underlying Shares purchased hereby are subject to the terms of the Plan and this Agreement. This Agreement is hereby accepted, and the terms and conditions of the Plan, the Option Agreement and this Agreement, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS SET FORTH IN SECTION 7 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date first above written.

 

OPTIONEE:

 

Name:
Address:

 

 

 

SPOUSE’S CONSENT 1

I acknowledge that I have read the foregoing Restricted Stock Agreement and understand the contents thereof.

 

 

Name:

 

1   A spouse’s consent if the Optionee’s state of residence is one of the following community property states: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin.


Appendix 1 to

Restricted Stock Agreement

STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto Zendesk, Inc. ______ shares of Common Stock of the Company standing in the undersigned’s name on the books of the Company represented by Certificate(s) No. ___ herewith and hereby irrevocably constitutes and appoints the Secretary and other officers of the Company attorneys to transfer said stock on the books of the Company with full power of substitution in the premises.

 

Date:  

 

By:  

 

Print Stockholder Name:  

 

INSTRUCTIONS: Stockholder to sign and print name only. All other blanks and date should be left blank. To be completed by Company upon exercise of repurchase right.


APPENDIX D

STOCK OPTION GRANT NOTICE

 

Name of Optionee:    _____________________________________________    
No. of Underlying Shares    _______________ Shares of Series B Common Stock
Grant Date:    ___________________________, 201___
Expiration Date:    ___________________________, 202___
Vesting begins on:    ___________________________, 201___   (Vesting Commencement Date)
Option Exercise Price/Share:    $0.__________

Vesting Schedule :

Subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, this Stock Option shall be vested with respect to the Underlying Shares on the respective dates indicated below:

(i) 25% of the Underlying Shares shall vest on the first anniversary of the Vesting Commencement Date; and

(ii) 2.0833% of the Underlying Shares shall vest each completed month for 36 months following the first anniversary of the Vesting Commencement Date,

so long as the Optionee maintains a Service Relationship on each such date.

Notwithstanding anything in the Agreement to the contrary in the case of a Sale Event, this Stock Option shall be treated as provided in Section 3(c) of the Plan.


INCENTIVE STOCK OPTION AGREEMENT

UNDER THE ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

Pursuant to the Zendesk, Inc. 2009 Stock Option and Grant Plan, as amended (the “Plan,” attached herein and marked Appendix A ), Zendesk, Inc., a Delaware corporation (together with any successor thereto, the “Company”), hereby grants to the undersigned optionee (the “Optionee”), who is an employee of the Company or any of its Subsidiaries, an option (the “Stock Option”) to purchase all or any part of the number of shares of Series B Common Stock, par value $0.01 per share (“Series B Common Stock”) of the Company indicated on the Stock Option Grant Notice (“Grant Notice,” attached herein and marked Appendix D ) (the “Underlying Shares,” and such shares once issued shall be referred to as the “Option Shares”), at the exercise price per share indicated in the Grant Notice (the “Option Exercise Price”), by filing a Stock Option Exercise Notice (“Exercise Notice”) in the form attached herein and marked Appendix B . Such Exercise Notice may be filed on or prior to the expiration date (“Expiration Date”) indicated in Grant Notice, or such earlier date as is specified herein, subject to the terms and conditions set forth in this Incentive Stock Option Agreement (this “Agreement”) and in the Plan. This Stock Option is intended to qualify as an “incentive stock option” as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended from time to time (the “Code”). To the extent that any portion of the Stock Option does not so qualify, it shall be deemed a non-qualified stock option.

All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Incentive Stock Option Grant Notice and the Plan.

1. Vesting, Exercisability and Termination .

(a) Subject to the following limitation, this Stock Option shall be immediately exercisable, regardless of whether the Shares are vested. Exercised shares are limited to less than $100,000 in aggregate exercise price (shares time purchase price per share) on a calendar year basis. Therefore, the ability to exercise unvested options are limited if they cause the aggregate exercise price to exceed $100,000 in any one calendar year.

(b) Except as set forth below, and subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, the Shares shall be vested on the respective dates indicated below:

(i) All Shares shall initially be unvested.

(ii) The Shares shall vest in accordance with the Vesting Schedule set forth in the Grant Notice.

(c) Termination . Except as may otherwise be provided by the Committee, if the Optionee’s Service Relationship is terminated, the period within which to exercise this Stock Option will be subject to earlier termination as set forth below (and if not exercised within such period, shall thereafter terminate subject, in each case to Section 3(c) of the Plan):

(i) Termination Due to Death or Disability . If the Optionee’s Service Relationship terminates by reason of such Optionee’s death or disability (as defined in Section 422(c) of the Code), this Stock Option may continue to be exercised, to the extent the Shares are vested on the date of termination, by the Optionee, the Optionee’s legal representative or legatee for a period of 12 months from the date of death or disability (as defined in Section 422(c) of the Code) or until the Expiration Date, if earlier.


(ii) Other Termination . If the Optionee’s Service Relationship terminates for any reason other than death or disability (as defined in Section 422(c) of the Code), and unless otherwise determined by the Committee, this Stock Option may continue to be exercised, to the extent the Shares are vested on the date of termination, for a period of 90 days from the date of termination or until the Expiration Date, if earlier; provided however , if the Optionee’s Service Relationship is terminated for Cause, this Stock Option shall terminate immediately upon the date of such termination.

For purposes hereof, the Committee’s determination of the reason for termination of the Optionee’s Service Relationship shall be conclusive and binding on the Optionee and his or her representatives or legatees. Any portion of this Stock Option with respect to Shares that are not vested on the date of termination of the Service Relationship shall terminate immediately and be null and void.

(d) It is understood and intended that this Stock Option is intended to qualify as an “incentive stock option” as defined in Section 422 of the Code to the extent permitted under applicable law. Accordingly, the Optionee understands that in order to obtain the benefits of an incentive stock option under Section 422 of the Code, no sale or other disposition may be made of Shares for which incentive stock option treatment is desired within the one-year period beginning on the day after the day of the transfer of such Shares to him or her, nor within the two-year period beginning on the day after Grant Date of this Stock Option and further that this Stock Option must be exercised within three months after termination of employment as an employee (or 12 months in the case of death or disability) to qualify as an incentive stock option. If the Optionee disposes (whether by sale, gift, transfer or otherwise) of any such Shares within either of these periods, he or she will notify the Company within 30 days after such disposition. The Optionee also agrees to provide the Company with any information concerning any such dispositions required by the Company for tax purposes. Further, to the extent this Stock Option and any other incentive stock options of the Optionee having an aggregate Fair Market Value in excess of $100,000 (determined as of the Grant Date) first become exercisable in any year, such options will not qualify as incentive stock options.

2. Exercise of Stock Option .

(a) The Optionee may exercise this Stock Option only in the following manner: Prior to the Expiration Date, the Optionee may deliver an Exercise Notice indicating his or her election to purchase some or all of the Shares. Such notice shall specify the number of Shares to be purchased. To the extent this Stock Option is only partially exercised, such exercise shall first be with respect to the Shares, if any, that have previously vested, and then with respect to the Shares that will next vest, with the Shares that vest at the latest date being exercised last. Payment of the purchase price may be made by one or more of the methods described in Section 5 of the Plan, subject to the limitations contained in such Section of the Plan, including the requirement that the Committee specifically approve in advance certain payment methods.


(b) In the event the Optionee exercises a portion of this Stock Option with respect to Shares that have not vested, the Optionee shall also deliver a Restricted Stock Agreement covering such unvested Shares (the “Restricted Stock Agreement”) with the same vesting schedule for such Shares as set forth for such Shares herein.

(c) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.

3. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan.

4. Transferability of Stock Option . This Stock Option is personal to the Optionee and is not transferable by the Optionee in any manner other than by will or by the laws of descent and distribution. The Stock Option may be exercised during the Optionee’s lifetime only by the Optionee (or by the Optionee’s guardian or personal representative in the event of the Optionee’s incapacity). The Optionee may elect to designate a beneficiary by providing written notice of the name of such beneficiary to the Company, and may revoke or change such designation at any time by filing written notice of revocation or change with the Company; such beneficiary may exercise the Optionee’s Stock Option in the event of the Optionee’s death to the extent provided herein. If the Optionee does not designate a beneficiary, or if the designated beneficiary predeceases the Optionee, the legal representative of the Optionee may exercise this Stock Option to the extent provided herein in the event of the Optionee’s death.

5. Restrictions on Transfer of Shares . The Shares acquired upon exercise of the Stock Option may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Optionee may transfer the Shares without such consent (ii) to a Permitted Transferee or upon the death of the Optionee, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) following an Initial Public Offering. In addition, such Shares shall be subject to certain additional transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan and, if applicable, the Restricted Stock Agreement.

6. Repurchase Right . Upon a Termination Event, the Company shall have the right to repurchase the Underlying Shares of Restricted Stock that are unvested as of the date of such Termination Event as set forth in Section 9(c) of the Plan.

7. Miscellaneous Provisions .

(a) Equitable Relief . The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(b) Adjustments for Changes in Capital Structure . If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Series B Common Stock, the outstanding shares of Series B Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with


equal force to additional and/or substitute securities, if any, received by the Optionee in exchange for, or by virtue of his or her ownership of, this Stock Option or Shares acquired pursuant thereto.

(c) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.

(d) Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.

(e) Headings . The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(f) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(g) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(h) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, permitted assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

(i) Counterparts . For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

(j) Integration . This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

8. Dispute Resolution .

(a) Except as provided below, any dispute arising out of or relating to the Plan or this Stock Option, this Agreement, or the breach, termination or validity of the Plan, this Stock Option or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures


(the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(c) The Company, the Optionee, each party to the Agreement and any other holder of Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 7 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

[SIGNATURE PAGE FOLLOWS]


The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.

 

ZENDESK, INC., San Francisco, CA
By:  

 

  Alan Black, CFO

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that the Stock Option granted hereby is subject to the terms of the Plan and of this Agreement.

The undersigned also hereby acknowledges and agrees that the Option Shares are subject to transfer restrictions as set forth in Section 5 of the Agreement.

This Agreement is hereby accepted, and the terms and conditions thereof and of the Plan, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS IN SECTION 7 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date first above written.

 

OPTIONEE (Sign)  

 

 

Printed name:  

 

 

Address:  

 

 

SPOUSE’S CONSENT (if Optionee’s state of residence is Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin)

I acknowledge that I have read the foregoing Incentive Stock Option Agreement and understand the contents thereof.

 

Sign:  

 

DESIGNATED BENEFICIARY (if Optionee wishes to designate in accordance with Sec. 4)

 

Beneficiary Name:

Address:


APPENDIX A

ZENDESK, INC. 2009 STOCK OPTION AND GRANT PLAN


APPENDIX B

STOCK OPTION EXERCISE NOTICE FOR VESTED AND EARLY EXERCISE

 

To: Zendesk, Inc, attention Chief Financial Officer

Pursuant to the terms of my stock option agreement(s) between the undersigned and Zendesk, Inc. (the “Company”) under the Zendesk, Inc. 2009 Stock Option and Grant Plan, I hereby exercise such option by including herein payment in the form of a personal check representing the purchase price for the Underlying Shares.

 

  Name of Optionee:  

 

     Today’s Date   

 

 

    # of Options   Strike Price
per Share
    Extended
exercise price
 

Number of options originally granted on ____________, 20___

 

(if multiple options are involved, please list separately)

    $              

If applicable, converted to:

Number of options after March 2011 Two-for-One stock split

    $       

If applicable, converted to:

Number of options after April 2012 Two-for-One stock split

    $       

Vested options that I am exercising

    $        $                

Unvested options that I am exercising early

    $        $     

Unvested options that I am not exercising now

     

Payment to Zendesk

      $     

In connection with my exercise of the option as set forth above, I hereby represent and warrant to the Company as follows:

(i) I am purchasing the Underlying Shares for my own account for investment only, and not for resale or with a view to the distribution thereof.


(ii) I have had such an opportunity as I have deemed adequate to obtain from the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company and have consulted with my own advisers with respect to my investment in the Company, INCLUDING TAX ADVISERS WITH REGARDS TO ANY AMT (Alternative Minimum Tax) implications involved with executing an Incentive Stock Option.

(iii) I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Underlying Shares and to make an informed investment decision with respect to such purchase.

(iv) I can afford a complete loss of the value of the Option Shares and am able to bear the economic risk of holding such Option Shares for an indefinite period of time.

(v) I understand that the shares of Series B Common Stock that I acquire upon exercise of the Options (using Exhibit B) as well as any shares of Series A Common Stock and Series B Common Stock that I have previously purchased, been granted, or that are subject to other awards made to you under the Plan, may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that I may transfer any such shares without such consent (i) to a Permitted Transferee (as defined in the Plan) or upon my death, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) upon an Initial Public Offering.

(vi) I understand that the Option Shares may not be registered under the Securities Act of 1933 (it being understood that the Option Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act of 1933 and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirement thereof). I further acknowledge that certificates representing Option Shares will bear restrictive legends reflecting the foregoing and/or that book entries for uncertificated Option Shares will include similar restrictive notations.

(vii) To the extent required, I have executed and delivered to the Company the Restricted Stock Agreement, attached as Appendix C to the Agreement.

(viii) I have read and understand the Plan and acknowledge and agree that the Shares are subject to all of the relevant terms of the Plan, including without limitation, the transfer restrictions set forth in Section 9 of the Plan.

(ix) I understand and agree that the Company has a right of first refusal with respect to the Shares pursuant to Section 9(b) of the Plan.

(x) I understand and agree that the Company has certain repurchase rights with respect to the Shares pursuant to Section 9(c) of the Plan.

(xi) I understand and agree that I may not sell or otherwise transfer or dispose of the Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.


Sincerely yours,
OPTIONEE:

 

Name:
Address:

 

 

 


APPENDIX C

RESTRICTED STOCK AGREEMENT FOR EARLY EXERCISE OF

INCENTIVE STOCK OPTION

UNDER THE ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

 

Optionee Name     
Date of Original Grant     
Date of Early Exercise Notice     
Number of Restricted Shares purchased herein     
Price paid per share     
Aggregate purchase price     

All capitalized terms used in this Restricted Stock Agreement for Early Exercise Option (“Agreement”) and not otherwise defined shall have the respective meanings set forth in the ]Incentive Stock Option Agreement (including Exhibits thereto) between Zendesk, Inc. (the “Company”) and \ (\the “Optionee” granting Optionee options (each, a “Stock Option”) to purchase shares of Series B Common Stock under the Zendesk, Inc. 2009 Stock Option and Grant Plan (the “Plan”), as amended by the Amendment to Stock Option Agreement signed by the Optionee (collectively, the “Option Agreement”).

Upon signing this Agreement and delivering the Early Exercise Incentive Stock Option Notice (“Exercise Notice”) to the Company, Company shall deliver to Optionee Underlying Shares subject to the following terms:

1. Purchase and Sale of Shares; Vesting.

(a) Purchase and Sale . The Company hereby sells to the Optionee, and the Optionee is purchasing from the Company, the number of Shares set forth in the Stock Option Exercise Notice , pursuant to the Option Agreement, for the aggregate Option Exercise Price for the Underlying Shares so purchased.

(b) Vesting . The risk of forfeiture shall lapse with respect to the Underlying Shares, and such Underlying Shares shall become vested, on the respective dates indicated on the Vesting Schedule set forth in Exhibit A to the Option Agreement. Until they vest, the Underlying Shares shall be considered Shares of Restricted Stock (as defined in the Plan) for purposes of this Agreement and the Plan.

2. Repurchase Right . Upon a Termination Event, the Company shall have the right to repurchase the Underlying Shares of Restricted Stock that are unvested as of the date of such Termination Event as set forth in Section 9(c) of the Plan.


3. Restrictions on Transfer of Shares . The Underlying Shares (whether or not vested) may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Underlying Shares may be transferred without such consent (i) to a Permitted Transferee or upon death, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) following a Initial Public Offering. The Underlying Shares (whether or not vested) shall be subject to certain transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan.

4. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Restricted Stock Agreement shall be subject to and governed by all the terms and conditions of the Plan.

5. Miscellaneous Provisions .

(a) Record Owner; Dividends . The Optionee and any Permitted Transferees, during the duration of this Agreement, shall be considered the record owners of and shall be entitled to vote the Underlying Shares if and to the extent the Underlying Shares are entitled to voting rights. The Optionee and any Permitted Transferees shall be entitled to receive all dividends and any other distributions declared on the Underlyiing Shares; provided , however , that the Company is under no duty to declare any such dividends or to make any such distribution.

(b) Section 83(b) Election . The Optionee shall consult with the Optionee’s tax advisor to determine whether it would be appropriate for the Optionee to make an election under Section 83(b) of the Code with respect to the Underlying Shares. Any such election must be filed with the Internal Revenue Service within 30 days of the date of exercise. If the Optionee makes an election under Section 83(b) of the Code, the Optionee shall give prompt notice to the Company (and provide a copy of such election to the Company).

(c) Equitable Relief . The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(d) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.

(e) Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.


(f) Headings . The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(g) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(h) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(i) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

(j) Counterparts . For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

6. Dispute Resolution .

(a) Except as provided below, any dispute arising out of or relating to the Plan or the Shares, this Agreement, or the breach, termination or validity of the Plan, the Shares or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 - 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a


reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(c) The Company, the Optionee, each party to the Agreement and any other holder of Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 6 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

[SIGNATURE PAGE FOLLOWS]


The foregoing Restricted Stock Agreement is hereby accepted and the terms and conditions thereof are hereby agreed to by the undersigned as of the date first above written.

 

ZENDESK, INC.
By:  

 

  Alan Black, Chief Financial Officer

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof and understands that the Shares purchased hereby are subject to the terms of the Plan and this Agreement. This Agreement is hereby accepted, and the terms and conditions of the Plan, the Option Agreement and this Agreement, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS SET FORTH IN SECTION 6 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date first above written.

 

OPTIONEE:

 

Name:
Address:

 

 

 

SPOUSE’S CONSENT 1

I acknowledge that I have read the foregoing Restricted Stock Agreement and understand the contents thereof.

 

 

Name:

 

 

1   A spouse’s consent if the Optionee’s state of residence is one of the following community property states: Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington and Wisconsin.


APPENDIX D

STOCK OPTION GRANT NOTICE

 

Name of Optionee:      
No. of Underlying Shares                     Shares of Series B Common Stock   
Grant Date:                 , 2012   
Expiration Date:                 , 2022   
Vesting begins on:                 , 2012   
Option Exercise Price/Share:    $0.            

Vesting Schedule:

Subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, this Stock Option shall be vested with respect to the Underlying Shares on the respective dates indicated below:

25% of the Underlying Shares are vested on:              , 2013

2.0833% of the Underlying Shares are vested each month for 36 months beginning on              , 2013

so long as the Optionee maintains a Service Relationship on each such date.

Notwithstanding anything in the Agreement to the contrary in the case of a Sale Event, this Stock Option shall be treated as provided in Section 3(c) of the Plan.


RESTRICTED STOCK UNIT AWARD AGREEMENT

UNDER THE ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

Pursuant to the Zendesk, Inc. 2009 Stock Option and Grant Plan, as amended (the “Plan,” attached herein and marked Appendix A ), Zendesk, Inc., a Delaware corporation (together with any successor thereto, the “Company”), hereby grants to the undersigned grantee (the “Grantee”), an award of the number of Restricted Stock Units (an “Award”) indicated on the Restricted Stock Unit Grant Notice (“Grant Notice,” attached herein and marked as Appendix B ), subject to the terms and conditions set forth in this Restricted Stock Unit Award Agreement (this “Agreement”) and in the Plan. Each Restricted Stock Unit shall relate to one share (a “Share”) of Series B Common Stock.

All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Restricted Stock Unit Grant Notice and the Plan.

1. Conditions and Vesting of Restricted Stock Units . The Restricted Stock Units are subject to both a time-based condition (the “Time Condition”) and performance-based vesting (the “Performance Vesting”) described in paragraphs (a) and (b) below, both of which must be satisfied prior to the Expiration Date before the Restricted Stock Units will be deemed vested and may be settled in accordance with Section 3 of this Agreement.

(a) Time Condition . The Time Condition shall be satisfied in accordance with the Time-Based Vesting Schedule set forth in the Grant Notice.

(b) Performance Vesting . The Restricted Stock Units shall only satisfy the Performance Vesting on the first to occur of (i) immediately prior to a Sale Event or (ii) the completion of Company’s Initial Public Offering, in either case, occurring prior to the Expiration Date.

(c) Vesting Date . Each date as of which both the Time Condition and Performance Vesting described in paragraphs (a) and (b) have been satisfied with respect to any Restricted Stock Units shall be referred to as a “Vesting Date.” No Vesting Date shall occur after the Expiration Date. To the extent the Restricted Stock Units have not satisfied both the Time Condition and the Performance Vesting, such Restricted Stock Units shall expire and be of no further force or effect on the Expiration Date.

2. Termination of Service Relationship . If the Grantee’s Service Relationship with the Company terminates for any reason (including death or disability) prior to the satisfaction of the Time Condition set forth in Section 1(a) above, any Restricted Stock Units that have not satisfied the Time Condition as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such forfeited Restricted Stock Units. Any Restricted Stock Units that have satisfied the Time Condition as of such date shall remain subject to the Performance Vesting set forth in Section 1(b) above, but shall expire and be of no further force or effect on the first to occur of (a) three years after the date on which the Grantee’s Service Relationship with the Company terminates, or (b) the Expiration Date.


3. Receipt of Shares of Stock . As soon as reasonably practicable following each Vesting Date, but in no event later than March 15th of the year following the calendar year in which the Vesting Date occurs (the “Limit Date”), the Company shall issue to the Grantee the number of Shares equal to the aggregate number of Restricted Stock Units that have satisfied the Time Condition and Performance Vesting pursuant to Section 1 of this Agreement and which have not been previously issued by the Company to the Grantee and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such Shares. Subject to the foregoing requirement to issue the Shares prior to the Limit Date, the Company generally expects to issue such Shares on a quarterly basis during the second month of each quarter; provided, however, that this schedule could be modified based on certain securities law restrictions at the discretion of the Company. Notwithstanding the foregoing, in the event the Company completes an Initial Public Offering, the Company reserves the right, but not the obligation, to withhold issuance of any Shares until after the termination of any lock-up period contemplated in the Plan or any contractual arrangement with the Company’s underwriters provided that the Shares are delivered prior to the Limit Date. Grantee acknowledges and agrees that the anticipated issuance schedule is reasonably practicable for all purposes under this Agreement and the Plan.

4. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Award shall be subject to and governed by all the terms and conditions of the Plan.

5. Transfer Restrictions .

(a) Award Not Transferrable . The Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee.

(b) Beneficiary Designation . This Award is personal to the Grantee. The Grantee may elect to designate a beneficiary by providing written notice of the name of such beneficiary to the Company and may revoke or change such designation at any time by filing written notice of revocation or change with the Company. Such beneficiary may be entitled to benefits under this Award in the event of the death of the Grantee after a Vesting Date but before the settlement of this Award in accordance with the terms and conditions of this Award. If the Grantee does not designate a beneficiary, or if the designated beneficiary predeceases the Grantee, the legal representative of the Grantee or the Grantee’s estate shall be the beneficiary.

(c) Restrictions on Transfer of Shares . The Shares acquired upon settlement of the Restricted Stock Units may not be sold, transferred or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Section 1 of this Agreement; (ii) Shares have been issued to the Grantee in accordance with the terms of the Plan and this Agreement; and (iii) the Grantee has obtained the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Grantee may transfer the Shares without such consent specified in this subparagraph (iii): (x) to a Permitted Transferee or upon the death of the Grantee, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (y) following an Initial Public Offering. In addition, the Shares shall be subject to certain additional transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan.


6. Tax Withholding .

(a) Grantee Responsible for Tax-Related Items . Regardless of any action that the Company or the Grantee’s actual employer or a Subsidiary or Affiliate of the Company with which the Grantee has a Service Relationship if the Grantee is a Consultant (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account, or other tax-related items related to the Grantee’s participation in the Plan and legally applicable to him or her (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items is and remains the Grantee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. The Grantee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, including, without limitation, the grant, vesting, or settlement of the Restricted Stock Units, the subsequent sale of Shares acquired pursuant to such issuance, and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. The Grantee shall not make any claim against the Company or its Board of Directors, officers or employees related to Tax-Related Items arising from this Award or the Grantee’s other compensation. Furthermore, if the Grantee has become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, the Grantee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

(b) Withholding . The Grantee shall, not later than the date as of which the receipt or settlement of this Award becomes a taxable event for Federal income tax purposes, satisfy any Federal, state, and local taxes required by law to be withheld on account of such taxable event. Such withholding shall be satisfied, in the Company’s sole discretion, (i) by the Company withholding from Shares to be issued to the Grantee a number of Shares with an aggregate Fair Market Value that would satisfy the minimum withholding amount due; (ii) with respect to a Grantee who is not an executive officer or director of the Company nor subject to the reporting requirements of Section 16 of the Exchange Act at the time of such withholding, by the Company causing its transfer agent to sell from the number of shares of Stock to be issued to the Grantee, the number of shares of Stock necessary to satisfy the Federal, state and local taxes required by law to be withheld from the Grantee on account of such transfer; or (iii) by requiring the Grantee to pay to the Company, or make arrangements satisfactory to the Committee for payment of, the required tax withholding obligation.

7. Section 409A of the Code . This Award is intended to constitute a “short term deferral” for purposes of Section 409A of the Code to the greatest extent possible and the Award will be administered and interpreted in accordance with that intent. To the extent that any provision of this Agreement is ambiguous as to its exemption from Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder are exempt from Section 409A of the Code. Solely for purposes of Section 409A of the Code, each issuance of Shares on (or shortly following) a Vesting Date shall be considered a separate payment. The Company makes no representation or warranty and shall have no liability to the Grantee or any


other person if any provisions of this Award are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.

8. Miscellaneous Provisions .

(a) Equitable Relief . The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(b) Adjustments for Changes in Capital Structure . If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Series B Common Stock, the outstanding shares of Series B Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Grantee in exchange for, or by virtue of his or her ownership of, this Award or Shares acquired pursuant thereto.

(c) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Grantee.

(d) Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.

(e) Headings . The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(f) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(g) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Grantee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(h) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, permitted assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.


(i) Counterparts . For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

(j) Integration . This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

9. Dispute Resolution .

(a) Except as provided below, any dispute arising out of or relating to the Plan or this Award, this Agreement, or the breach, termination or validity of the Plan, this Award or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(c) The Company, the Grantee, each party to the Agreement and any other holder of Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 9 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or


proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

10. Acknowledgements of the Grantee .

(a) The Grantee represents and agrees that the Shares to be acquired upon settlement of this Award will be acquired for investment, and not with a view to the sale or distribution thereof.

(b) In the event that the sale or issuance of Shares under the Plan is not registered under the Securities Act but an exemption is available that requires an investment representation or other representation, the Grantee shall represent and agree at the time of settlement of this Award resulting in the transfer of Shares that the Shares being acquired are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.

(c) Neither the Company nor any Subsidiary or Affiliate is obligated by or as a result of the Plan or this Agreement to continue the Grantee’s Service Relationship, and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary or Affiliate to terminate the Service Relationship of the Grantee at any time.

(d) The Granteee understands that the Shares may not be registered under the Securities Act of 1933 (it being understood that the Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act of 1933 and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirement thereof).

(e) The Grantee understands and agree that he or she may not sell or otherwise transfer or dispose of the Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.

[SIGNATURE PAGE FOLLOWS]


The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.

 

ZENDESK, INC., San Francisco, CA
By:  

 

  Alan Black, CFO

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that the Award granted hereby is subject to the terms of the Plan and of this Agreement.

The undersigned also hereby acknowledges and agrees that the Shares are subject to transfer restrictions as set forth in Section 5 of the Agreement.

This Agreement is hereby accepted, and the terms and conditions thereof and of the Plan, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS IN SECTION 9 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date first above written.

 

GRANTEE (Sign)  

 

Printed name:  

 

Address:  

 

 

SPOUSE’S CONSENT (if Grantee’s state of residence is Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin)

I acknowledge that I have read the foregoing Restricted Stock Unit Award Agreement and understand the contents thereof.

 

Sign:  

 

DESIGNATED BENEFICIARY (if Grantee wishes to designate beneficiary):

 

Beneficiary Name:  

 

Address:  

 


APPENDIX A

ZENDESK, INC. 2009 STOCK OPTION AND GRANT PLAN


APPENDIX B

RESTRICTED STOCK UNIT GRANT NOTICE

 

Name of Grantee:  

 

 
No. of Restricted Stock Units  

 

 
Grant Date:  

 

 
Expiration Date:  

 

  [seventh anniversary of Grant Date]
Vesting Commencement Date:  

 

 

Time-Based Vesting Schedule :

Subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder:

[25 percent] of the Restricted Stock Units shall satisfy the Time Condition on the first anniversary of the Vesting Commencement Date (the “Initial Time Vesting Date”) provided that the Grantee continues to have a Service Relationship with the Company on the Initial Time Vesting Date

[2.0833%] of the Restricted Stock Units shall satisfy the Time Condition each completed month for [ 36 ] months following the one-year anniversary of the Vesting Commencement Date (each date, a “Time Vesting Date”), for so long as the Grantee continues to have a Service Relationship with the Company.

Notwithstanding the foregoing, the Time Condition shall only be satisfied with respect to whole Restricted Stock Units and any rounding down to a number of whole Restricted Stock Units shall correspondingly increase the number of Restricted Stock Units allocated to the [ 36 th ] Time Vesting Date.

Notwithstanding anything in this Notice or the Agreement to the contrary, in the case of a Sale Event, this Award shall be treated as provided in Section 3(c) of the Plan; provided that any Restricted Stock Units that have satisfied the Time Condition as of the consummation of such Sale Event shall either be assumed, continued or substituted for in accordance with Section 3(c)(iii)(A) of the Plan or cancelled in exchange for a cash payment in accordance with Section 3(c)(iii)(C) of the Plan. [In addition, insert any special acceleration rights here.]

Performance Vesting : As set forth in the Agreement.


STOCK OPTION AGREEMENT (AUSTRALIA)

UNDER THE ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

Pursuant to the Zendesk, Inc. 2009 Stock Option and Grant Plan, as amended (the “Plan,” attached herein and marked Appendix A ), Zendesk, Inc., a Delaware corporation (together with any successor thereto, the “Company”), hereby grants to the undersigned optionee (the “Optionee”), who is an employee of the Company or any of its Subsidiaries, an option (the “Stock Option”) to purchase all or any part of the number of shares of Series B Common Stock, par value $0.01 per share (“Series B Common Stock”) of the Company indicated on the Stock Option Grant Notice (“Grant Notice,” attached herein and marked Appendix C ) (the “Underlying Shares”), at the exercise price per share indicated in the Grant Notice (the “Option Exercise Price”), by filing a Stock Option Exercise Notice (“Exercise Notice”) in the form attached herein and marked Appendix B . Such Exercise Notice may be filed on or prior to the expiration date (“Expiration Date”) indicated in the Grant Notice, or such earlier date as is specified herein, subject to the terms and conditions set forth in this Stock Option Agreement (this “Agreement”) and in the Plan.

All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Grant Notice and the Plan.

1. Vesting, Exercisability and Termination .

(a) No portion of this Stock Option may be exercised until such portion shall have both (i) vested and (ii) become exercisable in accordance with the terms herein.

(b) Subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule herein, the Stock Option shall vest in accordance with Part A of the Vesting Schedule set forth in the Grant Notice (“Part A”).

(c) Except as set forth below, the Stock Option shall, to the extent the Stock Option is vested, become exercisable at the time set out in Part B of the Vesting Schedule set forth in the Grant Notice (“Part B”).

(d) Termination . Except as may otherwise be provided by the Committee, if the Optionee’s Service Relationship is terminated prior to the time this Stock Option becomes exercisable in accordance with Section 1(c) above, this Stock Option shall terminate immediately upon the date of such termination and be null and void. Except as may otherwise be provided by the Committee, if the Optionee’s Service Relationship is terminated at a time when this Stock Option is both vested pursuant to Section 1(b) above and exercisable pursuant to Section 1(c) above, the period within which to exercise this Stock Option will be subject to earlier termination as set forth below (and if not exercised within such period, shall thereafter terminate subject, in each case, to Section 3(c) of the Plan):


(i) Termination Due to Death or Disability . If the Optionee’s Service Relationship terminates by reason of such Optionee’s death or disability (as defined in Section 422(c) of the Code), at a time when this Stock Option is vested and exercisable pursuant to Section 1(b) and (c) above, this Stock Option may continue to be exercised, by the Optionee, the Optionee’s legal representative or legatee for a period of 12 months from the date of death or disability (as defined in Section 422(c) of the Code) or until the Expiration Date, if earlier.

(ii) Other Termination . If the Optionee’s Service Relationship terminates for any reason other than death or disability (as defined in Section 422(c) of the Code) at a time when this Stock Option is vested and exercisable pursuant to Section 1(b) and (c) above, this Stock Option may continue to be exercised, for a period of up to 90 days from the date of termination or until the Expiration Date, if earlier; provided however , if the Optionee’s Service Relationship is terminated for Cause, this Stock Option shall terminate immediately upon the date of such termination.

For purposes hereof, the Committee’s determination of the reason for termination of the Optionee’s Service Relationship shall be conclusive and binding on the Optionee and his or her representatives or legatees. In addition, or purposes hereof, the Optionee’s Service Relationship will be considered terminated as of the date that the Optionee is no longer actively providing services to the Company or any of its Subsidiaries (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Optionee is employed or the terms of the Optionee’s employment agreement, if any). Unless otherwise expressly provided in this Agreement or determined by the Company, (i) the Optionee’s right to vest in the Stock Option under the Plan, if any, will terminate as of such date and will not be extended by any notice period ( e.g ., the Optionee’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where the Optionee is employed or the terms of the Optionee’s employment agreement, if any); the Committee. shall have the exclusive discretion to determine when the Optionee is no longer actively providing services for purposes of his or her Stock Option grant (including whether the Optionee may still be considered to be providing services while on a leave of absence).

2. Exercise of Stock Option . The Optionee may exercise this Stock Option to the extent it is vested and exercisable only in the following manner:

(a) Prior to the Expiration Date, the Optionee may deliver an Exercise Notice indicating his or her election to purchase some or all of the Underlying Shares. Such notice shall specify the number of Underlying Shares to be purchased. Payment of the purchase price may be made by one or more of the methods described in Section 5 of the Plan, subject to the limitations contained in such Section of the Plan, including the requirement that the Committee specifically approve in advance certain payment methods.

(b) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.


3. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan.

4. Transferability of Stock Option . This Stock Option is personal to the Optionee and is not transferable by the Optionee in any manner other than by will or by the laws of descent and distribution. The Stock Option may be exercised during the Optionee’s lifetime only by the Optionee (or by the Optionee’s guardian or personal representative in the event of the Optionee’s incapacity). The Optionee shall not be permitted to designate a beneficiary.

5. Restrictions on Transfer of Underlying Shares . The Underlying Shares acquired upon exercise of the Stock Option may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Optionee may transfer the Underlying Shares without such consent (i) to a Permitted Transferee or upon the death of the Optionee, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) following an Initial Public Offering. In addition, such Underlying Shares (i) shall be subject to certain additional transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan; and (ii) may not be sold within 12 months of their date of issue unless one of the exemptions in sections 708(8), (10), (11) or (12) of the  Corporations Act 2001  (Cth) applies to the sale or the sale does not require disclosure to investors under Part 6D.2 of the  Corporations Act 2001 (Cth).

6. Miscellaneous Provisions .

(a) Equitable Relief . The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(b) Adjustments for Changes in Capital Structure . If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Series B Common Stock, the outstanding shares of Series B Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Optionee in exchange for, or by virtue of his or her ownership of, this Stock Option or Underlying Shares acquired pursuant thereto.

(c) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.

(d) Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with


the internal laws of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.

(e) Headings . The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(f) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(g) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(h) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, permitted assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

(i) Counterparts . For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

(j) Integration . This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

7. Dispute Resolution .

(a) Except as provided below, any dispute arising out of or relating to the Plan or this Stock Option, this Agreement, or the breach, termination or validity of the Plan, this Stock Option or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good


cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(c) The Company, the Optionee, each party to the Agreement and any other holder of Underlying Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 7 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

8. Nature of Grant . In accepting the Stock Option, the Optionee acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature, and may be amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of the Stock Option is voluntary and occasional and does not create any contractual or other right to receive future grants of stock options, or benefits in lieu of stock options, even if stock options have been granted in the past;


(c) all decisions with respect to future Stock Option or other grants, if any, will be at the sole discretion of the Company;

(d) the Optionee is voluntarily participating in the Plan;

(e) the Stock Option and any Underlying Shares acquired under the Plan are not intended to replace any pension rights or compensation;

(f) the Stock Option and any Underlying Shares acquired under the Plan, and the income and value of same, are not part of normal or expected compensation for any purposes, including, but not limited, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

(g) the future value of the Underlying Shares is unknown, indeterminable, and cannot be predicted with certainty;

(h) if the Underlying Shares do not increase in value, the Stock Option will have no value;

(i) if the Optionee exercises the Stock Option and acquires Underlying Shares, the value of such Underlying Shares may increase or decrease in value, even below the Option Exercise Price;

(j) no claim or entitlement to compensation or damages shall arise from forfeiture of the Stock Option resulting from the termination of the Optionee’s Service Relationship (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Optionee is employed or the terms of the Optionee’s employment agreement, if any), and in consideration of the grant of the Stock Option to which the Optionee is otherwise not entitled, the Optionee irrevocably agrees never to institute any claim against the Company or any of its Subsidiaries, waives his or her ability, if any, to bring any such claim, and releases the Company and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Optionee shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;

(k) unless otherwise provided in the Plan or by the Company in its discretion, the Stock Option and the benefits evidenced by this Agreement do not create any entitlement to have the Stock Option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the shares of the Company; and

(l) neither the Company nor any of its Subsidiaries shall not be liable for any foreign exchange rate fluctuation between the Optionee’s local currency and the United States Dollar that may affect the value of the Stock Option or of any amounts due to the Optionee pursuant to the exercise of the Stock Option or the subsequent sale of any Underlying Shares acquired upon exercise.


9. Data Privacy . The Optionee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Optionee’s personal data as described in this Agreement and any other Stock Option grant materials (“Data”) by and among the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Optionee’s participation in the Plan.

The Optionee understands that the Company and its Subsidiaries may hold certain personal information about the Optionee, including, but not limited to, the Optionee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all stock options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Optionee’s favor, for the exclusive purpose of implementing, administering and managing the Plan.

The Optionee understands that Data will be transferred to a third party stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. The Optionee understands that recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than the Optionee’s country. The Optionee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Optionee authorizes the Company, the chosen third party stock plan service provider and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing the Optionee’s participation in the Plan. The Optionee understands that Data will be held only as long as is necessary to implement, administer and manage the Optionee’s participation in the Plan. The Optionee understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Optionee understands that he or she is providing the consents herein on a purely voluntary basis. If the Optionee does not consent, or if the Optionee later seeks to revoke his or her consent, his or her employment status or service and career with the Company or any of its Subsidiaries will not be adversely affected; the only adverse consequence of refusing or withdrawing the Optionee’s consent is that the Company would not be able to grant the Optionee Stock Options or other equity awards or administer or maintain such awards. Therefore, the Optionee understands that refusing or withdrawing his or her consent may affect the Optionee’s ability to participate in the Plan. For more information on the consequences of the Optionee’s refusal to consent or withdrawal of consent, the Optionee understands that he or she may contact his or her local human resources representative.

[SIGNATURE PAGE FOLLOWS]


The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.

 

ZENDESK, INC., San Francisco, CA
By:  

 

  Alan Black, CFO

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that the Stock Option granted hereby is subject to the terms of the Plan and of this Agreement.

The undersigned also hereby acknowledges and agrees that the Underlying Shares are subject to transfer restrictions as set forth in Section 5 of the Agreement.

This Agreement is hereby accepted, and the terms and conditions thereof and of the Plan, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS IN SECTION 7 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date first above written.

 

OPTIONEE (Sign)  

 

Printed name:

   

Address:

   
 


APPENDIX A

ZENDESK, INC. 2009 STOCK OPTION AND GRANT PLAN


APPENDIX B

STOCK OPTION EXERCISE NOTICE

To: Zendesk, Inc., attention Chief Financial Officer

Pursuant to the terms of my stock option agreement(s) between the undersigned and Zendesk, Inc. (the “Company”) under the Zendesk, Inc. 2009 Stock Option and Grant Plan, I hereby exercise such option by including herein payment in the form of a personal check representing the purchase price for the Underlying Shares.

 

   Name of Optionee:  

 

     Today’s Date   

 

 

     # of
Underlying
Shares
   Option
Exercise
Price per
Share
     Extended
exercise
price
 

Number of Underlying Shares in respect of which option originally granted on ______, 20___

      $        

 

(if multiple options are involved, please list separately)

        

Number of Underlying Shares I am purchasing on exercise of vested and exercisable option

      $         $     

Payment to Zendesk

         $     

In connection with my exercise of the option as set forth above, I hereby represent and warrant to the Company as follows:

(i) I am purchasing the Underlying Shares for my own account for investment only, and not for resale or with a view to the distribution thereof.

(ii) I have had such an opportunity as I have deemed adequate to obtain from the Company such information as is necessary to permit me to evaluate the merits and risks of my


investment in the Company and have consulted with my own advisers with respect to my investment in the Company, including tax advisers with regards to any tax implications.

(iii) I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Underlying Shares and to make an informed investment decision with respect to such purchase.

(iv) I can afford a complete loss of the value of the Underlying Shares and am able to bear the economic risk of holding such Underlying Shares for an indefinite period of time.

(v) I understand that the shares of Series B Common Stock that I acquire upon exercise of the Options (using Appendix B ) as well as any shares of Series A Common Stock and Series B Common Stock that I have previously purchased, been granted, or that are subject to other awards made to me under the Plan, may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that I may transfer any such shares without such consent (i) to a Permitted Transferee (as defined in the Plan) or upon my death, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) subject to the other transfer restrictions as set forth in Section 9 of the Plan, upon an Initial Public Offering. Notwithstanding the foregoing exceptions, I acknowledge and agree that any Underlying Shares may not be sold within 12 months of their date of issue unless one of the exemptions in sections 708(8), (10), (11) or (12) of the  Corporations Act 2001  (Cth) applies to the sale or the sale does not require disclosure to investors under Part 6D.2 of the  Corporations Act 2001 (Cth).

(vi) I understand that the Underlying Shares may not be registered under the Securities Act of 1933 (it being understood that the Underlying Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act of 1933 and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirement thereof). I further acknowledge that certificates representing Underlying Shares will bear restrictive legends reflecting the foregoing and/or that book entries for uncertificated Underlying Shares will include similar restrictive notations.

(vii) I have read and understand the Plan and acknowledge and agree that the Underlying Shares are subject to all of the relevant terms of the Plan, including without limitation, the transfer restrictions set forth in Section 9 of the Plan.

(viii) I understand and agree that the Company has a right of first refusal with respect to the Underlying Shares pursuant to Section 9(b) of the Plan.

(ix) I understand and agree that the Company has certain repurchase rights with respect to the Underlying Shares pursuant to Section 9(c) of the Plan.

(x) I understand and agree that I may not sell or otherwise transfer or dispose of the Underlying Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.


Sincerely yours,
OPTIONEE:

 

Name:
Address:

 

 

 


APPENDIX C

STOCK OPTION GRANT NOTICE

 

Name of Optionee:    _____________________________________________    
No. of Underlying Shares    _______________ Shares of Series B Common Stock
Grant Date:    ___________________________, 201___
Expiration Date:    ___________________________, 202___  [business day prior to seventh anniversary of Grant Date]
Vesting begins on:    ___________________________, 201___  (Vesting Commencement Date)
Option Exercise Price/Share:    $0.__________

Vesting Schedule :

Part A

Subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, this Stock Option shall be vested with respect to the Underlying Shares on the respective dates indicated below:

(a) 25% of the Underlying Shares shall vest on the first anniversary of the Vesting Commencement Date; and

(b) 2.0833% of the Underlying Shares shall vest each completed month for 36 months following the first anniversary of the Vesting Commencement Date,

so long as the Optionee maintains a Service Relationship on each such date.

Part B

This Stock Option shall become exercisable with respect to Underlying Shares which have vested in accordance with Part A of this Vesting Schedule, at the later of the following times:


(a) the date such Underlying Shares have vested in accordance with Part A of this Vesting Schedule; and

 

(b) the earlier to occur of the following:

 

  (i) the beginning of the specified period of time prior to the consummation of a Sale Event as determined by the Committee in accordance with Section 3(c)(i)(B) of the Plan; and

 

  (ii) that date following an Initial Public Offering when the transfer restrictions contemplated under Section 9(f) of the Plan shall have terminated.

provided, however, that, after the occurrence of one of the events described in clause (b), any portion of the Stock Option that would subsequently otherwise first be exercisable pursuant to clause (a), shall nevertheless not become exercisable until the expiration of any Company imposed trading blackout or restrictions applicable to Optionee in effect at such time as such portion of the Stock Option would otherwise have become exercisable and provided, however, that the Stock Option shall nevertheless not become exercisable until the Fair Market Value of the Underlying Shares is higher than the Option Exercise Price for a period of at least five (5) consecutive business days.

Notwithstanding anything in the Agreement to the contrary, in the case of a Sale Event, this Stock Option shall be treated as provided in Section 3(c) of the Plan.


RESTRICTED STOCK UNIT AWARD AGREEMENT

UNDER THE ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

(DENMARK)

Pursuant to the Zendesk, Inc. 2009 Stock Option and Grant Plan, as amended (the “Plan,” attached herein and marked Appendix A ), Zendesk, Inc., a Delaware corporation (together with any successor thereto, the “Company”), hereby grants to the undersigned grantee (the “Grantee”), an award of the number of Restricted Stock Units (an “Award”) indicated on the Restricted Stock Unit Grant Notice (“Grant Notice,” attached herein and marked as Appendix B ), subject to the terms and conditions set forth in this Restricted Stock Unit Award Agreement (this “Agreement”) and in the Plan. Each Restricted Stock Unit shall relate to one share (a “Share”) of Series B Common Stock.

All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Grant Notice and the Plan.

1. Conditions and Vesting of Restricted Stock Units . The Restricted Stock Units are subject to both a time-based condition (the “Time Condition”) and performance-based vesting (the “Performance Vesting”) described in paragraphs (a) and (b) below, both of which must be satisfied prior to the Expiration Date before the Restricted Stock Units will be deemed vested and may be settled in accordance with Section 3 of this Agreement.

(a) Time Condition . The Time Condition shall be satisfied in accordance with the Time-Based Vesting Schedule set forth in the Grant Notice.

(b) Performance Vesting . The Restricted Stock Units shall only satisfy the Performance Vesting on the first to occur of (i) immediately prior to a Sale Event or (ii) the completion of Company’s Initial Public Offering, in either case, occurring prior to the Expiration Date.

(c) Vesting Date . Each date as of which both the Time Condition and Performance Vesting described in paragraphs (a) and (b) have been satisfied with respect to any Restricted Stock Units shall be referred to as a “Vesting Date.” No Vesting Date shall occur after the Expiration Date. To the extent the Restricted Stock Units have not satisfied both the Time Condition and the Performance Vesting, such Restricted Stock Units shall expire and be of no further force or effect on the Expiration Date.

2. Termination of Service Relationship . All relevant clauses in the Plan describing and/or describing vesting and/or termination will apply to the Grantee and grant of Restricted Stock Units under this Agreement, however such clauses in the Plan will be subordinated to obligatory regulation regarding vesting and termination in the Danish Act on the Use of Rights to Purchase or Subscribe for Shares etc. in Employment Relationships (in Danish “aktieoptionsloven”) (the “Stock Option Act”).

For purposes of the foregoing, the Grantee’s Service Relationship will be considered terminated as of the date the Grantee is no longer actively providing services to the Company or


any Subsidiary (regardless of the reason for such termination and whether or not later to be found invalid or in breach of employment laws in the jurisdiction where the Grantee is employed or the terms of the Grantees’s employment agreement, if any). Unless otherwise determined by the Company, the Grantee’s right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of such date and will not be extended by any notice period ( e.g. , the Grantee’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any). The Committee shall have the exclusive discretion to determine when the Grantee is no longer actively providing services for purposes of the Restricted Stock Unit grant (including whether the Grantee may still be considered to be providing services while on a leave of absence).

(a) Subject to Section 2(b), if the Grantee’s Service Relationship terminates for any reason (including death) prior to the satisfaction of the Time Condition set forth in Section 1(a) above, any Restricted Stock Units that have not satisfied the Time Condition as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such forfeited Restricted Stock Units. Subject to Section 2(b), any Restricted Stock Units that have satisfied the Time Condition as of such date shall remain subject to the Performance Vesting set forth in Section 1(b) above, but shall expire and be of no further force or effect on the first to occur of (a) three years after the date on which the Grantee’s Service Relationship terminates, or (b) the Expiration Date.

(b) Due to the Stock Option Act the following shall apply if any of the following occurs: (i) Grantee’s Service Relationship is terminated by the Company or a Subsidiary at which Grantee is employed and such termination is not caused by breach of an employment contract by the Grantee (ii) the Grantee terminates the employment due to the Company’s or a Subsidiary’s material breach of Grantee’s employment contract, or (iii) Grantee’s employment terminates because the Grantee reaches the mandatory age of retirement for employees in the Company or a Subsidiary at which Grantee is employed or because Grantee is entitled to receive old-age pension from the Danish state, the Company, or a Subsidiary at which Grantee is employed, then the Restricted Stock Units granted herein shall remain available on unchanged terms as if the Grantee had still been employed. Therefore if any of the above occurs when interpreting other provisions in this Agreement, the Grantee shall be considered still employed. Also, the Grantee shall be entitled to future grants of Restricted Stock Units proportionate to the number the Grantee would have been entitled according to Agreement or custom, had the Grantee still been employed at the end of the accounting year during which Grantee’s Service Relationship was terminated.

For purposes hereof, the Committee’s determination of the reason for termination of the Grantee’s Service Relationship shall be conclusive and binding on the Grantee and his or her representatives or legatees.

3. Receipt of Shares of Stoc k.

(a) Subject to Section 3(b), as soon as reasonably practicable following each Vesting Date, the Company shall issue to the Grantee the number of Shares equal to the aggregate number of Restricted Stock Units that have satisfied the Time Condition and Performance Vesting pursuant to Section 1 of this Agreement and which have not been


previously issued by the Company to the Grantee and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such Shares.

(b) If the shares underlying the Restricted Stock Units are publicly traded, the Company may elect to deliver cash wholly or partly in lieu of the Shares to be issued in connection with Section 3(a) above. If the Company chooses to deliver cash wholly or partly in lieu of the Shares to be issued in connection with Section 3(a) above (such Shares, the “Withheld Shares”), the Company shall deliver an amount of cash corresponding to the value of the Withheld Shares, as calculated based on the average closing price per share for the five (5) trading days immediately preceding the relevant Vesting Date.

4. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Award shall be subject to and governed by all the terms and conditions of the Plan.

5. Transfer Restrictions .

(a) Award Not Transferrable. The Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee.

(b) Beneficiary Designation . This Award is personal to the Grantee and the Grantee shall not be permitted to designate a beneficiary. In the event of the Grantee’s death after a Vesting Date but before the settlement of this Award in accordance with the terms and conditions of this Award, the legal representative of the Grantee or the Grantee’s estate shall be the beneficiary entitled to the benefits under this Award.

(c) Restrictions on Transfer of Shares . The Shares acquired upon settlement of the Restricted Stock Units may not be sold, transferred or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Section 1 of this Agreement; (ii) Shares have been issued to the Grantee in accordance with the terms of the Plan and this Agreement; and (iii) the Grantee has obtained the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Grantee may transfer the Shares without such consent specified in this subparagraph (iii): (x) to a Permitted Transferee or upon the death of the Grantee, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (y) following an Initial Public Offering. In addition, the Shares shall be subject to certain additional transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan.

6. Grantee Responsible for Tax-Related Items . Regardless of any action that the Company or the Grantee’s actual employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account, or other tax-related items related to the Grantee’s participation in the Plan and legally applicable to him or her (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items is and remains the Grantee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. The Grantee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, including, without limitation, the grant, vesting, or settlement of the Restricted Stock Units, the subsequent sale of Shares acquired pursuant to such issuance, and the receipt of any dividends; and (ii) do not


commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. The Company or Employer may satisfy all Tax-Related Items for which they have the obligation or authority to withhold or remit payment, in their sole discretion, (i) by withholding from Shares to be issued to the Grantee upon settlement of the Award; (ii) with respect to a Grantee who is not an executive officer or director of the Company nor subject to the reporting requirements of Section 16 of the Exchange Act at the time of such withholding, by the Company causing its transfer agent to sell from the number of Shares to be issued to the Grantee, the number of Shares necessary to satisfy the applicable Tax Related Items; or (iii) by requiring the Grantee to pay to the Company or Employer, or make arrangements satisfactory to the Committee for payment of, the required Tax Related Item. The Grantee shall not make any claim against the Employer, the Company or its Board of Directors, officers, affiliates or employees related to Tax-Related Items arising from this Award or the Grantee’s other compensation. Furthermore, if the Grantee has become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, the Grantee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding rates or other applicable withholding rates, including maximum applicable rates, in which case the Grantee will receive a refund of any over-withheld amount in cash and will have no entitlement to the Series B Common Stock equivalent. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, the Grantee will be deemed to have been issued the full number of Shares subject to the vested Restricted Stock Units, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items. The Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares if the Grantee fails to comply with his or her obligations in connection with the Tax-Related Items.

7. Miscellaneous Provisions.

(a) Equitable Relief . The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(b) Adjustments for Changes in Capital Structure . If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Series B Common Stock, the outstanding shares of Series B Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Grantee in exchange for, or by virtue of his or her ownership of, this Award or Shares acquired pursuant thereto.

(c) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Grantee.


(d) Governing Law . To the extent certain Danish laws supersede the terms of this Agreement, either due to its provisions, legal precedence, or the laws governing the employment relationship among the Grantee and Employer, this Agreement and grant of Restricted Stock Units according to the Plan shall accordingly be governed by and construed in accordance with such Danish laws.

Subject to the foregoing limitations in this Section 7(d), the following will apply:

(i) Except as provided below, any dispute arising out of or relating to the Plan, this Agreement, or the breach, termination or validity of the Plan or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(ii) The arbitration shall commence within sixty (60) days of the date on which a written demand for arbitration is filed by any party to this Agreement. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven (7) business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(iii) The Company and the Grantee (each being a party to the Agreement), and any other holder of Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such Party will participate in the arbitration in good faith. This Section 7 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(iv) Each Party (A) hereby irrevocably submits to the jurisdiction of the United States District Court in San Francisco County, California for the purpose of enforcing the award or decision in any such proceeding, (B) hereby waives, and agrees not to assert to the greatest degree allowed by applicable law (including any Danish law), by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is


improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (C) hereby waives and agrees not to seek, to the greatest degree allowed by any applicable law (including any Danish law) any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of all Parties and is essential to the overall purpose of this Agreement. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

(e) Headings . The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(f) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(g) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Grantee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(h) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, permitted assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

(i) Counterparts . For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

(j) Integration . This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

8. Acknowledgements of the Grantee .

(a) The Grantee represents and agrees that the Shares to be acquired upon settlement of this Award will be acquired for investment, and not with a view to the sale or distribution thereof.

(b) In the event that the sale or issuance of Shares under the Plan is not registered under the Securities Act but an exemption is available that requires an investment representation or other representation, the Grantee shall represent and agree at the time of settlement of this Award resulting in the transfer of Shares that the Shares being acquired are


being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.

(c) Neither the Company nor any Subsidiary or Affiliate is obligated by or as a result of the Plan or this Agreement to continue the Grantee’s Service Relationship, and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary or Affiliate to terminate the Service Relationship of the Grantee at any time.

(d) The Granteee understands that the Shares may not be registered under the Securities Act (it being understood that the Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirement thereof).

(e) The Grantee understands and agrees that he or she may not sell or otherwise transfer or dispose of the Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.

(f) The Grantee understand that although the Award is issued as a result of the Grantee’s employment with Employer, the Company will be processing the Award including all personal data obtained in connection herewith. In that respect the Grantee further accepts that any personal data that is relevant to the Company’s processing of this Award may be transferred from Employer to the Company. Such personal data includes information on the reasoning for the termination of the employment of the Grantee with Employer prior to the Expiration Date (if any).

9. Nature of Grant . In accepting the Award, the Grantee acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of the Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of restricted stock units, or benefits in lieu of restricted stock units, even if restricted stock units have been granted in the past;

(c) all decisions with respect to future Restricted Stock Units or other grants, if any, will be at the sole discretion of the Company;

(d) the Grantee is voluntarily participating in the Plan;

(e) the Restricted Stock Units and the Shares subject to the Restricted Stock Units are not intended to replace any pension rights or compensation;

(f) the Restricted Stock Units and the Shares subject to the Restricted Stock Units, and the income and value of same, are not part of normal or expected compensation for


any purposes, including calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

(g) the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;

(h) no claim or entitlement to compensation or damages shall arise from forfeiture of the Award resulting from the termination of the Grantee’s Service Relationship (for any reason whatsoever whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any), and in consideration of the grant of the Restricted Stock Units to which the Grantee is otherwise not entitled, the Grantee irrevocably agrees never to institute any claim against the Company, any Subsidiary or Affiliate, waives his or her ability, if any, to bring any such claim, and releases the Company, its Subsidiaries and Affiliates from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Grantee shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;

(i) unless otherwise provided in the Plan or by the Company in its discretion, the Award and the benefits evidenced by this Agreement do not create any entitlement to have the Restricted Stock Units or any such benefits transferred to, or assumed by, another company nor be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Series B Common Stock; and

(j) neither the Company, nor any Subsidiary shall be liable for any foreign exchange rate fluctuation between the Grantee’s local currency and the United States Dollar that may affect the value of the Restricted Stock Units or of any amounts due to the Grantee pursuant to the settlement of the Restricted Stock Units or the subsequent sale of any Shares acquired upon settlement.

10. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan, or the Grantee’s acquisition or sale of the underlying Shares. The Grantee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.

11. Data Privacy . The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in this Agreement and any other Award grant materials (“Data”) by and among, as applicable, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.

The Grantee understands that the Company and the Employer may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to shares of Series B


Common Stock awarded, canceled, exercised, vested, unvested or outstanding in the Grantee’s favor, for the exclusive purpose of implementing, administering and managing the Plan.

The Grantee understands that Data will be transferred to a third party stock plan service provider as may be selected by the Company, which is assisting the Company with the implementation, administration and management of the Plan. The Grantee understands that recipients of the Data may be located in the United States or elsewhere, and that the recipients’ country (e.g., the United States) may have different data privacy laws and protections than the Grantee’s country. The Grantee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Grantee authorizes the Company, the chosen stock plan service provider and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing his or her participation in the Plan. The Grantee understands that Data will be held only as long as is necessary to implement, administer and manage the Grantee’s participation in the Plan. The Grantee understands he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Grantee understands that he or she is providing the consents herein on a purely voluntary basis. If the Grantee does not consent, or if the Grantee later seeks to revoke his or her consent, his or her Service Relationship and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing the Grantee’s consent is that the Company would not be able to grant the Grantee Restricted Stock Units or other equity awards or administer or maintain such awards. Therefore, the Grantee understands that refusing or withdrawing his or her consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or she may contact his or her local human resources representative.

12. Language . If the Grantee has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

13. Exchange Control and Tax Reporting Information . The Grantee may hold Shares acquired under the Plan in a safety-deposit account ( e.g ., a brokerage account) with either a Danish bank or with an approved foreign broker or bank. If the Shares are held with a non-Danish broker or bank, the Grantee is required to inform the Danish Tax Administration about the safety-deposit account. For this purpose, the Grantee must file a Declaration V ( Erklaering V ) with the Danish Tax Administration. Both the Grantee and the bank/broker must sign the Declaration V. By signing the Declaration V, the bank/broker undertakes an obligation, without further request each year not later than on February 1 of the year following the calendar year to which the information relates, to forward certain information to the Danish Tax Administration concerning the content of the safety-deposit account. In the event that the applicable broker or bank with which the safety-deposit account is held does not wish to, or, pursuant to the laws of the country in question, is not allowed to assume such obligation to report, the Grantee acknowledges that he or she is solely responsible for providing certain details regarding the


foreign brokerage or bank account and any Shares acquired at settlement and held in such account to the Danish Tax Administration as part of the Grantee’s annual income tax return. By signing the Form V, the Grantee at the same time authorizes the Danish Tax Administration to examine the account. A sample of the Declaration V can be found at the following website: www.skat.dk/getFile.aspx?Id=47392 .

In addition, when the Grantee opens a deposit account or a brokerage account for the purpose of holding cash outside Denmark, the bank or brokerage account, as applicable, will be treated as a deposit account because cash can be held in the account. Therefore, the Grantee must also file a Declaration K ( Erklaering K ) with the Danish Tax Administration. Both the Grantee and the bank/broker must sign the Declaration K. By signing the Declaration K, the bank/broker undertakes an obligation, without further request each year, not later than on February 1 of the year following the calendar year to which the information relates, to forward certain information to the Danish Tax Administration concerning the content of the deposit account. In the event that the applicable financial institution (broker or bank) with which the account is held, does not wish to, or, pursuant to the laws of the country in question, is not allowed to assume such obligation to report, the Grantee acknowledges that he or she is solely responsible for providing certain details regarding the foreign brokerage or bank account to the Danish Tax Administration as part of the Grantee’s annual income tax return. By signing the Declaration K, the Grantee at the same time authorizes the Danish Tax Administration to examine the account. A sample of Declaration K can be found at the following website: www.skat.dk/getFile.aspx?Id=42409&newwindow=true .

[SIGNATURE PAGE FOLLOWS]


The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.

 

ZENDESK, INC., San Francisco, CA
By:  

 

  Alan Black, CFO

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, and understands that the Award granted hereby is subject to the terms of the Plan and of this Agreement.

The undersigned also hereby acknowledges and agrees that the Shares are subject to transfer restrictions as set forth in Section 7 of the Agreement.

This Agreement is hereby accepted, and the terms and conditions thereof and of the Plan are hereby agreed to, by the undersigned as of the date first above written.

 

GRANTEE (Sign)  

 

Printed name:  

 

Address:  

 

 


APPENDIX A

ZENDESK, INC. 2009 STOCK OPTION AND GRANT PLAN


APPENDIX B

RESTRICTED STOCK UNIT GRANT NOTICE

 

Name of Grantee:   

 

  
No. of Restricted Stock Units   

 

  
Grant Date:   

 

  
Expiration Date:   

 

   [seventh anniversary of Grant Date]
Vesting Commencement Date:   

 

   [ALWAYS 15 th DAY OF MONTH]

Time-Based Vesting Schedule {COMPANY TO SELECT ONE} :

Subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder:

¨ 100% of the Restricted Stock Units shall satisfy the Time Condition on the one year anniversary of Vesting Commencement Date so long Grantee maintains a Service Relationship with the Company or the Employer through and on such date.

¨ 8.333% of the Restricted Stock Units shall satisfy the Time Condition each completed month for 12 months following the Vesting Commencement Date so long as Grantee maintains a Service Relationship with the Company or the Employer. Notwithstanding the foregoing, the Time Condition shall only be satisfied with respect to whole Restricted Stock Units and any rounding down to a number of whole Restricted Stock Units shall correspondingly increase the number of Restricted Stock Units allocated to the final vesting date.

Notwithstanding anything in this Notice or the Agreement to the contrary, in the case of a Sale Event, this Award shall be treated as provided in Section 3(c) of the Plan; provided that any Restricted Stock Units that have satisfied the Time Condition as of the consummation of such Sale Event shall either be assumed, continued or substituted for in accordance with Section 3(c)(iii)(A) of the Plan or cancelled in exchange for a cash payment in accordance with Section 3(c)(iii)(C) of the Plan.

Performance Vesting: As set forth in the Agreement.


STOCK OPTION AGREEMENT TO

ZENDESK APS EMPLOYEES UNDER THE ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

Pursuant to its authority under the Zendesk, Inc. 2009 Stock Option and Grant Plan (“Plan”), Zendesk, Inc.’s (“Company”) Committee (as defined in the Plan) has decided to extend, under the Plan and this Stock Option Agreement (“Agreement”), the grant of options (each, a “Stock Option”) to certain Danish employees of its Danish subsidiary, Zendesk, ApS (“Zendesk DK”). The Committee believes that providing such employees with a direct stake in the Company’s welfare will foster a closer alignment between their interests and those of the Company and its shareholders, thereby stimulating their efforts on behalf of the Company and strengthening their desire to stay with the Company as employees of Zendesk DK and perform at the highest levels.

1. Purpose:

Pursuant to the Plan, the Company hereby grants to the undersigned optionee and employee of Zendesk DK (the “Optionee”), Stock Options to purchase on or prior to the expiration date indicated in the attached Stock Option Grant Notice (“Grant Notice”) marked Exhibit A (“Expiration Date”), or such other date as is specified herein, all or any part of the number of shares of Series B Common Stock, par value $0.01 per share (“Series B Common Stock”) of the Company indicated in the Grant Notice (the “Underlying Shares,” and such shares once issued shall be referred to as the “Option Shares”), at the exercise price per share indicated in the Grant Notice (the “Option Exercise Price”), subject to the terms and conditions set forth in this Agreement and in the Plan. Capitalized terms used but not defined in this Agreement shall have the meaning given to them in the Plan. This Agreement only applies to Danish employees of Zendesk DK.

Grants of Stock Options under this Agreement are subject to all terms, conditions and definitions as stated in said Plan unless otherwise explicitly stated in this Agreement. The Plan is attached herein and marked as Exhibit B to this Agreement.

2. Vesting, Exercisability and Termination

All relevant clauses in the Plan describing vesting, exercisability and/or termination will apply to the Optionee and grant of Stock Options under this Agreement, however such clauses in the

 

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Plan will be subordinated to obligatory regulation regarding vesting, exercisability and termination in the Danish Act on the Use of Rights to Purchase or Subscribe for Shares etc. in Employment Relationships (in Danish “aktieoptionsloven”)(the “Stock Option Act”).

The Optionee may exercise this Stock Option only in the following manner: Following the Vesting Commencement Date and prior to the Expiration Date, the Optionee may deliver a Stock Option Exercise Notice in the form of Appendix A herein (“Exercise Notice”), indicating his or her election to purchase some or all of the Underlying Shares. Such Exercise Notice shall specify the number of Underlying Shares to be purchased (which in each case shall be no less than 1,000 Underlying Shares, or such lesser number of Underlying Shares then exercisable pursuant to this Stock Option). Payment of the Option Exercise Price for each Option Share may be made by one or more of the methods described in Sections 5(a)(iv)(A), (B), (C) or (D) of the Plan, subject to the limitations contained in such Sections of the Plan. Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.

In the event the Optionee elects to exercise a portion of this Stock Option with respect to Shares that have not vested, the Optionee shall also deliver a Restricted Stock Agreement covering such unvested Shares in a form to be provided by the Company (the “Restricted Stock Agreement”) with the same vesting schedule for such Shares as set forth for such Underlying Shares in the Grant Notice. Once the Restricted Stock Agreement is executed and Stock Options exercised, the Underlying Shares (whether or not vested) may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that (i) the Underlying Shares may be transferred without such consent to a Permitted Transferee or upon death, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) the Underlying Shares may be transferred without the Company’s consent following an Initial Public Offering, subject to applicable terms and conditions in Section 9 of the Plan. In addition, upon a Termination Event, the Company shall have the right to repurchase Underlying Shares that are unvested as of the date of such Termination Event.

 

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Except as may otherwise be provided by the Committee, and subject to regulation in the Stock Option Act that cannot be deviated from to the detriment of the Optionee, if the Optionee’s Service Relationship is terminated, the period within which to exercise this Stock Option will further be subject to the earlier termination events described below (and if not exercised within such period, shall thereafter terminate):

(i) Termination Due to Death or Disability . If the Optionee’s Service Relationship terminates by reason of such Optionee’s death or Disability (as defined below), Stock Options granted under the Grant Notice may be exercised, to the extent the Underlying Shares are vested on the date of such termination, by the Optionee, the Optionee’s legal representative or legatee for a period of 12 months from the date of death or disability or until the Expiration Date, if earlier. For purposes of this Agreement, “Disability” means that an individual is permanently and totally disabled so as to be unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

(ii) Other Termination . If the Optionee’s Service Relationship terminates for any reason other than death or disability (as defined in the Code) then the following shall apply:

a) If the Optionee terminates his/her Service Relationship with Zendesk DK and the termination is not caused by Zendesk DK’s material breach of the employment contract among Zendesk DK and the Optionee, this Stock Option may be exercised only to the extent the Underlying Shares are vested on the date of termination, for a period of 90 days from the date of termination or until the Expiration Date or other termination date, if earlier.

If Zendesk DK terminates the employment due to breach of the employment contract by the Optionee, or if Zendesk DK summarily terminates the employment for cause (as defined in applicable Danish law and Danish case law), the Stock Option will lapse to the extent it has not been exercised and vested on the effective date of termination of the employment. Such lapse will take place automatically without notice on the effective date of termination of the employment.

b) If any of the following occurs: (i) Zendesk DK terminates Optionee’s employment and such termination is not caused by breach of the employment contract by the Optionee, (ii) the Optionee terminates the employment due to Zendesk DK’s material breach of the employment contract, or (iii) Optionees employment terminates because the Optionee reaches the age of retirement for employees in Zendesk DK or because the Optionee are entitled to receive old-age pension from the Danish state or Zendesk DK, then the Stock Options granted herein shall remain

 

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available on unchanged terms and remain exercisable as if the Optionee had still been employed. Also, the Optionee shall be entitled to receive a portion, proportionate to the length of the employment in the accounting year, of the Stock Portions granted herein to which the Optionee would have been entitled according to agreement or custom, had the Optionee still been employed at the end of the accounting year or at the date of grant.

For purposes hereof, the Committee’s determination of the reason for termination of the Optionee’s Service Relationship shall be conclusive and binding on the Optionee and his or her representatives or legatees.

3. Transferability of Stock Options

This Agreement is personal to the Optionee and is not transferable by the Optionee in any manner other than by will or by applicable Danish laws of descent and distribution. The Stock Option may be exercised during the Optionee’s lifetime only by the Optionee (or by the Optionee’s guardian or personal representative in the event of the Optionee’s incapacity). The Optionee may elect to designate a beneficiary by providing written notice of the name of such beneficiary to the Company, and may revoke or change such designation at any time by filing written notice of revocation or change with the Company; such beneficiary may exercise the Optionee’s Stock Option in the event of the Optionee’s death to the extent provided herein. If the Optionee does not designate a beneficiary, or if the designated beneficiary predeceases the Optionee, the legal representative of the Optionee may exercise this Stock Option to the extent provided herein in the event of the Optionee’s death.

4. Restrictions on Transfer of Option Shares.

The Option Shares may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Optionee may transfer vested Option Shares without such consent to a Permitted Transferee or upon the death of the Optionee, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan. The Option Shares acquired upon exercise of the Stock Option shall be subject to certain additional transfer restrictions and other limitations including, without limitation, the provisions contained in the Restricted Stock Agreement (if applicable) and Section 9 of the Plan, including but not limited to the Lockup Provisions in Section 9(f) thereof.

 

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5. Miscellaneous Provisions.

Subject to any applicable Danish laws which may apply and/or over alter the following provisions due to the (i) employment relations among the Optionee and Zendesk DK or the Company; (ii) the relations among the Optionee and the Company as interpreted by another Danish law, or (iii) the Stock Option Act and/or other Danish laws relating to grants of stock options, the following shall apply to this Agreement:

(a) Equitable Relief . The parties herein agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(b) Adjustments for Changes in Capital Structure . If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Series B Common Stock, the number of outstanding shares of Series B Common Stock is increased or decreased, or shares of Series B Common Stock are exchanged for a different number or kind of shares of the Company’s stock, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Optionee in exchange for, or by virtue of his or her ownership of, Option Shares.

(c) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.

(d) Governing Law and Venue .

(i) To the extent certain Danish laws supersede the terms of this Agreement, either due to its provisions, legal precedence, or the laws governing the employment relationship among the Optionee and Zendesk DK, this Agreement and grant of Stock Options according to the Plan shall accordingly be governed by and construed in accordance with such Danish laws.

 

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(ii) Subject to the foregoing limitations in this Section 6(d), the following will apply:

(A) Except as provided below, any dispute arising out of or relating to the Plan or this Stock Option, this Agreement, or the breach, termination or validity of the Plan, this Stock Option or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(B) The arbitration shall commence within sixty (60) days of the date on which a written demand for arbitration is filed by any party to this Agreement. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven (7) business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(C) The Company and Optionee (each being a party to the Agreement), and any other holder of Option Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such Party will participate in the arbitration in good faith. This Section applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(D) Each Party (i) hereby irrevocably submits to the jurisdiction of the United States District Court in San Francisco County, California for the purpose of enforcing the award or decision in

 

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any such proceeding, (ii) hereby waives, and agrees not to assert to the greatest degree allowed by applicable law (including any Danish law), by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek, to the greatest degree allowed by any applicable law (including any Danish law) any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of all Parties and is essential to the overall purpose of this Agreement. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

(e) Headings . The headings of provisions in this Agreement are intended only for convenience in finding the subject matter, do not constitute part of the text of this Agreement, and shall not be considered in the interpretation of this Agreement.

(f) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(g) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered, certified mail, postage prepaid, or email. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such Party in writing to the other from time to time.

(h) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, permitted assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

(i) Counterparts . For the convenience of the Parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

 

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6. Taxes

The grant of Stock Options according to the Plan and this Agreement to Optionees will as the main rule be subject to taxation according to Danish tax law.

According to the Danish legislation (2012), all Gains realized by the Optionee (“Gains” defined herein, with respect to each Stock Option, as the difference between the Option Exercise Price and the fair market value of the Underlying Share on the exercise date thereof) will be taxed as personal income, as salary including labour market contribution, on the time of exercise of the Stock Options, according to the Danish Tax Assessment Act Section 28.

Zendesk DK will report to the Danish Tax Authorities (“SKAT”) compliant with Danish regulation as in effect from time to time.

Irrespective of the obligation of Zendesk DK to report the benefit/spread to SKAT, the Optionee hereby agrees to comply with his/her obligation under the applicable Danish tax law to ensure and verify that the Gains are reported correctly in the annual tax return of such Optionee (or any permitted transferee thereof).

[ Remainder of this Page Left Blank Intentionally ]

 

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Signatures:

This Agreement, including the Plan, is hereby accepted and the terms and conditions thereof are hereby agreed to by the undersigned Optionee and Zendesk, Inc. as of the last date appearing in the signature box below:

 

ZENDESK, INC.
By:  

 

Alan Black, CFO

OPTIONEE:

The undersigned Optionee hereby acknowledges receiving and reviewing a copy of the Plan, including without limitation, Section 9 thereof, and understands that the Stock Options granted hereby are subject to terms of the Plan and this Agreement.

This Agreement is hereby accepted, and the terms and conditions thereof and of the Plan, SPECIFICALLY INCLUDING THE GOVERNING LAW AND VENUE PROVISIONS IN SECTION 5(d) OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date indicated in the signature page below.

 

OPTIONEE (Sign.):  

 

Printed name:  

 

Date:  

 

 
Address:  

 

 

DESIGNATED BENEFICIARY (if Optionee wishes to designate under the Plan)

 

Beneficiary Name:  

 

Address:  

 

 

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Exhibit A

Stock Option Grant Notice

Under the Zendesk, Inc.

2009 Stock Option and Grant Plan

 

Name of Optionee:                     
No. of Underlying Shares:                  Shares of Series B Common Stock.
Grant Date:                     
Expiration Date:                 
Vesting Commencement Date:                     
Option Exercise Price/Share: $         
Vesting Schedule:

Subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, the Underlying Shares subject to this Stock Option shall become vested on the following dates (as indicated near one of the following vesting schedules):

[    ] 100% of the Underlying Shares shall vest on the one year anniversary of Vesting Commencement Date so long as the Optionee maintains a Service Relationship through and on such date. Until they become vested, the Underlying Shares shall be subject to the Company’s right of repurchase upon applicable Termination Events.

[    ] 8.333% of the Underlying Shares shall vest at the end of each month beginning on the first month following the Vesting Commencement Date so long as the Optionee maintains a Service Relationship through and on such date. Until they become vested, the Underlying Shares shall be subject to the Company’s right of repurchase upon applicable Termination Events.

 

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[    ] 66.666% of the Underlying Shares shall vest on the one year anniversary of the Vesting Commencement Date; thereafter, 5.555% of the Underlying Shares shall vest at the end of each month following the one year anniversary of the of the Vesting Commencement Date. Until they become vested, the Underlying Shares shall be subject to the Company’s right of repurchase upon applicable Termination Events.

Notwithstanding anything in the Agreement to the contrary in the case of a Sale Event, this Stock Option shall be treated as provided in Section 3(c) of the Plan.

 

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Appendix A

STOCK OPTION EXERCISE NOTICE

 

Zendesk, Inc.
Attention: Chief Financial Officer

 

 

Pursuant to the terms of my stock option agreement(s) between the undersigned and Zendesk, Inc. (the “Company”) under the Zendesk, Inc. 2009Stock Option and Grant Plan, I hereby exercise such option by including herein payment in the amount of $             representing the purchase price for the Underlying Shares.

Name of Optionee:                                         

 

Grant Date

   Full or
partial
exercise
   Number of
Options
Exercised
   Price
per
share
   Total Exercise
Price
           
           
           

I have chosen the following form(s) of payment:

 

  [    ] 1. Cash
  [    ] 2. Certified or bank check payable to Zendesk, Inc.
  [    ] 3. Other (as referenced in the Agreement and described in the Plan (please describe))

                                                                                   .

In connection with my exercise of this Stock Option as set forth above, I hereby represent and warrant to the Company as follows:

 

  i. I am purchasing the Underlying Shares for my own account for investment only, and not for resale or with a view to the distribution thereof.

 

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  ii. I have had such an opportunity as I have deemed adequate to obtain from the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company and have consulted with my own advisers with respect to my investment in the Company.

 

  iii. I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Underlying Shares and to make an informed investment decision with respect to such purchase.

 

  iv. I can afford a complete loss of the value of the Option Shares and am able to bear the economic risk of holding such Option Shares for an indefinite period of time.

 

  v. I understand that I may not sell, transfer, or otherwise dispose of any Option Shares without the advance express written consent of the Company, unless such transfer constitutes a transfer to a Permitted Transferee or a transfer upon my death, as specifically provided for in Section 9(a)(ii)(A) and (B) of the Zendesk, Inc. 2009 Stock Option and Grant Plan. I further agree to the terms contained in the Restricted Stock Agreement regarding transfer restrictions on unvested but exercised Stock Options.

 

  vi. To the extent required, I have executed and delivered to the Company the Restricted Stock Agreement.

 

  vii. I have read and understand the Plan and acknowledge and agree that the Shares are subject to all of the relevant terms of the Plan, including without limitation, the transfer restrictions set forth in Section 9 of the Plan.

 

  viii. I understand and agree that the Company has a right of first refusal with respect to the Shares pursuant to Section 9 of the Plan.

 

  ix. I understand and agree that I may not sell or otherwise transfer or dispose of the Shares for a period of time following the effective date of a public offering by the Company as described in Section 9 of the Plan.

 

Sincerely yours,
Print Name:  

 

Signature:  

 

Address:  

 

Date:  

 

 

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Exhibit B

ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

 

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STOCK OPTION AGREEMENT (GERMANY)

UNDER THE ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

Pursuant to the Zendesk, Inc. 2009 Stock Option and Grant Plan, as amended (the “Plan,” attached herein and marked Appendix A ), Zendesk, Inc., a Delaware corporation (together with any successor thereto, the “Company”), hereby grants to the undersigned optionee (the “Optionee”), who is an employee of the Company or any of its Subsidiaries, an option (the “Stock Option”) to purchase all or any part of the number of shares of Series B Common Stock, par value $0.01 per share (“Series B Common Stock”) of the Company indicated on the Stock Option Grant Notice (“Grant Notice,” attached herein and marked Appendix D ) (the “Underlying Shares,”), at the exercise price per share indicated in the Grant Notice (the “Option Exercise Price”), by filing a Stock Option Exercise Notice (“Exercise Notice”) in the form attached herein and marked Appendix B . Such Exercise Notice may be filed on or prior to the expiration date (“Expiration Date”) indicated in the Grant Notice, or such earlier date as is specified herein, subject to the terms and conditions set forth in this Stock Option Agreement (this “Agreement”) and in the Plan.

All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Grant Notice and the Plan.

1. Vesting, Exercisability and Termination .

(a) Except as set forth in the Plan, and subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, this Stock Option shall vest and become exercisable in accordance with the Vesting Schedule set forth in the Grant Notice provided the Optionee’s Service Relationship continues through each vesting date.

(b) Termination . Except as may otherwise be provided by the Committee, if the Optionee’s Service Relationship is terminated, the period within which to exercise this Stock Option will be subject to earlier termination as set forth below (and if not exercised within such period, shall thereafter terminate subject, in each case, to Section 3(c) of the Plan):

(i) Termination Due to Death or Disability . If the Optionee’s Service Relationship terminates by reason of such Optionee’s death or disability (as defined in Section 422(c) of the Code), this Stock Option may continue to be exercised, to the extent this Stock Option is vested and exercisable on the date of termination, by the Optionee, the Optionee’s legal representative or legatee for a period of 12 months from the date of death or disability (as defined in Section 422(c) of the Code) or until the Expiration Date, if earlier.

(ii) Other Termination . If the Optionee’s Service Relationship terminates for any reason other than death or disability (as defined in Section 422(c) of the Code), and unless otherwise determined by the Committee, this Stock Option may continue to be exercised, to the extent this Stock Option is vested and exercisable on the date of termination, for a period of 90 days from the date of termination or until the Expiration Date, if earlier; provided however , if the Optionee’s Service Relationship is


terminated for Cause, this Stock Option shall terminate immediately upon the date of such termination.

For purposes hereof, the Committee’s determination of the reason for termination of the Optionee’s Service Relationship shall be conclusive and binding on the Optionee and his or her representatives or legatees. In addition, for purposes hereof, the Optionee’s Service Relationship will be considered terminated as of the date the Optionee is no longer actively providing services to the Company or any of its Subsidiaries (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Optionee is employed or the terms of the Optionee’s employment agreement, if any). Unless otherwise expressly provided in this Agreement or the Plan or determined by the Company, (i) the Optionee’s right to vest in the Stock Option under the Plan, if any, will terminate as of such date and will not be extended by any notice period (e.g., the Optionee’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where the Optionee is employed or the terms of the Optionee’s employment agreement, if any); and (ii) the period (if any) during which the Optionee may exercise the Stock Option after such termination of the Optionee’s employment or service relationship will commence on the date the Optionee cease to actively provide services and will not be extended by any notice period mandated under employment laws in the jurisdiction where the Optionee is employed or terms of the Optionee’s employment agreement, if any: The Committee. shall have the exclusive discretion to determine when the Optionee is no longer actively providing services for purposes of his or her Stock Option grant (including whether the Optionee may still be considered to be providing services while on a leave of absence). Any portion of this Stock Option that is not vested and exercisable on the date of termination of the Service Relationship shall terminate immediately and be null and void.

2. Exercise of Stock Option . The Optionee may exercise this Stock Option only in the following manner:

(a) Prior to the Expiration Date, the Optionee may deliver an Exercise Notice indicating his or her election to purchase some or all of the Underlying Shares. Such notice shall specify the number of Underlying Shares to be purchased. Payment of the purchase price may be made by one or more of the methods described in Section 5 of the Plan, subject to the limitations contained in such Section of the Plan, including the requirement that the Committee specifically approve in advance certain payment methods.

(b) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.

3. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan.

4. Transferability of Stock Option . This Stock Option is personal to the Optionee and is not transferable by the Optionee in any manner other than by will or by the laws of descent and distribution. The Stock Option may be exercised during the Optionee’s lifetime only by the Optionee (or by the Optionee’s guardian or personal representative in the event of the Optionee’s incapacity). The Optionee shall not be permitted to designate a beneficiary.


5. Restrictions on Transfer of Underlying Shares . The Underlying Shares acquired upon exercise of the Stock Option may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Optionee may transfer the Underlying Shares without such consent (i) to a Permitted Transferee or upon the death of the Optionee, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) following an Initial Public Offering. In addition, such Underlying Shares shall be subject to certain additional transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan and.

6. Repurchase Right . Upon a Termination Event, the Company shall have the right to repurchase the Underlying Shares deemed Restricted Stock as of the date of such Termination Event as set forth in Section 9(c) of the Plan.

7. Tax Withholdings . Optionee acknowledges that benefits and rights provided under the Plan may be subject to federal, state, local or foreign income tax and social security withholding requirements. The parties hereto agree the following:

(a) Where the Optionee is not employed by the Company, the Optionee agrees that he or she shall inform the Subsidiary employing Optionee immediately of any exercise of Stock Options by providing a copy of the relevant Exercise Notice.

(b) Prior to the exercise of the Stock Option, Optionee will pay or make appropriate arrangements with the Company (or its Subsidiary employing Optionee) for the satisfaction of all federal, state, local and foreign income tax and social security withholding requirements of the Company (or its Subsidiary employing Optionee) applicable to the exercise. In this regard, Optionee authorizes the Company (or its Subsidiary employing Optionee) to withhold all required amounts legally payable by Optionee from his or her wages or other cash compensation paid to the Optionee by the Company (or its Subsidiary employing Optionee). Alternatively, or in addition, the Optionee will pay to the Company (or its Subsidiary employing Optionee) any amount that the Company (or its Subsidiary employing the Optionee) may be required to withhold.

(c) If the Optionee makes no appropriate arrangements with the Company (or its Subsidiary employing Optionee), the Company (or its Subsidiary employing Optionee) will have the power and the right to withhold all required amounts legally payable by Optionee from his or her wages or other cash compensation paid to the Optionee by the Company (or its Subsidiary employing Optionee) or require the Optionee to remit to the Company (or its Subsidiary employing Optionee), an amount sufficient to satisfy all federal, state, local or foreign income tax and/or social security contributions required to be withheld by law. Alternatively, or in addition, if permissible under local law, the Company may, in its discretion, (i) sell or arrange for the sale of Underlying Shares that Optionee acquires to meet the withholding obligation, and/or (ii) withhold in Underlying Shares, provided that the Company only withholds the amount of Underlying Shares necessary to satisfy the minimum withholding amount.

(d) Optionee acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver the Underlying Shares if such withholding amounts are not delivered at the time of exercise.


8. Miscellaneous Provisions .

(a) Equitable Relief . The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(b) Adjustments for Changes in Capital Structure . If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Series B Common Stock, the outstanding shares of Series B Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Optionee in exchange for, or by virtue of his or her ownership of, this Stock Option or Underlying Shares acquired pursuant thereto.

(c) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.

(d) Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.

(e) Headings . The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(f) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(g) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(h) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, permitted assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.


(i) Counterparts . For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

(j) Integration . This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

9. Dispute Resolution .

(a) Except as provided below, any dispute arising out of or relating to the Plan or this Stock Option, this Agreement, or the breach, termination or validity of the Plan, this Stock Option or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(c) The Company, the Optionee, each party to the Agreement and any other holder of Underlying Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 7 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or


proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

10. Nature of Grant . In accepting the Stock Option, the Optionee acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature, and may be amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of the Stock Option is voluntary and occasional and does not create any contractual or other right to receive future grants of stock options, or benefits in lieu of stock options, even if stock options have been granted in the past;

(c) all decisions with respect to future Stock Option or other grants, if any, will be at the sole discretion of the Company;

(d) the Optionee is voluntarily participating in the Plan;

(e) the Stock Option and any Underlying Shares acquired under the Plan are not intended to replace any pension rights or compensation;

(f) the Stock Option and any Underlying Shares acquired under the Plan, and the income and value of same, are not part of normal or expected compensation for any purposes, including, but not limited, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

(g) the future value of the Underlying Shares is unknown, indeterminable, and cannot be predicted with certainty;

(h) if the Underlying Shares do not increase in value, the Stock Option will have no value;

(i) if the Optionee exercises the Stock Option and acquires Underlying Shares, the value of such Underlying Shares may increase or decrease in value, even below the Option Exercise Price;

(j) no claim or entitlement to compensation or damages shall arise from forfeiture of the Stock Option resulting from the termination of the Optionee’s Service Relationship (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Optionee is employed or the terms of the


Optionee’s employment agreement, if any), and in consideration of the grant of the Stock Option to which the Optionee is otherwise not entitled, the Optionee irrevocably agrees never to institute any claim against the Company or any of its Subsidiaries, waives his or her ability, if any, to bring any such claim, and releases the Company and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Optionee shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;

(k) unless otherwise provided in the Plan or by the Company in its discretion, the Stock Option and the benefits evidenced by this Agreement do not create any entitlement to have the Stock Option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the shares of the Company; and

(l) neither the Company nor any of its Subsidiaries shall not be liable for any foreign exchange rate fluctuation between the Optionee’s local currency and the United States Dollar that may affect the value of the Stock Option or of any amounts due to the Optionee pursuant to the exercise of the Stock Option or the subsequent sale of any Underlying Shares acquired upon exercise.

11. Data Privacy . The Optionee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Optionee’s personal data as described in this Agreement and any other Stock Option grant materials (“Data”) by and among the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Optionee’s participation in the Plan.

The Optionee understands that the Company and its Subsidiaries may hold certain personal information about the Optionee, including, but not limited to, the Optionee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all stock options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Optionee’s favor, for the exclusive purpose of implementing, administering and managing the Plan.

The Optionee understands that Data will be transferred to a third party stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. The Optionee understands that recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than the Optionee’s country. The Optionee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Optionee authorizes the Company, the chosen third party stock plan service provider and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing the Optionee’s participation in the Plan. The Optionee understands that Data will be held only as


long as is necessary to implement, administer and manage the Optionee’s participation in the Plan. The Optionee understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Optionee understands that he or she is providing the consents herein on a purely voluntary basis. If the Optionee does not consent, or if the Optionee later seeks to revoke his or her consent, his or her employment status or service and career with the Company or any of its Subsidiaries will not be adversely affected; the only adverse consequence of refusing or withdrawing the Optionee’s consent is that the Company would not be able to grant the Optionee Stock Options or other equity awards or administer or maintain such awards. Therefore, the Optionee understands that refusing or withdrawing his or her consent may affect the Optionee’s ability to participate in the Plan. For more information on the consequences of the Optionee’s refusal to consent or withdrawal of consent, the Optionee understands that he or she may contact his or her local human resources representative.

12. Language . If the Optionee has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

13. Exchange Control Information . Cross-border payments in excess of €12,500 must be reported monthly to the German Federal Bank ( Bundesbank ). In case of payments in connection with securities (including proceeds realized upon the sale of Shares), the report must be made by the 5th day of the month following the month in which the payment was received and must be filed electronically. The form of report ( Allgemeine Meldeportal Statistik ) can be accessed via the Bundesbank’s website ( www.bundesbank.de ) and is available in both German and English. The Optionee is responsible for satisfying the reporting obligation.

[SIGNATURE PAGE FOLLOWS]


The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.

 

ZENDESK, INC., San Francisco, CA
By:  

 

  Alan Black, CFO

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that the Stock Option granted hereby is subject to the terms of the Plan and of this Agreement.

The undersigned also hereby acknowledges and agrees that the Underlying Shares are subject to transfer restrictions as set forth in Section 5 of the Agreement.

This Agreement is hereby accepted, and the terms and conditions thereof and of the Plan, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS IN SECTION 9 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date first above written.

 

OPTIONEE (Sign)  

 

Printed name:  

 

Address:  

 

 


APPENDIX A

ZENDESK, INC. 2009 STOCK OPTION AND GRANT PLAN


APPENDIX B

STOCK OPTION EXERCISE NOTICE

To: Zendesk, Inc., attention Chief Financial Officer

Pursuant to the terms of my stock option agreement(s) between the undersigned and Zendesk, Inc. (the “Company”) under the Zendesk, Inc. 2009 Stock Option and Grant Plan, I hereby exercise such option by including herein payment in the form of a personal check representing the purchase price for the Underlying Shares.

 

   Name of Optionee:  

 

     Today’s Date   

 

 

     # of Underlying
Shares
   Strike Price
per
Underlying
Share
     Aggregate
exercise price
 

Number of Underlying Shares underlying options granted on                 , 20    

      $        

 

(if multiple options are involved, please list separately)

        

Underlying Shares that I am acquiring

      $         $     

Underlying Shares that I am not acquiring now

        

Payment to Zendesk

         $     

In connection with my exercise of the option as set forth above, I hereby represent and warrant to the Company as follows:

(i) I am purchasing the Underlying Shares for my own account for investment only, and not for resale or with a view to the distribution thereof.

(ii) I have had such an opportunity as I have deemed adequate to obtain from the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company and have consulted with my own advisers with respect to my investment in the Company, including tax advisers with regards to any tax implications.


(iii) I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Underlying Shares and to make an informed investment decision with respect to such purchase.

(iv) I can afford a complete loss of the value of the Underlying Shares and am able to bear the economic risk of holding such Underlying Shares for an indefinite period of time.

(v) I understand that the shares of Series B Common Stock that I acquire upon exercise of the Stock Options (using Appendix B ) as well as any shares of Series A Common Stock and Series B Common Stock that I have previously purchased, been granted, or that are subject to other awards made to me under the Plan, may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that I may transfer any such shares without such consent (i) to a Permitted Transferee (as defined in the Plan) or upon my death, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) subject to the other transfer restrictions as set forth in Section 9 of the Plan, upon an Initial Public Offering.

(vi) I understand that the Underlying Shares may not be registered under the Securities Act (it being understood that the Underlying Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirement thereof). I further acknowledge that certificates representing Underlying Shares will bear restrictive legends reflecting the foregoing and/or that book entries for uncertificated Underlying Shares will include similar restrictive notations.

(vii) I have read and understand the Plan and acknowledge and agree that the Underlying Shares are subject to all of the relevant terms of the Plan, including without limitation, the transfer restrictions set forth in Section 9 of the Plan.

(viii) I understand and agree that the Company has a right of first refusal with respect to the Underlying Shares pursuant to Section 9(b) of the Plan.

(ix) I understand and agree that the Company has certain repurchase rights with respect to the Underlying Shares pursuant to Section 9(c) of the Plan.

(x) I understand and agree that I may not sell or otherwise transfer or dispose of the Underlying Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.

 

Sincerely yours,
OPTIONEE:


 

Name:
Address:

 

 

 


APPENDIX D

STOCK OPTION GRANT NOTICE

 

Name of Optionee:   

_____________________________________________

No. of Underlying Shares    _________________ Shares of Series B Common Stock
Grant Date:    ___________________________, 201___
Expiration Date:    ___________________________, 202___
Vesting begins on:    ___________________________ 201___  (Vesting Commencement Date)
Option Exercise Price/Share:    $0.__________

Vesting Schedule :

Subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, this Stock Option shall be vested with respect to the Underlying Shares on the respective dates indicated below:

(i) 25% of the Underlying Shares shall vest on the first anniversary of the Vesting Commencement Date; and

(ii) 2.0833% of the Underlying Shares shall vest each completed month for 36 months following the first anniversary of the Vesting Commencement Date,

so long as the Optionee maintains a Service Relationship on each such date.

Notwithstanding anything in the Agreement to the contrary in the case of a Sale Event, this Stock Option shall be treated as provided in Section 3(c) of the Plan.


STOCK OPTION AGREEMENT (IRELAND)

UNDER THE ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

Pursuant to the Zendesk, Inc. 2009 Stock Option and Grant Plan, as amended (the “Plan,” attached herein and marked Appendix A ), Zendesk, Inc., a Delaware corporation (together with any successor thereto, the “Company”), hereby grants to the undersigned optionee (the “Optionee”), who is an employee of the Company or any of its Subsidiaries, an option (the “Stock Option”) to purchase all or any part of the number of shares of Series B Common Stock, par value $0.01 per share (“Series B Common Stock”) of the Company indicated on the Stock Option Grant Notice (“Grant Notice,” attached herein and marked Appendix D ) (the “Underlying Shares,”), at the exercise price per share indicated in the Grant Notice (the “Option Exercise Price”), by filing a Stock Option Exercise Notice (“Exercise Notice”) in the form attached herein and marked Appendix B . Such Exercise Notice may be filed on or prior to the expiration date (“Expiration Date”) indicated in the Grant Notice, or such earlier date as is specified herein, subject to the terms and conditions set forth in this Stock Option Agreement (this “Agreement”) and in the Plan.

All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Grant Notice and the Plan.

1. Vesting, Exercisability and Termination .

(a) This Stock Option shall be immediately exercisable, regardless of whether the Underlying Shares are vested.

(b) Except as set forth below, and subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, the Underlying Shares shall be vested on the respective dates indicated below:

(i) All Underlying Shares shall be initially unvested.

(ii) The Underlying Shares shall vest in accordance with the Vesting Schedule set forth in the Grant Notice provided the Optionee’s Service Relationship continues through each vesting date.

(c) Termination . Except as may otherwise be provided by the Committee, if the Optionee’s Service Relationship is terminated, the period within which to exercise this Stock Option will be subject to earlier termination as set forth below (and if not exercised within such period, shall thereafter terminate subject, in each case, to Section 3(c) of the Plan):

(i) Termination Due to Death or Disability . If the Optionee’s Service Relationship terminates by reason of such Optionee’s death or disability (as defined in Section 422(c) of the Code), this Stock Option may continue to be exercised, to the extent the Underlying Shares are vested on the date of termination, by the Optionee, the Optionee’s legal representative or legatee for a period of 12 months from the date of


death or disability (as defined in Section 422(c) of the Code) or until the Expiration Date, if earlier.

(ii) Other Termination . If the Optionee’s Service Relationship terminates for any reason other than death or disability (as defined in Section 422(c) of the Code), and unless otherwise determined by the Committee, this Stock Option may continue to be exercised, to the extent the Underlying Shares are vested on the date of termination, for a period of 90 days from the date of termination or until the Expiration Date, if earlier; provided however , if the Optionee’s Service Relationship is terminated for Cause, this Stock Option shall terminate immediately upon the date of such termination.

For purposes hereof, the Committee’s determination of the reason for termination of the Optionee’s Service Relationship shall be conclusive and binding on the Optionee and his or her representatives or legatees. In addition, for purposes hereof, the Optionee’s Service Relationship will be considered terminated as of the date that the Optionee is no longer actively providing services to the Company or any of its Subsidiaries (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Optionee is employed or the terms of the Optionee’s employment agreement, if any). Unless otherwise expressly provided in this Agreement or the Plan or determined by the Company, (i) the Optionee’s right to vest in the Stock Option under the Plan, if any, will terminate as of such date and will not be extended by any notice period ( e.g ., the Optionee’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where the Optionee is employed or the terms of the Optionee’s employment agreement, if any).

Any portion of this Stock Option with respect to Underlying Shares that are not vested on the date of termination of the Service Relationship, as described above, shall terminate immediately and be null and void.

2. Exercise of Stock Option . The Optionee may exercise this Stock Option only in the following manner:

(a) Prior to the Expiration Date, the Optionee may deliver an Exercise Notice indicating his or her election to purchase some or all of the Underlying Shares. Such notice shall specify the number of Underlying Shares to be purchased. To the extent this Stock Option is only partially exercised, such exercise shall first be with respect to the Underlying Shares, if any, that have previously vested, and then with respect to the Underlying Shares that will next vest, with the Underlying Shares that vest at the latest date being exercised last. Payment of the purchase price may be made by one or more of the methods described in Section 5 of the Plan, subject to the limitations contained in such Section of the Plan, including the requirement that the Committee specifically approve in advance certain payment methods.

(b) In the event the Optionee exercises a portion of this Stock Option with respect to Underlying Shares that have not vested, the Optionee shall also deliver a Restricted Stock Agreement covering such unvested Underlying Shares in the form attached herein and marked Appendix C (the “Restricted Stock Agreement”) with the same vesting schedule for such Underlying Shares as set forth for the Underlying Shares herein. The Restricted Stock Agreement shall be deemed a Restricted Stock Award and all Underlying Shares so acquired


pursuant to such Restricted Stock Agreement shall be deemed Restricted Stock for all purposes under the Plan.

(c) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.

3. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan.

4. Transferability of Stock Option . This Stock Option is personal to the Optionee and is not transferable by the Optionee in any manner other than by will or by the laws of descent and distribution. The Stock Option may be exercised during the Optionee’s lifetime only by the Optionee (or by the Optionee’s guardian or personal representative in the event of the Optionee’s incapacity). The Optionee shall not be permitted to designate a beneficiary.

5. Restrictions on Transfer of Underlying Shares . The Underlying Shares acquired upon exercise of the Stock Option may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Optionee may transfer the Underlying Shares without such consent (i) to a Permitted Transferee or upon the death of the Optionee, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) following an Initial Public Offering. In addition, such Underlying Shares shall be subject to certain additional transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan and, if applicable, the Restricted Stock Agreement.

6. Repurchase Right . Upon a Termination Event, the Company shall have the right to repurchase the Underlying Shares deemed Restricted Stock as of the date of such Termination Event as set forth in Section 9(c) of the Plan.

7. Miscellaneous Provisions .

(a) Equitable Relief . The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(b) Adjustments for Changes in Capital Structure . If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Series B Common Stock, the outstanding shares of Series B Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Optionee in exchange for, or by virtue of his or her ownership of, this Stock Option or Underlying Shares acquired pursuant thereto.

(c) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.


(d) Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.

(e) Headings . The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(f) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(g) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(h) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, permitted assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

(i) Counterparts . For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

(j) Integration . This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

8. Dispute Resolution .

(a) Except as provided below, any dispute arising out of or relating to the Plan or this Stock Option, this Agreement, or the breach, termination or validity of the Plan, this Stock Option or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as


of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(c) The Company, the Optionee, each party to the Agreement and any other holder of Underlying Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 7 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

9. Tax Withholdings . Optionee acknowledges that benefits and rights provided under the Plan may be subject to federal, state, local or foreign income tax and social security withholding requirements. The parties hereto agree to the following:

(a) Prior to any taxable event related to the Stock Option, Optionee will pay or make appropriate arrangements with the Company (or its Subsidiary employing Optionee) for the satisfaction of all federal, state, local and foreign income tax and social security withholding requirements of the Company (or its Subsidiary employing Optionee) applicable to the taxable event. In this regard, Optionee will authorizes the Company (or its Subsidiary employing Optionee) to withhold all required amounts legally payable by Optionee from his or her wages or other cash compensation paid to the Optionee by the Company (or its Subsidiary employing Optionee). Alternatively, or in addition, the Optionee will pay to the Company (or its Subsidiary


employing Optionee) any amount that the Company (or its Subsidiary employing the Optionee) may be required to withhold.

(b) If the Optionee makes no appropriate arrangements with the Company (or its Subsidiary employing Optionee), the Company (or its Subsidiary employing Optionee) will have the power and the right to withhold all required amounts legally payable by Optionee from his or her wages or other cash compensation paid to the Optionee by the Company (or its Subsidiary employing Optionee) or require the Optionee to remit to the Company (or its Subsidiary employing Optionee) an amount sufficient to satisfy all federal, state, local or foreign income tax and/or social security contributions required to be withheld by law. Alternatively, or in addition, if permissible under local law, the Company may, in its discretion, (i) sell or arrange for the sale of Underlying Shares that Optionee acquires to meet the withholding obligation, and/or (ii) withhold in Underlying Shares, provided that the Company only withholds the amount of Underlying Shares necessary to satisfy the minimum withholding amount.

(c) Optionee acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver the Underlying Shares if such withholding amounts are not delivered at the time of exercise.

10. Data Protection .

(a) By entering into this Agreement, and as a condition of the grant of the Stock Option, Optionee consents to the collection, use, and transfer of Data as described in this paragraph to the full extent permitted by and in full compliance with applicable laws.

(b) Optionee understands that the Company and its Subsidiaries hold Data about the Optionee for the purpose of managing and administering the Plan.

(c) Optionee further understands that the Company and/or its Subsidiaries will transfer Data among themselves as necessary for the purposes of implementation, administration, and management of Optionee’s participation in the Plan, and that the Company and/or its Subsidiary may each further transfer Data to any Data Recipients.

(d) Optionee understands that these Data Recipients may be located in Optionee’s country of residence or elsewhere, such as the United States. Optionee authorises the Data Recipients to receive, possess, use, retain, and transfer Data in electronic or other form, for the purposes of implementing, administering, and managing Optionee’s participation in the Plan, including any transfer of such Data, as may be required for the administration of the Plan and/or the subsequent holding of Underlying Shares on Optionee’s behalf, to a broker or third party with whom the Underlying Shares acquired on exercise may be deposited. Where the transfer is to be to a destination outside the European Economic Area, the Company shall take reasonable steps to ensure that the Optionee’s Data continues to be adequately protected and securely held.

(e) Optionee understands that Optionee may, at any time, review the Data, request that any necessary amendments be made to it, or withdraw Optionee’s consent herein in writing by contacting the Company. Optionee further understands that withdrawing consent may affect Optionee’s ability to participate in the Plan.

(f) For purposes of this Agreement, the terms (1) “Data” shall mean certain personal information about the Optionee, including, but not limited to, name, home address and


telephone number, date of birth, social insurance number, salary, nationality, job title, any stock, units or directorships held in the Company, details of all options or other entitlement to shares awarded, cancelled, exercised, vested, unvested, or outstanding in the Optionee’s favor; and (ii) “Data Recipient” shall mean third parties assisting the Company in the implementation, administration, and management of the Plan.

11. Additional Terms .

(a) Optionee has no right to compensation or damages for any loss in respect of the Stock Option where such loss arises (or is claimed to arise), in whole or in part, from the termination of Optionee’s Service Relationship, or notice to terminate Optionee’s Service Relationship given by or to Optionee.

(b) Optionee has no right to compensation or damages for any loss in respect of an Stock Option where such loss arises (or is claimed to arise), in whole or in part, from any company ceasing to be a Subsidiary, or the transfer of any business from a Subsidiary to any person which is not a Subsidiary.

12. Nature of Grant . In accepting the Stock Option, the Optionee acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature, and may be amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of the Stock Option is voluntary and occasional and does not create any contractual or other right to receive future grants of stock options, or benefits in lieu of stock options, even if stock options have been granted in the past;

(c) all decisions with respect to future Stock Option or other grants, if any, will be at the sole discretion of the Company;

(d) the Stock Option grant and the Optionee’s participation in the Plan shall not create a right to employment or be interpreted as forming a Service Relationship with the Company (or its Subsidiary employing Optionee or any other Subsidiary), and shall not interfere with the ability of the Company (or its Subsidiary employing Optionee or any other Subsidiary), as applicable, to terminate the Optionee’s Service Relationship;

(e) the Optionee is voluntarily participating in the Plan;

(f) the Stock Option and any Underlying Shares acquired under the Plan are not intended to replace any pension rights or compensation;

(g) the Stock Option and any Underlying Shares acquired under the Plan, and the income and value of same, are not part of normal or expected compensation for any purposes, including, but not limited, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;


(h) the future value of the Underlying Shares is unknown, indeterminable, and cannot be predicted with certainty;

(i) if the underlying Shares do not increase in value, the Stock Option will have no value;

(j) if the Optionee exercises the Stock Option and acquires Underlying Shares, the value of such Underlying Shares may increase or decrease in value, even below the Option Exercise Price;

(k) no claim or entitlement to compensation or damages shall arise from forfeiture of the Stock Option resulting from the termination of the Optionee’s Service Relationship (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction w here the Optionee is employed or the terms of the Optionee’s employment agreement, if any) , and in consideration of the grant of the Stock Option to which the Optionee is otherwise not entitled, the Optionee irrevocably agrees never to institute any claim against the Company or any of its Subsidiaries, waives his or her ability, if any, to bring any such claim, and releases the Company and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Optionee shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;

(l) unless otherwise provided in the Plan or by the Company in its discretion, the Stock Option and the benefits evidenced by this Agreement do not create any entitlement to have the Stock Option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the shares of the Company; and

(m) neither the Company nor any of its Subsidiaries shall not be liable for any foreign exchange rate fluctuation between the Optionee’s local currency and the United States Dollar that may affect the value of the Stock Option or of any amounts due to the Optionee pursuant to the exercise of the Stock Option or the subsequent sale of any Underlying Shares acquired upon exercise.

13. Director Notification Requirement.  If the Optionee is a director, shadow director or secretary of an Irish Subsidiary, the Optionee must notify the Irish Subsidiary in writing within five business days of receiving or disposing of an interest in the Company ( e.g ., the Stock Option or Underlying Shares), or within five business days of becoming aware of the event giving rise to the notification requirement, or within five business days of becoming a director or secretary if such an interest exists at the time. This notification requirement also applies with respect to the interests of a spouse or minor children (whose interests, if any, will be attributed to the director, shadow director or secretary.

[SIGNATURE PAGE FOLLOWS]


The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.

 

ZENDESK, INC., San Francisco, CA
By:  

 

  Alan Black, CFO

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that the Stock Option granted hereby is subject to the terms of the Plan and of this Agreement.

The undersigned also hereby acknowledges and agrees that the Underlying Shares are subject to transfer restrictions as set forth in Section 5 of the Agreement.

This Agreement is hereby accepted, and the terms and conditions thereof and of the Plan, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS IN SECTION 8 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date first above written.

 

OPTIONEE (Sign)  

 

Printed name:  

 

Address:  

 

 


APPENDIX A

ZENDESK, INC. 2009 STOCK OPTION AND GRANT PLAN


APPENDIX B

STOCK OPTION EXERCISE NOTICE FOR VESTED AND EARLY EXERCISE

To: Zendesk, Inc., attention Chief Financial Officer

Pursuant to the terms of my stock option agreement(s) between the undersigned and Zendesk, Inc. (the “Company”) under the Zendesk, Inc. 2009 Stock Option and Grant Plan, I hereby exercise such option by including herein payment in the form of a personal check representing the purchase price for the Underlying Shares being acquired.

 

   Name of Optionee:  

 

     Today’s Date   

 

 

     # of
Underlying
Shares
   Strike Price
per
Underlying
Share
     Extended
exercise price
 

Number of Underlying Shares underlying options granted on                 , 20    

      $        

 

(if multiple options are involved, please list separately)

        

Vested Underlying Shares that I am acquiring

      $         $     

Unvested Underlying Shares that I am acquiring by exercising early

        

Underlying Shares that I am not acquiring now

        

Payment to Zendesk

         $     

In connection with my exercise of the option as set forth above, I hereby represent and warrant to the Company as follows:

(i) I am purchasing the Underlying Shares for my own account for investment only, and not for resale or with a view to the distribution thereof.


(ii) I have had such an opportunity as I have deemed adequate to obtain from the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company and have consulted with my own advisers with respect to my investment in the Company, including tax advisers with regards to any tax implications.

(iii) I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Underlying Shares and to make an informed investment decision with respect to such purchase.

(iv) I can afford a complete loss of the value of the Underlying Shares and am able to bear the economic risk of holding such Underlying Shares for an indefinite period of time.

(v) I understand that the shares of Series B Common Stock that I acquire upon exercise of the Stock Options (using Appendix B ) as well as any shares of Series A Common Stock and Series B Common Stock that I have previously purchased, been granted, or that are subject to other awards made to you under the Plan, may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that I may transfer any such shares without such consent (i) to a Permitted Transferee (as defined in the Plan) or upon my death, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) subject to the other transfer restrictions as set forth in Section 9 of the Plan, upon an Initial Public Offering.

(vi) I understand that the Underlying Shares may not be registered under the Securities Act (it being understood that the Underlying Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirement thereof). I further acknowledge that certificates representing Underlying Shares will bear restrictive legends reflecting the foregoing and/or that book entries for uncertificated Underlying Shares will include similar restrictive notations.

(vii) To the extent required, I have executed and delivered to the Company the Restricted Stock Agreement, attached as Appendix C to the Agreement.

(viii) I have read and understand the Plan and acknowledge and agree that the Underlying Shares are subject to all of the relevant terms of the Plan, including without limitation, the transfer restrictions set forth in Section 9 of the Plan.

(ix) I understand and agree that the Company has a right of first refusal with respect to the Underlying Shares pursuant to Section 9(b) of the Plan.

(x) I understand and agree that the Company has certain repurchase rights with respect to the Underlying Shares (including, without limitation, Underlying Shares deemed Restricted Stock issued pursuant to a Restricted Stock Award) pursuant to Section 9(c) of the Plan.


(xi) I understand and agree that I may not sell or otherwise transfer or dispose of the Underlying Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.

 

Sincerely yours,
OPTIONEE:

 

Name:
Address:

 

 

 


APPENDIX C

RESTRICTED STOCK AGREEMENT FOR EARLY EXERCISE OF STOCK OPTION (IRELAND)

UNDER THE ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

 

Optionee Name

    

Date of Original Grant

    

Date of Early Exercise Notice

    

Number of Restricted Shares purchased herein

    

Price paid per share

    

Aggregate purchase price

    

All capitalized terms used in this Restricted Stock Agreement for Early Exercise Option (“Agreement”) and not otherwise defined shall have the respective meanings set forth in the Stock Option Agreement (including Appendices thereto) (the “Option Agreement”) between Zendesk, Inc. (the “Company”) and undersigned Optionee granting Optionee Stock Options to purchase shares of Series B Common Stock under the Zendesk, Inc. 2009 Stock Option and Grant Plan (the “Plan”), as amended by the Amendment to Stock Option Agreement signed by the Optionee (collectively, the “Option Agreement”). This Agreement shall be considered a Restricted Stock Award for all purposes under the Plan.

Upon signing this Agreement and delivering the Stock Option Notice (“Exercise Notice”) to the Company, Company shall deliver to Optionee Underlying Shares to be acquired upon exercise, subject to the following terms:

1. Purchase and Sale of Underlying Shares; Vesting.

(a) Purchase and Sale . The Company hereby sells to the Optionee, and the Optionee is purchasing from the Company, the number of Underlying Shares set forth in the Exercise Notice, pursuant to the Option Agreement, for the aggregate Option Exercise Price for the Underlying Shares so purchased.

(b) Vesting . The risk of forfeiture shall lapse with respect to the Underlying Shares, and such Underlying Shares shall become vested, on the respective dates indicated on the Vesting Schedule set forth in Appendix D to the Option Agreement. The Underlying Shares shall be considered Shares of Restricted Stock (as defined in the Plan) for purposes of this Agreement and the Plan.


2. Repurchase Right . Upon a Termination Event or Repurchase Event, the Company shall have the right to repurchase the Underlying Shares deemed to be Restricted Stock as set forth in Section 9(c) of the Plan.

3. Restrictions on Transfer of Underlying Shares . The Underlying Shares (whether or not vested) may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Underlying Shares may be transferred without such consent (i) to a Permitted Transferee or upon death, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) subject to the other transfer restrictions as set forth in Section 9 of the Plan, following a Initial Public Offering. The Underlying Shares (whether or not vested) shall remain subject to the other transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan.

4. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Restricted Stock Agreement shall be subject to and governed by all the terms and conditions of the Plan.

5. Escrow and Stock Assignment . The certificates for any Underlying Shares shall be deposited in escrow with the Company to be held in escrow with the Company. Each deposited certificate shall be accompanied by a duly executed stock assignment separate from certificate in the form attached hereto as Appendix C-1 (the “Assignment”). The deposited certificates and the Assignment, together with any other assets or securities from time to time deposited with the Company pursuant to this Agreement shall remain in escrow until such time or times as the Underlying Shares are released from the Company’s right to repurchase the Underlying Shares as set forth in Section 9(c) of the Plan. If the Company (or its assignees) elects to exercise its right to repurchase the Underlying Shares as set forth in Section 9(c) of the Plan then the escrowed certificates for such Underlying Shares being repurchased (together with any other assets or securities issued with respect thereto) shall be delivered to the Company, concurrently with the payment to the Holder, in cash or cash equivalent (including the cancellation of any purchase-money indebtedness), of an amount equal to the applicable repurchase price for the Underlying Shares being repurchased, and the Optionee shall cease to have any further rights or claims with respect to such Underlying Shares (or other assets or securities attributable to such Underlying Shares).

6. Miscellaneous Provisions .

(a) Record Owner; Dividends . The Optionee and any Permitted Transferees, during the duration of this Agreement, shall be considered the record owners of and shall be entitled to vote the Underlying Shares if and to the extent the Underlying Shares are entitled to voting rights. The Optionee and any Permitted Transferees shall be entitled to receive all dividends and any other distributions declared on the Underlying Shares; provided , however , that the Company is under no duty to declare any such dividends or to make any such distribution.

(b) Section 83(b) Election . The Optionee shall consult with the Optionee’s tax advisor to determine whether it would be appropriate for the Optionee to make an election


under Section 83(b) of the Code with respect to the Underlying Shares. Any such election must be filed with the Internal Revenue Service within 30 days of the date of exercise. If the Optionee makes an election under Section 83(b) of the Code, the Optionee shall give prompt notice to the Company (and provide a copy of such election to the Company).

(c) Equitable Relief . The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(d) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.

(e) Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.

(f) Headings . The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(g) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(h) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(i) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

(j) Counterparts . For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.


7. Dispute Resolution .

(a) Except as provided below, any dispute arising out of or relating to the Plan or the Underlying Shares, this Agreement, or the breach, termination or validity of the Plan, the Underlying Shares or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 - 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(c) The Company, the Optionee, each party to the Agreement and any other holder of Underlying Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 7 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction


and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

[SIGNATURE PAGE FOLLOWS]


The foregoing Restricted Stock Agreement is hereby accepted and the terms and conditions thereof are hereby agreed to by the undersigned as of the date first above written.

 

ZENDESK, INC.
By:  

 

  Chief Financial Officer

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof and understands that the Underlying Shares purchased hereby are subject to the terms of the Plan and this Agreement. This Agreement is hereby accepted, and the terms and conditions of the Plan, the Option Agreement and this Agreement, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS SET FORTH IN SECTION 7 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date first above written.

 

OPTIONEE:

 

Name:
Address:

 

 

 


Appendix 1 to

Restricted Stock Agreement

STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto Zendesk, Inc.                  shares of Common Stock of the Company standing in the undersigned’s name on the books of the Company represented by Certificate(s) No.      herewith and hereby irrevocably constitutes and appoints the Secretary and other officers of the Company attorneys to transfer said stock on the books of the Company with full power of substitution in the premises.

 

Date:  

 

By:  

 

Print Stockholder Name:  

 

INSTRUCTIONS: Stockholder to sign and print name only. All other blanks and date should be left blank. To be completed by Company upon exercise of repurchase right.


APPENDIX D

STOCK OPTION GRANT NOTICE

 

Name of Optionee:    _____________________________________________    
No. of Underlying Shares    _______________ Shares of Series B Common Stock
Grant Date:    ___________________________, 201___
Expiration Date:    ___________________________, 202___ [NOT TO EXCEED 7 YEARS FROM GRANT]
Vesting begins on:    ___________________________, 201___ (Vesting Commencement Date)
Option Exercise Price/Share:    $0.__________

Vesting Schedule :

Subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, this Stock Option shall be vested with respect to the Underlying Shares on the respective dates indicated below:

(i) 25% of the Underlying Shares shall vest on the first anniversary of the Vesting Commencement Date; and

(ii) 2.0833% of the Underlying Shares shall vest each completed month for 36 months following the first anniversary of the Vesting Commencement Date,

so long as the Optionee maintains a Service Relationship on each such date.

Notwithstanding anything in the Agreement to the contrary in the case of a Sale Event, this Stock Option shall be treated as provided in Section 3(c) of the Plan.


RESTRICTED STOCK UNIT AWARD AGREEMENT

UNDER THE ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

(IRELAND)

Pursuant to the Zendesk, Inc. 2009 Stock Option and Grant Plan, as amended (the “Plan,” attached herein and marked Appendix A ), Zendesk, Inc., a Delaware corporation (together with any successor thereto, the “Company”), hereby grants to the undersigned grantee (the “Grantee”), an award of the number of Restricted Stock Units (an “Award”) indicated on the Restricted Stock Unit Grant Notice (“Grant Notice,” attached herein and marked as Appendix B ), subject to the terms and conditions set forth in this Restricted Stock Unit Award Agreement (this “Agreement”) and in the Plan. Each Restricted Stock Unit shall relate to one share (a “Share”) of Series B Common Stock.

All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Notice and the Plan.

1. Conditions and Vesting of Restricted Stock Units . The Restricted Stock Units are subject to both a time-based condition (the “Time Condition”) and performance-based vesting (the “Performance Vesting”) described in paragraphs (a) and (b) below, both of which must be satisfied prior to the Expiration Date before the Restricted Stock Units will be deemed vested and may be settled in accordance with Section 3 of this Agreement.

(a) Time Condition . The Time Condition shall be satisfied in accordance with the Time-Based Vesting Schedule set forth in the Grant Notice.

(b) Performance Vesting . The Restricted Stock Units shall only satisfy the Performance Vesting on the first to occur of (i) immediately prior to a Sale Event or (ii) the completion of Company’s Initial Public Offering, in either case, occurring prior to the Expiration Date.

(c) Vesting Date . Each date as of which both the Time Condition and Performance Vesting described in paragraphs (a) and (b) have been satisfied with respect to any Restricted Stock Units shall be referred to as a “Vesting Date.” No Vesting Date shall occur after the Expiration Date. To the extent the Restricted Stock Units have not satisfied both the Time Condition and the Performance Vesting, such Restricted Stock Units shall expire and be of no further force or effect on the Expiration Date.

2. Termination of Service Relationship . If the Grantee’s Service Relationship terminates for any reason (including death or disability) prior to the satisfaction of the Time Condition set forth in Section 1(a) above, any Restricted Stock Units that have not satisfied the Time Condition as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such forfeited Restricted Stock Units. Any Restricted Stock Units that have satisfied the Time Condition as of such date shall remain subject to the Performance Vesting set forth in Section 1(b) above, but shall expire


and be of no further force or effect on the first to occur of (a) three years after the date on which the Grantee’s Service Relationship terminates, or (b) the Expiration Date.

For purposes of the foregoing, the Grantee’s Service Relationship will be considered terminated as of the date the Grantee is no longer actively providing services to the Company or any Subsidiary (regardless of the reason for such termination and whether or not later to be found invalid or in breach of employment laws in the jurisdiction where the Grantee is employed or the terms of the Grantees’s employment agreement, if any). Unless otherwise expressly provided in this Agreement or determined by the Company, the Grantee’s right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of such date and will not be extended by any notice period ( e.g. , the Grantee’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any); the Committee shall have the exclusive discretion to determine when the Grantee is no longer actively providing services for purposes of the Restricted Stock Unit grant (including whether Participant may still be considered to be providing services while on a leave of absence).

3. Receipt of Shares of Stoc k. As soon as reasonably practicable following each Vesting Date, the Company shall issue to the Grantee the number of Shares equal to the aggregate number of Restricted Stock Units that have satisfied the Time Condition and Performance Vesting pursuant to Section 1 of this Agreement and which have not been previously issued by the Company to the Grantee and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such Shares.

4. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Award shall be subject to and governed by all the terms and conditions of the Plan.

5. Transfer Restrictions .

(a) Award Not Transferrable. The Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee.

(b) Beneficiary Designation . This Award is personal to the Grantee and the Grantee shall not be permitted to designate a beneficiary. In the event of the Grantee’s death after a Vesting Date but before the settlement of this Award in accordance with the terms and conditions of this Award, the legal representative of the Grantee or the Grantee’s estate shall be entitled to the benefits under this Award.

(c) Restrictions on Transfer of Shares . The Shares acquired upon settlement of the Restricted Stock Units may not be sold, transferred or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Section 1 of this Agreement; (ii) Shares have been issued to the Grantee in accordance with the terms of the Plan and this Agreement; and (iii) the Grantee has obtained the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Grantee may transfer the Shares without such consent specified in this subparagraph (iii): (x) to a Permitted Transferee or upon the death of the Grantee, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (y) following an Initial Public Offering. In addition, the Shares shall be subject to certain additional


transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan.

6. Grantee Responsible for Tax-Related Items . Regardless of any action that the Company or the Grantee’s actual employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account, or other tax-related items related to the Grantee’s participation in the Plan and legally applicable to him or her (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items is and remains the Grantee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. The Grantee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, including, without limitation, the grant, vesting, or settlement of the Restricted Stock Units, the subsequent sale of Shares acquired pursuant to such issuance, and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. The Company or Employer may satisfy all Tax-Related Items for which they have the obligation or authority to withhold or remit payment, in their sole discretion, (i) by withholding Shares from those Shares to be issued to the Grantee upon settlement of the Award; (ii) with respect to a Grantee who is not an executive officer or director of the Company nor subject to the reporting requirements of Section 16 of the Exchange Act at the time of such withholding, by the Company causing its transfer agent to sell from the number of Shares to be issued to the Grantee, the number of Shares necessary to satisfy the applicable Tax Related Items; or (iii) by requiring the Grantee to pay to the Company or Employer, or make arrangements satisfactory to the Committee for payment of, the required Tax Related Items. The Grantee shall not make any claim against the Employer, the Company or its Board of Directors, officers, affiliates or employees related to Tax-Related Items arising from this Award or the Grantee’s other compensation. Furthermore, if the Grantee has become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, the Grantee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding rates or other applicable withholding rates, including maximum applicable rates, in which case the Grantee will receive a refund of any over-withheld amount in cash and will have no entitlement to the Series B Common Stock equivalent. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, the Grantee will be deemed to have been issued the full number of Shares subject to the vested Restricted Stock Units, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items. The Company may refuse to issue or deliver the Shares or the proceeds of the sale of Shares if the Grantee fails to comply with his or her obligations in connection with the Tax-Related Items.

7. Miscellaneous Provisions .

(a) Equitable Relief . The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief,


including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(b) Adjustments for Changes in Capital Structure . If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Series B Common Stock, the outstanding shares of Series B Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Grantee in exchange for, or by virtue of his or her ownership of, this Award or Shares acquired pursuant thereto.

(c) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Grantee.

(d) Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.

8. Dispute Resolution .

(a) Except as provided below, any dispute arising out of or relating to the Plan, this Agreement, or the breach, termination or validity of the Plan or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(b) The arbitration shall commence within sixty (60) days of the date on which a written demand for arbitration is filed by any party to this Agreement. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.


(c) The Company and the Grantee (each being a party to the Agreement), and any other holder of Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such Party will participate in the arbitration in good faith. This Section 8 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (A) hereby irrevocably submits to the jurisdiction of any United States District Court in San Francisco County, California for the purpose of enforcing the award or decision in any such proceeding, (B) hereby waives, and agrees not to assert, to the greatest degree allowed by applicable law (including any Irish law), by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (C) hereby waives and agrees not to seek, to the greatest degree allowed by applicable law (including any Irish law), any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of all Parties and is essential to the overall purpose of this Agreement. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

(e) Headings . The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(f) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(g) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Grantee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(h) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, permitted assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.


(i) Counterparts . For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

(j) Integration . This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

9. Acknowledgements of the Grantee .

(a) The Grantee represents and agrees that the Shares to be acquired upon settlement of this Award will be acquired for investment, and not with a view to the sale or distribution thereof.

(b) In the event that the sale or issuance of Shares under the Plan is not registered under the Securities Act but an exemption is available that requires an investment representation or other representation, the Grantee shall represent and agree at the time of settlement of this Award resulting in the transfer of Shares that the Shares being acquired are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.

(c) Neither the Company nor any Subsidiary of Affiliate is obligated by or as a result of the Plan or this Agreement to continue the Grantee’s Service Relationship, and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary or Affiliate to terminate the Service Relationship of the Grantee at any time.

(d) The Granteee understands that the Shares may not be registered under the Securities Act (it being understood that the Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirement thereof).

(e) The Grantee understands and agrees that he or she may not sell or otherwise transfer or dispose of the Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.

10. Nature of Grant . In accepting the Award, the Grantee acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of the Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of restricted stock units, or benefits in lieu of restricted stock units, even if restricted stock units have been granted in the past;


(c) all decisions with respect to future Restricted Stock Units or other grants, if any, will be at the sole discretion of the Company;

(d) the Grantee is voluntarily participating in the Plan;

(e) the Restricted Stock Units and the Shares subject to the Restricted Stock Units are not intended to replace any pension rights or compensation;

(f) the Restricted Stock Units and the Shares subject to the Restricted Stock Units, and the income and value of same, are not part of normal or expected compensation for any purposes, including calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

(g) the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;

(h) no claim or entitlement to compensation or damages shall arise from forfeiture of the Award resulting from the termination of the Grantee’s Service Relationship (for any reason whatsoever whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any), and in consideration of the grant of the Restricted Stock Units to which the Grantee is otherwise not entitled, the Grantee irrevocably agrees never to institute any claim against the Company, any Subsidiary or Affiliate, waives his or her ability, if any, to bring any such claim, and releases the Company, its Subsidiaries and Affiliates from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Grantee shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;

(i) unless otherwise provided in the Plan or by the Company in its discretion, the Award and the benefits evidenced by this Agreement do not create any entitlement to have the Restricted Stock Units or any such benefits transferred to, or assumed by, another company nor be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Series B Common Stock; and

(j) neither the Company, nor any Subsidiary or Affiliate shall be liable for any foreign exchange rate fluctuation between the Grantee’s local currency and the United States Dollar that may affect the value of the Restricted Stock Units or of any amounts due to the Grantee pursuant to the settlement of the Restricted Stock Units or the subsequent sale of any Shares acquired upon settlement.

11. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan, or the Grantee’s acquisition or sale of the underlying Shares. The Grantee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.

12. Data Protection .


(a) By entering into this Agreement, and as a condition of the grant of the Award, Grantee consents to the collection, use, and transfer of Data as described in this paragraph to the full extent permitted by and in full compliance with applicable laws.

(b) Grantee understands that the Company and its Subsidiaries hold Data about the Grantee for the purpose of managing and administering the Plan.

(c) Grantee further understands that the Company and/or its Subsidiaries will transfer Data among themselves as necessary for the purposes of implementation, administration, and management of Grantee’s participation in the Plan, and that the Company and/or its Subsidiary may each further transfer Data to any Data Recipients.

(d) Grantee understands that these Data Recipients may be located in Grantee’s country of residence or elsewhere, such as the United States. Grantee authorizes the Data Recipients to receive, possess, use, retain, and transfer Data in electronic or other form, for the purposes of implementing, administering, and managing Grantee’s participation in the Plan, including any transfer of such Data, as may be required for the administration of the Plan and/or the subsequent holding of Shares on Grantee’s behalf, to a broker or third party with whom the Shares acquired at settlement may be deposited. Where the transfer is to be to a destination outside the European Economic Area, the Company shall take reasonable steps to ensure that the Grantee’s Data continues to be adequately protected and securely held.

(e) Grantee understands that Grantee may, at any time, review the Data, request that any necessary amendments be made to it, or withdraw Grantee’s consent herein in writing by contacting the Company. Grantee further understands that withdrawing consent may affect Grantee’s ability to participate in the Plan.

(f) For purposes of this Agreement, the terms (i) “Data” shall mean certain personal information about the Grantee, including, but not limited to, name, home address and telephone number, date of birth, social insurance number, salary, nationality, job title, any stock, units or directorships held in the Company, details of all options or other entitlement to shares awarded, cancelled, exercised, vested, unvested, or outstanding in the Grantee’s favor; and (ii) “Data Recipient” shall mean third parties assisting the Company in the implementation, administration, and management of the Plan.

13. Director Notification Requirement.  If the Grantee is a director, shadow director or secretary of an Irish Subsidiary, the Grantee must notify the Irish Subsidiary in writing within five business days of receiving or disposing of an interest in the Company ( e.g., the Restricted Stock Units or Underlying Shares), or within five business days of becoming aware of the event giving rise to the notification requirement, or within five business days of becoming a director or secretary if such an interest exists at the time. This notification requirement also applies with respect to the interests of a spouse or minor children (whose interests, if any, will be attributed to the director, shadow director or secretary.

[SIGNATURE PAGE FOLLOWS]


The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.

 

ZENDESK, INC., San Francisco, CA
By:  

 

  Alan Black, CFO

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that the Award granted hereby is subject to the terms of the Plan and of this Agreement.

The undersigned also hereby acknowledges and agrees that the Shares are subject to transfer restrictions as set forth in Section 5 of the Agreement.

This Agreement is hereby accepted, and the terms and conditions thereof and of the Plan, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS IN SECTION 8 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date first above written.

 

GRANTEE (Sign)  

 

Printed name:  

 

Address:  

 

        


APPENDIX A

ZENDESK, INC. 2009 STOCK OPTION AND GRANT PLAN


APPENDIX B

RESTRICTED STOCK UNIT GRANT NOTICE

 

Name of Grantee:   

 

  
No. of Restricted Stock Units   

 

  
Grant Date:   

 

  
Expiration Date:   

 

   [seventh anniversary of Grant Date]
Vesting Commencement Date:   

 

   [Always on the 15 th day of the month]

Time-Based Vesting Schedule :

Subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder:

[25 percent] of the Restricted Stock Units shall satisfy the Time Condition on the first anniversary of the Vesting Commencement Date (the “Initial Time Vesting Date”) provided that the Grantee continues to have a Service Relationship with the Company or the Employer on the Initial Time Vesting Date

[2.0833%] of the Restricted Stock Units shall satisfy the Time Condition each completed month for [ 36 ] months following the one-year anniversary of the Vesting Commencement Date (each date, a “Time Vesting Date”), for so long as the Grantee continues to have a Service Relationship with the Company or the Employer.

Notwithstanding the foregoing, the Time Condition shall only be satisfied with respect to whole Restricted Stock Units and any rounding down to a number of whole Restricted Stock Units shall correspondingly increase the number of Restricted Stock Units allocated to the [ 36 th ] Time Vesting Date.

Notwithstanding anything in this Notice or the Agreement to the contrary, in the case of a Sale Event, this Award shall be treated as provided in Section 3(c) of the Plan; provided that any Restricted Stock Units that have satisfied the Time Condition as of the consummation of such Sale Event shall either be assumed, continued or substituted for in accordance with Section 3(c)(iii)(A) of the Plan or cancelled in exchange for a cash payment in accordance with Section 3(c)(iii)(C) of the Plan. [In addition, insert any special acceleration rights here.]

Performance Vesting: As set forth in the Agreement.


RESTRICTED STOCK UNIT AWARD AGREEMENT - SINGAPORE

UNDER THE ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

Pursuant to the Zendesk, Inc. 2009 Stock Option and Grant Plan, as amended (the “Plan,” attached herein and marked Appendix A ), Zendesk, Inc., a Delaware corporation (together with any successor thereto, the “Company”), hereby grants to the undersigned grantee (the “Grantee”), an award of the number of Restricted Stock Units (an “Award”) indicated on the Restricted Stock Unit Grant Notice (“Grant Notice,” attached herein and marked as Appendix B ), subject to the terms and conditions set forth in this Restricted Stock Unit Award Agreement - Singapore (this “Agreement”) and in the Plan. Each Restricted Stock Unit shall relate to one share (a “Share”) of Series B Common Stock.

All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Grant Notice and the Plan.

1. Conditions and Vesting of Restricted Stock Units . The Restricted Stock Units are subject to both a time-based condition (the “Time Condition”) and performance-based vesting (the “Performance Vesting”) described in paragraphs (a) and (b) below, both of which must be satisfied prior to the Expiration Date before the Restricted Stock Units will be deemed vested and may be settled in accordance with Section 3 of this Agreement.

(a) Time Condition . The Time Condition shall be satisfied in accordance with the Time-Based Vesting Schedule set forth in the Grant Notice.

(b) Performance Vesting . The Restricted Stock Units shall only satisfy the Performance Vesting on the first to occur of (i) immediately prior to a Sale Event or (ii) the Company’s Initial Public Offering, in either case, occurring prior to the Expiration Date.

(c) Vesting Date . Each date as of which both the Time Condition and Performance Vesting described in paragraphs (a) and (b) have been satisfied with respect to any Restricted Stock Units shall be referred to as a “Vesting Date.” No Vesting Date shall occur after the Expiration Date. To the extent the Restricted Stock Units have not satisfied both the Time Condition and the Performance Vesting, such Restricted Stock Units shall expire and be of no further force or effect on the Expiration Date.

2. Termination of Service Relationship . If the Grantee’s Service Relationship terminates for any reason (including death or disability) prior to the satisfaction of the Time Condition set forth in Section 1(a) above, any Restricted Stock Units that have not satisfied the Time Condition as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such forfeited Restricted Stock Units. Any Restricted Stock Units that have satisfied the Time Condition as of such date shall remain subject to the Performance Vesting set forth in Section 1(b) above, but shall expire and be of no further force or effect on the first to occur of (a) three years after the date on which the Grantee’s Service Relationship terminates, or (b) the Expiration Date.


For purposes of the foregoing, the Grantee’s Service Relationship will be considered terminated as of the date Grantee is no longer actively providing services to the Company or any Subsidiary or Affiliate (regardless of the reason for such termination and whether or not later to be found invalid or in breach of employment laws in the jurisdiction where the Grantee is employed or the terms of the Grantees’s employment agreement, if any). Unless otherwise determined by the Company, the Grantee’s right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of such date and will not be extended by any notice period ( e.g. , the Grantee’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any). The Committee shall have the exclusive discretion to determine when the Grantee is no longer actively providing services for purposes of the Restricted Stock Unit grant (including whether the Grantee may still be considered to be providing services while on a leave of absence).

3. Receipt of Shares of Stock . As soon as practicable following each Vesting Date, but in no event later than March 15th of the year following the calendar year in which the Vesting Date occurs, the Company shall issue to the Grantee the number of Shares equal to the aggregate number of Restricted Stock Units that have satisfied the Time Condition and Performance Vesting pursuant to Section 1 of this Agreement on such Vesting Date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such Shares. Subject to the foregoing, the Company generally expects to issue such Shares on a quarterly basis during the second month of each quarter following a Vesting Date(s); however, this schedule could be modified based on certain securities law restrictions.

4. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Award shall be subject to and governed by all the terms and conditions of the Plan.

5. Transfer Restrictions .

(a) Award Not Transferrable. The Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee.

(b) Beneficiary Designation . This Award is personal to the Grantee and the Grantee shall not be permitted to designate a beneficiary. In the event of the Grantee’s death after a Vesting Date but before the settlement of this Award in accordance with the terms and conditions of this Award, the legal representative of the Grantee or the Grantee’s estate shall be entitled to the benefits under this Award.

(c) Restrictions on Transfer of Shares . The Shares acquired upon settlement of the Restricted Stock Units may not be sold, transferred or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Section 1 of this Agreement; (ii) Shares have been issued to the Grantee in accordance with the terms of the Plan and this Agreement; and (iii) the Grantee has obtained the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Grantee may transfer the Shares without such consent specified in this subparagraph (iii): (x) to a Permitted Transferee or upon the death of the Grantee, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (y) following an Initial Public Offering. In addition, the Shares shall be subject to certain additional


transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan.

6. Tax Withholding .

(a) Grantee Responsible for Tax-Related Items . Regardless of any action that the Company or the Grantee’s actual employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account, or other tax-related items related to the Grantee’s participation in the Plan and legally applicable to him or her (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items is and remains the Grantee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. The Grantee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, including, without limitation, the grant, vesting, or settlement of the Restricted Stock Units, the subsequent sale of Shares acquired pursuant to such issuance, and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. The Grantee shall not make any claim against the Company or its Board of Directors, officers or employees related to Tax-Related Items arising from this Award or the Grantee’s other compensation. Furthermore, if the Grantee has become subject to tax in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, the Grantee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

(b) Withholding . The Grantee shall, not later than the date as of which the receipt or settlement of this Award becomes a taxable event to the Grantee, satisfy any Tax-Related Items due in connection with the Award. The Grantee authorizes the Company and the Employer to satisfy this withholding obligation for Tax-Related Items, at their discretion, (i) by withholding Shares from those Shares to be issued to the Grantee upon settlement of the Award; (ii) with respect to a Grantee who is not an executive officer or director of the Company nor subject to the reporting requirements of Section 16 of the Exchange Act at the time of such withholding, by the Company causing its transfer agent to sell from the number of Shares to be issued to the Grantee, the number of Shares necessary to satisfy the Tax-Related Items required by law to be withheld from the Grantee on account of such transfer; or (iii) by requiring the Grantee to pay to the Company, or make arrangements satisfactory to the Committee for payment of, the Tax-Related Items.

Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding rates or other applicable withholding rates, including maximum applicable rates, in which case the Grantee will receive a refund of any over-withheld amount in cash and will have no entitlement to the Series B Common Stock equivalent. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, the Grantee will be deemed to have been issued the full number of Shares subject to the vested Restricted Stock Units, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items. The Company may refuse


to issue or deliver the Shares or the proceeds of the sale of Shares if the Grantee fails to comply with his or her obligations in connection with the Tax-Related Items.

7. Section 409A of the Code . This Award is intended to constitute a “short term deferral” for purposes of Section 409A of the Code to the greatest extent possible and the Award will be administered and interpreted in accordance with that intent. To the extent that any provision of this Agreement is ambiguous as to its exemption from Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder are exempt from Section 409A of the Code. Solely for purposes of Section 409A of the Code, each issuance of Shares on (or shortly following) a Vesting Date shall be considered a separate payment. The Company makes no representation or warranty and shall have no liability to the Grantee or any other person if any provisions of this Award are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of, such Section.

8. Miscellaneous Provisions .

(a) Equitable Relief . The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(b) Adjustments for Changes in Capital Structure . If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Series B Common Stock, the outstanding shares of Series B Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Grantee in exchange for, or by virtue of his or her ownership of, this Award or Shares acquired pursuant thereto.

(c) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Grantee.

(d) Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.

(e) Headings . The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(f) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.


(g) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Grantee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(h) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, permitted assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

(i) Counterparts . For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

(j) Integration . This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

9. Dispute Resolution .

(a) Except as provided below, any dispute arising out of or relating to the Plan or this Award, this Agreement, or the breach, termination or validity of the Plan, this Award or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.


(c) The Company, the Grantee, each party to the Agreement and any other holder of Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 9 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

10. Acknowledgements of the Grantee .

(a) The Grantee represents and agrees that the Shares to be acquired upon settlement of this Award will be acquired for investment, and not with a view to the sale or distribution thereof.

(b) In the event that the sale or issuance of Shares under the Plan is not registered under the Securities Act but an exemption is available that requires an investment representation or other representation, the Grantee shall represent and agree at the time of settlement of this Award resulting in the transfer of Shares that the Shares being acquired are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.

(c) Neither the Company nor any Subsidiary or Affiliate is obligated by or as a result of the Plan or this Agreement to continue the Grantee’s Service Relationship, and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary or Affiliate to terminate the Service Relationship of the Grantee at any time.

(d) The Granteee understands that the Shares may not be registered under the Securities Act (it being understood that the Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirement thereof).


(e) The Grantee understands and agrees that he or she may not sell or otherwise transfer or dispose of the Shares for a period of time following the effective date of a public offering by the Company as described in Section 9(f) of the Plan.

11. Nature of Grant . In accepting the Award, the Grantee acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of the Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of restricted stock units, or benefits in lieu of restricted stock units, even if restricted stock units have been granted in the past;

(c) all decisions with respect to future Restricted Stock Units or other grants, if any, will be at the sole discretion of the Company;

(d) the Grantee is voluntarily participating in the Plan;

(e) the Restricted Stock Units and the Shares subject to the Restricted Stock Units are not intended to replace any pension rights or compensation;

(f) the Restricted Stock Units and the Shares subject to the Restricted Stock Units, and the income and value of same, are not part of normal or expected compensation for any purposes, including calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

(g) the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;

(h) no claim or entitlement to compensation or damages shall arise from forfeiture of the Award resulting from the termination of the Grantee’s Service Relationship (for any reason whatsoever whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any), and in consideration of the grant of the Restricted Stock Units to which the Grantee is otherwise not entitled, the Grantee irrevocably agrees never to institute any claim against the Company, any Subsidiary or Affiliate, waives his or her ability, if any, to bring any such claim, and releases the Company, its Subsidiaries and Affiliates from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Grantee shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;

(i) unless otherwise provided in the Plan or by the Company in its discretion, the Award and the benefits evidenced by this Agreement do not create any entitlement to have the Restricted Stock Units or any such benefits transferred to, or assumed by, another company


nor be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Series B Common Stock; and

(j) neither the Company, nor any Subsidiary or Affiliate shall be liable for any foreign exchange rate fluctuation between the Grantee’s local currency and the United States Dollar that may affect the value of the Restricted Stock Units or of any amounts due to the Grantee pursuant to the settlement of the Restricted Stock Units or the subsequent sale of any Shares acquired upon settlement.

12. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan, or the Grantee’s acquisition or sale of the underlying Shares. The Grantee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.

13. Data Privacy . The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in this Agreement and any other Award grant materials (“Data”) by and among, as applicable, the Company and its Subsidiaries and Affiliates for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.

The Grantee understands that the Company and the Employer may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to shares of Series B Common Stock awarded, canceled, exercised, vested, unvested or outstanding in the Grantee’s favor, for the exclusive purpose of implementing, administering and managing the Plan.

The Grantee understands that Data will be transferred to a third party stock plan service provider as may be selected by the Company, which is assisting the Company with the implementation, administration and management of the Plan. The Grantee understands that recipients of the Data may be located in the United States or elsewhere, and that the recipients’ country (e.g., the United States) may have different data privacy laws and protections than the Grantee’s country. The Grantee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Grantee authorizes the Company, the chosen stock plan service provider and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing his or her participation in the Plan. The Grantee understands that Data will be held only as long as is necessary to implement, administer and manage the Grantee’s participation in the Plan. The Grantee understands he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Grantee understands that he or she is providing the consents herein on a purely voluntary


basis. If the Grantee does not consent, or if the Grantee later seeks to revoke his or her consent, his or her Service Relationship and career with the Employer will not be adversely affected; the only adverse consequence of refusing or withdrawing the Grantee’s consent is that the Company would not be able to grant the Grantee Restricted Stock Units or other equity awards or administer or maintain such awards. Therefore, the Grantee understands that refusing or withdrawing his or her consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or she may contact his or her local human resources representative.

14. Language . If the Grantee has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

15. Electronic Delivery and Acceptance . The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

16. Waiver . The Grantee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Grantee or any other Award recipient.

17. Securities Law Information . The grant of the Restricted Stock Units is being made pursuant to the “Qualifying Person” exemption under section 273(1)(f) of the Securities and Futures Act (Chapter 289, 2006 Ed.) (“ SFA ”) and is not made with a view to the Restricted Stock Units being subsequently offered for sale to any other party. The Plan has not been lodged or registered as a prospectus with the Monetary Authority of Singapore. The Grantee should note that the Restricted Stock Units are subject to section 257 of the SFA and the Grantee will not be able to make (i) any subsequent sale of Shares in Singapore or (ii) any offer of such subsequent sale of Shares subject to the Restricted Stock Units in Singapore, unless such sale or offer in is made pursuant to the exemptions under Part XIII Division (1) Subdivision (4) (other than section 280) of the SFA (Chapter 289, 2006 Ed.).

18. Insider Trading Restrictions/Market Abuse Laws . The Grantee acknowledges that he or she may be subject to insider trading restrictions and/or market abuse laws, which may affect his or her ability to acquire or sell Shares or rights to Shares ( e.g ., Restricted Stock Units) under the Plan during such times as the Grantee is considered to have “inside information” regarding the Company, as defined by the laws in Singapore. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. The Grantee is responsible for ensuring compliance with any applicable restrictions and should speak with his or her personal legal advisor on this matter.

19. Director Notification Requirement . Directors, associate directors and shadow directors of a Singapore Subsidiary or Affiliate are subject to certain notification requirements


under the Singapore Companies Act. Directors, associate directors and shadow directors must notify the Singapore Subsidiary Affiliate in writing of an interest ( e.g. , Restriction Stock Units, Shares, etc.) in the Company or any related company within two business days of (i) its acquisition or disposal, (ii) any change in a previously disclosed interest ( e.g., when the Shares are sold), or (iii) becoming a director, associate director or shadow director.

[SIGNATURE PAGE FOLLOWS]


The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned as of the date first above written.

 

ZENDESK, INC., San Francisco, CA
By:  

 

  Alan Black, CFO

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that the Award granted hereby is subject to the terms of the Plan and of this Agreement.

The undersigned also hereby acknowledges and agrees that the Shares are subject to transfer restrictions as set forth in Section 5 of the Agreement.

This Agreement is hereby accepted, and the terms and conditions thereof and of the Plan, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS IN SECTION 9 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date first above written.

 

GRANTEE (Sign)  

 

Printed name:  

 

Address:  

 

 


APPENDIX A

ZENDESK, INC. 2009 STOCK OPTION AND GRANT PLAN


APPENDIX B

RESTRICTED STOCK UNIT GRANT NOTICE

 

Name of Grantee:   

 

  
No. of Restricted Stock Units   

 

  
Grant Date:   

 

  
Expiration Date:   

 

   [seventh anniversary of Grant Date]
Vesting Commencement Date:   

 

  

Time-Based Vesting Schedule :

Subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder:

[25 percent] of the Restricted Stock Units shall satisfy the Time Condition on the first anniversary of the Vesting Commencement Date (the “Initial Time Vesting Date”) provided that the Grantee continues to have a Service Relationship with the Company or the Employer on the Initial Time Vesting Date.

[2.0833%] of the Restricted Stock Units shall satisfy the Time Condition each month for [ 36 ] months beginning on the one-year anniversary of the Vesting Commencement Date (each date, a “Time Vesting Date”), for so long as the Grantee continues to have a Service Relationship with the Company or the Employer.

Notwithstanding the foregoing, the Time Condition shall only be satisfied with respect to whole Restricted Stock Units and any rounding down to a number of whole Restricted Stock Units shall correspondingly increase the number of Restricted Stock Units allocated to the [ 36 th ] Time Vesting Date.

Notwithstanding anything in this Notice or the Agreement to the contrary, in the case of a Sale Event, this Award shall be treated as provided in Section 3(c) of the Plan; provided that any Restricted Stock Units that have satisfied the Time Condition as of the consummation of such Sale Event shall either be assumed, continued or substituted for in accordance with Section 3(c)(iii)(A) of the Plan or cancelled in exchange for a cash payment in accordance with Section 3(c)(iii)(C) of the Plan. [In addition, insert any special acceleration rights here.]

Performance Vesting: As set forth in the Agreement.


OPTION AGREEMENT

UNDER THE UK EMI SUB-PLAN TO THE ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

Pursuant to the UK EMI Sub-Plan to the Zendesk, Inc. 2009 Stock Option and Grant Plan (the “Plan”), Zendesk, Inc., a Delaware corporation (together with any successor thereto, the “Company”), hereby grants to the undersigned optionee (the “Optionee”), who is an Eligible Employee of the Company or any of its Subsidiaries, an option (the “Stock Option”) to purchase on or prior to the expiration date (as indicated on Exhibit A , the “Expiration Date”), or such earlier date as is specified herein, all or any part of the number of shares of Series B Common Stock, par value $0.01 per share (“Series B Common Stock”), of the Company indicated on Exhibit A (the “Underlying Shares,” and such shares once issued shall be referred to as the “Option Shares”), at the exercise price per share indicated on Exhibit A (the “Option Exercise Price”), subject to the terms and conditions set forth in this Option Agreement (this “Agreement”) and in the Plan. This Stock Option is intended to be an Unapproved Option as defined in Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”).

All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Plan.

1. Vesting, Exercisability and Termination .

(a) This Stock Option shall be immediately exercisable, regardless of whether the Underlying Shares are vested.

(b) Except as set forth below, and subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, the Underlying Shares shall be vested on the respective dates indicated in Exhibit A . Notwithstanding anything herein to the contrary in the case of a Sale Event, this Stock Option shall be treated as provided in Section 3(c) of the Plan unless otherwise indicated in Exhibit A .

(c) Termination . Except as may otherwise be provided by the Committee, if the Optionee’s Service Relationship is terminated, the period within which to exercise this Stock Option will be subject to earlier termination as set forth below (and if not exercised within such period, shall thereafter terminate, subject in each case to Section 3(c) of the Plan):

(i) Termination Due to Death or Disability . If the Optionee’s Service Relationship terminates by reason of such Optionee’s death or disability (as defined in Section 422(c) of the Code), this Stock Option may continue to be exercised, to the extent the Underlying Shares are vested on the date of termination, by the Optionee or the Optionee’s Personal Representative for a period of 12 months from the date of death or disability or until the Expiration Date, if earlier.

(ii) Other Termination . If the Optionee’s Service Relationship terminates for any reason other than death or disability (as defined in Section 422(c) of the Code), and unless otherwise determined by the Committee, this Stock Option may


continue to be exercised, to the extent the Underlying Shares are vested on the date of termination, for a period of 90 days from the date of termination or until the Expiration Date, if earlier provided however , if the Optionee’s Service Relationship is terminated for Cause, this Stock Option shall terminate immediately upon the date of such termination.

For purposes hereof, the Committee’s determination of the reason for termination of the Optionee’s Service Relationship shall be conclusive and binding on the Optionee and his or her Personal Representative. Any portion of this Stock Option with respect to Underlying Shares that are not vested on the date of termination of the Service Relationship shall terminate immediately and be null and void.

2. Exercise of Stock Option .

(a) The Optionee may exercise this Stock Option only in the following manner: Prior to the Expiration Date, the Optionee may deliver a Stock Option exercise notice (an “Exercise Notice”) in the form of Appendix A hereto indicating his or her election to purchase some or all of the Underlying Shares with respect to which this Stock Option is exercisable at the time of such notice (together with a signed Section 431 Election, in the form of Appendix B , and a signed Joint Election). Such notice shall specify the number of Underlying Shares to be purchased. To the extent this Stock Option is only partially exercised, such exercise shall first be with respect to the Underlying Shares, if any, that have previously vested, and then with respect to the Underlying Shares that will next vest, with the Underlying Shares that vest at the latest date being exercised last. Payment of the purchase price (together with any Option Tax Liability and Secondary NIC Liability) may be made by one or more of the methods described in Sections 5(a)(iv)(A), (B), (C) or (D) of the Plan, subject to the limitations contained in such Sections of the Plan.

(b) In the event the Optionee exercises a portion of this Stock Option with respect to Underlying Shares that have not vested, the Optionee shall also deliver a Restricted Stock Agreement in a form provided by the Company covering such unvested Underlying Shares (the “Restricted Stock Agreement”) with the same vesting schedule for such Underlying Shares as set forth for the Underlying Shares herein. The Restricted Stock Agreement shall be deemed a Restricted Stock Award and all Underlying Shares so acquired pursuant to such Restricted Stock Agreement shall be deemed Restricted Stock for all purposes under the Plan.

(c) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date.

3. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan.

4. Transferability of Stock Option . This Agreement is personal to the Optionee and is not transferable by the Optionee in any manner other than to Optionee’s Personal Representative on Optionee’s death. The Stock Option may be exercised during the Optionee’s lifetime only by the Optionee.

5. Restrictions on Transfer of Underlying Shares . The Underlying Shares may not be sold, transferred or otherwise disposed of without the advance express written consent of the

 

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Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Optionee may transfer the Underlying Shares without such consent to a Permitted Transferee or upon the death of the Optionee, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan and (ii) following an Initial Public Offering. In addition, the Underlying Shares shall be subject to certain additional transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan and, if applicable, the Restricted Stock Agreement.

6. Repurchase Right . Upon a Termination Event, the Company shall have the right to repurchase any Underlying Shares deemed Restricted Stock as of the date of such Termination Event as set forth in Section 9(c) of the Plan.

7. Miscellaneous Provisions .

(a) Equitable Relief . The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(b) Adjustments for Changes in Capital Structure . If, as a result of any reorganization, recapitalization, reincorporation, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Series B Common Stock, the outstanding shares of Series B Common Stock are increased or decreased or are exchanged for a different number or kind of securities of the Company, the restrictions contained in this Agreement shall apply with equal force to additional and/or substitute securities, if any, received by the Optionee in exchange for, or by virtue of his or her ownership of, this Stock Option or the Underlying Shares.

(c) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.

(d) Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California. The Section 431 Election and Joint Election shall be governed by the laws of England and Wales.

(e) Headings . The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(f) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

 

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(g) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(h) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, permitted assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

(i) Counterparts . For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

(j) Integration . This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

8. Dispute Resolution .

(a) Except as provided below, any dispute arising out of or relating to the Plan or this Stock Option, this Agreement, or the breach, termination or validity of the Plan, this Stock Option or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1-16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

 

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(c) The Company, the Optionee, each party to the Agreement and any other holder of Underlying Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 7 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

9. Tax Obligations .

(a) Withholding . In the event that the Company determines that it is required to account to HM Revenue & Customs for the Option Tax Liability and any Secondary NIC Liability or to withhold any other tax as a result of the exercise of this Option, the Optionee, as a condition to the exercise of the Option, shall make arrangements satisfactory to the Company to enable it to satisfy all withholding liabilities. The Optionee shall also make arrangements satisfactory to the Company to enable it to satisfy any withholding requirements that may arise in connection with the vesting or disposition of Underlying Shares purchased by exercising this Option.

(b) Tax Consultation . Optionee understands that he or she may suffer adverse tax consequences as a result of Optionee’s purchase or disposition of the Underlying Shares. Optionee represents that he or she will consult with any tax advisors Optionee deems appropriate in connection with the purchase or disposition of the Underlying Shares and that Optionee is not relying on the Company for any tax advice.

(c) Section 431 Election . As a further condition of the exercise of this Option, the Optionee shall have signed a Section 431 Election in the form set out in Appendix B or in such other form as may be determined by HM Revenue & Customs from time to time.

 

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(d) Employer’s National Insurance Charges . As a further condition of the exercise of an Option under the Plan the Optionee shall join with the Company and employing company, or if and to the extent that there is a change in the law, any other company or person who is or becomes a secondary contributor in making a Joint Election which has been approved by HM Revenue & Customs, for the transfer of the whole any Secondary NIC Liability.

(e) Optionee’s Tax Indemnity .

(i) Indemnity . To the extent permitted by law, the Optionee hereby agrees to indemnify and keep indemnified the Company, and the Company as trustee for and on behalf of any related corporation, for any Option Tax Liability.

(ii) No Obligation to Issue Underlying Shares . The Company shall not be obliged to allot and issue any Underlying Shares or any interest in Underlying Shares pursuant to the exercise of this Option unless and until the Optionee has paid to the Company such sum as is, in the opinion of the Company, sufficient to indemnify the Company in full against the Option Tax Liability and the Secondary NIC Liability, or the Optionee has made such other arrangement as in the opinion of the Company will ensure that the full amount of any Option Tax Liability and any Secondary NIC Liability will be recovered from the Optionee within such period as the Company may then determine.

(iii) Right of Retention . In the absence of any such other arrangement being made, the Company shall have the right to retain out of the aggregate number of shares to which the Optionee would have otherwise been entitled upon the exercise of this Option, such number of Underlying Shares as, in the opinion of the Company, will enable the Company to sell as agent for the Optionee (at the best price which can reasonably expect to be obtained at the time of the sale) and to pay over to the Company sufficient monies out of the net proceeds of sale, after deduction of all fees, commissions and expenses incurred in relation to such sale, to satisfy the Optionee’s liability under such indemnity.

10. Data Protection .

(a) By entering into this Option Agreement, and as a condition of the grant of the Option, Optionee consents to the collection, use, and transfer of personal data as described in this paragraph to the full extent permitted by and in full compliance with applicable laws.

(b) Optionee understands that the Company and its Subsidiaries hold Data about the Optionee for the purpose of managing and administering the Plan.

(c) Optionee further understands that the Company and/or its Subsidiaries will transfer Data among themselves as necessary for the purposes of implementation, administration, and management of Optionee’s participation in the Plan, and that the Company and/or its Subsidiary may each further transfer Data to any Data Recipients.

(d) Optionee understands that these Data Recipients may be located in Optionee’s country of residence or elsewhere, such as the United States. Optionee authorises the Data Recipients to receive, possess, use, retain, and transfer Data in electronic or other form, for

 

6


the purposes of implementing, administering, and managing Optionee’s participation in the Plan, including any transfer of such Data, as may be required for the administration of the Plan and/or the subsequent holding of Underlying Shares on Optionee’s behalf, to a broker or third party with whom the Underlying Shares acquired on exercise may be deposited. Where the transfer is to be to a destination outside the European Economic Area, the Company shall take reasonable steps to ensure that the Optionee’s personal data continues to be adequately protected and securely held.

(e) Optionee understands that Optionee may, at any time, review the Data, request that any necessary amendments be made to it, or withdraw Optionee’s consent herein in writing by contacting the Company. Optionee further understands that withdrawing consent may affect Optionee’s ability to participate in the Plan.

11. Additional Terms .

(a) Optionee has no right to compensation or damages for any loss in respect of the Option where such loss arises (or is claimed to arise), in whole or in part, from the termination of Optionee’s employment; or notice to terminate employment given by or to Optionee. This exclusion of liability shall apply however termination of employment, or the giving of notice, is caused other than in a case where a competent tribunal or court, from which there can be no appeal (or which the relevant employing company has decided not to appeal), has found that the cessation of the Optionee’s employment amounted to unfair or constructive dismissal of Optionee and however compensation or damages may be claimed.

(b) Optionee has no right to compensation or damages for any loss in respect of an Option where such loss arises (or is claimed to arise), in whole or in part, from any company ceasing to be a Subsidiary of the Company; or the transfer of any business from a Subsidiary of the Company to any person which is not a Subsidiary of the Company. This exclusion of liability shall apply however the change of status of the relevant company, or the transfer of the relevant business, is caused, and however compensation or damages may be claimed.

[SIGNATURE PAGE FOLLOWS]

 

7


This Agreement has been executed and delivered as a deed on the date set out below.

Dated:                                         

 

SIGNED as a DEED  
BY ZENDESK, INC.   )
acting by the under-mentioned   )
person(s) acting on the authority of   )
the Company in accordance with the   )
laws of the territory of its incorporation:   )

Authorised signatory                                                                                   Chief Financial Officer

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that the Stock Option granted hereby is subject to the terms of the Plan and of this Agreement. This Agreement is hereby accepted, and the terms and conditions thereof and of the Plan, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS IN SECTION 7 OF THIS AGREEMENT, are hereby agreed to. by the undersigned as of the date first above written. This Agreement has been executed and delivered as a deed on the date set out above.

The undersigned also hereby acknowledges and agrees that the Underlying Shares are subject to transfer restrictions as set forth in Section 5 of the Agreement.

 

SIGNED as a DEED             )
By the under-mentioned Optionee)
in the presence of:
Witness signature:  

 

Name:  

 

Address:  

 

 

 

8


Appendix A

STOCK OPTION EXERCISE NOTICE

(to be prepared only to exercise Stock Options)

 

Zendesk, Inc.
Attention: [                                                                     ]

 

 

Pursuant to the terms of my stock option agreement(s) between the undersigned and Zendesk, Inc. (the “Company”) under the UK EMI Sub-Plan to the Zendesk, Inc. 2009 Stock Option and Grant Plan, I, hereby partially/fully exercise such option by including herein payment in the amount of $              representing the purchase price (and any Option Tax Liability and Secondary NIC Liability) representing the purchase price for the Underlying Shares.

Name of Optionee:                                                                  

 

Grant Date

   Full or
partial
exercise
   Number of
Options
Exercised
   Price
per
share
   Total Exercise
Price
           
           
           

I also include a signed Section 431 Election and Joint Election. I have chosen the following form(s) of payment:

 

[    ]   1.   Cash
[    ]   2.   Certified or bank cheque payable to Zendesk, Inc.
[    ]   3.   Other (as referenced in the Agreement and described in the Plan (please describe))                                                                                                                                             .

In connection with my exercise of the option as set forth above, I hereby represent and warrant to the Company as follows:

(i) I am purchasing the Underlying Shares for my own account for investment only, and not for resale or with a view to the distribution thereof.


(ii) I have had such an opportunity as I have deemed adequate to obtain from the Company such information as is necessary to permit me to evaluate the merits and risks of my investment in the Company and have consulted with my own advisers with respect to my investment in the Company.

(iii) I have sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Underlying Shares and to make an informed investment decision with respect to such purchase.

(iv) I can afford a complete loss of the value of the Underlying Shares and am able to bear the economic risk of holding such Underlying Shares for an indefinite period of time.

(v) I understand that the shares of Series B Common Stock that I acquire upon exercise of the Options (using Exhibit B) as well as any shares of Series A Common Stock and Series B Common Stock that I have previously purchased, been granted, or that are subject to other awards made to you under the Plan, may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that I may transfer any such shares without such consent (i) to a Permitted Transferee (as defined in the Plan) or upon my death, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) subject to the other restrictions on transfer set forth in the Plan, upon an Initial Public Offering I understand that the Underlying Shares may not be registered under the Securities Act of 1933 (it being understood that the Underlying Shares are being issued and sold in reliance on the exemption provided in Rule 701 or another applicable exemption thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Securities Act of 1933 and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirement thereof). I further acknowledge that certificates representing Underlying Shares will bear restrictive legends reflecting the foregoing and/or that book entries for uncertificated Underlying Shares will include similar restrictive notations.

 

Sincerely yours,

 

Name:
Address:

 

 

 


Appendix B – Section 431 Election

Joint Election under s431 ITEPA 2003 for full or partial disapplication

of Chapter 2 Income Tax (Earnings and Pensions) Act 2003

One Part Election

 

  1. Between

 

the Employee     name  

 

whose National Insurance Number is    

 

and      

the Company (who is the Employee’s employer)

 

of Company Registration Number

   

Zendesk UK Limited

 

07622459

 

  2. Purpose of Election

This joint election is made pursuant to section 431(1) or 431(2) Income Tax (Earnings and Pensions) Act 2003 (ITEPA) and applies where employment-related securities, which are restricted securities by reason of section 423 ITEPA, are acquired.

The effect of an election under section 431(1) is that, for the relevant Income Tax and NIC purposes, the employment-related securities and their market value will be treated as if they were not restricted securities and that sections 425 to 430 ITEPA do not apply. An election under section 431(2) will ignore one or more of the restrictions in computing the charge on acquisition. Additional Income Tax will be payable (with PAYE and NIC where the securities are Readily Convertible Assets).

 

Should the value of the securities fall following the acquisition, it is possible that Income Tax/NIC that would have arisen because of any future chargeable event (in the absence of an election) would have been less than the Income Tax/NIC due by reason of this election. Should this be the case, there is no Income Tax/NIC relief available under Part 7 of ITEPA 2003; nor is it available if the securities acquired are subsequently transferred, forfeited or revert to the original owner.


  3. Application

This joint election is made not later than 14 days after the date of acquisition of the securities by the employee and applies to:

                 shares of Series B Common Stock of Zendesk, Inc.

To be acquired by the Employee after                      [d /m /y] under the terms of the UK EMI Sub-Plan to the Zendesk, Inc 2009 Stock Option and Stock Grant Plan.

 

  4. Extent of Application

This election disapplies:

S.431(1) ITEPA: All restrictions attaching to the securities.

 

  5. Declaration

This election will become irrevocable upon the later of its signing or the acquisition (* and each subsequent acquisition) of employment-related securities to which this election applies.

(* delete as appropriate)

In signing this joint election, we agree to be bound by its terms as stated above.

 

 

   

            /    /         

 
Zendesk UK Ltd General Manager / Director     Date  

 

   

            /    /         

 
Signature (Employee)     Date  

Note: Where the election is in respect of multiple acquisitions, prior to the date of any subsequent acquisition of a security it may be revoked by agreement between the employee and employer in respect of that and any later acquisition.


Exhibit A

Option Grant

Under the UK EMI Sub-Plan to the Zendesk, Inc.

2009 Stock Option and Grant Plan

 

Name of Optionee:  

 

  
Underlying Shares:                            Shares of Series B Common Stock

Date Granted by Parent Board of Directors:                                       

Expiration Date:                                       

 

Vesting Begins on  

 

   (Vesting Commencement Date)
Option Exercise Price/Share:   $   

 

  

Vesting Schedule : Subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, this Stock Option shall be vested with respect to the Underlying Shares on the respective dates indicated below:

(i) 25% of the Underlying Shares shall vest on the first anniversary of the Vesting Commencement Date; and

(ii) 2.0833% of the Underlying Shares shall vest each completed month for 36 months following the first anniversary of the Vesting Commencement Date,

so long as the Optionee maintains a Service Relationship on each such date.

[; provided, however INSERT ANY ACCELERATED VESTING PROVISION HERE] .


Exhibit B

Zendesk, Inc. 2009 Stock Option and Grant Plan

[ATTACH]


Exhibit C

UK EMI Sub-Plan to the Zendesk, Inc.

2009 Stock Option and Grant Plan

[ATTACH]


Restricted Stock Agreement for Early Exercise of Unapproved Option Under the UK EMI

Sub Plan to the

Zendesk, Inc. 2009 Stock Option and Grant Plan

 

Optionee Name    
Date of Original Grant    
Date of Early Exercise Notice    
Number of Restricted Shares purchased herein    
Price paid per share    
Aggregate purchase price    

All capitalized terms used in this Restricted Stock Agreement for Early Exercise Option (“Agreement”) and not otherwise defined shall have the respective meanings set forth in the Stock Option Agreement (including the Appendices thereto) (the “Option Agreement”) between Zendesk, Inc. (the “Company”) and the undersigned Optionee granting Optionee Stock Options to purchase shares of Series B Common Stock under the UK EMI Sub Plan to the Zendesk, Inc. 2009 Stock Option and Grant Plan (the “Plan”). This Agreement shall be considered a Restricted Stock Award for all purposes under the Plan.

Upon signing this Agreement and delivering the Stock Option Exercise Notice (“Exercise Notice”) to the Company, Company shall deliver to Optionee, the Underlying Shares to be acquired upon exercise, subject to the following terms:

1. Purchase and Sale of Underlying Shares; Vesting .

(a) Purchase and Sale . The Company hereby sells to the Optionee, and the Optionee is purchasing from the Company, the number of Underlying Shares set forth in the Exercise Notice, pursuant to the Option Agreement, for the aggregate Option Exercise Price for the Underlying Shares so purchased.

(b) Vesting . The risk of forfeiture shall lapse with respect to the Underlying Shares, and such Underlying Shares shall become vested, on the respective dates indicated on the Vesting Schedule set forth in Exhibit A to the Option Agreement. The Underlying Shares shall be considered Shares of Restricted Stock (as defined in the Plan) for purposes of this Agreement and the Plan.

2. Repurchase Right . Upon a Termination Event or a Repurchase Event, the Company shall have the right to repurchase the Underlying Shares deemed to be Restricted Stock as set forth in Section 9(c) of the Plan.

3. Restrictions on Transfer of Underlying Shares . The Underlying Shares (whether or not vested) may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Underlying Shares may be transferred


without such consent (i) to a Permitted Transferee or upon death, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan, and (ii) following a Initial Public Offering. The Underlying Shares (whether or not vested) shall be subject to certain transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan.

4. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Restricted Stock Agreement shall be subject to and governed by all the terms and conditions of the Plan.

5. Escrow and Stock Assignment . The certificates for any Underlying Shares shall be deposited in escrow with the Company to be held in escrow with the Company. Each deposited certificate shall be accompanied by a duly executed stock assignment separate from certificate in the form attached hereto as Appendix 1 (the “Assignment”). The deposited certificates and the Assignment, together with any other assets or securities from time to time deposited with the Company pursuant to this Agreement shall remain in escrow until such time or times as the Underlying Shares are released from the Company’s right to repurchase the Underlying Shares as set forth in Section 9(c) of the Plan. If the Company (or its assignees) elects to exercise its right to repurchase the Underlying Shares as set forth in Section 9(c) of the Plan then the escrowed certificates for such Underlying Shares being repurchased (together with any other assets or securities issued with respect thereto) shall be delivered to the Company, concurrently with the payment to the Holder, in cash or cash equivalent (including the cancellation of any purchase-money indebtedness), of an amount equal to the applicable repurchase price for the Underlying Shares being repurchased, and the Optionee shall cease to have any further rights or claims with respect to such Underlying Shares (or other assets or securities attributable to such Underlying Shares).

6. Miscellaneous Provisions .

(a) Record Owner; Dividends . The Optionee and any Permitted Transferees, during the duration of this Agreement, shall be considered the record owners of and shall be entitled to vote the Underlying Shares if and to the extent the Underlying Shares are entitled to voting rights. The Optionee and any Permitted Transferees shall be entitled to receive all dividends and any other distributions declared on the Underlying Shares; provided , however , that the Company is under no duty to declare any such dividends or to make any such distribution.

(b) Section 83(b) Election . The Optionee shall consult with the Optionee’s tax advisor to determine whether it would be appropriate for the Optionee to make an election under Section 83(b) of the Code with respect to the Underlying Shares. Any such election must be filed with the Internal Revenue Service within 30 days of the date of exercise. If the Optionee makes an election under Section 83(b) of the Code, the Optionee shall give prompt notice to the Company (and provide a copy of such election to the Company).

(c) Equitable Relief . The parties hereto agree and declare that legal remedies may be inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.


(d) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Optionee.

(e) Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.

(f) Headings . The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(g) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(h) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Optionee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other.

(i) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

(j) Counterparts . For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

7. Dispute Resolution .

(a) Except as provided below, any dispute arising out of or relating to the Plan or the Underlying Shares, this Agreement, or the breach, termination or validity of the Plan, the Underlying Shares or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1 - 16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration


proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(c) The Company, the Optionee, each party to the Agreement and any other holder of Underlying Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 7 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

[SIGNATURE PAGE FOLLOWS]


The foregoing Restricted Stock Agreement is hereby accepted and the terms and conditions thereof are hereby agreed to by the undersigned as of the date first above written.

 

ZENDESK, INC.
By:  

 

  Alan Black, Chief Financial Officer

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof and understands that the Underlying Shares purchased hereby are subject to the terms of the Plan and this Agreement. This Agreement is hereby accepted, and the terms and conditions of the Plan, the Option Agreement and this Agreement, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS SET FORTH IN SECTION 7 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date first above written.

 

OPTIONEE:

 

Name:
Address:

 

 

 


Appendix 1 to

Restricted Stock Agreement

STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto Zendesk, Inc.                  shares of Common Stock of the Company standing in the undersigned’s name on the books of the Company represented by Certificate(s) No.      herewith and hereby irrevocably constitutes and appoints the Secretary and other officers of the Company attorneys to transfer said stock on the books of the Company with full power of substitution in the premises.

 

Date:  

 

By:  

 

 

Print Stockholder Name:  

 

INSTRUCTIONS: Stockholder to sign and print name only. All other blanks and date should be left blank. To be completed by Company upon exercise of repurchase right.

 

21


RESTRICTED STOCK AGREEMENT

UNDER THE ZENDESK, INC.

2009 STOCK OPTION AND GRANT PLAN

Pursuant to the Zendesk, Inc. 2009 Stock Option and Grant Plan (the “Plan”), Zendesk, Inc., a Delaware corporation (together with any successor entity, the “Company”), hereby grants, sells and issues to the undersigned individual (the “Grantee”), who is an officer, employee, director, Consultant or other key person of the Company or any of the Subsidiaries, the number of shares set forth on Exhibit A (the “Shares”) at the per share purchase price set forth on Exhibit A , which represents the fair market value per share on the Grant Date (the “Per Share Purchase Price”), subject to the terms and conditions set forth herein and in the Plan. The Grantee agrees to the provisions set forth herein and acknowledges that each such provision is a material condition of the Company’s agreement to issue and sell the Shares to him or her. The Company hereby acknowledges receipt of the amount set forth as the Purchase Price on Exhibit A in full payment for the Shares. All references to share prices and amounts herein shall be equitably adjusted to reflect stock splits, stock dividends, recapitalizations, mergers, reorganizations and similar changes affecting the capital stock of the Company, and any shares of capital stock of the Company received on or in respect of Shares in connection with any such event (including any shares of capital stock or any right, option or warrant to receive the same or any security convertible into or exchangeable for any such shares or received upon conversion of any such shares) shall be subject to this Agreement on the same basis and extent at the relevant time as the Shares in respect of which they were issued, and shall be deemed Shares as if and to the same extent they were issued at the date hereof.

All capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Plan.

1. Purchase and Sale of Shares; Vesting; Investment Representations .

(a) Purchase and Sale . On the date hereof, the Company hereby sells to the Grantee, and the Grantee hereby purchases from the Company, the number of Shares set forth above for the Per Share Purchase Price.

(b) Vesting . On the date of this Agreement, all of the Shares are non-transferable and subject to a substantial risk of forfeiture and are Shares of Restricted Stock. On each of the dates listed on Exhibit A , the risk of forfeiture shall lapse and vest with respect to the respective number of Shares indicated on Exhibit A if Grantee remains in a Service Relationship with the Company on each such date.

(c) Investment Representations . In connection with the purchase and sale of the Shares contemplated by Section 1(a) above, the Grantee hereby represents and warrants to the Company as follows:

(i) The Grantee is purchasing the Shares for the Grantee’s own account for investment only, and not for resale or with a view to the distribution thereof.


(ii) The Grantee has had such an opportunity as he or she has deemed adequate to obtain from the Company such information as is necessary to permit him or her to evaluate the merits and risks of the Grantee’s investment in the Company and has consulted with the Grantee’s own advisers with respect to the Grantee’s investment in the Company.

(iii) The Grantee has sufficient experience in business, financial and investment matters to be able to evaluate the risks involved in the purchase of the Shares and to make an informed investment decision with respect to such purchase.

(iv) The Grantee can afford a complete loss of the value of the Shares and is able to bear the economic risk of holding such Shares for an indefinite period.

(v) The Grantee understands that the Grantee may not sell, transfer, or otherwise dispose of any Shares without the advance express written consent of the Company, unless such transfer constitutes a transfer to a Permitted Transferee or a transfer upon the Grantee’s death, as specifically provided for in Section 9(a)(ii)(A) and (B) of the Zendesk, Inc. 2009 Stock Option and Grant Plan.

(vi) The Grantee understands that the Shares are not registered under the Act (it being understood that the Shares are being issued and sold in reliance on the exemption provided in Rule 701 thereunder) or any applicable state securities or “blue sky” laws and may not be sold or otherwise transferred or disposed of in the absence of an effective registration statement under the Act and under any applicable state securities or “blue sky” laws (or exemptions from the registration requirements thereof). The Grantee further acknowledges that certificates representing the Shares will bear restrictive legends reflecting the foregoing and/or that book entries for uncertificated Shares will include similar restrictive notations.

(d) Repurchase Right . Upon a Termination Event or other Repurchase Event, the Company shall have the right to repurchase the Shares as set forth in Section 9(c) of the Plan.

2. Restrictions on Transfer of Shares . The Shares (whether or not vested) may not be sold, transferred or otherwise disposed of without the advance express written consent of the Company, which consent may be given or denied in the Company’s sole and absolute discretion; provided, however, that the Grantee may transfer the Shares without such consent to a Permitted Transferee or upon the death of the Grantee, in accordance with the terms and conditions of Section 9(a)(ii)(A) and (B) of the Plan. The Shares shall be subject to certain additional transfer restrictions and other limitations including, without limitation, the provisions contained in Section 9 of the Plan; provided , however , that in the case of a Termination Event, the Company shall only have the right to repurchase Shares of Restricted Stock which are unvested as of the date of such Termination Event.

3. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Restricted Stock Award shall be subject to and governed by all the terms and conditions of the Plan.

 

2


4. Miscellaneous Provisions .

(a) Record Owner; Dividends . The Grantee and any Permitted Transferees, during the duration of this Agreement, shall be considered the record owners of and shall be entitled to vote the Shares if and to the extent the Shares are entitled to voting rights. The Grantee and any Permitted Transferees shall be entitled to receive all dividends and any other distributions declared on the Shares; provided , however , that the Company is under no duty to declare any such dividends or to make any such distribution.

(b) Equitable Relief . The parties hereto agree and declare that legal remedies are inadequate to enforce the provisions of this Agreement and that equitable relief, including specific performance and injunctive relief, may be used to enforce the provisions of this Agreement.

(c) Change and Modifications . This Agreement may not be orally changed, modified or terminated, nor shall any oral waiver of any of its terms be effective. This Agreement may be changed, modified or terminated only by an agreement in writing signed by the Company and the Grantee.

(d) Governing Law . This Agreement shall be governed by and construed in accordance with the General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be governed by and construed in accordance with the internal laws of California, without regard to conflict of law principles that would result in the application of any law other than the law of the State of California.

(e) Headings . The headings are intended only for convenience in finding the subject matter and do not constitute part of the text of this Agreement and shall not be considered in the interpretation of this Agreement.

(f) Saving Clause . If any provision(s) of this Agreement shall be determined to be illegal or unenforceable, such determination shall in no manner affect the legality or enforceability of any other provision hereof.

(g) Notices . All notices, requests, consents and other communications shall be in writing and be deemed given when delivered personally, by telex or facsimile transmission or when received if mailed by first class registered or certified mail, postage prepaid. Notices to the Company or the Grantee shall be addressed as set forth underneath their signatures below, or to such other address or addresses as may have been furnished by such party in writing to the other. Notices to any holder of the Shares other than the Grantee shall be addressed to the address furnished by such holder to the Company.

(h) Benefit and Binding Effect . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto, their respective successors, assigns, and legal representatives. The Company has the right to assign this Agreement, and such assignee shall become entitled to all the rights of the Company hereunder to the extent of such assignment.

 

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(i) Counterparts . For the convenience of the parties and to facilitate execution, this Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document.

(j) Integration . This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

5. Dispute Resolution .

(a) Except as provided below, any dispute arising out of or relating to the Plan or this Award, this Agreement, or the breach, termination or validity of the Plan, this Award or this Agreement, shall be finally settled by binding arbitration conducted expeditiously in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and Procedures (the “J.A.M.S. Rules”). The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1-16, and judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof. The place of arbitration shall be San Francisco, California.

(b) The arbitration shall commence within 60 days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party to the arbitration shall provide to the other, no later than seven business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party’s witness or expert. The arbitrator’s decision and award shall be made and delivered within six months of the selection of the arbitrator. The arbitrator’s decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages, and each party hereby irrevocably waives any claim to such damages.

(c) The Company, the Grantee, each party to the Agreement and any other holder of Shares issued pursuant to this Agreement (each, a “Party”) covenants and agrees that such party will participate in the arbitration in good faith. This Section 5 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the limited purpose of avoiding immediate and irreparable harm.

(d) Each Party (i) hereby irrevocably submits to the jurisdiction of any United States District Court of competent jurisdiction for the purpose of enforcing the award or decision in any such proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject

 

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personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution (except as protected by applicable law), that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court, and (iii) hereby waives and agrees not to seek any review by any court of any other jurisdiction which may be called upon to grant an enforcement of the judgment of any such court. Each Party hereby consents to service of process by registered mail at the address to which notices are to be given. Each Party agrees that its, his or her submission to jurisdiction and its, his or her consent to service of process by mail is made for the express benefit of each other Party. Final judgment against any Party in any such action, suit or proceeding may be enforced in other jurisdictions by suit, action or proceeding on the judgment, or in any other manner provided by or pursuant to the laws of such other jurisdiction.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Company and the Grantee have executed this Restricted Stock Agreement as of                  ,         .

 

ZENDESK, INC.
By:  

 

Name:  
Title:  
Address:

 

 

 

The undersigned hereby acknowledges receiving and reviewing a copy of the Plan, including, without limitation, Section 9 thereof, and understands that the Shares granted hereby are subject to the terms of the Plan and of this Agreement.

The undersigned also hereby acknowledges and agrees that the Shares are subject to transfer restrictions as set forth in Section 2 of the Agreement.

This Agreement is hereby accepted, and the terms and conditions hereof and of the Plan, SPECIFICALLY INCLUDING THE ARBITRATION PROVISIONS IN SECTION 5 OF THIS AGREEMENT, are hereby agreed to, by the undersigned as of the date above written.

 

GRANTEE:

 

Name:  
Address:

 

 

 

 

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SPOUSE’S CONSENT

I acknowledge that I have read the

foregoing Restricted Stock Agreement

and understand the contents thereof.

 

 

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Exhibit A

Restricted Stock Agreement

Under the Zendesk, Inc.

2009 Stock Option and Grant Plan

Name of Grantee:

No. of Shares:

Grant Date:

Per Share Purchase Price:

Receipt of Purchase Price $          (the “Purchase Price”)

Vesting Schedule : Subject to the determination of the Committee in its sole discretion to accelerate the vesting schedule hereunder, the risk of forfeiture shall lapse and the Shares shall become vested on the respective dates indicated below on the respective dates below:

25% of the Shares shall vest on:                    

2.0833% of the Shares shall vest each month for 36 months beginning on                     

so long as the Grantee maintains a Service Relationship on each such date.

Notwithstanding anything in the Agreement to the contrary in the case of a Sale Event, the Shares shall be treated as provided in Section 3(c) of the Plan.

[Acceleration of Vesting Upon a Sale Event . Add any acceleration provisions here.]

Exhibit 10.3

ZENDESK, INC.

20 14 STOCK OPTION AND INCENTIVE PLAN

SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS

The name of the plan is the Zendesk, Inc. 2014 Stock Option and Incentive Plan (the “Plan”). The purpose of the Plan is to encourage and enable the officers, employees, Non-Employee Directors and other key persons (including Consultants) of Zendesk, Inc. (the “Company”) and its Subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests with those of the Company and its stockholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.

The following terms shall be defined as set forth below:

“Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

“Administrator” means either the Board or the compensation committee of the Board or a similar committee performing the functions of the compensation committee and which is comprised of not less than two Non-Employee Directors who are independent.

“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Units, Restricted Stock Awards, Unrestricted Stock Awards, Cash-Based Awards, Performance Share Awards and Dividend Equivalent Rights.

“Award Certificate” means a written or electronic document setting forth the terms and provisions applicable to an Award granted under the Plan. Each Award Certificate is subject to the terms and conditions of the Plan.

“Board” means the Board of Directors of the Company.

“Cash-Based Award” means an Award entitling the recipient to receive a cash-denominated payment.

“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.

“Consultant” means any natural person that provides bona fide services to the Company, and such services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities.


“Covered Employee” means an employee who is a “Covered Employee” within the meaning of Section 162(m) of the Code.

“Dividend Equivalent Right” means an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the grantee.

“Effective Date” means the date on which the Plan is approved by stockholders as set forth in Section 21.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

“Fair Market Value” of the Stock on any given date means the fair market value of the Stock determined in good faith by the Administrator; provided, however, that if the Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System (“NASDAQ”), NASDAQ Global Market or another national securities exchange, the determination shall be made by reference to market quotations. If there are no market quotations for such date, the determination shall be made by reference to the last date preceding such date for which there are market quotations; provided further, however, that if the date for which Fair Market Value is determined is the first day when trading prices for the Stock are reported on a national securities exchange, the Fair Market Value shall be the “Price to the Public” (or equivalent) set forth on the cover page for the final prospectus relating to the Company’s Initial Public Offering.

“Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.

“Initial Public Offering” means the first offer and sale by the Company of its Stock in an underwritten, firm-commitment public offering, or such other event as a result of or following which the Stock shall be publicly held.

“Non-Employee Director” means a member of the Board who is not also an employee of the Company or any Subsidiary.

“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.

“Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.

“Performance-Based Award” means any Restricted Stock Award, Restricted Stock Units, Performance Share Award or Cash-Based Award granted to a Covered Employee that is intended to qualify as “performance-based compensation” under Section 162(m) of the Code and the regulations promulgated thereunder.

 

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“Performance Criteria” means the criteria that the Administrator selects for purposes of establishing the Performance Goal or Performance Goals for an individual for a Performance Cycle. The Performance Criteria (which shall be applicable to the organizational level specified by the Administrator, including, but not limited to, the Company or a unit, division, group, or Subsidiary of the Company) that will be used to establish Performance Goals are limited to the following: total shareholder return, earnings before interest, taxes, depreciation and amortization, net income (loss) (either before or after interest, taxes, depreciation and/or amortization), changes in the market price of the Stock, economic value-added, funds from operations or similar measure, sales or revenue, acquisitions or strategic transactions, operating income (loss), cash flow (including, but not limited to, operating cash flow and free cash flow), return on capital, assets, equity, or investment, return on sales, gross or net profit levels, productivity, expense, margins, operating efficiency, customer satisfaction, working capital, earnings (loss) per share of Stock, sales or market shares and number of customers, any of which may be measured either in absolute terms or as compared to any incremental increase or as compared to results of a peer group.

“Performance Cycle” means one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more Performance Criteria will be measured for the purpose of determining a grantee’s right to and the payment of a Restricted Stock Award, Restricted Stock Units, Performance Share Award or Cash-Based Award, the vesting and/or payment of which is subject to the attainment of one or more Performance Goals. Each such period shall not be less than 12 months.

“Performance Goals” means, for a Performance Cycle, the specific goals established in writing by the Administrator for a Performance Cycle based upon the Performance Criteria.

“Performance Share Award” means an Award entitling the recipient to acquire shares of Stock upon the attainment of specified Performance Goals.

“Registration Effective Time” means the date and time at which the registration statement on Form S-1 that is filed by the Company with respect to the Initial Public Offering is declared effective by the Securities and Exchange Commission.

“Restricted Stock Award” means an Award of shares of Stock subject to such restrictions and conditions as the Administrator may determine at the time of grant.

“Restricted Stock Units” means an Award of phantom stock units to a grantee.

“Sale Event” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company.

 

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“Sale Price” means the value as determined by the Administrator of the consideration payable, or otherwise to be received by stockholders, per share of Stock pursuant to a Sale Event.

“Section 409A” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.

“Stock” means the Common Stock, par value $0.01 per share, of the Company, subject to adjustments pursuant to Section 3.

“Stock Appreciation Right” means an Award entitling the recipient to receive shares of Stock having a value equal to the excess of the Fair Market Value of the Stock on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised.

“Subsidiary” means any corporation or other entity (other than the Company) in which the Company has at least a 50 percent interest, either directly or indirectly.

“Ten Percent Owner” means an employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation.

“Unrestricted Stock Award” means an Award of shares of Stock free of any restrictions.

 

SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS

(a) Administration of Plan . The Plan shall be administered by the Administrator.

(b) Powers of Administrator . The Administrator shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:

(i) to select the individuals to whom Awards may from time to time be granted;

(ii) to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Unrestricted Stock Awards, Cash-Based Awards, Performance Share Awards and Dividend Equivalent Rights, or any combination of the foregoing, granted to any one or more grantees;

(iii) to determine the number of shares of Stock to be covered by any Award;

(iv) to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the forms of Award Certificates;

 

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(v) to accelerate at any time the exercisability or vesting of all or any portion of any Award;

(vi) subject to the provisions of Section 5(b), to extend at any time the period in which Stock Options may be exercised; and

(vii) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.

All decisions and interpretations of the Administrator shall be binding on all persons, including the Company and Plan grantees.

(c) Delegation of Authority to Grant Options and Restricted Stock Units . Subject to applicable law, the Administrator, in its discretion, may delegate to the Chief Executive Officer of the Company all or part of the Administrator’s authority and duties with respect to the granting of Options and/or Restricted Stock Units to individuals who are (i) not subject to the reporting and other provisions of Section 16 of the Exchange Act and (ii) not Covered Employees. Any such delegation by the Administrator shall include a limitation as to the amount of Options and/or Restricted Stock Units that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price and the vesting criteria. The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrator’s delegate or delegates that were consistent with the terms of the Plan.

(d) Award Certificate . Awards under the Plan shall be evidenced by Award Certificates that set forth the terms, conditions and limitations for each Award which may include, without limitation, the term of an Award and the provisions applicable in the event employment or service terminates.

(e) Indemnification . Neither the Board nor the Administrator, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Administrator (and any delegate thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s articles or bylaws or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.

 

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(f) Foreign Award Recipients . Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Subsidiaries operate or have employees or other individuals eligible for Awards, the Administrator, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries shall be covered by the Plan; (ii) determine which individuals outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent the Administrator determines such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to this Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitations contained in Section 3(a) hereof; and (v) take any action, before or after an Award is made, that the Administrator determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals. Notwithstanding the foregoing, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act or any other applicable United States securities law, the Code, or any other applicable United States governing statute or law.

SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION

(a) Stock Issuable . The maximum number of shares of Stock reserved and available for issuance under the Plan shall be the sum of (i) 15,000,000 shares (the “Initial Limit”), (ii) the number of shares of Stock that remain available for grants under the Company’s 2009 Stock Option and Grant Plan, as amended (the “2009 Plan”) immediately prior to the Registration Effective Time, and (iii) on January 1, 2015 and each January 1 thereafter, the number of shares of Stock reserved and available for issuance under the Plan shall be cumulatively increased by 5 percent of the number of shares of Stock issued and outstanding on the immediately preceding December 31 (the “Annual Increase”), subject, in each case, to adjustment as provided in Section 3(b),. Subject to such overall limitation, the maximum aggregate number of shares of Stock that may be issued in the form of Incentive Stock Options shall not exceed the Initial Limit cumulatively increased on January 1, 2015 and on each January 1 thereafter by the lesser of the Annual Increase for such year or 15,000,000 shares of Stock, subject in all cases to adjustment as provided in Section 3(b). For purposes of this limitation, the shares of Stock underlying any Awards under the Plan or any awards under the Company’s 2009 Plan that are forfeited, canceled, held back upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the Plan. In the event the Company repurchases shares of Stock on the open market, such shares shall not be added to the shares of Stock available for issuance under the Plan. Subject to such overall limitations, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award; provided, however, that Stock Options or Stock Appreciation Rights with respect to no more than 10,000,000 shares of Stock may be granted to any one individual grantee during any one calendar year period. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company.

 

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(b) Changes in Stock . Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger or consolidation, sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for securities of the Company or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, including the maximum number of shares that may be issued in the form of Incentive Stock Options, (ii) the number of Stock Options or Stock Appreciation Rights that can be granted to any one individual grantee and the maximum number of shares that may be granted under a Performance-Based Award, (iii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, (iv) the repurchase price, if any, per share subject to each outstanding Restricted Stock Award, and (v) the exercise price for each share subject to any then outstanding Stock Options and Stock Appreciation Rights under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options and Stock Appreciation Rights) as to which such Stock Options and Stock Appreciation Rights remain exercisable. The Administrator shall also make equitable or proportionate adjustments in the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration cash dividends paid other than in the ordinary course or any other extraordinary corporate event. The adjustment by the Administrator shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Administrator in its discretion may make a cash payment in lieu of fractional shares.

(c) Mergers and Other Transactions . Except as the Administrator may otherwise specify with respect to particular Awards in the relevant Award Certificate, in the case of and subject to the consummation of a Sale Event, the parties thereto may cause the assumption or continuation of Awards theretofore granted by the successor entity, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree. To the extent the parties to such Sale Event do not provide for the assumption, continuation or substitution of Awards, upon the effective time of the Sale Event, the Plan and all outstanding Awards granted hereunder shall terminate. In the event of such termination, (i) the Company shall have the option (in its sole discretion) to make or provide for a cash payment to the grantees holding Options and Stock Appreciation Rights, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the Sale Price multiplied by the number of shares of Stock subject to outstanding Options and Stock Appreciation Rights (to the extent then exercisable at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options and Stock Appreciation Rights; or (ii) each grantee shall be permitted, within a specified period of time prior to the consummation of the Sale Event as determined by the Administrator, to exercise all outstanding Options and Stock Appreciation Rights (to the extent then exercisable) held by such grantee.

(d) Substitute Awards . The Administrator may grant Awards under the Plan in substitution for stock and stock based awards held by employees, directors or other key persons of another corporation in connection with the merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary

 

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of property or stock of the employing corporation. The Administrator may direct that the substitute awards be granted on such terms and conditions as the Administrator considers appropriate in the circumstances. Any substitute Awards granted under the Plan shall not count against the share limitation set forth in Section 3(a).

SECTION 4. ELIGIBILITY

Grantees under the Plan will be such full or part-time officers and other employees, Non-Employee Directors and key persons (including Consultants) of the Company and its Subsidiaries as are selected from time to time by the Administrator in its sole discretion.

SECTION 5. STOCK OPTIONS

Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve.

Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.

Stock Options granted pursuant to this Section 5 shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable. If the Administrator so determines, Stock Options may be granted in lieu of cash compensation at the optionee’s election, subject to such terms and conditions as the Administrator may establish.

(a) Exercise Price . The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5 shall be determined by the Administrator at the time of grant but shall not be less than 100 percent of the Fair Market Value on the date of grant. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the option price of such Incentive Stock Option shall be not less than 110 percent of the Fair Market Value on the grant date.

(b) Option Term . The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall be exercisable more than ten years after the date the Stock Option is granted. In the case of an Incentive Stock Option that is granted to a Ten Percent Owner, the term of such Stock Option shall be no more than five years from the date of grant.

(c) Exercisability; Rights of a Stockholder . Stock Options shall become exercisable at such time or times, whether or not in installments, as shall be determined by the Administrator at or after the grant date. The Administrator may at any time accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options.

 

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(d) Method of Exercise . Stock Options may be exercised in whole or in part, by giving written or electronic notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods to the extent provided in the Option Award Certificate:

(i) In cash, by certified or bank check or other instrument acceptable to the Administrator;

(ii) Through the delivery (or attestation to the ownership) of shares of Stock that are not then subject to restrictions under any Company plan. Such surrendered shares shall be valued at Fair Market Value on the exercise date;

(iii) By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; or

(iv) With respect to Stock Options that are not Incentive Stock Options, by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price.

Payment instruments will be received subject to collection. The transfer to the optionee on the records of the Company or of the transfer agent of the shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Option Award Certificate or applicable provisions of laws (including the satisfaction of any withholding taxes that the Company is obligated to withhold with respect to the optionee). In the event an optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of the Stock Option shall be net of the number of attested shares. In the event that the Company establishes, for itself or using the services of a third party, an automated system for the exercise of Stock Options, such as a system using an internet website or interactive voice response, then the paperless exercise of Stock Options may be permitted through the use of such an automated system.

(e) Annual Limit on Incentive Stock Options . To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under this Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.

 

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SECTION 6. STOCK APPRECIATION RIGHTS

(a) Exercise Price of Stock Appreciation Rights . The exercise price of a Stock Appreciation Right shall not be less than 100 percent of the Fair Market Value of the Stock on the date of grant.

(b) Grant and Exercise of Stock Appreciation Rights . Stock Appreciation Rights may be granted by the Administrator independently of any Stock Option granted pursuant to Section 5 of the Plan.

(c) Terms and Conditions of Stock Appreciation Rights . Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined from time to time by the Administrator. The term of a Stock Appreciation Right may not exceed ten years.

SECTION 7. RESTRICTED STOCK AWARDS

(a) Nature of Restricted Stock Awards . The Administrator shall determine the restrictions and conditions applicable to each Restricted Stock Award at the time of grant. Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The terms and conditions of each such Award Certificate shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees.

(b) Rights as a Stockholder . Upon the grant of the Restricted Stock Award and payment of any applicable purchase price, a grantee shall have the rights of a stockholder with respect to the voting of the Restricted Stock and receipt of dividends; provided that if the lapse of restrictions with respect to the Restricted Stock Award is tied to the attainment of performance goals, any dividends paid by the Company during the performance period shall accrue and shall not be paid to the grantee until and to the extent the performance goals are met with respect to the Restricted Stock Award. Unless the Administrator shall otherwise determine, (i) uncertificated Restricted Stock shall be accompanied by a notation on the records of the Company or the transfer agent to the effect that they are subject to forfeiture until such Restricted Stock are vested as provided in Section 7(d) below, and (ii) certificated Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in Section 7(d) below, and the grantee shall be required, as a condition of the grant, to deliver to the Company such instruments of transfer as the Administrator may prescribe.

(c) Restrictions . Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Restricted Stock Award Certificate. Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, if a grantee’s employment (or other service relationship) with the Company and its Subsidiaries terminates for any reason, any Restricted Stock that has not vested at the time of termination shall automatically and without any requirement of notice to such grantee from or other action by or on behalf of, the Company be deemed to have been reacquired by the Company at its original purchase price (if any) from such grantee or such grantee’s legal representative simultaneously with such termination of employment (or other service relationship), and thereafter shall cease to

 

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represent any ownership of the Company by the grantee or rights of the grantee as a stockholder. Following such deemed reacquisition of unvested Restricted Stock that are represented by physical certificates, a grantee shall surrender such certificates to the Company upon request without consideration.

(d) Vesting of Restricted Stock . The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Stock and the Company’s right of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Stock and shall be deemed “vested.” Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, a grantee’s rights in any shares of Restricted Stock that have not vested shall automatically terminate upon the grantee’s termination of employment (or other service relationship) with the Company and its Subsidiaries and such shares shall be subject to the provisions of Section 7(c) above.

SECTION 8. RESTRICTED STOCK UNITS

(a) Nature of Restricted Stock Units . The Administrator shall determine the restrictions and conditions applicable to each Restricted Stock Unit at the time of grant. Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The terms and conditions of each such Award Certificate shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees. At the end of the deferral period, the Restricted Stock Units, to the extent vested, shall be settled in the form of shares of Stock. To the extent that an award of Restricted Stock Units is subject to Section 409A, it may contain such additional terms and conditions as the Administrator shall determine in its sole discretion in order for such Award to comply with the requirements of Section 409A.

(b) Election to Receive Restricted Stock Units in Lieu of Compensation . The Administrator may, in its sole discretion, permit a grantee to elect to receive a portion of future cash compensation otherwise due to such grantee in the form of an award of Restricted Stock Units. Any such election shall be made in writing and shall be delivered to the Company no later than the date specified by the Administrator and in accordance with Section 409A and such other rules and procedures established by the Administrator. Any such future cash compensation that the grantee elects to defer shall be converted to a fixed number of Restricted Stock Units based on the Fair Market Value of Stock on the date the compensation would otherwise have been paid to the grantee if such payment had not been deferred as provided herein. The Administrator shall have the sole right to determine whether and under what circumstances to permit such elections and to impose such limitations and other terms and conditions thereon as the Administrator deems appropriate. Any Restricted Stock Units that are elected to be received in lieu of cash compensation shall be fully vested, unless otherwise provided in the Award Certificate.

(c) Rights as a Stockholder . A grantee shall have the rights as a stockholder only as to shares of Stock acquired by the grantee upon settlement of Restricted Stock Units; provided, however, that the grantee may be credited with Dividend Equivalent Rights with respect to the phantom stock units underlying his Restricted Stock Units, subject to such terms and conditions as the Administrator may determine.

 

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(d) Termination . Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, a grantee’s right in all Restricted Stock Units that have not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.

SECTION 9. UNRESTRICTED STOCK AWARDS

Grant or Sale of Unrestricted Stock . The Administrator may, in its sole discretion, grant (or sell at par value or such higher purchase price determined by the Administrator) an Unrestricted Stock Award under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.

SECTION 10. CASH-BASED AWARDS

Grant of Cash-Based Awards . The Administrator may, in its sole discretion, grant Cash-Based Awards to any grantee in such number or amount and upon such terms, and subject to such conditions, as the Administrator shall determine at the time of grant. The Administrator shall determine the maximum duration of the Cash-Based Award, the amount of cash to which the Cash-Based Award pertains, the conditions upon which the Cash-Based Award shall become vested or payable, and such other provisions as the Administrator shall determine. Each Cash-Based Award shall specify a cash-denominated payment amount, formula or payment ranges as determined by the Administrator. Payment, if any, with respect to a Cash-Based Award shall be made in accordance with the terms of the Award and may be made in cash or in shares of Stock, as the Administrator determines.

SECTION 11. PERFORMANCE SHARE AWARDS

(a) Nature of Performance Share Awards . The Administrator may, in its sole discretion, grant Performance Share Awards independent of, or in connection with, the granting of any other Award under the Plan. The Administrator shall determine whether and to whom Performance Share Awards shall be granted, the Performance Goals, the periods during which performance is to be measured, which may not be less than one year except in the case of a Sale Event, and such other limitations and conditions as the Administrator shall determine.

(b) Rights as a Stockholder . A grantee receiving a Performance Share Award shall have the rights of a stockholder only as to shares actually received by the grantee under the Plan and not with respect to shares subject to the Award but not actually received by the grantee. A grantee shall be entitled to receive shares of Stock under a Performance Share Award only upon satisfaction of all conditions specified in the Performance Share Award Certificate (or in a performance plan adopted by the Administrator).

(c) Termination . Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 18 below, in writing after the Award is issued, a grantee’s rights in all Performance Share Awards shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.

 

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SECTION 12. PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES

(a) Performance-Based Awards . Any employee or other key person providing services to the Company and who is selected by the Administrator may be granted one or more Performance-Based Awards in the form of a Restricted Stock Award, Restricted Stock Units, Performance Share Awards or Cash-Based Award payable upon the attainment of Performance Goals that are established by the Administrator and relate to one or more of the Performance Criteria, in each case on a specified date or dates or over any period or periods determined by the Administrator. The Administrator shall define in an objective fashion the manner of calculating the Performance Criteria it selects to use for any Performance Cycle. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance or the performance of a division, business unit, or an individual. The Administrator, in its discretion, may adjust or modify the calculation of Performance Goals for such Performance Cycle in order to prevent the dilution or enlargement of the rights of an individual (i) in the event of, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development, (ii) in recognition of, or in anticipation of, any other unusual or nonrecurring events affecting the Company, or the financial statements of the Company, or (iii) in response to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions provided however, that the Administrator may not exercise such discretion in a manner that would increase the Performance-Based Award granted to a Covered Employee. Each Performance-Based Award shall comply with the provisions set forth below.

(b) Grant of Performance-Based Awards . With respect to each Performance-Based Award granted to a Covered Employee, the Administrator shall select, within the first 90 days of a Performance Cycle (or, if shorter, within the maximum period allowed under Section 162(m) of the Code) the Performance Criteria for such grant, and the Performance Goals with respect to each Performance Criterion (including a threshold level of performance below which no amount will become payable with respect to such Award). Each Performance-Based Award will specify the amount payable, or the formula for determining the amount payable, upon achievement of the various applicable performance targets. The Performance Criteria established by the Administrator may be (but need not be) different for each Performance Cycle and different Performance Goals may be applicable to Performance-Based Awards to different Covered Employees.

(c) Payment of Performance-Based Awards . Following the completion of a Performance Cycle, the Administrator shall meet to review and certify in writing whether, and to what extent, the Performance Goals for the Performance Cycle have been achieved and, if so, to also calculate and certify in writing the amount of the Performance-Based Awards earned for the Performance Cycle. The Administrator shall then determine the actual size of each Covered Employee’s Performance-Based Award, and, in doing so, may reduce or eliminate the amount of the Performance-Based Award for a Covered Employee if, in its sole judgment, such reduction or elimination is appropriate.

 

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(d) Maximum Award Payable . The maximum Performance-Based Award payable to any one Covered Employee under the Plan for a Performance Cycle is 10,000,000 shares of Stock (subject to adjustment as provided in Section 3(b) hereof) or $5 million in the case of a Performance-Based Award that is a Cash-Based Award.

SECTION 13. DIVIDEND EQUIVALENT RIGHTS

(a) Dividend Equivalent Rights . A Dividend Equivalent Right may be granted hereunder to any grantee as a component of an award of Restricted Stock Units, Restricted Stock Award or Performance Share Award or as a freestanding award. The terms and conditions of Dividend Equivalent Rights shall be specified in the Award Certificate. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value on the date of reinvestment or such other price as may then apply under a dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent Rights may be settled in cash or shares of Stock or a combination thereof, in a single installment or installments. A Dividend Equivalent Right granted as a component of an award of Restricted Stock Units or Restricted Stock Award with performance vesting or Performance Share Award shall provide that such Dividend Equivalent Right shall be settled only upon settlement or payment of, or lapse of restrictions on, such other Award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other Award.

(b) Interest Equivalents . Any Award under this Plan that is settled in whole or in part in cash on a deferred basis may provide in the grant for interest equivalents to be credited with respect to such cash payment. Interest equivalents may be compounded and shall be paid upon such terms and conditions as may be specified by the grant.

(c) Termination . Except as may otherwise be provided by the Administrator either in the Award Certificate or, subject to Section 18 below, in writing after the Award is issued, a grantee’s rights in all Dividend Equivalent Rights or interest equivalents granted as a component of an award of Restricted Stock Units, Restricted Stock Award or Performance Share Award that has not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.

SECTION 14. TRANSFERABILITY OF AWARDS

(a) Transferability . Except as provided in Section 14(b) below, during a grantee’s lifetime, his or her Awards shall be exercisable only by the grantee, or by the grantee’s legal representative or guardian in the event of the grantee’s incapacity. No Awards shall be sold, assigned, transferred or otherwise encumbered or disposed of by a grantee other than by will or by the laws of descent and distribution or pursuant to a domestic relations order. No Awards shall be subject, in whole or in part, to attachment, execution, or levy of any kind, and any purported transfer in violation hereof shall be null and void.

 

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(b) Administrator Action . Notwithstanding Section 14(a), the Administrator, in its discretion, may provide either in the Award Certificate regarding a given Award or by subsequent written approval that the grantee (who is an employee or director) may transfer his or her Non-Qualified Options to his or her immediate family members, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Award. In no event may an Award be transferred by a grantee for value.

(c) Family Member . For purposes of Section 14(b), “family member” shall mean a grantee’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the grantee’s household (other than a tenant of the grantee), a trust in which these persons (or the grantee) have more than 50 percent of the beneficial interest, a foundation in which these persons (or the grantee) control the management of assets, and any other entity in which these persons (or the grantee) own more than 50 percent of the voting interests.

(d) Designation of Beneficiary . Each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the Administrator and shall not be effective until received by the Administrator. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.

SECTION 15. TAX WITHHOLDING

(a) Payment by Grantee . Each grantee shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld by the Company with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company’s obligation to deliver evidence of book entry (or stock certificates) to any grantee is subject to and conditioned on tax withholding obligations being satisfied by the grantee.

(b) Payment in Stock . Subject to approval by the Administrator, the Company’s minimum required tax withholding obligation may be satisfied, in whole or in part, by the Company withholding from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due.

 

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SECTION 16. SECTION 409A AWARDS

To the extent that any Award is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A (a “409A Award”), the Award shall be subject to such additional rules and requirements as specified by the Administrator from time to time in order to comply with Section 409A. In this regard, if any amount under a 409A Award is payable upon a “separation from service” (within the meaning of Section 409A) to a grantee who is then considered a “specified employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A. Further, the settlement of any such Award may not be accelerated except to the extent permitted by Section 409A.

SECTION 17. TRANSFER, LEAVE OF ABSENCE, ETC.

For purposes of the Plan, the following events shall not be deemed a termination of employment:

(a) a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or

(b) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.

SECTION 18. AMENDMENTS AND TERMINATION

The Board may, at any time, amend or discontinue the Plan and the Administrator may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holder’s consent. The Administrator is specifically authorized to exercise its discretion to reduce the exercise price of outstanding Stock Options or Stock Appreciation Rights or effect the repricing of such Awards through cancellation and re-grants. To the extent required under the rules of any securities exchange or market system on which the Stock is listed, to the extent determined by the Administrator to be required by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code, or to ensure that compensation earned under Awards qualifies as performance-based compensation under Section 162(m) of the Code, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders. Nothing in this Section 18 shall limit the Administrator’s authority to take any action permitted pursuant to Section 3(b) or 3(c).

SECTION 19. STATUS OF PLAN

With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Administrator shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Administrator may authorize the creation of trusts or other arrangements to meet the Company’s obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence.

 

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SECTION 20. GENERAL PROVISIONS

(a) No Distribution . The Administrator may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.

(b) Delivery of Stock Certificates . Stock certificates to grantees under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company. Uncertificated Stock shall be deemed delivered for all purposes when the Company or a Stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic “book entry” records). Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing shares of Stock pursuant to the exercise of any Award, unless and until the Administrator has determined, with advice of counsel (to the extent the Administrator deems such advice necessary or advisable), that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed, quoted or traded. All Stock certificates delivered pursuant to the Plan shall be subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with federal, state or foreign jurisdiction, securities or other laws, rules and quotation system on which the Stock is listed, quoted or traded. The Administrator may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Administrator may require that an individual make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems necessary or advisable in order to comply with any such laws, regulations, or requirements. The Administrator shall have the right to require any individual to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Administrator.

(c) Stockholder Rights . Until Stock is deemed delivered in accordance with Section 20(b), no right to vote or receive dividends or any other rights of a stockholder will exist with respect to shares of Stock to be issued in connection with an Award, notwithstanding the exercise of a Stock Option or any other action by the grantee with respect to an Award.

(d) Other Compensation Arrangements; No Employment Rights . Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of this Plan and the grant of Awards do not confer upon any employee any right to continued employment with the Company or any Subsidiary.

 

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(e) Trading Policy Restrictions . Option exercises and other Awards under the Plan shall be subject to the Company’s insider trading policies and procedures, as in effect from time to time.

(f) Forfeiture of Awards under Sarbanes-Oxley Act . If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, then any grantee who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002 shall reimburse the Company for the amount of any Award received by such individual under the Plan during the 12-month period following the first public issuance or filing with the United States Securities and Exchange Commission, as the case may be, of the financial document embodying such financial reporting requirement.

SECTION 21. EFFECTIVE DATE OF PLAN

This Plan shall become effective upon the last to occur of (i) stockholder approval of the Plan in accordance with applicable state law, the Company’s bylaws and articles of incorporation, and applicable stock exchange rules and (ii) immediately prior to the date of the Registration Effective Time. No grants of Stock Options and other Awards may be made hereunder after the tenth anniversary of the Effective Date and no grants of Incentive Stock Options may be made hereunder after the tenth anniversary of the date the Plan is approved by the Board.

SECTION 22. GOVERNING LAW

This Plan and all Awards and actions taken thereunder shall be governed by, and construed in accordance with, the laws of the State of Delaware, applied without regard to conflict of law principles.

DATE APPROVED BY BOARD OF DIRECTORS:

DATE APPROVED BY STOCKHOLDERS:

 

18


INCENTIVE STOCK OPTION AGREEMENT

UNDER THE ZENDESK, INC.

2014 STOCK OPTION AND INCENTIVE PLAN

 

Name of Optionee:        
 

 

 
No. of Option Shares:      
 

 

   
Option Exercise Price per Share:   $      
   

 

   
  [FMV on Grant Date (110% of FMV if a 10% owner)]
Grant Date:        
 

 

   
Expiration Date:        
 

 

   
  [up to 10 years (5 if a 10% owner)]

Pursuant to the Zendesk, Inc. 2014 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Zendesk, Inc. (the “Company”) hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.01 per share (the “Stock”), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan.

1. Exercisability Schedule . No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the Optionee remains an employee of the Company or a Subsidiary on such dates:

 

Incremental Number of Option Shares Exercisable*

  

Exercisability Date

             (    %)

               

             (    %)

  

             (    %)

  

             (    %)

  

             (    %)

  

 

* Max. of $100,000 per yr.

Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.


2. Manner of Exercise .

(a) The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.

Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; or (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; or (iv) a combination of (i), (ii) and (iii) above. Payment instruments will be received subject to collection.

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the satisfaction of any obligations for Tax-Related Items (as defined below) due in connection with the Option, (iii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iv) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.

(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

 

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(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

3. Termination of Employment . If the Optionee’s employment by the Company or a Subsidiary (as defined in the Plan) is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.

(a) Termination Due to Death . If the Optionee’s employment terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of [12] months from the date of death or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.

(b) Termination Due to Disability . If the Optionee’s employment terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such termination, may thereafter be exercised by the Optionee for a period of [12] months from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

(c) Termination for Cause . If the Optionee’s employment terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect. For purposes hereof, “Cause” shall mean, unless otherwise provided in an employment agreement between the Company and the Optionee, a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company or any Subsidiary; (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any material misconduct or willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company or any Subsidiary.

(d) Other Termination . If the Optionee’s employment terminates for any reason other than the Optionee’s death, the Optionee’s disability, or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

 

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The Administrator’s determination of the reason for termination of the Optionee’s employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.

4. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

5. Transferability . This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

6. Status of the Stock Option . This Stock Option is intended to qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), but the Company does not represent or warrant that this Stock Option qualifies as such. The Optionee should consult with his or her own tax advisors regarding the tax effects of this Stock Option and the requirements necessary to obtain favorable income tax treatment under Section 422 of the Code, including, but not limited to, holding period requirements. To the extent any portion of this Stock Option does not so qualify as an “incentive stock option,” such portion shall be deemed to be a non-qualified stock option. If the Optionee intends to dispose or does dispose (whether by sale, gift, transfer or otherwise) of any Option Shares within the one-year period beginning on the date after the transfer of such shares to him or her, or within the two-year period beginning on the day after the grant of this Stock Option, he or she will so notify the Company within 30 days after such disposition.

7. Responsibility for Taxes . The Optionee acknowledges that, regardless of any action taken by the Company or, if different, the Subsidiary which employs the Optionee (the “Employer”), the ultimate liability for all Federal, state and other income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax related items related to the Optionee’s participation in the Plan and legally applicable to the Optionee (“Tax-Related Items”) is and remains the Optionee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. The Optionee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Stock Option, including, but not limited to, the grant, vesting or exercise of this Stock Option, the subsequent sale of Option Shares acquired pursuant to such exercise and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of this Stock Option to reduce or eliminate the Optionee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Optionee is subject to Tax-Related Items in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, the Optionee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

 

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(a) Prior to the relevant taxable or tax withholding event, as applicable, the Optionee agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items to the extent applicable. In this regard, the Optionee authorizes the Company or its agent to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following:

(i) withholding from the Optionee’s wages or other cash compensation paid to the Optionee by the Company and/or the Employer; or

(ii) withholding from proceeds of the sale of Option Shares acquired upon exercise of the Stock Option either through a voluntary sale or through a mandatory sale arranged by the Company (on the Optionee’s behalf pursuant to this authorization without further consent); or

(iii) withholding in Option Shares to be issued upon exercise of the Option a number of shares of Stock with an aggregate Fair Market Value that would satisfy the minimum withholding amount due; or

(iv) by any other method deemed by the Company to comply with applicable laws.

(b) Depending on the withholding method and subject to the foregoing, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case the Optionee will receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent in shares. If the obligation for Tax-Related Items is satisfied by withholding in Option Shares, for tax purposes, the Optionee is deemed to have been issued the full number of Option Shares subject to the exercised Stock Option, notwithstanding that a number of the Option Shares are held back solely for the purpose of paying the Tax-Related Items.

(c) Finally, the Optionee agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Optionee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Option Shares or the proceeds of the sale of Option Shares if the Optionee fails to comply with his or her obligations in connection with the Tax-Related Items.

8. No Obligation to Continue Employment . Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Optionee at any time.

9. Integration . This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

 

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10. Nature of Grant . In accepting this Stock Option, the Optionee acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company and it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of this Stock Option is voluntary and occasional and does not create any contractual or other right to receive future grants of stock options, or benefits in lieu of stock options, even if stock options have been granted in the past;

(c) all decisions with respect to future stock option or other grants, if any, will be at the sole discretion of the Company;

(d) this Stock Option grant and the Optionee’s participation in the Plan shall not be interpreted as forming an employment contract with the Company;

(e) the Optionee is voluntarily participating in the Plan;

(f) this Stock Option and any Option Shares acquired under the Plan are not intended to replace any pension rights or compensation;

(g) this Stock Option and any Option Shares acquired under the Plan, and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or payments or welfare benefits or similar payments;

(h) the future value of this Option Shares underlying the Stock Option is unknown, indeterminable, and cannot be predicted with certainty;

(i) if the underlying Option Shares do not increase in value, this Stock Option will have no value;

(j) if the Optionee exercises this Stock Option and acquires Option Shares, the value of such Option Shares may increase or decrease in value, even below the Option Exercise Price;

(k) no claim or entitlement to compensation or damages shall arise from forfeiture of this Stock Option resulting from the termination of the Optionee’s employment relationship (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Optionee is employed or the terms of the Optionee’s employment agreement, if any), and in consideration of the grant of this Stock Option to which the Optionee is otherwise not entitled, the Optionee irrevocably agrees never to institute any claim against the Employer, the Company or any of its Subsidiaries, waives his or her ability, if any, to bring any such claim, and releases the Employer, the Company and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Optionee shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim; and

(l) unless otherwise provided in the Plan or by the Company in its discretion, this Stock Option and the benefits evidenced by this Agreement do not create any entitlement to have this Stock Option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Stock.

 

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11. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Optionee’s participation in the Plan, or the Optionee’s acquisition or sale of the underlying Option Shares. The Optionee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.

12. Data Privacy . The Optionee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Optionee’s personal data as described in this Agreement and any other Stock Option grant materials by and among, as applicable, the Employer, the Company and any Subsidiary for the exclusive purpose of implementing, administering and managing the Optionee’s participation in the Plan.

The Optionee understands that the Employer, the Company and its Subsidiaries may hold certain personal information about the Optionee, including, but not limited to, the Optionee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all stock options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Optionee’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.

The Optionee understands that Data will be transferred to the stock plan service provider selected by the Company, which is assisting the Company with the implementation, administration and management of the Plan. The Optionee understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than the Optionee’s country. The Optionee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Optionee authorizes the Company, the stock plan service provider and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing the Optionee’s participation in the Plan. The Optionee understands that Data will be held only as long as is necessary to implement, administer and manage the Optionee’s participation in the Plan. The Optionee understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human

 

7


resources representative. Further, the Optionee understands that he or she is providing the consents herein on a purely voluntary basis. If the Optionee does not consent, or if the Optionee later seeks to revoke his or her consent, his or her employment status or service and career with the Company or any Subsidiary will not be adversely affected; the only adverse consequence of refusing or withdrawing consent is that the Company would not be able to grant the Optionee Stock Options or other equity awards or administer or maintain such awards. Therefore, the Optionee understands that refusing or withdrawing his or her consent may affect the Optionee’s ability to participate in the Plan. For more information on the consequences of the Optionee’s refusal to consent or withdrawal of consent, the Optionee understands that he or she may contact his or her local human resources representative.

13. Governing Law; Venue . This Stock Option grant and the provisions of this Agreement are governed by, and subject to, the laws of the State of Delaware, without regard to the conflict of law provisions. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of San Francisco County, California, or the federal courts for the United States for the Northern District of California, and no other courts, including the courts where this grant is made and/or to be performed.

14. Electronic Delivery and Acceptance . The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Optionee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

15. Severability . The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

16. Insider Trading Restrictions/Market Abuse Laws . The Optionee acknowledges that, depending on the Optionee’s country of residence, the Optionee may be subject to insider trading restrictions and/or market abuse laws, which may affect the Optionee’s ability to acquire or sell Option Shares or rights to Option Shares ( e.g. , the Option) under the Plan during such times as the Optionee is considered to have “inside information” regarding the Company (as defined by the laws in the Optionee’s country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. The Optionee acknowledges that it is his or her responsibility to comply with any applicable restrictions, and the Optionee is advised to speak to his or her personal advisor on this matter.

17. Imposition of Other Requirements . The Company reserves the right to impose other requirements on the Optionee’s participation in the Plan, on this Stock Option and on any Option Shares purchased upon exercise of this Stock Option, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Optionee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

 

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18. Waiver . The Optionee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Optionee or any other Plan participant.

19. Notices . Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

ZENDESK, INC.
By:  

 

  Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.

 

Dated:  

 

     

 

        Optionee’s Signature
        Optionee’s name and address:
       

 

       

 

       

 

 

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NON-QUALIFIED STOCK OPTION AGREEMENT

FOR COMPANY EMPLOYEES

UNDER THE ZENDESK, INC.

2014 STOCK OPTION AND INCENTIVE PLAN

 

Name of Optionee:        
 

 

 
No. of Option Shares:      
 

 

   
Option Exercise Price per Share:   $      
   

 

   
  [FMV on Grant Date]
Grant Date:        
 

 

   
Expiration Date:        
 

 

   

Pursuant to the Zendesk, Inc. 2014 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Zendesk, Inc. (the “Company”) hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.01 per share (the “Stock”) of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan. This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.

1. Exercisability Schedule . No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the Optionee remains an employee of the Company or a Subsidiary on such dates:

 

Incremental Number of Option Shares Exercisable

   Exercisability Date

             (    %)

               

             (    %)

  

             (    %)

  

             (    %)

  

             (    %)

  

Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.


2. Manner of Exercise .

(a) The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.

Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above. Payment instruments will be received subject to collection.

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the satisfaction of any obligations for Tax-Related Items (as defined below) due in connection with the Option; (iii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iv) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.

(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

 

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(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

3. Termination of Employment . If the Optionee’s employment by the Company or a Subsidiary (as defined in the Plan) is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.

(a) Termination Due to Death . If the Optionee’s employment terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of [12] months from the date of death or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.

(b) Termination Due to Disability . If the Optionee’s employment terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such termination, may thereafter be exercised by the Optionee for a period of [12] months from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

(c) Termination for Cause . If the Optionee’s employment terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect. For purposes hereof, “Cause” shall mean, unless otherwise provided in an employment agreement between the Company and the Optionee, a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company or any Subsidiary; (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any material misconduct or willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company or any Subsidiary.

(d) Other Termination . If the Optionee’s employment terminates for any reason other than the Optionee’s death, the Optionee’s disability or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

 

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The Administrator’s determination of the reason for termination of the Optionee’s employment shall be conclusive and binding on the Optionee and his or her representatives or legatees.

4. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

5. Transferability . This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

6. Responsibility for Taxes . The Optionee acknowledges that, regardless of any action taken by the Company or, if different, the Subsidiary which employs the Optionee (the “Employer”), the ultimate liability for all Federal, state and other income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax related items related to the Optionee’s participation in the Plan and legally applicable to the Optionee (“Tax-Related Items”) is and remains the Optionee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. The Optionee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Stock Option, including, but not limited to, the grant, vesting or exercise of this Stock Option, the subsequent sale of Option Shares acquired pursuant to such exercise and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of this Stock Option to reduce or eliminate the Optionee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Optionee is subject to Tax-Related Items in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, the Optionee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

(a) Prior to the relevant taxable or tax withholding event, as applicable, the Optionee agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Optionee authorizes the Company or its agent to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following:

(i) withholding from the Optionee’s wages or other cash compensation paid to the Optionee by the Company and/or the Employer; or

 

4


(ii) withholding from proceeds of the sale of Option Shares acquired upon exercise of the Stock Option either through a voluntary sale or through a mandatory sale arranged by the Company (on the Optionee’s behalf pursuant to this authorization without further consent); or

(iii) withholding in Option Shares to be issued upon exercise of the Option a number of shares of Stock with an aggregate Fair Market Value that would satisfy the minimum withholding amount due; or

(iv) by any other method deemed by the Company to comply with applicable laws.

(b) Depending on the withholding method and subject to the foregoing, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case the Optionee will receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent in shares. If the obligation for Tax-Related Items is satisfied by withholding in Option Shares, for tax purposes, the Optionee is deemed to have been issued the full number of Option Shares subject to the exercised Stock Option, notwithstanding that a number of the Option Shares are held back solely for the purpose of paying the Tax-Related Items.

(c) Finally, the Optionee agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Optionee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Option Shares or the proceeds of the sale of Option Shares if the Optionee fails to comply with his or her obligations in connection with the Tax-Related Items.

7. No Obligation to Continue Employment . Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Optionee at any time.

8. Integration . This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

9. Nature of Grant . In accepting this Stock Option, the Optionee acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company and it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of this Stock Option is voluntary and occasional and does not create any contractual or other right to receive future grants of stock options, or benefits in lieu of stock options, even if stock options have been granted in the past;

 

5


(c) all decisions with respect to future stock option or other grants, if any, will be at the sole discretion of the Company;

(d) this Stock Option grant and the Optionee’s participation in the Plan shall not be interpreted as forming an employment contract with the Company;

(e) the Optionee is voluntarily participating in the Plan;

(f) this Stock Option and any Option Shares acquired under the Plan are not intended to replace any pension rights or compensation;

(g) this Stock Option and any Option Shares acquired under the Plan, and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or payments or welfare benefits or similar payments;

(h) the future value of this Option Shares underlying the Stock Option is unknown, indeterminable, and cannot be predicted with certainty;

(i) if the underlying Option Shares do not increase in value, this Stock Option will have no value;

(j) if the Optionee exercises this Stock Option and acquires Option Shares, the value of such Option Shares may increase or decrease in value, even below the Option Exercise Price;

(k) no claim or entitlement to compensation or damages shall arise from forfeiture of this Stock Option resulting from the termination of the Optionee’s employment relationship (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Optionee is employed or the terms of the Optionee’s employment agreement, if any), and in consideration of the grant of this Stock Option to which the Optionee is otherwise not entitled, the Optionee irrevocably agrees never to institute any claim against the Employer, the Company or any of its Subsidiaries, waives his or her ability, if any, to bring any such claim, and releases the Employer, the Company and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Optionee shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim; and

(l) unless otherwise provided in the Plan or by the Company in its discretion, this Stock Option and the benefits evidenced by this Agreement do not create any entitlement to have this Stock Option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Stock.

10. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Optionee’s

 

6


participation in the Plan, or the Optionee’s acquisition or sale of the underlying Option Shares. The Optionee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.

11. Data Privacy . The Optionee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Optionee’s personal data as described in this Agreement and any other Stock Option grant materials by and among, as applicable, the Employer, Company and any Subsidiary for the exclusive purpose of implementing, administering and managing the Optionee’s participation in the Plan.

The Optionee understands that the Employer, the Company and its Subsidiaries may hold certain personal information about the Optionee, including, but not limited to, the Optionee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all stock options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Optionee’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.

The Optionee understands that Data will be transferred to the stock plan service provider selected by the Company, which is assisting the Company with the implementation, administration and management of the Plan. The Optionee understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than the Optionee’s country. The Optionee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Optionee authorizes the Company, the stock plan service provider and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing the Optionee’s participation in the Plan. The Optionee understands that Data will be held only as long as is necessary to implement, administer and manage the Optionee’s participation in the Plan. The Optionee understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Optionee understands that he or she is providing the consents herein on a purely voluntary basis. If the Optionee does not consent, or if the Optionee later seeks to revoke his or her consent, his or her employment status or service and career with the Company or any Subsidiary will not be adversely affected; the only adverse consequence of refusing or withdrawing consent is that the Company would not be able to grant the Optionee Stock Options or other equity awards or administer or maintain such awards. Therefore, the Optionee understands that refusing or withdrawing his or her consent may affect the Optionee’s ability to participate in the Plan. For more information on the consequences of the Optionee’s refusal to consent or withdrawal of consent, the Optionee understands that he or she may contact his or her local human resources representative.

 

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12. Governing Law; Venue . This Stock Option grant and the provisions of this Agreement are governed by, and subject to, the laws of the State of Delaware, without regard to the conflict of law provisions. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of San Francisco County, California, or the federal courts for the United States for the Northern District of California, and no other courts, including the courts where this grant is made and/or to be performed.

13. Electronic Delivery and Acceptance . The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Optionee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

14. Severability . The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

15. Insider Trading Restrictions/Market Abuse Laws . The Optionee acknowledges that, depending on the Optionee’s country of residence, the Optionee may be subject to insider trading restrictions and/or market abuse laws, which may affect the Optionee’s ability to acquire or sell Option Shares or rights to Option Shares (e.g., the Option) under the Plan during such times as the Optionee is considered to have “inside information” regarding the Company (as defined by the laws in the Optionee’s country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. The Optionee acknowledges that it is his or her responsibility to comply with any applicable restrictions, and the Optionee is advised to speak to his or her personal advisor on this matter.

16. Imposition of Other Requirements . The Company reserves the right to impose other requirements on the Optionee’s participation in the Plan, on this Stock Option and on any Option Shares purchased upon exercise of this Stock Option, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Optionee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

17. Waiver . The Optionee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Optionee or any other Plan participant.

18. Notices . Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

8


ZENDESK, INC.
By:  

 

  Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.

 

Dated:  

 

     

 

        Optionee’s Signature
        Optionee’s name and address:
       

 

       

 

       

 

 

9


NON-QUALIFIED STOCK OPTION AGREEMENT

FOR NON-EMPLOYEE DIRECTORS

UNDER THE ZENDESK, INC.

2014 STOCK OPTION AND INCENTIVE PLAN

 

Name of Optionee:        
 

 

 
No. of Option Shares:      
 

 

   
Option Exercise Price per Share:   $      
   

 

   
  [FMV on Grant Date]
Grant Date:        
 

 

   
Expiration Date:        
 

 

   
  [No more than 10 years]

Pursuant to the Zendesk, Inc. 2014 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Zendesk, Inc. (the “Company”) hereby grants to the Optionee named above, who is a Director of the Company but is not an employee of the Company, an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.01 per share (the “Stock”), of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set forth herein and in the Plan. This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986, as amended.

1. Exercisability Schedule . No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as the Optionee remains in service as a member of the Board on such dates:

 

Incremental Number of Option Shares Exercisable

   Exercisability Date

             (    %)

               

             (    %)

  

             (    %)

  

             (    %)

  

             (    %)

  


Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions hereof and of the Plan.

2. Manner of Exercise .

(a) The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.

Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i), (ii), (iii) and (iv) above. Payment instruments will be received subject to collection.

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above, (ii) the satisfaction of any obligations for Tax-Related Items (as defined below) due in connection with the Option, (iii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and (iv) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.

(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the

 

2


Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

3. Termination as Director . If the Optionee ceases to be a Director of the Company, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below.

(a) Termination Due to Death . If the Optionee’s service as a Director terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee for a period of [12] months from the date of death or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.

(b) Other Termination . If the Optionee ceases to be a Director for any reason other than the Optionee’s death, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date the Optionee ceased to be a Director, for a period of [six] months from the date the Optionee ceased to be a Director or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date the Optionee ceases to be a Director shall terminate immediately and be of no further force or effect.

4. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

5. Transferability . This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

6. No Obligation to Continue as a Director . Neither the Plan nor this Stock Option confers upon the Optionee any rights with respect to continuance as a Director.

 

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7. Responsibility for Taxes . The Grantee acknowledges that, regardless of any action taken by the Company, the ultimate liability for all Federal, state and other income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax related items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“Tax-Related Items”) is and remains the Grantee’s responsibility and may exceed the amount (if any) actually withheld by the Company. To the extent that the Company is required to withhold any Tax-Related Items, such withholding may be satisfied in accordance with the terms of the Plan.

8. Integration . This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

9. Nature of Grant . In accepting this Stock Option, the Optionee acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company and it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of this Stock Option is voluntary and occasional and does not create any contractual or other right to receive future grants of stock options, or benefits in lieu of stock options, even if stock options have been granted in the past;

(c) all decisions with respect to future stock option or other grants, if any, will be at the sole discretion of the Company;

(d) this Stock Option grant and the Optionee’s participation in the Plan shall not be interpreted as forming an employment or other service contract with the Company;

(e) the Optionee is voluntarily participating in the Plan;

(f) this Stock Option and any Option Shares acquired under the Plan are not intended to replace any pension rights or compensation;

(g) this Stock Option and any Option Shares acquired under the Plan, and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or payments or welfare benefits or similar payments;

(h) the future value of this Option Shares underlying the Stock Option is unknown, indeterminable, and cannot be predicted with certainty;

(i) if the underlying Option Shares do not increase in value, this Stock Option will have no value;

 

4


(j) if the Optionee exercises this Stock Option and acquires Option Shares, the value of such Option Shares may increase or decrease in value, even below the Option Exercise Price;

(k) no claim or entitlement to compensation or damages shall arise from forfeiture of this Stock Option resulting from the termination of the Optionee’s employment or other service relationship (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Optionee provides services or the terms of the Optionee’s employment or service agreement, if any), and in consideration of the grant of this Stock Option to which the Optionee is otherwise not entitled, the Optionee irrevocably agrees never to institute any claim against the Company or any of its Subsidiaries, waives his or her ability, if any, to bring any such claim, and releases the Company and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Optionee shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim; and

(l) unless otherwise provided in the Plan or by the Company in its discretion, this Stock Option and the benefits evidenced by this Agreement do not create any entitlement to have this Stock Option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Stock.

10. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Optionee’s participation in the Plan, or the Optionee’s acquisition or sale of the underlying Option Shares. The Optionee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.

11 . Data Privacy . The Optionee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Optionee’s personal data as described in this Agreement and any other Stock Option grant materials by and among, as applicable, the Company and any Subsidiary for the exclusive purpose of implementing, administering and managing the Optionee’s participation in the Plan.

The Optionee understands that the Company and its Subsidiaries may hold certain personal information about the Optionee, including, but not limited to, the Optionee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all stock options or any other entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Optionee’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.

The Optionee understands that Data will be transferred to the stock plan service provider selected by the Company, which is assisting the Company with the implementation, administration and management of the Plan. The Optionee understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country

 

5


(e.g., the United States) may have different data privacy laws and protections than the Optionee’s country. The Optionee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Optionee authorizes the Company, the stock plan service provider and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing the Optionee’s participation in the Plan. The Optionee understands that Data will be held only as long as is necessary to implement, administer and manage the Optionee’s participation in the Plan. The Optionee understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Optionee understands that he or she is providing the consents herein on a purely voluntary basis. If the Optionee does not consent, or if the Optionee later seeks to revoke his or her consent, his or her employment status or service and career with the Company or any Subsidiary will not be adversely affected; the only adverse consequence of refusing or withdrawing consent is that the Company would not be able to grant the Optionee Stock Options or other equity awards or administer or maintain such awards. Therefore, the Optionee understands that refusing or withdrawing his or her consent may affect the Optionee’s ability to participate in the Plan. For more information on the consequences of the Optionee’s refusal to consent or withdrawal of consent, the Optionee understands that he or she may contact his or her local human resources representative.

12. Governing Law; Venue . This Stock Option grant and the provisions of this Agreement are governed by, and subject to, the laws of the State of Delaware, without regard to the conflict of law provisions. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of San Francisco County, California, or the federal courts for the United States for the Northern District of California, and no other courts, including the courts where this grant is made and/or to be performed.

13. Electronic Delivery and Acceptance . The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Optionee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

14. Severability . The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

15. Imposition of Other Requirements . The Company reserves the right to impose other requirements on the Optionee’s participation in the Plan, on this Stock Option and on any Option Shares purchased upon exercise of this Stock Option, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Optionee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

 

6


16. Waiver . The Optionee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Optionee or any other Plan participant.

17. Notices . Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

ZENDESK, INC.
By:  

 

  Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.

 

Dated:  

 

   

 

      Optionee’s Signature
      Optionee’s name and address:
     

 

     

 

     

 

 

7


NON-QUALIFIED STOCK OPTION AGREEMENT

FOR NON-U.S. OPTIONEES

UNDER THE ZENDESK, INC.

2014 STOCK OPTION AND INCENTIVE PLAN

 

Name of Optionee:      
 

 

 
No. of Option Shares:        
 

 

   
Option Exercise Price per Share:   $      
   

 

   
  [FMV on Grant Date]
Grant Date:        
 

 

   
Expiration Date:        
 

 

   

Pursuant to the Zendesk, Inc. 2014 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Zendesk, Inc. (the “Company”) hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.01 per share (the “Stock”) of the Company specified above at the Option Exercise Price per Share specified above. This Stock Option shall be governed by and subject to the terms and conditions of the Plan and this Non-Qualified Stock Option Agreement for Non-U.S. Optionees (the “Stock Option Agreement”), including any special terms and conditions for the Optionee’s country set forth in any appendix to this Stock Option Agreement (the “Appendix”) (together with the Stock Option Agreement, the “Agreement”).

This Stock Option is not intended to be an “incentive stock option” under Section 422 of the U.S. Internal Revenue Code of 1986, as amended.

1. Exercisability Schedule . No portion of this Stock Option may be exercised until such portion shall have become exercisable. Except as set forth below, and subject to the discretion of the Administrator (as defined in Section 2 of the Plan) to accelerate the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following number of Option Shares on the dates indicated so long as Optionee remains an employee or other service provider with the Company or a Subsidiary on such dates, as further described in Paragraph 3 of this Stock Option Agreement:

 

Incremental Number of Option Shares Exercisable

   Exercisability Date

            (    %)

               

            (    %)

  

            (    %)

  

            (    %)

  

            (    %)

  


Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business on the Expiration Date, subject to the provisions of the Agreement and of the Plan.

2. Manner of Exercise .

(a) The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option Shares to be purchased.

Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) by the Optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iii) if permitted by the Administrator, by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (iv) a combination of (i), (ii) and (iii) above. Payment instruments will be received subject to collection.

The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be contingent upon (i) the Company’s receipt from the Optionee of the full purchase price in the Agreement for the Option Shares, as set forth above, (ii) the satisfaction of any obligations for Tax-Related Items (as defined in Paragraph 6 below) due in connection with the Option, (iii) the fulfillment of any other requirements contained in the Agreement or in the Plan or in any other agreement or provision of laws, and (iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the shares of Stock will be in compliance with applicable laws and regulations.

 

2


(b) The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements under applicable laws or regulations in connection with such transfer and with the requirements of the Agreement and of the Plan. The determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such shares of Stock.

(c) The minimum number of shares with respect to which this Stock Option may be exercised at any one time shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of shares subject to exercise under this Stock Option at the time.

(d) Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be exercisable after the Expiration Date hereof.

3. Termination of Service Relationship . If the Optionee’s service relationship by the Company or its Subsidiaries is terminated, the period within which to exercise the Stock Option may be subject to earlier termination as set forth below. For purposes of this Stock Option, the Optionee’s service relationship will be considered terminated as of the date the Optionee is no longer actively providing services to the Company or any Subsidiary (regardless of the reason for such termination and whether or not later found to be invalid or in breach of labor laws in the jurisdiction where the Optionee is providing services or the terms of the Optionee’s service agreement, if any). Unless otherwise determined by the Company, (i) the Optionee’s right to vest in this Stock Option under the Plan, if any, will terminate as of such date and will not be extended by any notice period ( e.g ., the Optionee’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where the Optionee is a service provider or the terms of the Optionee’s service agreement, if any); and (ii) the period (if any) during which the Optionee may exercise this Stock Option after such termination will commence on the date the Optionee ceases to actively provide services and will not be extended by any notice period mandated under labor laws in the jurisdiction where the Optionee is providing services. The Administrator shall have the exclusive discretion to determine when the Optionee is no longer actively providing services for purposes of his or her Stock Option grant (including whether the Optionee may still be considered to be providing services while on a leave of absence).

(a) Termination Due to Death . If the Optionee’s service relationship terminates by reason of the Optionee’s death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be exercised by the Optionee’s legal representative or legatee, for a period of [12] months from the date of death or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be of no further force or effect.

 

3


(b) Termination Due to Disability . If the Optionee’s service relationship terminates by reason of the Optionee’s disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of such termination, may thereafter be exercised by the Optionee for a period of [12] months from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

(c) Termination for Cause . If the Optionee’s service relationship terminates for Cause, any portion of this Stock Option outstanding on such date shall terminate immediately and be of no further force and effect. For purposes hereof, “Cause” shall mean a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any material breach by the Optionee of any agreement between the Optionee and the Company or any Subsidiary; (ii) the conviction of, indictment for or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any material misconduct or willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the Company or any Subsidiary.

(d) Other Termination . If the Optionee’s service relationship terminates for any reason other than the Optionee’s death, the Optionee’s disability or Cause, and unless otherwise determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of no further force or effect.

The Administrator’s determination of the reason for termination of the Optionee’s service relationship shall be conclusive and binding on the Optionee and his or her representatives or legatees.

4. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Stock Option shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

5. Transferability . This Agreement is personal to the Optionee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the Optionee’s legal representative or legatee.

6. Responsibility for Taxes . The Optionee acknowledges that, regardless of any action taken by the Company or, if different, any Subsidiary for which the Optionee renders services (the “Service Recipient”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to the Optionee’s participation in the Plan and legally applicable to the Optionee (“Tax-Related Items”)

 

4


is and remains the Optionee’s responsibility and may exceed the amount actually withheld by the Company or the Service Recipient. The Optionee further acknowledges that the Company and/or the Service Recipient (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Stock Option, including, but not limited to, the grant, vesting or exercise of this Stock Option, the subsequent sale of Option Shares acquired pursuant to such exercise and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of this Stock Option to reduce or eliminate the Optionee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Optionee is subject to Tax-Related Items in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, the Optionee acknowledges that the Company and/or the Service Recipient (or former service recipient, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

Prior to the relevant taxable or tax withholding event, as applicable, the Optionee agrees to make adequate arrangements satisfactory to the Company and/or the Service Recipient to satisfy all Tax-Related Items. In this regard, the Optionee authorizes the Company and/or the Service Recipient, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items by one or a combination of the following:

 

  (a) withholding from the Optionee’s wages or other cash compensation paid to the Optionee by the Company and/or the Service Recipient; or

 

  (b) withholding from proceeds of the sale of Option Shares acquired upon exercise of the Stock Option either through a voluntary sale or through a mandatory sale arranged by the Company (on the Optionee’s behalf pursuant to this authorization without further consent); or

 

  (c) withholding in Option Shares to be issued upon exercise of the Option; or

 

  (d) by any other method deemed by the Company to comply with applicable laws.

Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case the Optionee will receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent in shares. If the obligation for Tax-Related Items is satisfied by withholding in Option Shares, for tax purposes, the Optionee is deemed to have been issued the full number of Option Shares subject to the exercised Stock Option, notwithstanding that a number of the Option Shares are held back solely for the purpose of paying the Tax-Related Items.

Finally, the Optionee agrees to pay to the Company or the Service Recipient any amount of Tax-Related Items that the Company or the Service Recipient may be required to withhold or account for as a result of the Optionee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the Option Shares or the proceeds of the sale of Option Shares if the Optionee fails to comply with his or her obligations in connection with the Tax-Related Items.

 

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7. No Obligation to Continue Service Relationship . Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Optionee’s service relationship and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the Optionee’s ervice relationship at any time.

8. Integration . This Agreement constitutes the entire agreement between the parties with respect to this Stock Option and supersedes all prior agreements and discussions between the parties concerning such subject matter.

9. Nature of Grant . In accepting this Stock Option, the Optionee acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company and it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of this Stock Option is voluntary and occasional and does not create any contractual or other right to receive future grants of stock options, or benefits in lieu of stock options, even if stock options have been granted in the past;

(c) all decisions with respect to future stock option or other grants, if any, will be at the sole discretion of the Company;

(d) this Stock Option grant and the Optionee’s participation in the Plan shall not be interpreted as forming a service contract with the Company;

(e) the Optionee is voluntarily participating in the Plan;

(f) this Stock Option and any Option Shares acquired under the Plan are not intended to replace any pension rights or compensation;

(g) this Stock Option and any Option Shares acquired under the Plan, and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or payments or welfare benefits or similar payments;

(h) the future value of this Option Shares underlying the Stock Option is unknown, indeterminable, and cannot be predicted with certainty;

(i) if the underlying Option Shares do not increase in value, this Stock Option will have no value;

 

6


(j) if the Optionee exercises this Stock Option and acquires Option Shares, the value of such Option Shares may increase or decrease in value, even below the Option Exercise Price;

(k) no claim or entitlement to compensation or damages shall arise from forfeiture of this Stock Option resulting from the termination of the Optionee’s service relationship (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Optionee is providing services or the terms of the Optionee’s service agreement, if any), and in consideration of the grant of this Stock Option to which the Optionee is otherwise not entitled, the Optionee irrevocably agrees never to institute any claim against the Company, the Service Recipient or any other Subsidiary, waives his or her ability, if any, to bring any such claim, and releases the Company, the Service Recipient and any other Subsidiary from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Optionee shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;

(l) unless otherwise provided in the Plan or by the Company in its discretion, this Stock Option and the benefits evidenced by this Agreement do not create any entitlement to have this Stock Option or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Stock; and

(m) neither the Company, the Service Recipient nor any other Subsidiary shall be liable for any foreign exchange rate fluctuation between the Optionee’s local currency and the United States Dollar that may affect the value of this Stock Option or of any amounts due to the Optionee pursuant to the exercise of this Stock Option or the subsequent sale of any Option Shares acquired upon exercise.

10. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Optionee’s participation in the Plan, or the Optionee’s acquisition or sale of the underlying Option Shares. The Optionee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.

11 . Data Privacy . The Optionee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Optionee’s personal data as described in this Agreement and any other Stock Option grant materials by and among, as applicable, the Company, the Service Recipient and any other Subsidiary for the exclusive purpose of implementing, administering and managing the Optionee’s participation in the Plan.

The Optionee understands that the Company, the Service Recipient and any other Subsidiary may hold certain personal information about the Optionee, including, but not limited to, the Optionee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all stock options or any other

 

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entitlement to shares of stock awarded, canceled, exercised, vested, unvested or outstanding in the Optionee’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.

The Optionee understands that Data will be transferred to the stock plan service provider selected by the Company, which is assisting the Company with the implementation, administration and management of the Plan. The Optionee understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than the Optionee’s country. The Optionee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Optionee authorizes the Company, the stock plan service provider and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing the Optionee’s participation in the Plan. The Optionee understands that Data will be held only as long as is necessary to implement, administer and manage the Optionee’s participation in the Plan. The Optionee understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Optionee understands that he or she is providing the consents herein on a purely voluntary basis. If the Optionee does not consent, or if the Optionee later seeks to revoke his or her consent, his or her service relationship with the Company, the Service Recipient or any other Subsidiary will not be adversely affected; the only adverse consequence of refusing or withdrawing consent is that the Company would not be able to grant the Optionee Stock Options or other equity awards or administer or maintain such awards. Therefore, the Optionee understands that refusing or withdrawing his or her consent may affect the Optionee’s ability to participate in the Plan. For more information on the consequences of the Optionee’s refusal to consent or withdrawal of consent, the Optionee understands that he or she may contact his or her local human resources representative.

12. Governing Law; Venue . This Stock Option grant and the provisions of this Agreement are governed by, and subject to, the laws of the State of Delaware, without regard to the conflict of law provisions. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of San Francisco County, California, or the federal courts for the United States for the Northern District of California, and no other courts, including the courts where this grant is made and/or to be performed.

13. Electronic Delivery and Acceptance . The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Optionee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

 

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14. Language . If the Optionee has received this Agreement, or any other document related to this Stock Option and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

15. Severability . The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

16. Notices . Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

17. Appendix . Notwithstanding any provisions in this Stock Option Agreement, this Stock Option grant shall be subject to any special terms and conditions set forth in any Appendix to this Stock Option Agreement for the Optionee’s country. Moreover, if the Optionee relocates to one of the countries included in the Appendix, the special terms and conditions for such country will apply to the Optionee, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Appendix constitutes part of this Stock Option Agreement.

18. Insider Trading Restrictions/Market Abuse Laws . The Optionee acknowledges that, depending on the Optionee’s country of residence, the Optionee may be subject to insider trading restrictions and/or market abuse laws, which may affect the Optionee’s ability to acquire or sell Option Shares or rights to Option Shares ( e.g. , the Option) under the Plan during such times as the Optionee is considered to have “inside information” regarding the Company (as defined by the laws in the Optionee’s country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. The Optionee acknowledges that it is his or her responsibility to comply with any applicable restrictions, and the Optionee is advised to speak to his or her personal advisor on this matter.

19. Imposition of Other Requirements . The Company reserves the right to impose other requirements on the Optionee’s participation in the Plan, on this Stock Option and on any Option Shares purchased upon exercise of this Stock Option, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Optionee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

20. Waiver . The Optionee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Optionee or any other Plan participant.

 

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ZENDESK, INC.
By:  

 

  Title:

The Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through an online acceptance process) is acceptable.

 

Dated:  

 

   

 

      Optionee’s Signature
      Optionee’s name and address:
     

 

     

 

     

 

 

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APPENDIX

TO THE

STOCK OPTION AGREEMENT FOR NON-U.S. OPTIONEES

Terms and Conditions

This Appendix includes additional terms and conditions that govern this Stock Option if the Optionee works and/or resides in one of the countries listed below. If the Optionee is a citizen or resident of a country other than the one in which the Optionee is currently working and/or residing (or is considered as such for local law purposes), or the Optionee transfers employment to a different country after this Stock Option is granted, the Company will, in its discretion, determine the extent to which the terms and conditions contained herein will apply to the Optionee.

Notifications

This Appendix also includes information regarding certain other issues of which the Optionee should be aware with respect to the Optionee’s participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as of December 2013. Such laws are often complex and change frequently. As a result, the Company strongly recommends that the Optionee not rely on the information noted herein as the only source of information relating to the consequences of participation in the Plan because the information may be out-of-date at the time the Optionee vests in or exercises this Stock Option or sells any Option Shares acquired at exercise.

In addition, the information contained herein is general in nature and may not apply to the Optionee’s particular situation. As a result, the Company is not in a position to assure the Optionee of any particular result. Accordingly, the Optionee is strongly advised to seek appropriate professional advice as to how the relevant laws in the Optionee’s country may apply to the Optionee’s individual situation.

If the Optionee is a citizen or resident of a country other than the one in which the Optionee is currently working and/or residing (or is considered as such for local law purposes), or if the Optionee transfers employment to a different country after this Stock Option is granted, the notifications contained in this Appendix may not be applicable to the Optionee in the same manner.

Capitalized terms used but not defined in this Appendix shall have the same meanings assigned to them in the Plan and the Stock Option Agreement.

 

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AUSTRALIA

Terms and Conditions

Exercisability Schedule . The following provision supplements Paragraph 1 of the Stock Option Agreement:

The Optionee shall not be permitted to exercise this Stock Option when the Fair Market Value per Option Share is equal to or less than the Option Exercise Price. If all or a portion of this Stock Option vests when the Fair Market Value per Option Share is equal to or less than the Option Exercise Price, this Stock Option may only be exercised starting on the first U.S. business day following the day on which the Fair Market Value per Option Share exceeds the Option Exercise Price. If the first U.S. business day following the day on which the Fair Market Value per Option Share exceeds the Option Exercise Price falls in closed trading window (determined under applicable law or pursuant to the Company’s insider trading policy, if any), this Stock Option may be exercised only on the first U.S. business day following such closed trading window, provided the Fair Market Value per Option Share exceeds the Option Exercise Price on such day.

Expiration Date . Notwithstanding the Expiration Date set forth in the Stock Option Agreement, this Stock Option shall expire on the day immediately preceding the seventh (7th) anniversary of the Grant Date.

Notifications

Securities Law Information . If the Optionee acquires Option Shares under the Plan and offers the Option Shares for sale to a person or entity resident in Australia, the offer may be subject to disclosure requirements under Australian law. The Optionee should consult with his or her personal legal advisor before making any such offer in Australia.

BRAZIL

Terms and Conditions

Compliance with Law . The Optionee must comply with applicable Brazilian laws and is responsible for paying any and all applicable taxes associated with the exercise of this Stock Option, the receipt of any dividends, and the sale of Option Shares acquired under the Plan.

Notifications

Exchange Control Information . If the Optionee is resident or domiciled in Brazil, the Optionee will be required to submit an annual declaration of assets and rights held outside of Brazil to the Central Bank of Brazil if the aggregate value of such assets and rights equals or exceeds US$100,000. Assets and rights that must be reported include any Option Shares acquired under the Plan. Foreign individuals holding Brazilian visas are considered Brazilian residents for purposes of this reporting requirement and must declare at least the assets held abroad that were acquired subsequent to the date of admittance as a resident of Brazil.

 

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FRANCE

Terms and Conditions

Language Consent . By accepting this Stock Option, the Optionee confirms having read and understood the documents relating to this Stock Option (the Plan and the Agreement) which were provided to the Optionee in English. The Optionee accepts the terms of those documents accordingly.

Reconnaissance Relative à la Langue Utilisée . En acceptant le attribution, le Participant confirme avoir lu et compris les documents relatifs à cette attribution (le Plan et ce Contrat) qui ont été communiqués au Participant en langue anglaise. Le Participant accepte les termes de ces documents en connaissance de cause.

Notifications

Foreign Asset/Account Reporting Information . If the Optionee maintains a foreign bank account, the Optionee is required to report such account to the French tax authorities on his or her annual tax return.

GERMANY

Notifications

Exchange Control Information . Cross-border payments in excess of €12,500 must be reported monthly to the German Federal Bank ( Bundesbank ). In case of payments in connection with securities (including proceeds realized upon the sale of Option Shares or the receipt of any dividends), the report must be made by the 5th day of the month following the month in which the payment was received. Effective from September 2013, the report must be filed electronically. The form of report (“ Allgemeine Meldeportal Statistik ”) can be accessed via the Bundesbank’s website (www.bundesbank.de) and is available in both German and English. The Optionee is responsible for making this report.

IRELAND

Notifications

Director Reporting Obligation . If the Optionee is a director, shadow director or secretary of a Subsidiary in Ireland, the Optionee must notify the Irish Subsidiary in writing within five business days of receiving or disposing of an interest in the Company ( e.g. , Stock Options, Option Shares), or within five business days of becoming aware of the event giving rise to the notification requirement or within five days of becoming a director or secretary if such an interest exists at the time. This notification requirement also applies with respect to the interests of the Optionee’s spouse or children under the age of 18 (whose interests will be attributed to the Optionee if the Optionee is a director, shadow director or secretary).

 

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JAPAN

Notifications

Exchange Control Information . If the Optionee pays more than ¥30,000,000 for the purchase of Option Shares in any one transaction, the Optionee must file an ex post facto Payment Report with the Ministry of Finance (through the Bank of Japan or the bank carrying out the transaction). The precise reporting requirements vary depending on whether the relevant payment is made through a bank in Japan. If the Optionee acquires Option Shares with a value in excess of ¥100,000,000 in a single transaction, the Optionee must also file an ex post facto Report Concerning Acquisition of Shares with the Ministry of Finance through the Bank of Japan within 20 days of acquiring the Option Shares. The forms to make these reports can be acquired at the Bank of Japan.

A Payment Report is required independently of a Report Concerning Acquisition of Securities. Consequently, if the total amount that the Optionee pays on a one-time basis at exercise of this Stock Option exceeds ¥100,000,000, the Optionee must file both a Payment Report and a Report Concerning Acquisition of Securities.

Foreign Asset/Account Reporting Information . The Optionee is required to report details of any assets held outside of Japan as of December 31, including Option Shares acquired under the Plan, to the extent such assets have a total net fair market value exceeding ¥50,000,000. Such report will be due by March 15 each year. The Optionee is responsible for complying with this reporting obligation and is advised to consult his or her personal tax advisor in this regard.

PHILIPPINES

Notifications

Securities Law Information . The Optionee acknowledges that he or she is permitted to sell Option Shares acquired under the Plan through the designated Plan broker appointed by the Company (or such other broker to whom the Optionee transfers his or her Option Shares), provided that such sale takes place outside of the Philippines through the facilities of the [insert stock market on which shares will be listed] on which the Option Shares are listed.

SINGAPORE

Notifications

Securities Law Information . The grant of the Stock Options is being made pursuant to the “Qualifying Person” exemption” under section 273(1)(f) of the Securities and Futures Act (Chapter 289, 2006 Ed.) (“SFA”). The Plan has not been lodged or registered as a prospectus with the Monetary Authority of Singapore. The Optionee should note that the Stock Options are subject to section 257 of the SFA and the Optionee will not be able to make (i) any subsequent sale of the Option Shares in Singapore or (ii) any offer of such subsequent sale of the Option Shares subject to the Stock Options in Singapore, unless such sale or offer in is made pursuant to

 

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the exemptions under Part XIII Division 1 Subdivision (4) (other than section 280) of the SFA. The Option Shares are currently traded on the [insert stock exchange on which shares will be listed], which is located outside of Singapore, under the ticker symbol “[insert]” and Option Shares acquired under the Plan may be sold through this exchange.

Director Reporting Obligation . If the Optionee is a director, associate director or shadow director of a Singapore Subsidiary, he or she is subject to certain notification requirements under the Singapore Companies Act, regardless of whether he or she is a Singapore resident or employed in Singapore. Among these requirements is the obligation to notify the Singapore Subsidiary in writing when the Optionee receives or disposes of an interest ( e.g., Stock Options, Option Shares) in the Company or a Subsidiary. These notifications must be made within two business days of acquiring or disposing of any interest in the Company or any Subsidiary or within two business days of becoming a director, associate director or shadow director if such an interest exists at that time.

UNITED KINGDOM

Terms and Conditions

Responsibility for Taxes . The following provisions supplement Paragraph 6 of the Stock Option Agreement:

If payment or withholding of income tax is not made within ninety (90) days of the event giving rise to the Tax-Related Items or such other period specified in Section 222(1)(c) of the U.K. Income Tax (Earnings and Pensions) Act 2003 (the “Due Date”), the amount of any uncollected income tax will constitute a loan owed by the Optionee to the Service Recipient, effective on the Due Date. The loan will bear interest at the then-current official rate of Her Majesty’s Revenue and Customs (“HMRC”) and it will be immediately due and repayable by the Optionee, and the Company or the Service Recipient may recover it at any time thereafter by any of the means referred to in Paragraph 6 of the Stock Option Agreement.

Notwithstanding the foregoing, if the Optionee is a director or executive officer of the Company (within the meaning of Section 13(k) of the 1934 Act), the Optionee will not be eligible for such a loan to cover the unpaid income tax. In the event that the Optionee is such a director or executive officer and the income tax is not collected from or paid by the Optionee by the Due Date, the amount of any uncollected taxes will constitute a benefit to the Optionee on which additional income tax and national insurance contributions (“NICs”) will be payable. The Optionee will be responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime and for paying to the Company or the Service Recipient, as applicable, any employee NICs due on this additional benefit, which the Company or the Service Recipient may recover from the Optionee by any of the means referred to in Paragraph 6 of the Stock Option Agreement.

Joint Election . As a condition of the Optionee’s participation in the Plan and the exercise of the Stock Option, the Optionee shall accept any liability for secondary Class 1 NICs which may be payable by the Company and/or the Service Recipient in connection with the Stock Option and

 

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any event giving rise to Tax-Related Items (the “Employer’s Liability”). Without prejudice to the foregoing, the Optionee shall enter into a joint election with the Company or the Service Recipient, the form of such joint election being formally approved by HMRC (the “Joint Election”), and any other required consent or elections, including any such other joint elections as may be required between the Optionee and any successor to the Company and/or the Service Recipient. The Company and/or the Service Recipient may collect the Employer’s Liability from the Optionee by any of the means set forth in Paragraph 6 of the Stock Option Agreement.

 

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RESTRICTED STOCK UNIT AWARD AGREEMENT

FOR COMPANY EMPLOYEES

UNDER THE ZENDESK, INC.

2014 STOCK OPTION AND INCENTIVE PLAN

 

Name of Grantee:  

 

 
No. of Restricted Stock Units:  

 

   
Grant Date:  

 

   

Pursuant to the Zendesk, Inc. 2014 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Zendesk, Inc. (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the Grantee named above. Each Restricted Stock Unit shall relate to one share of Common Stock, par value $0.01 per share (the “Stock”) of the Company.

1. Restrictions on Transfer of Award . This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.

2. Vesting of Restricted Stock Units . The restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains an employee of the Company or a Subsidiary on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Stock Units specified as vested on such date.

 

Incremental Number of Restricted Stock Units Vested

   Vesting Date

             (    %)

  

             (    %)

  

             (    %)

  

             (    %)

  

The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.

3. Termination of Employment . If the Grantee’s employment with the Company and its Subsidiaries terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Restricted Stock Units.


For purposes of the Award, the Grantee’s employment will be considered terminated as of the date the Grantee is no longer actively providing services to the Company or any Subsidiary (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any). Unless otherwise determined by the Company, the Grantee’s right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of such date and will not be extended by any notice period (e.g., the Grantee’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any). The Administrator shall have the exclusive discretion to determine when the Grantee is no longer actively providing services for purposes of his or her Award (including whether the Grantee may still be considered to be providing services while on a leave of absence).

4. Issuance of Shares of Stock . As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares.

5. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Responsibility for Taxes . The Grantee acknowledges that, regardless of any action taken by the Company or, if different, the Subsidiary which employs the Grantee (the “Employer”), the ultimate liability for all Federal, state and other income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax related items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“Tax-Related Items”) is and remains the Grantee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. The Grantee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, including, but not limited to, the grant, vesting or settlement of the Restricted Stock Units, the subsequent sale of any shares of Stock acquired under the Plan and the receipt of any dividends or dividend equivalents; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock Units to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Grantee is subject to Tax-Related Items in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, the Grantee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

 

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(a) Prior to the relevant taxable or tax withholding event, as applicable, the Grantee agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, the Grantee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy their withholding obligations, if any, with regard to all Tax-Related Items by one or a combination of the following:

(i) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Employer; or

(ii) withholding from proceeds of the sale of shares of Stock acquired upon settlement of the Restricted Stock Units either through a voluntary sale or through a mandatory sale arranged by the Company (on the Grantee’s behalf pursuant to this authorization without further consent); or

(iii) withholding from shares of Stock to be issued upon settlement of the Restricted Stock Units a number of shares with an aggregate Fair Market Value that would satisfy the required minimum withholding amount due; or

(iv) by any other method deemed by the Company to comply with applicable laws.

(b) Depending on the withholding method and subject to the foregoing, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case the Grantee will receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent in shares. If the obligation for Tax-Related Items is satisfied by withholding in shares of Stock, for tax purposes, the Grantee is deemed to have been issued the full number of shares subject to the vested Restricted Stock Units, notwithstanding that a number of the shares are held back solely for the purpose of paying the Tax-Related Items.

(c) Finally, the Grantee agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares or the proceeds of the sale of shares of Stock if the Grantee fails to comply with his or her obligations in connection with the Tax-Related Items.

7. Section 409A of the Code . This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.

8. No Obligation to Continue Employment . Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Grantee at any time.

 

3


9. Integration . This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

10. Nature of Grant . In accepting the Award, the Grantee acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of the Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of restricted stock units, or benefits in lieu of restricted stock units, even if restricted stock units have been granted in the past;

(c) all decisions with respect to future restricted stock units or other grants, if any, will be at the sole discretion of the Company;

(d) the Award and the Grantee’s participation in the Plan shall not be interpreted as forming an employment contract with the Company;

(e) the Grantee is voluntarily participating in the Plan;

(f) the Award and any shares of Stock acquired under the Plan are not intended to replace any pension rights or compensation;

(g) the Award and any shares of Stock acquired under the Plan, and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or payments or welfare benefits or similar payments;

(h) the future value of the shares of Stock underlying the Award is unknown, indeterminable, and cannot be predicted with certainty;

(i) no claim or entitlement to compensation or damages shall arise from forfeiture of the Award resulting from the termination of the Grantee’s employment relationship (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Grantee is employed or the terms of the Grantee’s employment agreement, if any), and in consideration of the grant of the Restricted Stock Units to which the Grantee is otherwise not entitled, the Grantee irrevocably agrees never to institute any claim against the Employer, the Company or any of its Subsidiaries, waives his or her ability, if any, to bring any such claim, and releases the Employer, the Company and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Grantee shall be deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim; and

(j) unless otherwise provided in the Plan or by the Company in its discretion, the Award and the benefits evidenced by this Agreement do not create any entitlement to have the Restricted Stock Units or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Stock.

 

4


11. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan, or the Grantee’s acquisition or sale of the underlying shares of Stock. The Grantee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.

12. Data Privacy . The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in this Agreement and any other Award grant materials by and among, as applicable, the Employer, the Company and any Subsidiary for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.

The Grantee understands that the Employer, the Company and its Subsidiaries may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all awards or any other entitlement to shares of Stock awarded, canceled, exercised, vested, unvested or outstanding in the Grantee’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.

The Grantee understands that Data will be transferred to the stock plan service provider selected by the Company, which is assisting the Company with the implementation, administration and management of the Plan. The Grantee understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than the Grantee’s country. The Grantee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Grantee authorizes the Company, the stock plan service provider and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that Data will be held only as long as is necessary to implement, administer and manage the Grantee’s participation in the Plan. The Grantee understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Grantee understands that he or she is providing the consents herein on a purely voluntary basis. If the Grantee does not consent, or if the Grantee later seeks to revoke his or her consent, his or her employment status or service and career with the Company or any Subsidiary will not be adversely affected; the only adverse consequence of refusing or withdrawing consent is that the Company would not be able to

 

5


grant the Grantee Restricted Stock Units or other equity awards or administer or maintain such awards. Therefore, the Grantee understands that refusing or withdrawing his or her consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or she may contact his or her local human resources representative.

13. Governing Law; Venue . The Award and the provisions of this Agreement are governed by, and subject to, the laws of the State of Delaware, without regard to the conflict of law provisions. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of San Francisco County, California, or the federal courts for the United States for the Northern District of California, and no other courts, including any courts where this grant is made and/or to be performed.

14. Electronic Delivery and Acceptance . The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

15. Severability . The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

16. Notices . Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

17. Insider Trading Restrictions/Market Abuse Laws . The Grantee acknowledges that, depending on the Grantee’s country of residence, the Grantee may be subject to insider trading restrictions and/or market abuse laws, which may affect the Grantee’s ability to acquire or sell shares of Stock or rights to shares of Stock ( e.g. , Restricted Stock Units) under the Plan during such times as the Grantee is considered to have “inside information” regarding the Company (as defined by the laws in the Grantee’s country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. The Grantee acknowledges that it is his or her responsibility to comply with any applicable restrictions, and the Grantee is advised to speak to his or her personal advisor on this matter.

18. Imposition of Other Requirements . The Company reserves the right to impose other requirements on the Grantee’s participation in the Plan, on the Award and on any shares of Stock issued upon settlement of the Award, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Grantee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

19. Waiver . The Grantee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Grantee or any other Plan participant.

 

6


ZENDESK, INC.
By:  

 

  Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

Dated:  

 

   

 

      Grantee’s Signature
      Grantee’s name and address:
     

 

     

 

     

 

 

7


RESTRICTED STOCK UNIT AWARD AGREEMENT

FOR NON-EMPLOYEE DIRECTORS

UNDER THE ZENDESK, INC.

2014 STOCK OPTION AND INCENTIVE PLAN

 

Name of Grantee:  

 

 
No. of Restricted Stock Units:  

 

   
Grant Date:  

 

   

Pursuant to the Zendesk, Inc. 2014 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Zendesk, Inc. (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the Grantee named above. Each Restricted Stock Unit shall relate to one share of Common Stock, par value $0.01 per share (the “Stock”) of the Company.

1. Restrictions on Transfer of Award . This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.

2. Vesting of Restricted Stock Units . The restrictions and conditions of Paragraph 1 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains in service as a member of the Board on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Stock Units specified as vested on such date.

 

Incremental Number of Restricted Stock Units Vested

   Vesting Date

             (    %)

  

             (    %)

  

             (    %)

  

             (    %)

  

The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.

3. Termination of Service . If the Grantee’s service with the Company and its Subsidiaries terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Restricted Stock Units.


4. Issuance of Shares of Stock . As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares.

5. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Responsibility for Taxes . The Grantee acknowledges that, regardless of any action taken by the Company, the ultimate liability for all Federal, state and other income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax related items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“Tax-Related Items”) is and remains the Grantee’s responsibility and may exceed the amount (if any) actually withheld by the Company. To the extent that the Company is required to withhold upon settlement of this Award with respect to any Tax-Related Items, such withholding may be satisfied in accordance with the terms of the Plan.

7. Section 409A of the Code . This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.

8. No Obligation to Continue as a Director . Neither the Plan nor this Award confers upon the Grantee any rights with respect to continuance as a Director.

9. Integration . This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

10. Nature of Grant . In accepting the Award, the Grantee acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of the Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of restricted stock units, or benefits in lieu of restricted stock units, even if restricted stock units have been granted in the past;

 

2


(c) all decisions with respect to future restricted stock units or other grants, if any, will be at the sole discretion of the Company;

(d) the Award and the Grantee’s participation in the Plan shall not be interpreted as forming an employment or other service contract with the Company;

(e) the Grantee is voluntarily participating in the Plan;

(f) the Award and any shares of Stock acquired under the Plan are not intended to replace any pension rights or compensation;

(g) the Award and any shares of Stock acquired under the Plan, and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or payments or welfare benefits or similar payments;

(h) the future value of the shares of Stock underlying the Award is unknown, indeterminable, and cannot be predicted with certainty;

(i) no claim or entitlement to compensation or damages shall arise from forfeiture of the Award resulting from the termination of the Grantee’s employment or other service relationship (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Grantee provides services or the terms of the Grantee’s employment or service agreement, if any), and in consideration of the grant of the Restricted Stock Units to which the Grantee is otherwise not entitled, the Grantee irrevocably agrees never to institute any claim against the Company or any of its Subsidiaries, waives his or her ability, if any, to bring any such claim, and releases the Company and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Grantee shall be deemed irrevocably to have agreed not to pursue such claim and agree to execute any and all documents necessary to request dismissal or withdrawal of such claim; and

(j) unless otherwise provided in the Plan or by the Company in its discretion, the Award and the benefits evidenced by this Agreement do not create any entitlement to have the Restricted Stock Units or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Stock.

11. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan, or the Grantee’s acquisition or sale of the underlying shares of Stock. The Grantee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.

12. Data Privacy . The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in this Agreement and any other Award grant materials by and among, as applicable, the Company and any Subsidiary for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.

 

3


The Grantee understands that the Company and its Subsidiaries may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all awards or any other entitlement to shares of Stock awarded, canceled, exercised, vested, unvested or outstanding in the Grantee’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.

The Grantee understands that Data will be transferred to the stock plan service provider selected by the Company, which is assisting the Company with the implementation, administration and management of the Plan. The Grantee understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than the Grantee’s country. The Grantee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Grantee authorizes the Company, the stock plan service provider and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that Data will be held only as long as is necessary to implement, administer and manage the Grantee’s participation in the Plan. The Grantee understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Grantee understands that he or she is providing the consents herein on a purely voluntary basis. If the Grantee does not consent, or if the Grantee later seeks to revoke his or her consent, his or her employment status or service and career with the Company or any Subsidiary will not be adversely affected; the only adverse consequence of refusing or withdrawing consent is that the Company would not be able to grant the Grantee Restricted Stock Units or other equity awards or administer or maintain such awards. Therefore, the Grantee understands that refusing or withdrawing his or her consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or she may contact his or her local human resources representative.

13. Governing Law; Venue . The Award and the provisions of this Agreement are governed by, and subject to, the laws of the State of Delaware, without regard to the conflict of law provisions. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of San Francisco County, California, or the federal courts for the United States for the Northern District of California, and no other courts, including any courts where this grant is made and/or to be performed.

 

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14. Electronic Delivery and Acceptance . The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

15. Severability . The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

16. Notices . Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

17. Imposition of Other Requirements . The Company reserves the right to impose other requirements on the Grantee’s participation in the Plan, on the Award and on any shares of Stock issued upon settlement of the Award, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Grantee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

18. Waiver . The Grantee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Grantee or any other Plan participant.

 

5


ZENDESK, INC.
By:  

 

  Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

Dated:  

 

   

 

      Grantee’s Signature
      Grantee’s name and address:
     

 

     

 

     

 

 

6


RESTRICTED STOCK UNIT AWARD AGREEMENT

FOR NON-U.S. GRANTEES

UNDER THE ZENDESK, INC.

2014 STOCK OPTION AND INCENTIVE PLAN

 

Name of Grantee:  

 

 
No. of Restricted Stock Units:  

 

   
Grant Date:  

 

   

Pursuant to the Zendesk, Inc. 2014 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Zendesk, Inc. (the “Company”) hereby grants an award of the number of Restricted Stock Units listed above (an “Award”) to the Grantee named above. Each Restricted Stock Unit shall relate to one share of Common Stock, par value $0.014 per share (the “Stock”) of the Company. The Award shall be governed by and subject to the terms of the Plan and this Restricted Stock Unit Award Agreement for Non-U.S. Grantees (the “Award Agreement”) including any special terms and conditions for the Grantee’s country set forth in any appendix to this Award Agreement (the “Appendix”) (together with the Award Agreement, the “Agreement”).

1. Restrictions on Transfer of Award . This Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of by the Grantee, and any shares of Stock issuable with respect to the Award may not be sold, transferred, pledged, assigned or otherwise encumbered or disposed of until (i) the Restricted Stock Units have vested as provided in Paragraph 2 of this Award Agreement and (ii) shares of Stock have been issued to the Grantee in accordance with the terms of the Plan and this Agreement.

2. Vesting of Restricted Stock Units . The restrictions and conditions of Paragraph 1 of this Award Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains an employee or other service provider with the Company or a Subsidiary on such Dates, as further described in Paragraph 3 of this Award Agreement. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 1 shall lapse only with respect to the number of Restricted Stock Units specified as vested on such date.

 

Incremental Number of Restricted Stock Units Vested

   Vesting Date

             (    %)

  

             (    %)

  

             (    %)

  

             (    %)

  

The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 2.


3. Termination of Service Relationship . If the Grantee’s service relationship with the Company and its Subsidiaries terminates for any reason (including death or disability) prior to the satisfaction of the vesting conditions set forth in Paragraph 2 above, any Restricted Stock Units that have not vested as of such date shall automatically and without notice terminate and be forfeited, and neither the Grantee nor any of his or her successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in such unvested Restricted Stock Units.

For purposes of the Award, the Grantee’s service relationship will be considered terminated as of the date the Grantee is no longer actively providing services to the Company or any Subsidiary (regardless of the reason for such termination and whether or not later found to be invalid or in breach of labor laws in the jurisdiction where the Grantee is providing services or the terms of the Grantee’s service agreement, if any). Unless otherwise determined by the Company, the Grantee’s right to vest in the Restricted Stock Units under the Plan, if any, will terminate as of such date and will not be extended by any notice period ( e.g ., the Grantee’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under labor laws in the jurisdiction where the Grantee is providing services or the terms of the Grantee’s service agreement, if any). The Administrator shall have the exclusive discretion to determine when the Grantee is no longer actively providing services for purposes of his or her Award (including whether the Grantee may still be considered to be providing services while on a leave of absence).

4. Issuance of Shares of Stock . As soon as practicable following each Vesting Date (but in no event later than two and one-half months after the end of the year in which the Vesting Date occurs), the Company shall issue to the Grantee the number of shares of Stock equal to the aggregate number of Restricted Stock Units that have vested pursuant to Paragraph 2 of this Award Agreement on such date and the Grantee shall thereafter have all the rights of a stockholder of the Company with respect to such shares.

5. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Agreement shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Responsibility for Taxes . The Grantee acknowledges that, regardless of any action taken by the Company or, if different, any Subsidiary for which the Grantee renders services (the “Service Recipient”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“Tax-Related Items”) is and remains the Grantee’s responsibility and may exceed the amount actually withheld by the Company or the Service Recipient. The Grantee further acknowledges that the Company and/or the Service Recipient (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Restricted Stock Units, including, but not limited to, the grant, vesting or settlement of the Restricted Stock Units, the subsequent sale of any shares of Stock acquired under the Plan and the receipt of any dividends or dividend equivalents; and (ii) do not commit to and are under no obligation to structure the terms of the

 

2


grant or any aspect of the Restricted Stock Units to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Grantee is subject to Tax-Related Items in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, the Grantee acknowledges that the Company and/or the Service Recipient (or former service recipient, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

Prior to the relevant taxable or tax withholding event, as applicable, the Grantee agrees to make adequate arrangements satisfactory to the Company and/or the Service Recipient to satisfy all Tax-Related Items. In this regard, the Grantee authorizes the Company and/or the Service Recipient, or their respective agents, at their discretion, to satisfy their withholding obligations, if any, with regard to all Tax-Related Items by one or a combination of the following:

 

  (1) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Service Recipient; or

 

  (2) withholding from proceeds of the sale of shares of Stock acquired upon settlement of the Restricted Stock Units either through a voluntary sale or through a mandatory sale arranged by the Company (on the Grantee’s behalf pursuant to this authorization without further consent); or

 

  (3) withholding in shares of Stock to be issued upon settlement of the Restricted Stock Units; or

 

  (4) by any other method deemed by the Company to comply with applicable laws.

Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case the Grantee will receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent in shares. If the obligation for Tax-Related Items is satisfied by withholding in shares of Stock, for tax purposes, the Grantee is deemed to have been issued the full number of shares subject to the vested Restricted Stock Units, notwithstanding that a number of the shares are held back solely for the purpose of paying the Tax-Related Items.

Finally, the Grantee agrees to pay to the Company or the Service Recipient any amount of Tax-Related Items that the Company or the Service Recipient may be required to withhold or account for as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver the shares or the proceeds of the sale of shares of Stock if the Grantee fails to comply with his or her obligations in connection with the Tax-Related Items.

7. Section 409A of the Code . This Agreement shall be interpreted in such a manner that all provisions relating to the settlement of the Award are exempt from the requirements of Section 409A of the Code as “short-term deferrals” as described in Section 409A of the Code.

8. No Obligation to Continue Service Relationship . Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee’s

 

3


service relationship and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the Grantee’s service relationship at any time.

9. Integration . This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

10. Nature of Grant . In accepting the Award, the Grantee acknowledges, understands and agrees that:

(i) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(ii) the grant of the Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of restricted stock units, or benefits in lieu of restricted stock units, even if restricted stock units have been granted in the past;

(iii) all decisions with respect to future restricted stock units or other grants, if any, will be at the sole discretion of the Company;

(iv) the Award and the Grantee’s participation in the Plan shall not be interpreted as forming a service contract with the Company;

(v) the Grantee is voluntarily participating in the Plan;

(vi) the Award and any shares of Stock acquired under the Plan are not intended to replace any pension rights or compensation;

(vii) the Award and any shares of Stock acquired under the Plan, and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or payments or welfare benefits or similar payments;

(viii) the future value of the shares of Stock underlying the Award is unknown, indeterminable, and cannot be predicted with certainty;

(ix) no claim or entitlement to compensation or damages shall arise from forfeiture of the Award resulting from the termination of the Grantee’s service relationship (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Grantee is providing services or the terms of the Grantee’s service agreement, if any), and in consideration of the grant of the Restricted Stock Units to which the Grantee is otherwise not entitled, the Grantee irrevocably agrees never to institute any claim against the Company, the Service Recipient or any other Subsidiary, waives his or her ability, if any, to bring any such claim, and releases, the Company, the Service Recipient and any other

 

4


Subsidiary from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Grantee shall be deemed irrevocably to have agreed not to pursue such claim and agree to execute any and all documents necessary to request dismissal or withdrawal of such claim;

(x) unless otherwise provided in the Plan or by the Company in its discretion, the Award and the benefits evidenced by this Agreement do not create any entitlement to have the Restricted Stock Units or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Stock; and

(xi) neither, the Company, the Service Recipient nor any other Subsidiary shall be liable for any foreign exchange rate fluctuation between the Grantee’s local currency and the United States Dollar that may affect the value of the Award or of any amounts due to the Grantee pursuant to settlement of the Award or the subsequent sale of any shares of Stock acquired upon settlement.

11. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan, or the Grantee’s acquisition or sale of the underlying shares of Stock. The Grantee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.

12. Data Privacy . The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in this Agreement and any other Award grant materials by and among, as applicable, the Company, the Service Recipient and any other Subsidiary for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.

The Grantee understands that the Company, the Service Recipient and any other Subsidiary may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all awards or any other entitlement to shares of Stock awarded, canceled, exercised, vested, unvested or outstanding in the Grantee’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.

The Grantee understands that Data will be transferred to the stock plan service provider selected by the Company, which is assisting the Company with the implementation, administration and management of the Plan. The Grantee understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than the Grantee’s country. The Grantee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Grantee authorizes the Company, the stock plan service

 

5


provider and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that Data will be held only as long as is necessary to implement, administer and manage the Grantee’s participation in the Plan. The Grantee understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Grantee understands that he or she is providing the consents herein on a purely voluntary basis. If the Grantee does not consent, or if the Grantee later seeks to revoke his or her consent, his or her service relationship with the Company, the Service Recipient or any other Subsidiary will not be adversely affected; the only adverse consequence of refusing or withdrawing consent is that the Company would not be able to grant the Grantee Restricted Stock Units or other equity awards or administer or maintain such awards. Therefore, the Grantee understands that refusing or withdrawing his or her consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or she may contact his or her local human resources representative.

13. Governing Law; Venue . The Award and the provisions of this Agreement are governed by, and subject to, the laws of the State of Delaware, without regard to the conflict of law provisions. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of San Francisco County, California, or the federal courts for the United States for the Northern District of California, and no other courts, including any courts where this grant is made and/or to be performed.

14. Electronic Delivery and Acceptance . The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

15. Language . If the Grantee has received this Agreement, or any other document related to the Award and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.

16. Severability . The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

17. Notices . Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

 

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18. Appendix . Notwithstanding any provisions in this Award Agreement, the Award shall be subject to any special terms and conditions set forth in any Appendix to this Award Agreement for the Grantee’s country. Moreover, if the Grantee relocates to one of the countries included in the Appendix, the special terms and conditions for such country will apply to the Grantee, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Appendix constitutes part of this Award Agreement.

19. Insider Trading Restrictions/Market Abuse Laws . The Grantee acknowledges that, depending on the Grantee’s country of residence, the Grantee may be subject to insider trading restrictions and/or market abuse laws, which may affect the Grantee’s ability to acquire or sell shares of Stock or rights to shares of Stock ( e.g. , Restricted Stock Units) under the Plan during such times as the Grantee is considered to have “inside information” regarding the Company (as defined by the laws in the Grantee’s country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. The Grantee acknowledges that it is his or her responsibility to comply with any applicable restrictions, and the Grantee is advised to speak to his or her personal advisor on this matter.

20. Imposition of Other Requirements . The Company reserves the right to impose other requirements on the Grantee’s participation in the Plan, on the Award and on any shares of Stock issued upon settlement of the Award, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Grantee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

21. Waiver . The Grantee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Grantee or any other Plan participant.

 

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ZENDESK, INC.
By:  

 

  Title:

The Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

Dated:  

 

   

 

      Grantee’s Signature
      Grantee’s name and address:
     

 

     

 

     

 

 

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APPENDIX

TO THE

RESTRICTED STOCK UNIT AWARD AGREEMENT

FOR NON-U.S. GRANTEES

Terms and Conditions

This Appendix includes additional terms and conditions that govern the Award if the Grantee works and/or resides in one of the countries listed below. If the Grantee is a citizen or resident of a country other than the one in which the Grantee is currently working and/or residing (or is considered as such for local law purposes), or the Grantee transfers employment to a different country after the Award is granted, the Company will, in its discretion, determine the extent to which the terms and conditions contained herein will apply to the Grantee.

Notifications

This Appendix also includes information regarding certain other issues of which the Grantee should be aware with respect to the Grantee’s participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as of December 2013. Such laws are often complex and change frequently. As a result, the Company strongly recommends that the Grantee not rely on the information noted herein as the only source of information relating to the consequences of participation in the Plan because the information may be out-of-date at the time the Grantee vests in the Restricted Stock Units or sells any shares of Stock issued at settlement of the Award.

In addition, the information contained herein is general in nature and may not apply to the Grantee’s particular situation. As a result, the Company is not in a position to assure the Grantee of any particular result. Accordingly, the Grantee is strongly advised to seek appropriate professional advice as to how the relevant laws in the Grantee’s country may apply to the Grantee’s individual situation.

If the Grantee is a citizen or resident of a country other than the one in which the Grantee is currently working and/or residing (or is considered as such for local law purposes), or if the Grantee transfers employment to a different country after the Award is granted, the notifications contained in this Appendix may not be applicable to the Grantee in the same manner.

Capitalized terms used but not defined in this Appendix shall have the same meanings assigned to them in the Plan and the Award Agreement.

AUSTRALIA

Notifications

Securities Law Information . If the Grantee acquires shares of Stock under the Plan and offers the shares for sale to a person or entity resident in Australia, the offer may be subject to disclosure requirements under Australian law. The Grantee should consult with his or her personal legal advisor before making any such offer in Australia.

 

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BRAZIL

Terms and Conditions

Compliance with Law . The Grantee must comply with applicable Brazilian laws and is responsible for paying any and all applicable taxes associated with the settlement of the Award, the receipt of any dividends, and the sale of shares of Stock acquired under the Plan.

Notifications

Exchange Control Information . If the Grantee is a resident or is domiciled in Brazil, he or she will be required to submit an annual declaration of assets and rights held outside of Brazil to the Central Bank of Brazil if the aggregate value of such assets and rights equals or exceeds US$100,000. Assets and rights that must be reported include any shares of Stock acquired under the Plan. Foreign individuals holding Brazilian visas are considered Brazilian residents for purposes of this reporting requirement and must declare at least the assets held abroad that were acquired subsequent to the date of admittance as a resident of Brazil.

DENMARK

Notifications

Securities/Tax Reporting Information . The Grantee may hold shares of Stock acquired under the Plan in a safety-deposit account ( e.g. , a brokerage account) with either a Danish bank or with an approved foreign broker or bank. If the shares of Stock are held with a foreign broker or bank, the Grantee is required to inform the Danish Tax Administration about the safety-deposit account. For this purpose, the Grantee must file a Form V (Erklaering V) with the Danish Tax Administration. Both the Grantee and the broker or bank must sign the Form V. By signing the Form V, the broker or bank undertakes an obligation, without further request each year, to forward information to the Danish Tax Administration concerning the shares of Stock in the safety-deposit account. In the event that the applicable broker or bank with which the account is held does not wish to, or, pursuant to the laws of the country in question, is not allowed to assume such obligation to report, the Grantee will be solely responsible for providing certain details regarding the foreign brokerage or bank account and any shares of Stock acquired in connection with the Plan and held in such account to the Danish Tax Administration as part of the Grantee’s annual income tax return. By signing the Form V, the Grantee authorizes the Danish Tax Administration to examine the account. A sample of the Declaration V can be found at the following website: www.skat.dk/getFile.aspx?Id=47392 .

In addition, if the Grantee opens a brokerage account (or a deposit account with a U.S. bank), the brokerage account (or bank account, as applicable) will be treated as a deposit account because cash can be held in the account. Therefore, the Grantee must also file a Form K (Erklaering K) with the Danish Tax Administration. Both the Grantee and the broker must sign the Form K. By signing the Form K, the broker or bank, as applicable, undertakes an obligation, without further

 

10


request each year, to forward information to the Danish Tax Administration concerning the content of the deposit account. In the event that the applicable financial institution (broker or bank) with which the account is held does not wish to, or, pursuant to the laws of the country in question, is not allowed to assume such obligation to report, the Grantee will be solely responsible for providing certain details regarding the foreign brokerage or bank account to the Danish Tax Administration as part of the Grantee’s annual income tax return. By signing the Form K, the Grantee authorizes the Danish Tax Administration to examine the account. A sample of Declaration K can be found at the following website: www.skat.dk/getFile.aspx?Id=42409&newwindow=true .

FRANCE

Term and Conditions

Language Consent . By accepting the Award, the Grantee confirms having read and understood the documents relating to this grant (the Plan and the Agreement) which were provided to the Grantee in English. The Grantee accepts the terms of those documents accordingly.

Reconnaissance Relative à la Langue Utilisée . En acceptant le attribution, le Bénéficiaire confirme avoir lu et compris les documents relatifs à cette attribution (le Plan et ce Contrat) qui ont été communiqués au Bénéficiaire en langue anglaise. Le Bénéficiaire accepte les termes de ces documents en connaissance de cause.

Notifications

Foreign Asset/Account Reporting Information . If the Grantee maintains a foreign bank account, the Grantee is required to report such account to the French tax authorities on his or her annual tax return.

GERMANY

Notifications

Exchange Control Information . Cross-border payments in excess of €12,500 must be reported monthly to the German Federal Bank ( Bundesbank ). In case of payments in connection with securities (including proceeds realized upon the sale of shares of Stock or the receipt of dividends), the report must be made by the 5th day of the month following the month in which the payment was received. Effective from September 2013, the report must be filed electronically. The form of report (“ Allgemeine Meldeportal Statistik ”) can be accessed via the Bundesbank’s website (www.bundesbank.de) and is available in both German and English. The Grantee is responsible for making this report.

 

11


IRELAND

Notifications

Director Reporting Obligation . If the Grantee is a director, shadow director or secretary of a Subsidiary in Ireland, the Grantee must notify the Irish Subsidiary in writing within five business days of receiving or disposing of an interest in the Company ( e.g. , Restricted Stock Units, shares of Stock), or within five business days of becoming aware of the event giving rise to the notification requirement or within five days of becoming a director or secretary if such an interest exists at the time. This notification requirement also applies with respect to the interests of the Grantee’s spouse or children under the age of 18 (whose interests will be attributed to the Grantee if the Grantee is a director, shadow director or secretary).

JAPAN

Notifications

Foreign Asset/Account Reporting Information . The Grantee is required to report details of any assets held outside of Japan as of December 31, including shares of Stock acquired under the Plan, to the extent such assets have a total net fair market value exceeding ¥50,000,000. Such report will be due by March 15 each year. The Grantee is responsible for complying with this reporting obligation and is advised to consult with his or her personal tax advisor in this regard.

PHILIPPINES

Notifications

Securities Law Information . The Grantee acknowledges that he or she is permitted to sell shares of Stock acquired under the Plan through the designated Plan broker appointed by the Company (or such other broker to whom the Grantee transfers his or her shares of Stock), provided that such sale takes place outside of the Philippines through the facilities of the [insert stock market on which shares will be listed] on which the shares are listed.

SINGAPORE

Notifications

Securities Law Information . The grant of the Restricted Stock Units is being made pursuant to the “Qualifying Person” exemption” under section 273(1)(f) of the Securities and Futures Act (Chapter 289, 2006 Ed.) (“SFA”). The Plan has not been lodged or registered as a prospectus with the Monetary Authority of Singapore. The Grantee should note that the Restricted Stock Units are subject to section 257 of the SFA and the Grantee will not be able to make (i) any subsequent sale of the shares of Stock in Singapore or (ii) any offer of such subsequent sale of the shares of Stock subject to the Restricted Stock Units in Singapore, unless such sale or offer in is made pursuant to the exemptions under Part XIII Division 1 Subdivision (4) (other than section 280) of the SFA. The shares of Stock are currently traded on the [insert stock exchange on which shares will be listed], which is located outside of Singapore, under the ticker symbol “[insert]” and shares of Stock acquired under the Plan may be sold through this exchange.

 

12


Director Reporting Obligation . If the Grantee is a director, associate director or shadow director of a Singapore Subsidiary, he or she is subject to certain notification requirements under the Singapore Companies Act, regardless of whether he or she is a Singapore resident or employed in Singapore. Among these requirements is the obligation to notify the Singapore Subsidiary in writing when the Grantee receives or disposes of an interest ( e.g., Restricted Stock Units, shares of Stock) in the Company or a Subsidiary. These notifications must be made within two business days of acquiring or disposing of any interest in the Company or any Subsidiary or within two business days of becoming a director, associate director or shadow director if such an interest exists at that time.

UNITED KINGDOM

Terms and Conditions

Responsibility for Taxes . The following provisions supplement Paragraph 6 of the Award Agreement:

If payment or withholding of income tax is not made within ninety (90) days of the event giving rise to the Tax-Related Items or such other period specified in Section 222(1)(c) of the U.K. Income Tax (Earnings and Pensions) Act 2003 (the “Due Date”), the amount of any uncollected income tax will constitute a loan owed by the Grantee to the Service Recipient, effective on the Due Date. The loan will bear interest at the then-current official rate of Her Majesty’s Revenue and Customs (“HMRC”) and it will be immediately due and repayable by the Grantee, and the Company or the Service Recipient may recover it at any time thereafter by any of the means referred to in Paragraph 6 of the Award Agreement.

Notwithstanding the foregoing, if the Grantee is a director or executive officer of the Company (within the meaning of Section 13(k) of the 1934 Act), the Grantee will not be eligible for such a loan to cover the unpaid income tax. In the event that the Grantee is such a director or executive officer and the income tax is not collected from or paid by the Grantee by the Due Date, the amount of any uncollected taxes will constitute a benefit to the Grantee on which additional income tax and national insurance contributions (“NICs”) will be payable. The Grantee will be responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime and for paying to the Company or the Service Recipient, as applicable, any employee NICs due on this additional benefit, which the Company or the Service Recipient may recover from the Grantee by any of the means referred to in Paragraph 6 of the Award Agreement.

Joint Election . As a condition of the Grantee’s participation in the Plan and vesting of the Restricted Stock Units, the Grantee shall accept any liability for secondary Class 1 NICs which may be payable by the Company and/or the Service Recipient in connection with the Award and any event giving rise to Tax-Related Items (the “Employer’s Liability”). Without prejudice to the foregoing, the Grantee shall enter into a joint election with the Company or the Service

 

13


Recipient, the form of such joint election being formally approved by HMRC (the “Joint Election”), and any other required consent or elections, including any such other joint elections as may be required between the Grantee and any successor to the Company and/or the Service Recipient. The Company and/or the Service Recipient may collect the Employer’s Liability from the Grantee by any of the means set forth in Paragraph 6 of the Award Agreement.

 

14


RESTRICTED STOCK AWARD AGREEMENT

UNDER THE ZENDESK, INC.

2014 STOCK OPTION AND INCENTIVE PLAN

 

Name of Grantee:  

 

 
No. of Shares:  

 

   
Grant Date:  

 

   

Pursuant to the Zendesk, Inc. 2014 Stock Option and Incentive Plan as amended through the date hereof (the “Plan”), Zendesk, Inc. (the “Company”) hereby grants a Restricted Stock Award (an “Award”) to the Grantee named above. Upon acceptance of this Award, the Grantee shall receive the number of shares of Common Stock, par value $0.01 per share (the “Stock”) of the Company specified above, subject to the restrictions and conditions set forth herein and in the Plan. The Company acknowledges the receipt from the Grantee of consideration with respect to the par value of the Stock in the form of cash, past or future services rendered to the Company by the Grantee or such other form of consideration as is acceptable to the Administrator.

1. Award . The shares of Restricted Stock awarded hereunder shall be issued and held by the Company’s transfer agent in book entry form, and the Grantee’s name shall be entered as the stockholder of record on the books of the Company. Thereupon, the Grantee shall have all the rights of a stockholder with respect to such shares, including voting and dividend rights, subject, however, to the restrictions and conditions specified in Paragraph 2 below. The Grantee shall (i) sign and deliver to the Company a copy of this Award Agreement and (ii) deliver to the Company a stock power endorsed in blank.

2. Restrictions and Conditions .

(a) Any book entries for the shares of Restricted Stock granted herein shall bear an appropriate legend, as determined by the Administrator in its sole discretion, to the effect that such shares are subject to restrictions as set forth herein and in the Plan.

(b) Shares of Restricted Stock granted herein may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of by the Grantee prior to vesting.

(c) If the Grantee’s employment with the Company and its Subsidiaries is voluntarily or involuntarily terminated for any reason (including death) prior to vesting of shares of Restricted Stock granted herein, all shares of Restricted Stock shall immediately and automatically be forfeited and returned to the Company.

3. Vesting of Restricted Stock . The restrictions and conditions in Paragraph 2 of this Agreement shall lapse on the Vesting Date or Dates specified in the following schedule so long as the Grantee remains an employee of the Company or a Subsidiary on such Dates. If a series of Vesting Dates is specified, then the restrictions and conditions in Paragraph 2 shall lapse only with respect to the number of shares of Restricted Stock specified as vested on such date.

 

Incremental Number of Shares Vested

   Vesting Date

             (    %)

  

             (    %)

               

             (    %)

               

             (    %)

               

             (    %)

               


Subsequent to such Vesting Date or Dates, the shares of Stock on which all restrictions and conditions have lapsed shall no longer be deemed Restricted Stock. The Administrator may at any time accelerate the vesting schedule specified in this Paragraph 3.

4. Dividends . Dividends on shares of Restricted Stock shall be paid currently to the Grantee.

5. Incorporation of Plan . Notwithstanding anything herein to the contrary, this Award shall be subject to and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan, unless a different meaning is specified herein.

6. Transferability . This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.

7. Responsibility for Taxes . The Grantee acknowledges that, regardless of any action taken by the Company or, if different, the Subsidiary which employs the Grantee (the “Employer”), the ultimate liability for all Federal, state and other income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax related items related to the Grantee’s participation in the Plan and legally applicable to the Grantee (“Tax-Related Items”) is and remains the Grantee’s responsibility and may exceed the amount actually withheld by the Company or the Employer. The Grantee further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Award, including, but not limited to, the grant or vesting of the Restricted Stock, the subsequent sale of any shares of Stock acquired under the Plan and the receipt of any dividends or dividend equivalents; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Restricted Stock to reduce or eliminate the Grantee’s liability for Tax-Related Items or achieve any particular tax result. Further, if the Grantee is subject to Tax-Related Items in more than one jurisdiction between the Grant Date and the date of any relevant taxable or tax withholding event, as applicable, the Grantee acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

(a) Prior to the relevant taxable or tax withholding event, as applicable, the Grantee agrees to make adequate arrangements satisfactory to the Company and/or the Employer

 

2


to satisfy all Tax-Related Items. In this regard, the Grantee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy their withholding obligations, if any, with regard to all Tax-Related Items by one or a combination of the following:

(i) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Employer; or

(ii) withholding from proceeds of the sale of shares of Stock that are no longer subject to restrictions either through a voluntary sale or through a mandatory sale arranged by the Company (on the Grantee’s behalf pursuant to this authorization without further consent); or

(iii) by any other method deemed by the Company to comply with applicable laws.

(b) Depending on the withholding method and subject to the foregoing, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case the Grantee will receive a refund of any over-withheld amount in cash and will have no entitlement to the equivalent in shares.

(c) Finally, the Grantee agrees to pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to remove the restrictions on the shares of Stock if the Grantee fails to comply with his or her obligations in connection with the Tax-Related Items.

(d) Election Under Section 83(b) . The Grantee and the Company hereby agree that the Grantee may, within 30 days following the Grant Date of this Award, file with the Internal Revenue Service and the Company an election under Section 83(b) of the Internal Revenue Code. In the event the Grantee makes such an election, he or she agrees to provide a copy of the election to the Company. The Grantee acknowledges that he or she is responsible for obtaining the advice of his or her tax advisors with regard to the Section 83(b) election and that he or she is relying solely on such advisors and not on any statements or representations of the Company or any of its agents with regard to such election.

8. No Obligation to Continue Employment . Neither the Company nor any Subsidiary is obligated by or as a result of the Plan or this Agreement to continue the Grantee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate the employment of the Grantee at any time.

9. Integration . This Agreement constitutes the entire agreement between the parties with respect to this Award and supersedes all prior agreements and discussions between the parties concerning such subject matter.

10. Nature of Grant . In accepting the Award, the Grantee acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

 

3


(b) the grant of the Restricted Stock is voluntary and occasional and does not create any contractual or other right to receive future grants of restricted stock, or benefits in lieu of restricted stock, even if restricted stock has been granted in the past;

(c) all decisions with respect to future restricted stock or other grants, if any, will be at the sole discretion of the Company;

(d) the Award and the Grantee’s participation in the Plan shall not be interpreted as forming an employment or other service contract with the Company;

(e) the Grantee is voluntarily participating in the Plan;

(f) the Award and any shares of Stock acquired under the Plan are not intended to replace any pension rights or compensation;

(g) the Award and any shares of Stock acquired under the Plan, and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or payments or welfare benefits or similar payments;

(h) the future value of the shares of Stock underlying the Award is unknown, indeterminable, and cannot be predicted with certainty;

(i) no claim or entitlement to compensation or damages shall arise from forfeiture of the Award resulting from the termination of the Grantee’s employment or other service relationship (for any reason whatsoever, whether or not later found to be invalid or in breach of employment laws in the jurisdiction where the Grantee provides services or the terms of the Grantee’s employment or service agreement, if any), and in consideration of the grant of the Restricted Stock to which the Grantee is otherwise not entitled, the Grantee irrevocably agrees never to institute any claim against the Company or any of its Subsidiaries, waives his or her ability, if any, to bring any such claim, and releases the Company and any Subsidiary from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Grantee shall be deemed irrevocably to have agreed not to pursue such claim and agree to execute any and all documents necessary to request dismissal or withdrawal of such claim; and

(j) unless otherwise provided in the Plan or by the Company in its discretion, the Award and the benefits evidenced by this Agreement do not create any entitlement to have the Restricted Stock or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Stock.

 

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11. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan, or the Grantee’s acquisition or sale of the underlying shares of Stock. The Grantee is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding his or her participation in the Plan before taking any action related to the Plan.

12. Data Privacy . The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in this Agreement and any other Award grant materials by and among, as applicable, the Employer, the Company and any of its Subsidiaries for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.

The Grantee understands that the Employer, the Company and its Subsidiaries may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of all awards or any other entitlement to shares of Stock awarded, canceled, exercised, vested, unvested or outstanding in the Grantee’s favor (“Data”), for the exclusive purpose of implementing, administering and managing the Plan.

The Grantee understands that Data will be transferred to the stock plan service provider selected by the Company, which is assisting the Company with the implementation, administration and management of the Plan. The Grantee understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than the Grantee’s country. The Grantee understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. The Grantee authorizes the Company, the stock plan service provider and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that Data will be held only as long as is necessary to implement, administer and manage the Grantee’s participation in the Plan. The Grantee understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing his or her local human resources representative. Further, the Grantee understands that he or she is providing the consents herein on a purely voluntary basis. If the Grantee does not consent, or if the Grantee later seeks to revoke his or her consent, his or her employment status or service and career with the Company or any Subsidiary will not be adversely affected; the only adverse consequence of refusing or withdrawing consent is that the Company would not be able to grant the Grantee Restricted Stock or other equity awards or administer or maintain such awards. Therefore, the Grantee understands that refusing or withdrawing his or her consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or she may contact his or her local human resources representative.

 

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13. Governing Law; Venue . The Award and the provisions of this Agreement are governed by, and subject to, the laws of the State of Delaware, without regard to the conflict of law provisions. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of San Francisco County, California, or the federal courts for the United States for the Northern District of California, and no other courts, including any courts where this grant is made and/or to be performed.

14. Electronic Delivery and Acceptance . The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

15. Severability . The provisions of this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

16. Notices . Notices hereunder shall be mailed or delivered to the Company at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Company or, in either case, at such other address as one party may subsequently furnish to the other party in writing.

17. Insider Trading Restrictions/Market Abuse Laws . The Grantee acknowledges that, depending on the Grantee’s country of residence, the Grantee may be subject to insider trading restrictions and/or market abuse laws, which may affect the Grantee’s ability to acquire or sell shares of Stock under the Plan during such times as the Grantee is considered to have “inside information” regarding the Company (as defined by the laws in the Grantee’s country). Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. The Grantee acknowledges that it is his or her responsibility to comply with any applicable restrictions, and the Grantee is advised to speak to his or her personal advisor on this matter.

18. Imposition of Other Requirements . The Company reserves the right to impose other requirements on the Grantee’s participation in the Plan, on the Award and on any shares of Stock issued pursuant to this Award, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require the Grantee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

19. Waiver . The Grantee acknowledges that a waiver by the Company of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by the Grantee or any other Plan participant.

 

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ZENDESK, INC.
By:  

 

  Title:

The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Grantee (including through an online acceptance process) is acceptable.

 

Dated:  

 

   

 

      Grantee’s Signature
      Grantee’s name and address:
     

 

     

 

     

 

 

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Exhibit 10.4

ZENDESK, INC.

2014 EMPLOYEE STOCK PURCHASE PLAN

The purpose of the Zendesk, Inc. 2014 Employee Stock Purchase Plan (the “Plan”) is to provide eligible employees of Zendesk, Inc. (the “Company”) and each Designated Company (as defined in Section 11) with opportunities to purchase shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”). 7,250,000 shares of Common Stock in the aggregate have been approved and reserved for this purpose, plus on January 1, 2015 and each January 1 thereafter, the number of shares of Common Stock reserved and available for issuance under the Plan shall be cumulatively increased by one percent of the number of shares of Common Stock issued and outstanding on the immediately preceding December 31.

The Plan includes two components: a Code Section 423 Component (the “423 Component”) and a non-Code Section 423 Component (the “Non-423 Component”). It is intended for the 423 Component to constitute an “employee stock purchase plan” within the meaning of Section 423(b) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and the 423 Component shall be interpreted in accordance with that intent (although the Company makes no undertaking or representation to maintain such qualification). In addition, this Plan authorizes the grant of options under the Non-423 Component that does not qualify as an “employee stock purchase plan” under Section 423 of the Code because of deviations necessary to permit participation in the Plan by employees who are foreign nationals or employed outside of the United States while complying with applicable foreign laws. Except as otherwise provided herein, the Non-423 Component will operate and be administered in the same manner as the 423 Component.


1. Administration . The Plan will be administered by the Compensation Committee of the Board of Directors and/or such other person or persons (the “Administrator”) appointed by the Company’s Board of Directors (the “Board”) for such purpose. The Administrator has authority at any time to: (i) adopt, alter and repeal such rules, guidelines and practices for the administration and operation of the Plan and for its own acts and proceedings as it shall deem advisable, including to accommodate the specific requirements of local laws and procedures for jurisdictions outside of the United States. (ii) interpret the terms and provisions of the Plan; (iii) make all determinations it deems advisable for the administration of the Plan; (iv) decide all disputes arising in connection with the Plan; and (v) otherwise supervise the administration of the Plan. All interpretations and decisions of the Administrator shall be binding on all persons, including the Company and the Participants. No member of the Board or individual exercising administrative authority with respect to the Plan shall be liable for any action or determination made in good faith with respect to the Plan or any option granted hereunder.

2. Offerings . The Company will make one or more offerings to eligible employees to purchase Common Stock under the Plan (“Offerings”) consisting of one or more Purchase Periods. Unless otherwise determined by the Administrator, the initial Offering will begin on the Registration Date and will end on the date that is eighteen months following the Registration Date (“the Initial Offering”). Unless otherwise determined by the Administrator, subsequent Offerings will be eighteen months long and begin every six months on dates determined by the Administrator. The Administrator may, in its discretion, designate a different period for any Offering, provided that no Offering shall exceed 27 months in duration. Unless the Administrator otherwise determines, each Offering will be divided into three equal Purchase Periods.

 

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3. Eligibility . All individuals classified as employees on the payroll records of the Company and each Designated Company are eligible to participate in any one or more of the Offerings under the Plan, provided that as of the first day of the applicable Offering (the “Offering Date”) they have completed at least 30 days of employment, unless the exclusion of employees who do not meet this requirement is not permissible under applicable law. Notwithstanding any other provision herein, individuals who are not contemporaneously classified as employees of the Company or a Designated Company for purposes of the Company’s or applicable Designated Company’s payroll system are not considered to be eligible employees of the Company or any Designated Company and shall not be eligible to participate in the Plan. In the event any such individuals are reclassified as employees of the Company or a Designated Company for any purpose, including, without limitation, common law or statutory employees, by any action of any third party, including, without limitation, any government agency, or as a result of any private lawsuit, action or administrative proceeding, such individuals shall, notwithstanding such reclassification, remain ineligible for participation. Notwithstanding the foregoing, the exclusive means for individuals who are not contemporaneously classified as employees of the Company or a Designated Company on the Company’s or Designated Company’s payroll system to become eligible to participate in this Plan is through an amendment to this Plan, duly executed by the Company, which specifically renders such individuals eligible to participate herein.

4. Participation .

(a) Participants on Effective Date . Each eligible employee as of the Registration Date shall be deemed to be a Participant at such time. If an eligible employee is deemed to be a Participant pursuant to this Section 4(a), such individual shall be deemed not to

 

3


have authorized payroll deductions or other contributions and shall not purchase any Common Stock hereunder unless he or she thereafter authorizes payroll deductions or other contributions by submitting an enrollment form (in the manner described in Section 4(c)) within 90 days after the commencement of the Initial Offering. If such a Participant does not authorize payroll deductions or other contributions by submitting an enrollment form by such deadline (or such other deadline as determined by the Administrator), that Participant will be deemed to have withdrawn from the Plan.

(b) Participants in Subsequent Offerings . An eligible employee who is not a Participant on any Offering Date may participate in such Offering by submitting an enrollment form in a manner determined by the Company at least 15 business days before the Offering Date (or by such other deadline as shall be established by the Administrator for the Offering).

(c) Enrollment . The enrollment form will (a) state a whole percentage (unless the Administrator determines in advance of an Offering to require that a fixed amount be specified in lieu of a percentage) to be contributed from an eligible employee’s Compensation (as defined in Section 11) per pay period, (b) authorize the purchase of Common Stock in each Offering in accordance with the terms of the Plan and (c) specify the exact name or names in which shares of Common Stock purchased for such individual are to be issued pursuant to Section 10. An employee who does not enroll in accordance with these procedures will be deemed to have waived the right to participate. Unless a Participant files a new enrollment form or withdraws from the Plan, such Participant’s contributions and purchases will continue at the same percentage of Compensation for future Offerings, provided he or she remains eligible.

(d) Notwithstanding the foregoing, participation in the Plan will neither be permitted nor be denied contrary to the requirements of the Code and any applicable law.

 

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5. Employee Contributions . Each eligible employee may authorize payroll deductions at a minimum of 1 percent up to a maximum of 15 percent of such employee’s Compensation for each pay period; provided, however, that if payroll deductions are not permitted or problematic under applicable law or for administrative reasons, the Company, in its discretion, may allow eligible employees to contribute to the Plan by other means. The Company will maintain book accounts showing the amount of payroll deductions or other contributions made by each Participant for each Purchase Period. No interest will accrue or be paid on payroll deductions or other contributions, unless required under applicable law.

6. Contribution Changes . Except in the event of a Participant increasing his or her contributions from 0 percent during the Initial Offering as specified in Section 4(a) or as may be determined by the Administrator in advance of an Offering, a Participant may not increase or decrease his or her contributions during any Offering, but may increase or decrease his or her contributions with respect to the next Offering (subject to the limitations of Section 5) by filing a new enrollment form at least 15 business days before the next Offering Date (or by such other deadline as shall be established by the Administrator for the Offering). The Administrator may, in advance of any Offering, establish rules permitting a Participant to increase, decrease or terminate his or her contributions during an Offering.

7. Withdrawal . A Participant may withdraw from participation in the Plan by delivering a written notice of withdrawal in a manner determined by the Administrator. The Participant’s withdrawal will be effective as of the next business day. Following a Participant’s withdrawal, the Company will promptly refund such individual’s entire account balance under the Plan to him or her (after payment for any Common Stock purchased before the effective date of withdrawal). Partial withdrawals are not permitted. Such an employee may not begin participation again during the remainder of the Offering, but may enroll in a subsequent Offering in accordance with Section 4.

 

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8. Grant of Options . On each Offering Date, the Company will grant to each eligible employee who is then a Participant in the Plan an option (“Option”) to purchase on the last day of a Purchase Period (an “Exercise Date”), at the Option Price hereinafter provided for, the lowest of (a) a number of shares of Common Stock determined by dividing such Participant’s accumulated contributions on such Exercise Date by the lower of (i) 85 percent of the Fair Market Value of the Common Stock on the Offering Date, or (ii) 85 percent of the Fair Market Value of the Common Stock on the Exercise Date, (b) 3,000 shares; or (c) such other lesser maximum number of shares as shall have been established by the Administrator in advance of the Offering; provided, however, that such Option shall be subject to the limitations set forth in the Plan. Each Participant’s Option shall be exercisable only to the extent of such Participant’s accumulated payroll deductions on the Exercise Date. The purchase price for each share purchased under each Option (the “Option Price”) will be 85 percent of the Fair Market Value of the Common Stock on the Offering Date or the Exercise Date, whichever is less.

Notwithstanding the foregoing, no Participant may be granted an option hereunder if such Participant, immediately after the option was granted, would be treated as owning stock possessing 5 percent or more of the total combined voting power or value of all classes of stock of the Company or any Parent or Subsidiary (as defined in Section 11). For purposes of the preceding sentence, the attribution rules of Section 424(d) of the Code shall apply in determining the stock ownership of a Participant, and all stock which the Participant has a contractual right to purchase shall be treated as stock owned by the Participant. In addition, no Participant may be granted an Option which permits his or her rights to purchase stock under the Plan, and any other

 

6


employee stock purchase plan of the Company and its Parents and Subsidiaries, to accrue at a rate which exceeds $25,000 of the fair market value of such stock (determined on the option grant date or dates) for each calendar year in which the Option is outstanding at any time. The purpose of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code and shall be applied taking Options into account in the order in which they were granted.

9. Exercise of Option and Purchase of Shares . Each employee who continues to be a Participant in the Plan on an Exercise Date shall be deemed to have exercised his or her Option on such date and shall acquire from the Company such number of whole shares of Common Stock reserved for the purpose of the Plan as his or her accumulated contributions on such date will purchase at the Option Price, subject to any other limitations contained in the Plan; provided that, with respect to the Initial Offering, the exercise of each Option shall be conditioned on the closing of the Company’s Initial Public Offering on or before the first Exercise Date. Any amount remaining in a Participant’s account after the purchase of shares on an Exercise Date of an Offering solely by reason of the inability to purchase a fractional share will be carried forward to the next Purchase Period and, if such Exercise Date is the final Exercise Date of an Offering, will be carried forward to the next Offering; any other balance remaining in a Participant’s account at the end of an Offering will be refunded to the Participant promptly.

If a Participant has more than one Option outstanding under the Plan, unless he or she otherwise indicates in agreements or notices delivered hereunder: (i) each agreement or notice delivered by that Participant shall be deemed to apply to all of his or her Options under the Plan, and (ii) an Option with a lower Option Price (or an earlier granted Option, if different Options have identical Option Prices) shall be exercised to the fullest possible extent before an Option with a higher Option Price (or a later granted Option if different Options have identical Option Prices) shall be exercised.

 

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10. Issuance of Certificates . Certificates, or book entries for uncertificated shares, representing shares of Common Stock purchased under the Plan may be issued only in the name of the employee or, if permitted by the Administrator, in the name of the employee and another person of legal age as joint tenants with rights of survivorship, or in the name of a broker authorized by the employee to be his, her or their, nominee for such purpose.

11. Definitions . The term “Affiliate” means any entity that is directly or indirectly controlled by the Company which does not meet the definition of a Subsidiary below, as determined by the Administrator, whether now or hereafter existing.

The term “Compensation” means the amount of total cash compensation, prior to salary reduction pursuant to Sections 125, 132(f) or 401(k) of the Code, including base pay, overtime, commissions, and incentive or bonus awards, but excluding allowances and reimbursements for expenses such as relocation allowances or travel expenses, income or gains on the exercise of Company stock options, and similar items. The Administrator shall have the discretion to determine the application of this definition to Participants outside the United States.

The term “Designated Company” means any present or future Affiliate or Subsidiary (as defined below) that has been designated by the Board to participate in the Plan. The Board may so designate any Affiliate or Subsidiary, or revoke any such designation, at any time and from time to time, either before or after the Plan is approved by the stockholders and may further designate such companies as participating in the 423 Component or the Non-423 Component. For purposes of the 423 Component, only Subsidiaries may be Designated Companies.

 

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The term “Fair Market Value of the Common Stock” on any given date means the fair market value of the Common Stock determined in good faith by the Administrator; provided , however , that if the Common Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System (“NASDAQ”), NASDAQ Global Market or another national securities exchange, the determination shall be made by reference to the closing price on such date. If there is no closing price for such date, the determination shall be made by reference to the last date preceding such date for which there is a closing price. Notwithstanding the foregoing, if the date for which Fair Market Value of the Common Stock is determined is the first day when trading prices for the Common Stock are reported on NASDAQ or another national securities exchange, the Fair Market Value of the Common Stock shall be the “Price to the Public” (or equivalent) set forth on the cover page for the final prospectus relating to the Company’s Initial Public Offering.

The term “Initial Public Offering” means the the first offer and sale by the Company of its Common Stock in an underwritten, firm-commitment public offering.

The term “Parent” means a “parent corporation” with respect to the Company, as defined in Section 424(e) of the Code.

The term “Participant” means an individual who is eligible as determined in Section 3 and who has complied with the provisions of Section 4.

The term “Purchase Period” means a period of time specified within an Offering beginning on the Offering Date or on the next day following an Exercise Date within an Offering and ending on an Exercise Date. An Offering may consist of one or more Purchase Periods.

 

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The term “Registration Date” means the date the registration statement on Form S-1 that is filed by the Company with respect to the Initial Public Offering is declared effective by the Securities and Exchange Commission.

The term “Subsidiary” means a “subsidiary corporation” with respect to the Company, as defined in Section 424(f) of the Code.

12. Rights on Termination of Employment . Unless otherwise required by applicable law, if a Participant’s employment terminates for any reason before the Exercise Date for any Offering, no contributions will be taken from any pay due and owing to the Participant and the balance in the Participant’s account will be paid to such Participant or, in the case of such Participant’s death, if permitted by the Administrator, to his or her designated beneficiary as if such Participant had withdrawn from the Plan under Section 7. An employee will be deemed to have terminated employment, for this purpose, if the corporation that employs him or her, having been a Designated Company, ceases to be an Affiliate or Subsidiary, as applicable, or if the employee is transferred to any corporation other than the Company or a Designated Company. An employee will not be deemed to have terminated employment for this purpose, if the employee is on an approved leave of absence for military service or sickness or for any other purpose approved by the Company, if the employee’s right to reemployment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise provides in writing.

13. Optionees Not Stockholders . Neither the granting of an Option to a Participant nor the deductions from his or her pay or other contributions shall deem such Participant to be a holder of the shares of Common Stock covered by an Option under the Plan until such shares have been purchased by and issued to him or her.

 

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14. Rights Not Transferable . Rights under the Plan are not transferable by a Participant other than by will or the laws of descent and distribution, and are exercisable during the Participant’s lifetime only by the Participant.

15. Application of Funds . All funds received or held by the Company under the Plan may be combined with other corporate funds and may be used for any corporate purpose, unless otherwise required under applicable law.

16. Adjustment in Case of Changes Affecting Common Stock . In the event of a subdivision of outstanding shares of Common Stock, the payment of a dividend in Common Stock or any other change affecting the Common Stock, the number of shares approved for the Plan and the share limitation set forth in Section 8 shall be equitably or proportionately adjusted to give proper effect to such event.

17. Amendment of the Plan . The Board may at any time and from time to time amend the Plan in any respect, except that without the approval within 12 months of such Board action by the stockholders, no amendment shall be made increasing the number of shares approved for the Plan or making any other change that would require stockholder approval in order for the 423 Component of the Plan, as amended, to qualify as an “employee stock purchase plan” under Section 423(b) of the Code.

18. Insufficient Shares . If the total number of shares of Common Stock that would otherwise be purchased on any Exercise Date plus the number of shares purchased under previous Offerings under the Plan exceeds the maximum number of shares issuable under the Plan, the shares then available shall be apportioned among Participants in proportion to the amount of payroll deductions accumulated on behalf of each Participant that would otherwise be used to purchase Common Stock on such Exercise Date.

 

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19. Termination of the Plan . The Plan may be terminated at any time by the Board. Upon termination of the Plan, all amounts in the accounts of Participants shall be promptly refunded. The Plan shall automatically terminate on the ten year anniversary of the Registration Date.

20. Governmental Regulations . The Company’s obligation to sell and deliver Common Stock under the Plan is subject to obtaining all governmental approvals required in connection with the authorization, issuance, or sale of such stock.

21. Governing Law . This Plan and all Options and actions taken thereunder shall be governed by, and construed in accordance with, the laws of the State of Delaware, applied without regard to conflict of law principles.

22. Issuance of Shares . Shares may be issued upon exercise of an Option from authorized but unissued Common Stock, from shares held in the treasury of the Company, or from any other proper source.

23. Tax Withholding . Participation in the Plan is subject to any minimum required tax withholding on income of the Participant in connection with the Plan. Each Participant agrees, by entering the Plan, that the Company and its Affiliates and Subsidiaries shall have the right to deduct any such taxes from any payment of any kind otherwise due to the Participant, including shares issuable under the Plan.

24. Notification Upon Sale of Shares . Each Participant who is subject to tax in the United States with respect to his or her participation in the Plan agrees, by entering the Plan, to give the Company prompt notice of any disposition of shares purchased under the Plan where such disposition occurs within two years after the date of grant of the Option pursuant to which such shares were purchased.

 

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25. Effective Date and Approval of Shareholders . The Plan shall take effect on the Registration Date, subject to approval by the holders of a majority of the votes cast at a meeting of stockholders at which a quorum is present or by written consent of the stockholders.

 

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Exhibit 10.5

October 28, 2011

Alan Black

Delivered by email to

Dear Alan:

On behalf of Zendesk, Inc. (the “Company”), I am pleased to offer employment to you. The purpose of this letter is to outline the terms for your employment.

Position: Your initial position with the Company will be Chief Financial Officer (CFO). This is a regular full-time exempt position.

Start Date: Unless we arrange separately, your first day of employment will be November 14, 2011. You will report to CEO Mikkel Svane.

Salary: The Company will pay you an annual salary of $240,000.00, paid semi-monthly, and subject to periodic review and adjustment at the discretion of the Company. Additionally, you will be eligible to earn $60,000.00 per year under your incentive compensation plan to be delivered under separate cover. Your salary and other compensation will be subject to applicable deductions and withholdings.

Stock Options: You will be eligible to participate in the Company’s stock option program, subject to approval by the Board of Directors. We will recommend to the Board of Directors that you be granted an option to purchase 750,000 shares of the Company’s common stock at the stock’s then fair market value. Your eligibility for stock options will be governed by the 2009 Stock Option and Grant Plan and any associated stock option agreement required to be entered into by you and the Company.

Stock Option Vesting: Your stock options will vest over a five-year vesting schedule. The first 25% shall vest on your first anniversary with the Company, subject to acceleration provisions provided below. The remaining 75% shall vest ratably over the remaining 48 months. In the event of a Sale Event, as described by the Plan, all unvested options will accelerate and become vested.

Benefits: You will be eligible to participate in the employee benefits and insurance programs generally made available to employees, including health, life, disability and dental insurance, subject to the terms and conditions of those plans and programs which may be modified from time to time. Details of these benefits programs, including mandatory employee contributions, will be made available to you when you start. You also will be eligible to receive paid vacation time. You will be eligible for up to fifteen (15) days of paid vacation per year, which shall accrue on a prorated basis. Other provisions of the Company’s vacation policy are set forth in the policy itself.

ZENDESK, INC. - 989 MARKET ST - SAN FRANCISCO, CA 94103


Representation Regarding Other Obligations: This offer is conditioned on your representation that you are not subject to any confidentiality, non-competition agreement or any other similar type of restriction that may affect your ability to devote full time and attention to your work at Zendesk. If you have entered into any agreement that may restrict your activities on behalf of the Company, please provide me with a copy of the agreement as soon as possible.

Other Terms: Your employment with the Company shall be on an at-will basis. In other words, you or the Company may terminate employment for any reason and at any time, with or without notice. Similarly, the terms of employment outlined in this letter are subject to change at any time provided that the at-will nature of your employment may not be altered except by a formal writing signed by the Company’s Chief Executive Officer. You also will be required to sign the Company’s standard Confidentiality and Assignment Agreement (“Employee Agreement”) as a condition of your employment. This offer letter and the Employee Agreement shall be governed by California law. A copy of that Agreement is enclosed. In addition, as with all employees, our offer to you is contingent on your submission of satisfactory proof of your identity and your legal authorization to work in the United States.

We are excited about the opportunity to work with you at Zendesk, Inc. If you have any questions about this information, please do not hesitate to call. Otherwise, please confirm your acceptance of this offer of employment by Monday October 31st by signing below and returning a copy, preferably by scanning and emailing to mikkel@zendesk.com . We are confident that with your background and skills, you will have an immediate positive impact on our organization.

 

Very truly yours

 

/s/ Mikkel Svane

Mikkel Svane

 

Chief Executive Officer

   

/s/ Alan Black

     

 

Employee’s Signature       Date

Exhibit 10.6

 

LOGO

July 25, 2013

Marcus Bragg

Delivered by email to

Dear Marcus:

On behalf of Zendesk, Inc. (the “Company”), I am pleased to offer you employment with the Company. This letter outlines the terms for your employment.

Position: Your initial position with the Company will be Senior Vice President, Worldwide Sales. This is a regular full-time exempt position reporting to Mikkel Svane, Chief Executive Officer.

Start Date: Your first day of employment will be August 30, 2013, subject to the Company’s satisfactory completion of a background check, references and approval by the Board of Directors.

Salary: The Company will pay you an annual base salary of $300,000, paid bi-weekly during your employment, and subject to periodic review and adjustments at the discretion of the Company. Your salary and other compensation will be subject to applicable deductions and withholdings.

Bonus: You will be eligible to receive an annual performance bonus of $200,000, less applicable taxes and withholding, based upon sales performance and other quarterly and annual targets established separately. Unless otherwise agreed, bonuses are paid in quarterly installments. The actual bonus is discretionary and will be subject to the Company’s assessment of performance, as well as business conditions at the Company. The bonus will also be subject to your employment for the full period covered by the bonus, approval by and adjustments at the discretion of the Company’s Board of Directors and the terms of any applicable bonus and/or sales compensation plan separately delivered to you. The Company or the Company’s Board of Directors may also make adjustments in the targeted amount of your annual performance bonus. The bonus for the calendar year ending December 31, 2013 will be prorated to your start date (the “Prorated 2013 Bonus”). Subject to your continued employment as of the respective dates upon which any portion of the Prorated 2013 Bonus is subject to be paid, payment of such portion of the Prorated 2013 Bonus at 100% of target will be guaranteed.

Sign-On Bonus: You will be advanced a sign-on bonus of $100,000, less applicable taxes ZENDESK, INC. - 989 MARKET STREET #300 - SAN FRANCISCO, CA 94103 and

 

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withholdings, which you will earn over the first twelve (12) months of your employment based on a simple pro-rated basis for each month or partial month that you are employed by the Company. This bonus will be advanced to you within 60 days of your start date. Should you voluntarily resign your employment, or should you be terminated for Cause, within your first twelve (12) months of employment, you will need to repay the unearned portion of the sign-on bonus based on the number of months or partial months that you were employed, no later than sixty (60) days from termination. There shall be no obligation to repay the sign-on bonus in the event your employment is terminated by the Company without Cause or you resign your employment for Good Reason.

As used in this letter, “Cause” shall mean: (i) your gross neglect of, or willful failure or refusal to timely perform, not caused by your physical or mental disability and not solely based on your failure to accomplish any particular budgeted goal, the material duties of your employment following written notice and a reasonable opportunity (not to exceed 30 days) to cure, if such neglect, failure or refusal is capable of being cured; (ii) your material breach of this or any other agreement (including your Employee Agreement (as defined below)) by and between you and the Company which causes demonstrable injury to the Company; or (iii) your commission of, or plea of guilty or nolo contender to, a crime involving moral turpitude, dishonesty, fraud or unethical business conduct, or any felony.

As used in this letter, “Good Reason” shall mean your resignation from employment at the Company within 30 days after a cure period of not less than 30 days following your written notice to the Company (or any successor) of any of the following circumstances: (i) your duties, authority and responsibility are materially reduced; (ii) your annual salary and target bonus are materially reduced or diminished (other than in connection with a reduction in salary and bonus of all similarly situated executives that is equivalent on a percentage basis that occurs prior to a Sale Event (as that term is defined in the Plan)); or (iii) the failure by the Company to cause any successor-in-interest to expressly assume and agree to perform the obligations of the Company pursuant to this letter.

Stock Options: You will be eligible to participate in the Company’s stock option program, subject to approval by the Company’s Board of Directors (“Board”). We will recommend to the Board of Directors that you be granted an option to purchase 1,410,000 shares of the Company’s Series B Common Stock at the stock’s fair market value as of the date the grant is approved. Your eligibility for, and the terms and conditions of, any stock options will be governed by the 2009 Stock Option and Grant Plan (the “Plan”) and any associated stock option agreement that you may be required to enter with the Company.

Stock Option Vesting: Your stock options will vest over a four-year vesting schedule, subject to acceleration provisions provided below. The first 25% shall vest on your first anniversary with the Company. The remaining 75% shall vest ratably over the remaining 36 months. In the event that within twelve (12) months following a Sale Event, either your employment is either terminated without Cause or you resign your employment for Good Reason, all of your unvested options will accelerate and become vested immediately upon such termination or resignation (the “Termination Acceleration”). For purposes of the foregoing, your employment shall not be deemed terminated if you are offered employment by any successor or acquiring entity in a Sale Event.

 

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Severance: In the event that the Company or any successor terminates your employment without Cause or you resign your employment for Good Reason, you shall be entitled to cash severance payments equal in the aggregate to: (i) six months of your base salary as in effect at the time of termination; and (ii) for so long as your are not eligible for comparable health insurance from another employer, the amount of premium payments payable by you for your family’s continued coverage under the Consolidated Omnibus Budget Reconciliation Act 1985, as amended (“COBRA”) for such six month period (collectively, the “Severance”). The Severance will be paid in accordance with the Company’s regular payroll cycle, shall be subject to all applicable deductions and withholdings and shall commence within 60 days after the date that your employment ends, provided that if such 60-day period spans two calendar years, the Severance shall commence in the second calendar year. Your right to the Severance and any Termination Acceleration shall be contingent upon you executing a general release of claims as against the Company and its affiliates in a form reasonably acceptable to the Company at the time of your termination and such release becoming effective within 60 days after the date that your employment ends.

Benefits: You will be eligible to participate in the employee benefits and insurance programs generally made available to employees, including health, dental, life and disability insurance, subject to the terms and conditions of those plans and programs which may be modified from time to time. Details of these benefits programs, including mandatory employee contributions, will be made available to you when you start. You may also participate in the Company’s 401(k) Retirement Plan and you will be eligible to receive up to twenty (20) days of paid time off (“PTO”), which shall accrue on a prorated basis. PTO covers scheduled vacation or personal time off as well as unscheduled situations such as personal or family illness and emergencies.

409A Savings Clause: If at the time of your separation from service within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), you are considered to be a “specified employee” with the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that you become entitled to hereunder on account of your separation from service would be considered deferred compensation, such payment shall not be payable and such benefit shall not be provided until the date that is the earlier of (i) six months and one day after your separation from service, (ii) the date of your death. If any such delayed cash payment is otherwise payable on an installment basis, the first payment shall include a catch-up payment covering amounts that would otherwise have been paid during the six-month period but for the application of this provision, and the balance of the installments shall be payable in accordance with their original schedule.

All reimbursements hereunder shall be paid as soon as administratively feasible, but in no event shall any reimbursement be paid after the last day of the taxable year following the taxable year in which the expense was incurred. The amount of in-kind benefits provided or reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be provided or expenses eligible for reimbursement in any other taxable year.

The parties intend that this offer letter will be administered in accordance with Section 409A of the Code. To the extent that any provision herein is ambiguous as to its exemption

 

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from, or compliance with, Section 409A of the Code, the provision shall be read in a manner so that all payments hereunder either are exempt from, or comply with, Section 409A of the Code.

The Company makes no representation or warranty and shall have no liability to you or any other person if any payments hereunder are determined to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions of Section 409A of the Code.

Representation Regarding Other Obligations: This offer is contingent on your representation that you are not subject to any confidentiality, non-competition agreement or a similar type of restriction that may affect your ability to devote full time and attention to your work at Zendesk. If you have entered into any agreement that may limit your ability to work on behalf of the Company, please provide the Company a copy of such agreement as soon as possible.

Other Terms: Your employment with the Company shall be on an at-will basis. In other words, you or the Company may terminate employment for any reason and at any time, with or without notice. Similarly, the terms of employment outlined in this letter are subject to change at any time provided that the at-will nature of your employment may not be altered except by a formal writing signed by the Company’s Chief Executive Officer. You also will be required to sign the Company’s standard Confidentiality and Assignment Agreement (“Employee Agreement”) as a condition of your employment. This offer letter and the Employee Agreement shall be governed by California law. A copy of that Agreement is enclosed. In addition, as with all employees, our offer to you is contingent on your submission of satisfactory proof of your identity and your legal authorization to work in the United States.

We are excited about the opportunity to work with you at Zendesk, Inc. If you have any questions about this information, please do not hesitate to call. Otherwise, please confirm your acceptance of this offer of employment by July 26, 2013, by signing below and returning a copy. We are confident that with your background and skills, you will have an immediate positive impact on our organization.

Very truly yours,

 

/s/ Mikkel Svane

Mikkel Svane

Chief Executive Officer

Agreed and Accepted:

 

   
Signature:   /s/ Marcus Bragg       Jul 26, 2013
  Marcus Bragg       Date

 

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Exhibit 10.7

June 16, 2010

Adrian Mcdermott

Delivered by email to

Dear Adrian:

On behalf of Zendesk, Inc. (the “Company”), I am pleased to offer employment to you. The purpose of this letter is to outline the terms for your employment.

Position: Your initial position with the Company will be Vice President of Engineering. This is a regular full-time exempt position.

Start Date: Unless we arrange separately, your first day of employment will be July 26, 2010. You will report to CEO Mikkel Svane.

Salary: The Company will pay you an annual salary of $240,000.00, paid semi-monthly, and subject to periodic review and adjustment at the discretion of the Company. Your salary and other compensation will be subject to applicable deductions and withholdings.

Stock Options: You will be eligible to participate in the Company’s stock option program, subject to approval by the Board of Directors. We will recommend to the Board of Directors that you be granted an option to purchase 400,000 shares of the Company’s common stock at the stock’s then fair market value. Your eligibility for stock options will be governed by the 2009 Stock Option and Grant Plan and any associated stock option agreement required to be entered into by you and the Company.

Sign-On Bonus: You will be eligible for a Sign-On bonus of $100,000.00, less applicable taxes, to be paid ninety (90) days after commencing employment. Should you terminate your position within your first twelve months of employment, you will be required to repay the Sign-On Bonus on a prorated basis.

Benefits: You will be eligible to participate in the employee benefits and insurance programs generally made available to employees, including health, life, disability and dental insurance, subject to the terms and conditions of those plans and programs which may be modified from time to time. Details of these benefits programs, including mandatory employee contributions, will be made available to you when you start. You also will be eligible to receive paid vacation time. You will be eligible for up to fifteen (15) days of paid vacation per year, which shall accrue on a prorated basis. Other provisions of the Company’s vacation policy are set forth in the policy itself.

ZENDESK, INC. - 410 TOWNSEND ST. #350 - SAN FRANCISCO, CA 94107


Representation Regarding Other Obligations: This offer is conditioned on your representation that you are not subject to any confidentiality, non-competition agreement or any other similar type of restriction that may affect your ability to devote full time and attention to your work at Zendesk. If you have entered into any agreement that may restrict your activities on behalf of the Company, please provide me with a copy of the agreement as soon as possible.

Other Terms: Your employment with the Company shall be on an at-will basis. In other words, you or the Company may terminate employment for any reason and at any time, with or without notice. Similarly, the terms of employment outlined in this letter are subject to change at any time provided that the at-will nature of your employment may not be altered except by a formal writing signed by the Company’s Chief Executive Officer. You also will be required to sign the Company’s standard Confidentiality and Assignment Agreement (“Employee Agreement”) as a condition of your employment. This offer letter and the Employee Agreement shall be governed by California law. A copy of that Agreement is enclosed. In addition, as with all employees, our offer to you is contingent on your submission of satisfactory proof of your identity and your legal authorization to work in the United States.

We are excited about the opportunity to work with you at Zendesk, Inc. If you have any questions about this information, please do not hesitate to call. Otherwise, please confirm your acceptance of this offer of employment by Friday June 18 by signing below and returning a copy, preferably by scanning and emailing to                     . We are confident that with your background and skills, you will have an immediate positive impact on our organization.

 

Very truly yours

 

Mikkel Svane

 

Chief Executive Officer

   

/s/ Adrian McDermott

     

6/25/2010

Employee’s Signature Adrian McDermott

      Date

Exhibit 10.8

OFFICE LEASE

THIS OFFICE LEASE (this “ Lease ”) dated April 29, 2011 (for reference purposes only), is executed by and between 989 MARKET STREET, LLC (“ Landlord ”) and ZENDESK INC., a Delaware Corporation (“ Tenant ”).

 

1. CERTAIN LEASE PROVISIONS

The description and amounts set forth below are qualified by their usage elsewhere in this Lease, including those Sections referred to in parentheses following such descriptions:

 

  1.1 Tenant’s address and telephone number. (Section 19):

Tenant Name: ZenDesk Inc., a Delaware Corporation

Doing Business As (d/b/a): ZenDesk

Address: 989 Market Street, Suite 300, San Francisco, CA 94103

 

  1.2 Premises. (Section 2.1):

Building Name: 989 Market Street

Address: 989 Market Street, San Francisco, CA 94103

1.3 Leased Area. (Section 2.1): 16,200 rentable square feet consisting of the entire third (3rd) floor of the Building.

1.4 Total Building Area. (Section 2.1): 106,837 rentable square feet.

1.5 Tenant’s Pro-Rata Share of Building Area. (Section 2.1): 15.1633% (subject to verification pursuant to Section 2.1).

1.6 Lease Term. (Section 3.1): A period of approximately thirty-six (36) months beginning on the Commencement Date and, unless this Lease is extended or earlier terminated as provided in this Lease, expiring on the Expiration Date.

1.7 Commencement Date. (Section 3.1): The later to occur of (i) June 1, 2011; or (ii) the date on which Landlord notifies Tenant in writing that the Landlord Work (as defined in the Work Letter (the “ Work Letter ”) attached to this Lease as Exhibit “D ”) is Substantially Complete (as defined in the Work Letter). The Commencement Date is anticipated to be on or about June 1, 2011.

1.8 Expiration Date. (Section 3.1, 3.2): Unless this Lease is extended or earlier terminated as provided in this Lease, (i) if the Commencement Date occurs on the first (1 st ) day of a month, then the Expiration Date shall be the day immediately preceding the third (3 rd ) anniversary of the Commencement Date; or (ii) if the Commencement Date is a date other than the first (1 st ) day of a month, then the Expiration Date shall be the last day of the month that is thirty-six (36) months after the Commencement Date.

1.9 Base Rent for Lease Term. (Sections 4.1): The aggregate sum of all monthly installments of Base Rent required to be paid by Tenant during the Lease Term.


1.10 Base Rent, Monthly Installments. (Sections 4.1): Tenant shall pay to Landlord the following monthly installments of Base Rent for the lease of the Premises:

 

Full calendar months
of Lease Term

  

Annual Base Rent per
rentable square feet

  

Monthly installment
of Base Rent

01-12

   $24.60    $33,210.00

13-24

   $25.60    $34,560.00

25-36

   $26.60    $35,910.00

If the Commencement Date is not the first (1 st ) day of a calendar month, Tenant shall pay Base Rent during the initial partial calendar month at the rate of $24.60 per rentable square foot per year. All Base Rent required to be paid by Tenant pursuant to this Section 1.10 shall be payable in the manner specified in this Lease.

1.11 (a) Address of Landlord for rent payments (Sections 4.1, 4.2):

c/o Regis Property Management, Inc.

451 East 58th Avenue, Suite 4270

Denver, CO 80216

 

  (b) Address of Landlord for notices. (Section 19):

c/o Regis Realty Prime, LLC

One Hickory Centre

1800 Valley View Lane, Suite 300

Dallas, TX 75234

with a copy to:

Regis Property Management, Inc.

451 East 58th Avenue, Suite 4270

Denver, CO 80216

 

  (c) Address of Tenant for notices (Section 19):

ZenDesk Inc., a Delaware Corporation

989 Market Street, Suite 300

San Francisco, CA 94103

1.12 Intentionally deleted.

1.13 Intentionally deleted.

1.14 Landlord’s Share of Operating Expenses. (Section 6.2): The amount of Operating Expenses for the Building incurred for the calendar year 2011 (“ Base Year ”).

 

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1.15 Landlord’s Share of Real Estate Taxes. (Section 6.2): The amount of Real Estate Taxes assessed against the Building incurred for the Base Year.

1.16 Security Deposit. (Section 7): $34,560.00 in cash, which shall be deposited by Tenant with Landlord simultaneously with Tenant’s execution of this Lease.

1.17 Use. (Section 8.1): General office purpose and for no other use or purpose.

1.18 Broker. (Section 25.20): CORNISH & CAREY COMMERCIAL (“ Broker ”) represented both Landlord and Tenant in connection with this Lease.

1.19 Prepaid Rent. (Section 4.1): $33,210.00, which shall be paid by Tenant to Landlord on or before the Commencement Date and shall be applied by Landlord to payment of the monthly installment of Base Rent due for the first (1 st ) full calendar month of the Lease Term and, if the Commencement Date is not the first (1 st ) day of a month, then monthly Base Rent for the partial month commencing as of the Commencement Date shall be prorated based upon the actual number of days in such month and shall be due and payable upon the Commencement Date.

This Lease consists of 25 sections, plus Addendum to Office Lease and Exhibits “A” , “B” , “C” , “D” and “D-1” attached hereto, which Addendum and Exhibits are hereby incorporated in this Lease by reference for all purposes as if copied herein in full.

(signature page follows)

 

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IN WITNESS WHEREOF, the parties hereto have executed this Lease on the date first above written.

 

Landlord:   989 MARKET STREET, LLC
  By:   Regis Realty Prime, LLC (Authorized Agent)
Date:         5/6        , 2011     By:  

/s/ Scott Porter

      Scott Porter, Senior Vice President
Tenant :   ZENDESK INC. , a Delaware Corporation
Date:         4/28       , 2011   By:  

/s/ Rick Rigoli

  Name: Rick Rigoli
  Its Duly-Authorized CFO

 

* NOTE:

If Tenant is a California corporation , then one of the following alternative requirements must be satisfied:

(A) This Lease must be signed by two (2) officers of such corporation: one being the chairman of the board, the president or a vice president, and the other being the secretary, an assistant secretary, the chief financial officer or an assistant treasurer. If one (1) individual is signing in two (2) of the foregoing capacities, that individual must identify the two (2) capacities.

(B) If the requirements of (A) above are not satisfied, then Tenant shall deliver to Landlord evidence in the form reasonably acceptable to Landlord that the signatory(ies) is (are) authorized to execute this Lease.

If Tenant is a corporation incorporated in a state other than California , then Tenant shall deliver to Landlord evidence in the form reasonably acceptable to Landlord that the signatory(ies) is (are) authorized to execute this Lease.

 

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2. PREMISES

2.1 Definition . Landlord hereby leases to Tenant and Tenant leases from Landlord for the Lease Term, at the rental, and upon all of the conditions set forth herein, that certain real property known by suite number and address specified in Section 1.2 hereof and which is referred to herein as the “ Premises .” Landlord and Tenant hereby stipulate that the Premises contain the rentable square feet specified in Section 1.3 hereof except that the rentable square feet of the Premises and the Building (as defined herein) are subject to verification from time to time by Landlord’s architect/space planner. In the event that Landlord’s architect/space planner determines that the amounts thereof shall be different from those set forth in this Lease, all amounts, percentages and figures appearing or referred to in this Lease based upon such incorrect amount (including, without limitation, the amount of the Base Rent and the Security Deposit and Tenant’s Pro-Rata Share of Building Area as defined in Section 1.5 of this Lease (“ Tenant’s Pro-Rata Share ”) shall be modified in accordance with such determination. If such determination is made, it will be confirmed in writing by Landlord to Tenant. The Premises are located in an office building presently containing the area specified in Section 1.4 hereof, together with the real property on which it is situated (the legal description of which is attached hereto as Exhibit “A” ) and any structures appurtenant thereto (hereinafter collectively referred to as the “ Building ”). Tenant acknowledges that the Building contains no parking facilities. The site plan of the Premises is attached hereto as Exhibit “B” , but any depiction of possible uses, tenants or locations on Exhibit “B” shall not be construed to be a warranty or representation by Landlord that any such uses, tenants or locations presently exist or will continue to exist.

2.2 Public Areas . As long as this Lease remains in effect and Tenant is not in breach or default of this Lease and further subject to Sections 8.6 and 11 hereof or any judicial order to the contrary issued by a court of competent jurisdiction, Tenant shall have the nonexclusive right, in common with Landlord, other tenants, subtenants and invitees, to use the public areas of the Building which consist of the entrance foyer and lobby of the Building, the common corridors on the floor of the Building on which the Premises are situated and other areas appurtenant to or servicing the elevators, shipping and receiving areas and lavatories in the Building, provided that Landlord shall have the right at any time and from time to time upon prior written notice to Tenant to exclude therefrom such areas as Landlord may determine so long as access to the Premises is not unreasonably denied.

 

3. TERM

3.1 Term . The term of this Lease (the “ Lease Term ”) shall be the term specified in Section 1.6 hereof, commencing on the Commencement Date specified in Section 1.7 hereof and ending on the Expiration Date specified in Section 1.8 hereof, unless extended or earlier terminated as provided in this Lease.

3.2 Delay in Commencement . Notwithstanding the Commencement Date (as set forth in Section 1.7 above), if for any reason Landlord does not deliver possession of the Premises to Tenant on or before the anticipated Commencement Date set forth in Section 1.7 above, Landlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Tenant hereunder. Notwithstanding the foregoing or

 

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anything to the contrary contained herein, if Landlord is unable to deliver possession of the Premises to Tenant on or before the anticipated Commencement Date set forth in Section 1.7 above as a direct, indirect, partial or total result of a delay caused by or resulting from any act or omission by Tenant (a “ Tenant Delay ”), then notwithstanding anything to the contrary set forth in this Lease and regardless of the actual date of the Substantial Completion of the Landlord Work in the Premises, the date of Substantial Completion thereof shall be deemed to be the date that Substantial Completion would have occurred if no Tenant Delay or Delays, as set forth above, had occurred. Notwithstanding the foregoing, no Tenant Delay pursuant to this Section 3.2 shall be deemed to have occurred unless and until Landlord has provided written notice to Tenant specifying the action or inaction that Landlord contends constitutes a Tenant Delay. If such action or inaction is not cured within one (1) day after receipt of such notice, then a Tenant Delay, as set forth in such notice, shall be deemed to have occurred commencing as of the date such notice is received and continuing for the number of days the Landlord Work in the Premises was in fact delayed as a result of such action or inaction. Within ten (10) days after Landlord’s request, Tenant shall execute an Acceptance of Landlord Work Letter Agreement pursuant to which Tenant shall accept the Landlord Work and the Premises and certify to Landlord the date on which Landlord gave Tenant written notice that the Landlord Work (as defined in the Work Letter) was Substantially Complete, the actual Commencement Date, the date on which Tenant took possession, or was deemed and construed to have taken possession, of the Premises, the date on which Tenant first began to conduct its business in the Premises, and the actual Expiration Date, but this Lease and the respective obligations of the parties hereto shall not be affected in any manner if Tenant does not execute such Acceptance of Landlord Work Letter Agreement.

3.3 Early Access to Premises . Landlord shall give Tenant nonexclusive access to the Premises during a period of fourteen (14) days prior to the date Landlord reasonable anticipates with be the date of Substantial Completion of the Landlord Work in the Premises for the purposes of Tenant’s installing in the Premises voice and data cabling and outlets, telephone equipment and furniture, fixtures and equipment. During such access period prior to the Substantial Completion of the Landlord Work in the Premises, (i) Tenant covenants that Tenant, its employees, agents and contractors shall not interfere with or cause any delay in Landlord’s completion of the Landlord Work; (ii) Tenant’s access and use of the Premises prior to the Substantial Completion of the Landlord Work in the Premises shall be subject to all provisions of this Lease, except that Tenant’s obligation to pay monthly Base Rent shall not apply during such access period; and (iii) Tenant shall not conduct any business in the Premises and none of Tenant’s employees shall office in the Premises. Such access period shall not advance the Expiration Date of this Lease.

3.4 Delivery of Possession . Tenant shall be deemed and construed to have taken possession of the Premises upon the earlier to occur of the following dates: (a) the date that is five (5) business days after the Commencement Date; or (b) the date on which Tenant first begins to conduct its business in the Premises. Tenant shall occupy the Premises no later than twenty (20) business days after the Commencement Date. As used in this Lease, the term “business days” means Mondays through Fridays (excluding legal holidays).

3.5 Holding Over . If Tenant remains in possession of the Premises or any part thereof after the expiration of the Lease Term hereof, such occupancy shall be a tenancy from

 

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month to month at a monthly rental equal to one hundred fifty percent (150%) of the Base Rent and Additional Rent payable hereunder. The foregoing provisions of this Section 3.5 shall neither be construed to give Tenant any right to remain in possession of the Premises or any part thereof after the expiration of the Lease Term hereof nor to waive any of Landlord’s rights under this Lease to collect any damages to which it may be entitled.

 

4. RENT

4.1 Base Rent . Starting on the Commencement Date, Tenant shall pay to Landlord for the lease of the Premises throughout the entire Lease Term the monthly installments of Base Rent specified in Section 1.10 of this Lease, in advance, on the first (1 st ) day of each calendar month of the Lease Term. All rents shall be payable in lawful money of the United States of America without notice or demand and without any deduction, offset or abatement, and shall be payable to Landlord at the address stated in Section 1.11(a) or to such other persons or at such other places as Landlord may designate in writing. The payment of Base Rent hereunder shall be an independent covenant.

4.2 Additional Rent . Both Tenant and Landlord expressly understand and agree that all other sums, except Base Rent as described in Sections 1.10 and 4.1 of this Lease, which may from time to time become due under this Lease, shall be deemed “ Additional Rent .” Additional Rent shall include, but not be limited to, late charges, interest, Shared Expenses as described in Section 6, attorneys’ fees, security deposits and any cash bonds which may by circumstance be required to be posted hereunder. Both Tenant and Landlord expressly understand and agree that all monies paid by Tenant hereunder shall be first credited to Additional Rent (and allocated among different items of Additional Rent as Landlord may determine), and only then to Base Rent. All payments of Additional Rent shall be in lawful money of the United States of America, shall be paid without any deduction, offset or abatement, and shall be payable to Landlord at the address stated in Section 1.11(a) or to such other persons or at such other places as Landlord may designate in writing. The obligation to make payments of Additional Rent hereunder shall be an independent covenant. Except as expressly provided otherwise, the term “ Rent ”, “ rent ”, or “ rental ” shall mean and refer to Base Rent and Additional Rent payable under this Lease.

4.3 No Parking . TENANT HEREBY ACKNOWLEDGES AND UNDERSTANDS THAT NO PARKING IS AVAILABLE AT THE BUILDING OR ON THE REAL PROPERTY ON WHICH THE BUILDING IS SITUATED . Landlord has no obligation whatsoever under this Lease or otherwise to locate, secure or provide any parking to Tenant or its employees, agents, contractors, invitees or guests.

4.4 Acceptance of Rental Payments . No acceptance by Landlord of a lesser sum than the Base Rent and/or Additional Rent then due shall be deemed to be other than on account of the earliest amount of such rental due (unless Landlord elects otherwise), nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction or compromise and settlement, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such payments due or to pursue any other remedy as provided in this Lease.

 

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5.         CONSTRUCTION OBLIGATION OF LANDLORD . Landlord and Tenant hereby acknowledge that there currently exists as of the date of this Lease certain vacancies in the Building on the floors located immediately above Tenant and that Tenant understands that Landlord may subsequently elect to construct certain improvements in such vacant spaces for the benefit of Landlord and third parties. Landlord agrees to use its commercially reasonable, good faith efforts to reasonably cooperate with Tenant in avoiding unreasonably interfering with Tenant’s permitted business operations in the Premises in connection with Landlord’s exercise of such rights and to minimize the length of time during which any such interference continues and the portion of the Premises or the Building affected by such interference, provided in no event shall Landlord be required to incur after-hours or overtime expenses in connection with the same unless Tenant shall pay for the increased costs to be incurred by Landlord for such overtime labor (it being agreed that if Tenant reasonably and in good faith complains to Landlord’s property manager that the work associated with Landlord’s exercise of its rights hereunder materially and adversely interferes with Tenant’s ability to operate in the Premises, then Landlord shall use good faith efforts to cause the work that is the subject of such complaint to be performed after hours and in such event, Tenant shall within thirty (30) days after Landlord’s written demand therefor (which demand shall be accompanied by reasonable back-up documentation) reimburse Landlord as Additional Rent for all after-hours or overtime expenses in connection with the same). Subject the foregoing, Landlord may: (a) install, repair, replace, or relocate pipes, ducts, conduits, wires and appurtenant meters and equipment for service to other parts of the Building above the ceiling surfaces, below the floor surfaces, within the walls and in the central core areas of the Premises or the rest of the Building; (b) repair, renovate, alter, expand or improve the floors; (c) make changes to the common areas, including, without limitation, changes in the location, size, shape and number of street entrances, driveways, ramps, entrances, exits, parking spaces, parking areas, loading and unloading areas, halls, passages, stairways and other means of ingress and egress, direction of traffic, landscaped areas and walkways; (d) close temporarily any of the common areas for maintenance purposes as long as reasonable access to the Premises remains available; and (e) do and perform such other acts and make such other changes in, to or with respect to the floors as Landlord may deem appropriate.

 

6. SHARED EXPENSES

6.1 Determination . The monthly obligations for Additional Rent as described in Section 4.2 shall be annually adjusted in accordance with the provisions of Section 6.2 hereof.

6.2 Escalations .

(a) Landlord agrees to expend as its share of Operating Expenses (as defined below) paid for and sustained by Landlord during any calendar year an amount not greater than that specified in Section 1.14. Said sum shall constitute the maximum payable by Landlord as its contribution toward Operating Expenses. The term “ Operating Expense ” means the total amounts paid or payable, whether by Landlord or otherwise on behalf of Landlord, in connection with the ownership, leasing, management, maintenance, repair and operation of the Building, the equipment, the intrabuilding cabling and wiring, adjacent walks, landscaped and common areas and any appurtenant structures comprising part of the Building. Operating Expense shall include, without limiting the generality of the foregoing, the aggregate of the amount paid for providing heating, air conditioning, electricity, water, sewer and other utility systems to the

 

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Building, the amount paid to any persons or entities for all labor and/or wages (including the cost to Landlord of workmen’s compensation and disability insurance, payroll taxes, welfare and fringe benefits), for services rendered, and materials provided to the Building (excluding costs incurred with respect to the installation of improvements made for individual tenants in the Building) (but including, without limitation, any maintenance or repairs performed by Landlord as set forth in Article 10 below); for the costs of janitorial services; administrative expenses related to the Building; any costs incurred for any capital improvements or structural repairs to the Building which are: (A) reasonably intended to effect labor or energy savings or otherwise reasonably intended to reduce Operating Expenses, or (B) required by law or by any governmental or quasi-governmental authority having jurisdiction over the Building including, but not limited to, the Americans with Disabilities Act; or (C) for replacement or restoration of any Building equipment and/or improvements needed to operate and/or maintain the Building at the same quality levels as prior to the replacement or restoration, which costs shall be amortized over the useful life of the applicable capital improvements or structural repairs (as reasonably determined by Landlord using standard real estate accounting principles); the cost of accounting services necessary to compute the rent and charges payable by tenants of the Building; fees for management, legal, accounting, inspection and consulting services pertaining to the Building; the cost of guards and other protection services (however, Tenant hereby acknowledges that Landlord shall have no affirmative obligation to provide guards or other protective services to the Building); window washing; hired services; the cost of all charges for cleaning, maintenance and service contracts, and other services with independent contractors and administration fees; costs incurred (capital or otherwise) on a regular recurring basis every three (3) or more years for certain maintenance projects (e.g., parking lot slurry coat or replacement of lobby and elevator car carpeting); and the amount paid for premiums for all insurance procured by Landlord to insure the Building as may be required or permitted under this Lease (including, without limitation, business interruption insurance, and if there is a mortgage or deed of trust on the Building, such insurance as may be required by the holder of such mortgage or deed of trust). In addition, if Landlord does not furnish a particular service or work (the cost of which, if furnished by Landlord, would be included in Operating Expenses) to a tenant (other than Tenant) that has undertaken to perform such service or work in lieu of receiving it from Landlord, Operating Expenses, as applicable, shall be considered to be increased by an amount equal to the additional Operating Expense that Landlord would reasonably have incurred had Landlord furnished such service or work to that tenant. Notwithstanding the foregoing, Operating Expenses shall not include the (1) wages, salaries or fringe benefits (which amounts will be allocated to the Building on a prorated basis based upon the amount of time such persons spend in connection with the Building) paid for any employee above the grade of portfolio manager; (2) costs of repairs or other work necessitated by fire, windstorm, casualty or other occurrence for which Landlord is reimbursed by insurance proceeds to the extent so reimbursed; (3) costs of items considered capital repairs, improvements or replacements under generally accepted accounting principles consistently applied except as expressly included in Operating Expenses pursuant to the definition above; (4) payments to any subsidiary or affiliate of Landlord in excess of the amount that would be paid for similar goods or services on an arms-length basis between unrelated third parties; (5) management fees in excess of the amounts permitted pursuant to this Lease; (6) the cost of providing any service directly to and paid directly by any tenant (outside of such tenant’s Operating Expense payments) including, without limitation, the cost of electricity, to a tenant’s premises; (7) any increases in premiums for any insurance maintained by Landlord resulting

 

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from the extra-hazardous activities of Landlord or other tenants or occupants; (8) leasing commissions, attorneys’ fees, costs, disbursements and other expenses incurred by Landlord or its agents in connection with negotiations for leases or other occupancy agreements, and similar costs incurred in connection with disputes with and/or enforcement of leases or other occupancy agreements; (9) “Tenant allowances,” “tenant concessions,” workletters, and other costs or expenses (including permit, license and inspection fees) incurred in completing, fixturing, furnishing, renovating or otherwise improving, decorating or redecorating space for tenants or other occupants, or vacant, leasable space, including space planning/interior architecture fees for same; (10) payments of principal, finance charges, or interest on debt or amortization on any mortgage, deed of trust or other debt financing or refinancing, and rental payments (or increases in same) under any ground or underlying lease or leases; (11) contributions to operating expense reserves and any bad debt loss, rent loss or other reserve for bad debt or rent loss; (12) costs incurred to (i) comply with laws relating to the removal of any “Hazardous Material,” as that term is defined in Article 24 of this Lease, which was in existence on the Building prior to the Commencement Date, and was of such a nature that a federal, state or municipal governmental authority, if it had then had knowledge of the presence of such Hazardous Material, in the state, and under the conditions that it then existed on the Building, would have then required the removal of such Hazardous Material or other remedial or containment action with respect thereto, and (ii) to remove, remedy, contain, or treat any Hazardous Material, which Hazardous Material is brought onto the Building after the date hereof by Landlord or any other tenant of the Building and is of such a nature, at that time, that a federal, state or municipal governmental authority, if it had then had knowledge of the presence of such Hazardous Material, in the state, and under the conditions, that it then exists on the Building, would have then required the removal of such Hazardous Material or other remedial or containment action with respect thereto; (13) interest, fines or penalties for any late payments by Landlord not due to the act or neglect of Tenant or its agents, contractors or employees (in which event Tenant shall be solely responsible for the same; (14) legal fees, late charges and penalties incurred in connection with Landlord’s noncompliance with or violation of law; (15) costs resulting from the gross negligence or willful misconduct of Landlord, its employees, agents and/or contractors and not reimbursed by insurance; (16) advertising and promotional expenses and costs associated with maintaining Landlord’s corporate (or other entity) existence and other overhead and administrative costs of Landlord not directly incurred in the operation and maintenance of the Building or the Property; (17) costs incurred in connection with the making of repairs or replacements which are the obligation of any other tenant or occupant; (18) political contributions or contributions to charitable organizations; (19) costs or fees relating to the defense of Landlord’s title to or interest in the Property, or any part thereof; (20) depreciation, amortization and interest payments, except as specifically included in Operating Expenses pursuant to the terms of this Lease and except on materials, tools, supplies and vendor-type equipment purchased by Landlord to enable Landlord to supply services Landlord might otherwise contract for with a third party; (21) any costs in connection with an expansion of the rentable area of the Building or the Property or adding any new Building or Property amenities, or any costs incurred in connection with any additions to the Common Areas or the Property, including the purchase of additional land or other development rights; (22) the cost of correcting defects in the construction in the Building or any other buildings in the Property, or any Common Area; (23) the costs of leasing equipment or other items which if purchased would constitute a capital expenditure (except when needed in connection with normal repairs and

 

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maintenance of the Building) to the extent such rentals and related expenses would exceed the monthly amortization of the costs of such items if purchased, rather than rented, or if such items would constitute a capital improvement not included in Operating Expenses pursuant to this Lease; (24) any costs to provide services or utilities or to manage or maintain any other buildings located in the same complex or office park as the Building which are in excess of the Building’s equitable share of such shared costs; (25) any personal property taxes of Landlord for equipment or items not used directly in the operation or maintenance of the Building or the Common Area. In the event, during any calendar year, the Building is less than ninety-five percent (95%) occupied at all times, Operating Expenses shall be adjusted to reflect the Operating Expenses of the Building as though ninety-five percent (95%) were occupied at all times. Notwithstanding anything to the contrary set forth in this Article 6, when calculating Operating Expenses for the Base Year (as set forth in Section 1.14 above), Operating Expenses shall exclude (a) market-wide labor-rate increases due to extraordinary circumstances including, but not limited to, boycotts and strikes, (b) utility rate increases due to extraordinary circumstances including, but not limited to, conservation surcharges, boycotts, embargoes or other shortages, and (c) amortization of any capital items including, but not limited to, capital improvements, capital repairs and capital replacements (including such amortized costs where the actual improvement, repair or replacement was made in prior years). Landlord shall have the right from time to time to equitably allocate some or all of the Operating Expenses among different tenants of the Building (the “ Cost Pools ”). Such Cost Pools may include, but shall not be limited to the office space tenants of the Building and the retail tenants of the Building, if any.

(b) Landlord agrees to expend as its share of Real Estate Taxes paid for and sustained by Landlord during any calendar year an amount not greater than that specified in Section 1.15. Said sum shall constitute the maximum payable by Landlord as its contribution toward Real Estate Taxes. As used in this Lease, the term “ Real Estate Taxes ” includes all general and special taxes, assessments, duties and levies, charged and levied upon or assessed against the Building and/or any improvement situated on the real property on which the Building stands, any leasehold improvement, fixtures, installations, additions and equipment used in the maintenance or operation of the Building, whether owned by Landlord or Tenant, not paid directly by Tenant. If at any time during the Lease Term, the method of taxation of real estate prevailing at the time of execution hereof shall be or has been altered so as to cause the whole or any part of the taxes now or hereafter levied, assessed or imposed on real estate to be levied, assessed or imposed upon Landlord, wholly or partially, as a capital levy or otherwise, or on, or measured by the rents received from the Building, then such new or altered taxes attributable to the Premises shall be deemed to be included in Real Estate Taxes for purposes of this Lease. The reference to the Building in this subsection includes, as allocated by Landlord, improvements or facilities utilized in common by the Building and other buildings upon or adjacent to the real property on which the Building stands.

(c) Commencing on the Commencement Date, and continuing thereafter during the Lease Term, Tenant shall pay to Landlord monthly on the first (1st) day of each month, without notice or demand and without any deduction, offset or abatement, in lawful money of the United States of America, 1/12 of the amount of Tenant’s Pro-Rata Share of the Shared Expenses as estimated by Landlord to be incurred for the calendar year in which the monthly payments are to be made. If the Expiration Date is not December 31, the monthly payments owing hereunder during the last partial calendar year of the Lease shall be appropriately adjusted. The term “ Shared

 

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Expenses ” shall mean the amount by which Operating Expenses and Real Estate Taxes incurred in any period exceed the amount of Landlord’s obligation for the same as specified in Section 1.14 and 1.15.

(d) Following each calendar year as soon as is reasonably practicable, Landlord shall send to Tenant a “ Landlord’s Statement ”, which shall set forth the actual amount of Shared Expenses (with the exception of those States in which real estate taxes are billed on other than a calendar year basis, in which event an additional Landlord’s Statement with respect to Real Estate Taxes will be based on the Real Estate Tax fiscal year and sent within a reasonable time after Landlord’s receipt of Real Estate Tax bills), and shall include Tenant’s Pro-Rata Share thereof for the preceding calendar year (or portion thereof) and the estimated amount of Shared Expenses and Tenant’s Pro-Rata Share thereof for the calendar year in which the additional Landlord’s Statement is given. Landlord’s failure to render a Landlord’s Statement with respect to any period shall not eliminate or reduce Tenant’s obligation to pay Shared Expenses and shall not prejudice Landlord’s right to render a Landlord’s Statement with respect to any subsequent period for a period of one (1) year after the expiration of the calendar year for which the Landlord’s Statement applies and after such one (1) year period Landlord waives its right to recover all or any portion of Tenant’s Pro-Rata Share of Shared Expenses, except where the failure to timely furnish the Landlord’s Statement as to any particular item includable in the Landlord’s Statement is beyond Landlord’s reasonable control (e.g., tax assessments that are late in arriving from the assessor or the result of any contest of Real Estate Taxes by Landlord), in which case such one (1) year limit and the commensurate waiver shall not be applicable. The obligations of Tenant under the provisions of this paragraph with respect to any increase in rent shall survive the expiration or any sooner termination of this Lease. Within fifteen (15) days of Tenant’s receipt of Landlord’s Statement, Tenant shall pay to Landlord the entire amount of Tenant’s Pro-Rata Share of actual Shared Expenses for the prior period covered by Landlord’s Statement less the amount of Shared Expenses previously paid by Tenant for said period, plus Tenant shall also then pay to Landlord such amount as is necessary to assure that, through the calendar month in which Landlord’s Statement is given, Tenant has paid to Landlord the full amount of estimated Shared Expenses for the calendar year in which Landlord’s Statement is given, as if Landlord’s Statement were given on January 1 of said calendar year. For each month following for the remainder of said calendar year, Tenant shall pay the monthly estimated Shared Expenses set forth in Landlord’s Statement. In the event that the estimated payments made by Tenant for any calendar year or other applicable period exceed Tenant’s Pro-Rata Share of actual Shared Expenses for such calendar year or other applicable period as set forth in Landlord’s Statement, then, provided Tenant is not otherwise in default hereunder, the amount of such excess shall be applied by Landlord to the next succeeding installments of monthly estimated payments of Shared Expenses; provided, however, for the last year or portion thereof occurring during the Lease Term, such overpayments shall be promptly refunded to Tenant, less any sums due Landlord.

6.3 Statements . All reasonable determinations by Landlord pursuant to this Article 6 shall be presumed to be correct. Until Tenant is advised of the adjustment in its obligation to pay Shared Expenses, if any, pursuant to the provisions of Section 6.2(d), Tenant’s monthly rental shall continue to be paid at the then current rent (including all prior adjustments thereto pursuant to this Lease). Upon written notice to Landlord of not less than fifteen (15) business days, Tenant shall have the right to review the documentation relied upon by Landlord relating to the

 

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computation of Shared Expenses, which review shall occur at the location specified in Section 1.11(b). In computing Shared Expenses, no cost or expense may be accounted more than once, any expenses which are paid by the proceeds of insurance shall be excluded and any expenses which are separately metered or billed directly to and separately paid by any other tenant shall be excluded. Within one hundred twenty (120) days after receipt of the subject Landlord’s Statement by Tenant and not less than thirty (30) days’ prior written notice to Landlord and provided Tenant is not in default hereunder, Tenant shall have the right to cause an audit to be made of Landlord’s computation of Shared Expenses, at the location of the Building or such other location in San Francisco County, California as may be designated by Landlord, at Tenant’s sole expense, not more frequently than once per calendar year. Such audit shall be conducted by an accountant which is a member of a nationally or regionally recognized accounting firm reasonably acceptable to Landlord; provided, however, in no event shall any such audit be conducted by a company, which as a fee, receives a percentage of any recovery. Tenant agrees that Tenant and such accountant shall keep all information obtained during any such audit strictly confidential; provided, however, Tenant may disclose such information (a) to the extent necessary in any lawsuit requiring such disclosure, (b) to its consultants, or (c) as required by law. A copy of the audit report shall be furnished by Tenant to Landlord regardless as to whether the audit discloses any overpayment or underpayment of Shared Expenses by Tenant. Tenant shall not be entitled to withhold or deduct any portion of Base Rent or Additional Rent during the pendency of any such audit. Any errors disclosed by such audit shall be promptly corrected, provided that Landlord shall have the right to cause another independent audit to be made of such computations, and in the event of a disagreement between the auditors, the audit disclosing the least amount of deviation from Landlord’s original computations shall be conclusively deemed to be correct. The provisions of this Section shall be the sole method to be used by Tenant to dispute the amount of Shared Expenses payable by Tenant under this Lease, and Tenant waives any other rights or remedies relating thereto.

 

7. SECURITY DEPOSIT

Tenant shall deposit with Landlord upon execution hereof the sum specified in Section 1.16 as security for Tenant’s faithful performance of Tenant’s obligations hereunder. If Tenant fails to pay rent or other charges due hereunder, or otherwise defaults with respect to any provisions of this Lease, Landlord may without notice to Tenant use, apply or retain all or any portion of said deposit 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 Tenant’s default or to compensate Landlord for any loss or damage which Landlord may suffer thereby. If Landlord so uses or applies all or any portion of said deposit (other than as specified in Section 1.16 hereof), Tenant shall within five (5) days after written demand therefor deposit cash with Landlord in an amount sufficient to restore said deposit to the full amount hereinabove stated. Landlord shall not be required to keep said deposit separate from its general accounts and Tenant shall not be entitled to interest on such deposit. If Tenant performs all of Tenant’s obligations hereunder, said deposit or so much thereof as had not theretofore been applied by Landlord, shall be returned, without payment of interest or other increment for its use, to Tenant (or, at Landlord’s option, to the last assignee, if any, of Tenant’s interest hereunder) within sixty (60) days after either the expiration of the Lease Term or after Tenant has vacated the Premises, whichever is later. Landlord shall deliver the funds deposited herein by Tenant to the purchaser of the Building in the event the Building is sold (or give such purchaser a credit against the purchase

 

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price in the amount of such deposit), and thereupon Landlord shall be discharged from all further liability with respect to such deposit. Tenant hereby waives the provisions of Section 1950.7 of the California Civil Code and all other provisions of law, now or hereafter in effect, which provide that Landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by Tenant or to clean the Premises, it being agreed that Landlord may, in addition, claim those sums specified in this Article 7 above and/or those sums reasonably necessary to compensate Landlord for any other loss or damage, foreseeable or unforeseeable, caused by the acts or omissions of Tenant or any officer, employee, agent, contractor or invitee of Tenant.

 

8. USE

8.1 Use . The Premises shall be used and occupied only for the uses specified in Section 1.17 hereof, provided that the foregoing shall not be construed as a representation or guarantee by Landlord that such business may lawfully be conducted on the Premises.

8.2 Compliance With Law . In the event it is determined by the applicable governmental unit that the Premises violates any building code, regulation or ordinance in effect as of the date of this Lease, then it shall be the obligation of Landlord, after written notice from Tenant which shall include a copy of the governmental unit’s determination, to promptly, at Landlord’s sole cost and expense, rectify any such violation except to the extent such violation is attributable to Tenant’s use or occupancy of the Premises or any alteration thereof by or on behalf of Tenant (in which event Tenant shall be solely responsible to cure any such violation at its sole cost and expense). In the event Tenant does not give to Landlord written notice of any such violation within ninety (90) days after the date on which Tenant takes possession of the Premises, , it shall be conclusively deemed and construed that such violation did not exist and Tenant shall be obligated to cure such violation at its sole expense; provided, however, that nothing contained in this Section 8.2 shall authorize or permit Tenant to make any structural repairs to the Building.

8.3 Waste and Nuisance . Tenant shall not commit, suffer or knowingly permit any waste, damage, disfiguration or injury to the Premises, the common areas of the Building, or the fixtures and equipment located therein or thereon. Tenant shall not permit or suffer any overloading of the floors thereof, and shall not place therein any heavy business machinery, safes, computers, data processing machines, or other items heavier than customarily used for general office purposes without first obtaining the written consent of Landlord. Neither Landlord nor Tenant shall not use or permit to be used any part of the Building for any dangerous, noxious or offensive trade or business, and shall not cause or permit any nuisance, noise, action, or disturbance of other tenants, in, at or on the Premises.

8.4 Condition of Premises . Except as provided in Sections 8.2 and 9.2 of this Lease, Tenant hereby accepts the Premises and the Building in their present “ AS IS, WHERE IS ” and “ WITH ALL FAULTS ” condition existing as of the Commencement Date, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Premises, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto and any Punch-List items required to be completed by Landlord as set forth in Section 9.2 below. Tenant hereby agrees and warrants that

 

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it has investigated and inspected the condition of the Premises and the suitability of same for Tenant’s purposes, and Tenant does hereby waive and disclaim any objection to, cause of action based upon, or claim that its obligations hereunder should be reduced or limited because of the condition of the Premises or the Building or the suitability of same for Tenant’s purposes. Tenant acknowledges that neither Landlord nor any agent nor any employee of Landlord has made any representations or warranty with respect to the Premises or the Building or with respect to the suitability of either for the conduct of Tenant’s business and Tenant expressly warrants and represents that Tenant has relied solely on its own investigation and inspection of the Premises and the Building in its decision to enter into this Lease and let the Premises in the above-described condition. The taking of possession of the Premises by Tenant shall conclusively establish that the Premises and the Building were at such time in satisfactory condition. In addition, except as provided in Section 8.2, Tenant shall at Tenant’s expense, comply with all applicable laws, statutes, ordinances, rules, regulations, orders, restrictions of record, and requirements in effect during the Lease Term or any part of the term hereof regulating the use or alteration by Tenant of the Premises. Tenant hereby waives subsection 1 of Section 1932 and Sections 1941 and 1942 of the Civil Code of California or any successor provision of law.

8.5 Insurance Cancellation . Notwithstanding the provisions of Section 8.1 of this Lease, no use shall be made or permitted to be made of the Premises, nor acts done which will cause the cancellation of any insurance policy covering said Premises or the Building, and if Tenant’s use of the Premises causes an increase in said insurance rates, Tenant shall pay any such increase as Additional Rent, which, together with interest on any amount paid (at the interest rate set forth in Section 25.4) therefor by Landlord, shall be payable by Tenant on the next succeeding date on which a Base Rental payment is due. Notwithstanding anything further to the contrary confirmed herein, Tenant, at Tenant’s expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Administration (formerly the National Board of Fire Underwriters) and with any similar body.

8.6 Landlord’s Rules and Regulations . Tenant shall faithfully observe and comply with the reasonable rules and regulations that Landlord shall from time to time promulgate, including, without limitation, the rules and regulations attached to this Lease as Exhibit “C” (the “ Rules and Regulations ”). Landlord reserves the right from time to time to make all reasonable modifications to the Rules and Regulations. Landlord shall provide Tenant with prior written notice of any such modifications of the Rules and Regulations; and in no event shall any such modification materially increase Tenant’s monetary obligations under this Lease without Tenant’s prior written consent. For purposes of the immediately preceding sentence only, a “material” increase in Tenant’s monetary obligations shall mean any increase that exceeds an amount equal to $3,000.00 per year as a result of such modification of the Rules and Regulations only. The additions and modification to the Rules and Regulations shall be binding upon Tenant upon Landlord giving notice of them to Tenant. Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by any other tenants or occupants.

 

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9. LANDLORD’S SERVICES

9.1 Basic Services . Subject to any law, rule or governmental order or regulation, and further subject to any circumstance beyond the control of Landlord, Landlord shall furnish the following services, the cost of which shall, except as provided below, be included in Operating Expenses:

(a) Air conditioning and heat, whichever be required, from 8 a.m. to 6 p.m., Monday through Friday and 8 a.m. through 1 p.m. on Saturday, excluding legal holidays;

(b) Hot and cold water for lavatory purposes and electric current for lighting the Premises and for ordinary office appliances and office machines only, provided that Tenant shall not use any electrical equipment which in Landlord’s sole but good faith opinion will overload the wiring insulations or interfere with the use thereof by Landlord or any other tenant in the Building. If a further supply of water is required by Tenant, then at Tenant’s expense, Landlord shall have the option to install and maintain a water meter to register such Tenant’s consumption, and Tenant shall pay as Additional Rent for water consumed, at the cost to Landlord, and for sewer rents and all other rents and charges based upon such consumption of water (including without limitation, the cost of installing and monitoring the water meter);

(c) General day-to-day janitorial service (excluding carpet shampooing and hard surface floor waxing) five (5) days a week, and elevator service during the same hours for which air conditioning and heat services are provided as set forth above, provided, however, that in the event Tenant is delinquent in making any installment payment of rent under this Lease for a period of fifteen (15) days or more after it shall become due, Landlord may discontinue furnishing any or all of the services described in this Section 9.1 until all arrears of rental payments, plus interest and late charges and any other sums due under this Lease, shall have been paid in full. Whenever heat generating machines or equipment are used by Tenant in the Premises which affect the temperature otherwise maintained by the air conditioning system, as determined by Landlord, Landlord reserves the right to install supplementary air conditioning units in the Premises, and the costs therefor, including the cost of installation, operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. If Tenant, as determined by Landlord, requires electric current in excess of that usually furnished or supplied to the Premises, Landlord may, at its election, either cause an electric current meter to be installed in the Premises so as to measure the electric current consumed for such excess use or determine the value of such excess use by causing an independent electrical engineer or consulting firm, selected by Landlord, to conduct a survey of Tenant’s use of electric current and to certify such determination in writing to Landlord and Tenant. The cost of any such survey or installation and maintenance of such meter shall be borne by Tenant if the survey or meter indicates excess use by Tenant. Additionally, Tenant agrees to pay to Landlord, as Additional Rent, promptly upon demand therefor by Landlord, the amount determined to be due for the electric current consumed by Tenant, as shown by said meter or as indicated in said survey, as the case may be, at the rate charged for such service by the local public authority or the local public utility, as the case may be, furnishing the same, plus any additional expenses incurred by Landlord in keeping account of the electric current consumed.

(d) Notwithstanding anything in this Lease to the contrary, Tenant will not without the prior written consent of Landlord use any apparatus or device in the Premises which will in any way increase the amount of electricity or water usually furnished or supplied for use of the Premises as general office space. Tenant shall not connect with any electric current except through existing electrical outlets in the Premises, or to any water pipes, any apparatus or device

 

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for the purposes of using electric current or water. If Tenant shall require water or electric current in excess of that usually furnished or supplied for use of the Premises as general office space, then Tenant must first procure the written consent of Landlord to the use thereof. With the prior written consent of Landlord, Tenant may maintain and operate data processing equipment on the Premises, but all additional costs in connection therewith (including, but not limited to, additional support flooring, insulation, electrical outlets and temperature maintenance facilities) shall be borne solely by Tenant and the utility services utilized by or for such equipment shall be separately metered and the cost of such utility services with metering shall be borne solely by Tenant. At Tenant’s request and with Landlord’s prior approval, Landlord shall furnish the services described in Section 9.1(a) at times other than specified in Section 9.1(a), provided that Tenant shall pay the entire cost of such after-hours usage as reasonably determined by Landlord as Additional Rent, notwithstanding the fact that such services may also benefit portions of the Building other than the Premises (in which event Landlord shall not receive collectively from all tenants paying for any portion of such additional services more than the actual cost to Landlord of providing the same).

(e) Tenant agrees that Landlord shall be the sole and exclusive representative with respect to, and shall maintain exclusive control over, the reception, utilization and distribution of electrical power, regardless of point or means of origin, use or generation. Tenant shall not have the right to contract directly with any provider of electrical power or services.

9.2 Initial Construction . Landlord shall prior to the Commencement Date perform the Landlord Work in the Premises as provided in the Work Letter. Within ten (10) business days after Landlord notifies Tenant that the Landlord Work is Substantially Complete (as defined in the Work Letter), representatives of Landlord and Tenant shall conduct a walk-through of the Premises and jointly prepare a list of any minor items of the Landlord Work have not been fully completed (collectively, the “ Punch List Items ”). Landlord shall cause its contractor to complete or repair the Punch List Items within thirty (30) days after the preparation of the list of Punch List Items (unless the nature of such repair or correction is such that more than thirty (30) days are required for completion, in which case, Landlord shall commence such repair or correction work within such thirty (30) day period and diligently and continuously prosecute the same to completion). Tenant shall not be entitled to any postponement or delay of the Commencement Date or any abatement of any Rent obligations pending completion of the Punch List Items. Tenant agrees that there is no promise, representation, or undertaking by or binding on Landlord with respect to any construction, refurbishment, alteration, addition, repairing, remodeling or redecorating in or to the Premises, except as expressly set forth in the Work Letter.

9.3 Interruption of Services . Upon reasonable prior written notice to Tenant, Landlord reserves the right from time to time to install, use, maintain, repair, replace and relocate service to the Premises and other parts of the Building, and to alter or relocate any other facility in the Building . Landlord agrees to use its commercially reasonable, good faith efforts to avoid unreasonably interfering with Tenant’s permitted business operations in connection with Landlord’s exercise of such rights and to minimize the length of time during which any such interference continues and the portion of the Premises or the Building affected by such interference, provided in no event shall Landlord be required to incur after-hours or overtime expenses in connection with same in excess of those which Landlord reasonably determines are

 

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necessary based upon the circumstances under which Landlord is exercising its rights hereunder. Interruption or curtailment of any service maintained in the Building, if caused by strikes, mechanical difficulties, actions of Landlord under the first sentence of this Section 9.3, or for any other reason beyond Landlord’s control, shall not entitle Tenant to any claim against Landlord or to any abatement in rent, nor shall the same constitute constructive or partial eviction. Unless due to the gross negligence of Landlord (but subject to Section 13.5 below), Landlord shall not be liable to Tenant for any injury or damage resulting from defects in the plumbing, heating, or electrical systems in the Building or for any damage resulting from water seepage into the Building or for any act or failure to act by any other Tenants at the Building or for any damage resulting from wind storm, hurricane or rain storm.

 

10. MAINTENANCE, REPAIRS AND ALTERATIONS

10.1 Landlord’s Obligations . Subject to the provisions of Sections 8.2 and 14 hereof, and except for damage caused by any negligent or intentional act or omission of Tenant, Tenant’s agents, employees, representatives, customers or invitees, in which event Tenant shall repair the damage, at its sole expense, Landlord shall keep in good order, condition and repair (a) the structural portions of the Building, (b) the basic HVAC, mechanical, plumbing and electrical systems (provided, however, that Landlord’s obligation with respect to any such systems shall be to repair and maintain those portions of the systems located in the core of the Building or in other areas outside of the Premises, but Tenant shall be responsible to repair and maintain any distribution of such systems throughout the Premises), (c) and those portions of the Building which are not occupied or leased by any tenant, and all costs incurred by Landlord in making any such repairs or performing such maintenance shall be Operating Expenses (to the extent permitted) as defined in Section 6.2 hereof, provided that Landlord shall have no obligation to perform any act which is the obligation of Tenant or any other tenant in the Building. Tenant expressly waives the benefits of any statute now or hereafter in effect (including, without limitation, the provisions of California Civil Code Sections 1932(1) and 1942 and any successive sections or statutes of a similar nature) which would otherwise afford Tenant the right to make repairs at Landlord’s expense or to terminate this Lease because of Landlord’s failure to keep the Premises in good order, condition and repair. Other than as specifically provided in this Section 10.1, Landlord shall not be obligated to make any repairs or improvements of any kind, in, upon, about, or to the Premises or the Building.

10.2 Tenant’s Obligations . Subject to the provisions of Sections 8.2, 10.1 and 14 hereof, Landlord, at Tenant’s expense (which amount shall be an Operating Expense to the extent permitted), shall keep in good order, condition and repair the Premises and every part thereof including, without limiting the generality of the foregoing, all plumbing, electrical and lighting facilities and equipment within the Premises, fixtures, interior walls and interior surfaces of exterior walls, ceilings, windows, doors, plate glass and skylights located within the Premises. All repairs made by Tenant, if any, shall be at least of the same quality, design and class as that of the original work. Tenant agrees that it will abide by, keep and observe all reasonable rules and regulations which Landlord may make from time to time for the management, safety, care and cleanliness of the Building and grounds, the parking of vehicles and the preservation of good order therein as well as for the convenience of other occupants and tenants of the Building. Notwithstanding the foregoing, all damage or injury to the Building or to the Premises, fixtures, appurtenances and/or equipment caused by Tenant moving property in or out of the Building or

 

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the Premises or by Tenant’s installation or removal of furniture, fixtures, or other property, or from any other cause of any kind or nature whatsoever due to carelessness, omission, neglect, improper conduct, or other cause of Tenant, its agents, employees, invitees, contractors or subcontractors shall be repaired, restored, or replaced promptly by Tenant at its sole cost and expense to the satisfaction of Landlord.

10.3 Surrender . On the last day of the Lease Term or on any sooner termination or date on which Tenant ceases to possess the Premises, Tenant shall remove its trade fixtures, furnishings, equipment and any cabling installed by or at Tenant’s request that is not contained in protective conduit or metal raceway, and surrender the Premises to Landlord in good and clean condition, ordinary wear and tear excepted. Prior to such surrender Tenant shall repair any damage to the Premises occasioned by its removal of trade fixtures, furnishings, equipment and cabling and repair of any structural or other damage in connection therewith. Tenant agrees to indemnify Landlord and hold Landlord harmless from and against any liability (including reasonable attorneys’ fees) of Landlord to third parties resulting from Tenant’s failure to timely comply with the provisions of this Section 10.3.

10.4 Alterations and Additions .

(a) Tenant shall not, without Landlord’s prior written consent, make any alterations, improvements or additions (referred to collectively herein as “ Alterations ”) in, on or about the Premises. Landlord may require that Tenant remove any or all of said Alterations at the expiration of the Lease Term or such other time at which Tenant ceases to possess the Premises, and restore the Premises to their prior condition. Should Tenant make any Alterations without the prior approval of Landlord, Landlord may require that Tenant immediately remove any or all of such items and/or Landlord may declare a default by Tenant under this Lease. Except in connection with normal interior decorating of the Premises, Tenant shall not place any holes in any part of the Premises, and in no event shall Tenant place in or about the Premises any exterior or interior signs or interior drapes, blinds, or similar items visible from the outside of the Premises without the prior written approval of Landlord. Notwithstanding anything to the contrary contained herein, Tenant may make strictly cosmetic changes to the finish work in the Premises (the “ Cosmetic Alterations ”), without Landlord’s consent, provided that the aggregate cost of any such alterations does not exceed $50,000.00 in any twelve (12) month period, and further provided that such Cosmetic Alterations do not (i) require any structural or other substantial modifications to the Premises, (ii) require any changes to, nor adversely affect, the systems and equipment of the Building, and (iii) affect the exterior appearance of the Building. Tenant shall give Landlord at least thirty (30) days prior notice of such Cosmetic Alterations, which notice shall be accompanied by reasonably adequate evidence that such changes meet the criteria contained in this Article 10.

(b) Any Alterations in, on or about the Premises that Tenant shall desire to make shall be presented to Landlord in written form with proposed detailed plans. If Landlord shall give its consent, the consent shall be deemed conditioned upon Tenant acquiring a permit to do the work from appropriate governmental agencies, the furnishing of a copy thereof to Landlord prior to the commencement of the work and the compliance by Tenant with all conditions of said permit and with all specifications in the plans in a prompt and expeditious manner. Tenant shall not permit any of the work to be performed by persons not currently

 

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licensed under any applicable licensing laws or regulations pertaining to the types of work to be performed. Landlord shall not be deemed unreasonable in the exercise of its discretion for withholding approval of any Alterations which involve or might affect any structural or exterior element of the Building, any area or element outside of the Premises, or any facility serving any area of the Building outside of the Premises, or which will require unusual expense to re-adapt the Premises to normal office use on the termination or expiration of the Lease, unless in the latter case Tenant either desires to or is required to make repairs or Alterations in accordance with this Lease, Landlord may require Tenant, at Tenant’s sole cost and expense, to obtain and provide to Landlord a lien and completion bond (or such other applicable bond as determined by Landlord) in an amount equal to one and one-half (1-1/2) times the estimated cost of such improvements, to insure Landlord against liability including but not limited to liability for mechanic’s and materialmen’s liens and to insure completion of the work.

(c) Tenant shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Tenant at or for use in the Premises, which claims are or may be secured by any mechanic’s or materialmen’s lien against the Premises or the Building. Tenant shall give Landlord not less than ten (10) days notice prior to the commencement of any work in, on or about the Premises, and Landlord shall have the right to post notices of non-responsibility in, on or about the Premises as provided by law. Tenant shall have no power or authority to do any act or make any contract which may create or be the basis for any lien upon the interest of Landlord, the Premises or the Building, or any portion thereof. If any mechanics or other lien or any notice of intention to file a lien shall be filed or delivered with respect to the Premises or the Building, based upon any act of Tenant or of anyone claiming through Tenant, or based upon work performed or materials supplied allegedly for Tenant, Tenant shall cause the same to be canceled and discharged of record within fifteen (15) days after the filing or delivery thereof. If Tenant has not so canceled the lien within fifteen (15) days as required herein, Landlord may pay such amount, and the amount so paid together with interest thereon (at the interest rate set forth in Section 25.4) from the date of payment and all legal costs and charges, including attorneys fees, incurred by Landlord in connection with said payment and cancellation of the lien or notice of intent shall be Additional Rent and shall be payable on the next succeeding date on which an installment of Base Rent is due. Landlord may, at its option and without waiving any of its rights set forth in the immediately preceding sentence, permit Tenant to contest the validity of any such lien or claim, provided that in such circumstances Tenant shall at its expense defend itself and Landlord against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof against Landlord, the Premises or the Building, provided further that Landlord may at any time require Tenant to deposit with the court exercising jurisdiction over such claim, such amount as may be necessary under applicable statutes to cause the release and discharge of the lien, and if Tenant shall not immediately make such payment upon the request of Landlord, Landlord may make said payment and the amount so paid, together with interest thereon from the date of payment and all legal costs and charges, including attorneys fees, incurred by Landlord in connection with said payment shall be deemed Additional Rent and shall be payable on the next succeeding date on which an installment of Base Rent is due. In addition, Landlord may require Tenant to pay Landlord’s attorney fees and costs in participating in such action if Landlord shall decide it is in its best interest to do so. Nothing herein contained shall be construed as a consent on the part of Landlord to subject the interest and estate of Landlord to liability under any lien law of the state in which the Premises are situated, for any reason or purpose whatsoever, it being expressly understood that Landlord’s interest and estate shall not be subject to such liability and that no person shall have any right to assert any such lien.

 

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(d) Unless Landlord requires their removal, as set forth in Section 10.4(a), all Alterations which may be made on the Premises shall, at the expiration of the Lease Term or such other time at which Tenant ceases to possess the Premises, become the property of Landlord and remain upon and be surrendered with the Premises. Notwithstanding the provisions of this Section 10.4(d), Tenant’s trade fixtures, personal property, machinery and equipment, other than that which is affixed to the Premises so that it cannot be removed without material damage to the Premises, shall remain the property of Tenant and may be removed by Tenant subject to the provisions of Section 10.3 hereof, provided that Tenant is not in default under this Lease at the time Tenant ceases to possess the Premises.

 

11. TENANT’S USE OF PUBLIC AREAS

Tenant’s non-exclusive use of the public areas described in Section 2.2 shall be subject to the Rules and Regulations and such other reasonable rules and regulations as may be promulgated by Landlord from time to time pursuant to Section 8.6. Tenant agrees to repair at its cost all deteriorations or damages to the public areas occasioned by its negligence or intentional misconduct or that of its officers, agents, representatives, customers, employees or invitees.

 

12. TAXES AND TELEPHONE

12.1 Personal Property Taxes . Tenant shall pay prior to delinquency all taxes assessed against and levied upon leasehold improvements, fixtures, furnishings, equipment and all other personal property of Tenant contained in the Premises or elsewhere. If Tenant shall cause said leasehold improvements, trade fixtures, furnishings, equipment and all other personal property to be assessed with Landlord’s real property, Tenant shall pay Landlord the taxes attributable to Tenant within ten (10) days after receipt of a written notice from Landlord setting forth the taxes applicable to Tenant’s property, and if Tenant fails to do so, Landlord may make such payment and the amount so paid, together with interest thereon (at the interest rate set forth in Section 25.4) from the date paid, shall be Additional Rent and shall be due and payable to Landlord on the next succeeding date on which an installment of Base Rent is due.

12.2 Telephone . Tenant shall separately arrange and pay for the furnishing of and use of all telephone services as Tenant may deem necessary for its use of the Premises, and Landlord shall have no liability in connection therewith.

 

13. INSURANCE AND INDEMNITY [TENANT TO CONFIRM INSURANCE]

13.1 Liability Insurance . Tenant shall, at Tenant’s expense, obtain and keep in force during the Lease Term a policy of commercial general liability insurance, on an occurrence basis, insuring Landlord and Tenant against any liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be in an amount not less than Two Million Dollars ($2,000,000) bodily injury and property damage combined single limit general liability with a Two Million Dollar ($2,000,000) umbrella liability. The limits of said insurance shall not, however, limit the liability of Tenant hereunder.

 

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If in the opinion of Landlord the amount of liability insurance required hereunder is not adequate, then Tenant shall increase said insurance coverage as required by Landlord. However, the failure of Landlord to require any additional insurance coverage shall not be deemed to relieve Tenant from any obligations under this Lease.

13.2 Property Insurance . Landlord shall obtain and keep in force during the Lease Term causes of loss-special form (fka “ All Risk ”) property damage insurance coverage on the Building (including Building standard leasehold improvements). Landlord may also, but shall not be required to, procure any other insurance policies respecting the Premises or Building which Landlord deems necessary. Tenant shall also obtain and keep in force during the Lease Term, at Tenant’s expense, causes of loss-special form (fka “ All Risk ”) property damage insurance, including fire and extended coverage, sprinkler leakage (including earthquake sprinkler leakage), vandalism, malicious mischief plus earthquake and flood coverage upon the property of every description and kind owned by the Tenant and located in the Building or for which Tenant is legally liable or installed by or on behalf of the Tenant, including without limitation, furniture, fittings, installations, alterations, additions, partitions, fixtures and anything in the nature of leasehold improvements in an amount not less than the full replacement cost thereof. Such insurance shall insure Tenant and Landlord, and in the event that there shall be a dispute as to the amount which comprises the full replacement cost, the decision of Landlord shall be conclusive.

13.3 Other Forms of Insurance . Tenant shall also obtain and keep in force during the Lease Term, at Tenant’s expense (i) worker’s compensation and employer’s liability insurance, in statutory amounts and limits, covering all persons employed in connection with any work done on or about the Premises for which claims for death or bodily injury could be asserted against Landlord, Tenant or the Premises, (ii) business interruption, loss of income and extra expense insurance covering all perils, failures or interruptions, and (iii) any other forms of insurance as Tenant or Landlord or the mortgagees of Landlord may reasonably require from time to time, in form, amounts and for insurance risks against which a prudent tenant would protect itself, but only to the extent such risks and amounts are available in the insurance market at commercially reasonable costs.

13.4 Insurance Policies . Insurance required by Tenant hereunder shall be in companies rated A- X or better in “Best’s Insurance Guide” or which is otherwise acceptable to Landlord and licensed to do business in the state in which the Premises is located. Tenant shall deliver to Landlord prior to taking possession of the Premises copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with loss payable and additional insured clauses reasonably satisfactory to Landlord. All insurance required by Tenant hereunder shall be primary as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant. No such policy shall be cancelable or subject to reduction of coverage or other modification except after ten (10) days’ prior written notice to Landlord. Tenant shall, prior to the Commencement Date and at least thirty (30) days prior to the expiration of such policies, furnish Landlord with copies of all policies or certificates thereof. If Tenant shall fail to procure and maintain the insurance required hereunder, or to deliver such policies or certificates, Landlord, at its sole election may (i) procure such insurance and charge the cost thereof to Tenant, which amount, together with interest thereon at the interest rate set forth in Section 25.4 below, shall be Additional Rent and

 

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shall be payable within five (5) days after delivery to Tenant of bills therefor, or (ii) deny Tenant the right to occupy the Premises until such time as Tenant delivers such policies or certificates (which denial shall have no effect upon the Commencement Date or Expiration Date). Tenant shall not do or permit to be done anything which shall invalidate the insurance policies referred to in Section 13.1. Tenant shall forthwith, upon Landlord’s demand, reimburse Landlord for any additional premiums attributable to any act or omission or operation of Tenant causing an increase in the cost of insurance.

13.5 Waiver of Subrogation . Tenant and Landlord each waives any and all rights of recovery against the other, or against the officers, employees, agents and representatives of the other for loss or damage to such waiving party or its property or the property of others under its control, where such loss or damage is insurable under any policy of all-risk property damage or loss of income and extra expense insurance. The foregoing waiver shall apply to any deductible maintained by Tenant. Tenant and Landlord shall, upon obtaining the policies of insurance required hereunder, give notice to the insurance carriers that the foregoing mutual waiver of subrogation is contained in this Lease and obtain policies of insurance, if obtainable, which shall include a waiver by the insurer of all right of subrogation against Landlord or Tenant in connection with any loss or damage thereby insured against.

13.6 Hold Harmless . Tenant shall indemnify, defend and hold Landlord harmless from any and all claims, liabilities, damages and costs, including attorneys’ fees, incurred by Landlord which arise from Tenant’s use of the Premises or the Building or from the conduct of its business or from any activity, work or things which may be permitted or suffered by Tenant in, on or about the Premises or the Building, and shall further indemnify, defend and hold Landlord harmless from and against any and all claims, liabilities, damages and costs, including attorneys fees, incurred by Landlord which arise from any breach or default in the performance of any obligation on Tenant’s part to be performed under any provision of this Lease or which arise from any negligence of Tenant or any of its agents, representatives, customers, employees or invitees.

13.7 Exemption of Landlord from Liability . Tenant hereby agrees that Landlord shall not be liable for injury to Tenant’s business or any loss of income therefrom, including without limitation from any relocation by Landlord of Tenant within the Building (except as expressly provided otherwise in Section 20), or for damage to the goods, wares, merchandise or other property of Tenant, Tenant’s employees, representatives, agents, invitees, customers or any other person in, on or about the Premises or Building, nor shall Landlord be liable for injury to the person of Tenant, Tenant’s employees, representatives, agents, customers, or invitees, whether any such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, and whether the said damage or injury results from conditions arising upon the Premises or any other cause, and whether the said damage or injury results from conditions arising upon the Premises or Building, or from other sources or places, and regardless of whether the cause of such injury or the means of repairing the same is inaccessible to Landlord or Tenant, unless such injury, loss of income or damage is caused by Landlord’s gross negligence. Landlord shall not be liable for any damages arising from any act or neglect of any other tenant, if any, of the Building. Tenant hereby assumes all risk of damage to property or injury to persons in, on or about the Premises or the Building from any cause and Tenant hereby waives all claims in respect thereof against Landlord, excepting where said damage arises out of the gross negligence of Landlord.

 

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14. DAMAGE OR DESTRUCTION

14.1 Option to Terminate Lease . If the Premises or any part of the Building shall be damaged or destroyed by fire or other casualty, Landlord may, at its option and subject to Section 14.2 hereinbelow, elect to terminate this Lease by giving notice to the Tenant within ninety (90) days after Landlord receives actual notice of the fire or other casualty, and thereupon the Lease Term of this Lease shall expire by lapse of time upon the tenth (10 th ) day after such notice is given. If this Lease is terminated pursuant to the preceding sentence, then Tenant shall assign to Landlord all insurance proceeds relating to any leasehold improvements required to be insured hereunder by Tenant. Instead of exercising said option, Landlord may elect to repair or restore the Premises and/or Building to substantially the same condition as existed before such damage or destruction except for modifications required by zoning and building codes and other laws or any other modification as deemed desirable by Landlord; provided, however, Landlord will have no obligation to repair or restore (i) non-Building standard leasehold improvements, or (ii) any items that Tenant or any other tenant or occupant of the Building is required to insure under Section 13.2 above or such other tenant’s or occupant’s lease or occupancy agreement with Landlord. Upon electing to repair or restore, Landlord may proceed with reasonable dispatch to perform the necessary work, and the Base Rent to be paid by Tenant pursuant to this Lease shall be abated on the basis of the relation to which the rentable square footage of the portion of the Premises which is untenantable and not utilized by Tenant as a result of such fire or casualty bears to the rentable square footage of the entire Premises. The foregoing abatement of Base Rent shall commence on the date of the occurrence of such fire or casualty and continue until the earlier of the date upon which (a) such repair or restoration work required to be performed by Landlord pursuant to this Section 14.1 is completed, or (b) Tenant re-opens the untenantable part of the Premises. Upon completion of Landlord’s repair or restoration work required to be performed pursuant to this Section 14.1, Tenant shall repair or restore any leasehold improvements required to be insured by Tenant. Landlord shall not be liable to Tenant for any delay which arises by reason of labor strikes, adjustments of insurance or any other cause beyond Landlord’s control, and in no event shall Landlord be liable for any loss of profits or income. Notwithstanding the foregoing, there shall be no abatement, apportionment or reduction in the rental obligations of Tenant if the damage or destruction is caused by the Tenant or Tenant’s agents, representatives, employees, customers or invitees.

14.2 Obligation to Repair or Restore . If and only if all of the following circumstances exist with respect to damage or destruction to the Premises, Landlord may not elect to terminate this Lease as provided in Section 14.1 hereof but rather must elect to repair or restore the Premises:

(a) There is no fault or neglect on the part of the Tenant, Tenant’s agents, representatives, employees, customers or invitees which contributed to the damage or destruction;

(b) The cost to repair the damage or destruction to the Premises is less than fifty percent (50%) of the total replacement cost of the Premises as determined by Landlord;

 

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(c) Landlord is fully insured for the casualty which causes the damage or destruction and the insurance proceeds have been made available therefor by the holder or holders of any mortgages or deeds of trust covering the Premises;

(d) The date of the damage or destruction is greater than one (1) year prior to the Expiration Date of this Lease or any renewal, modification or extension thereof; and

(e) Less than fifty percent (50%) of the rentable square feet of the Building [for multi building Projects: and less than fifty percent (50%) of the remaining rentable square feet of the Project (not including the Building)] is so damaged or destroyed, as determined by Landlord, regardless of the percentage of rentable square feet of the Premises which may be damaged or destroyed.

14.3 Fault of Tenant . Landlord may exercise its option to repair or restore as described in Section 14.1 even if such damage or destruction is due to the fault or neglect of Tenant, Tenant’s agents, representatives, employees, customers or invitees, but in such event Landlord’s election to repair or restore shall be without prejudice to any other rights and remedies of Landlord under this Lease, and there shall be no apportionment or abatement of any rent of any kind and Landlord shall not be liable for any other loss to Tenant of any nature whatsoever.

14.4 Obligations of Tenant . Except as provided in this Section 14, none of Tenant’s obligations under this Lease shall be affected by any damage or destruction of the Premises by any cause whatsoever. Tenant hereby expressly waives any and all rights it might otherwise have under any law, regulation or statute (including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code) which would act to modify the provisions of the immediately preceding sentence including any law, regulation or provision with respect to termination rights arising from a damage or destruction.

14.5 Termination by Tenant . In the event that more than fifty percent (50%) of rentable square feet of the Premises shall be damaged or destroyed by fire or other casualty not caused by the Tenant or Tenant’s agents, representatives, employees, customers or invitees, either party may terminate this Lease by giving notice to the other within thirty (30) business days after the date of the fire or other casualty, and upon such termination the rental obligations of the Tenant shall be duly apportioned as of the date of such fire or other casualty, provided, however, that Tenant shall have no right to terminate the Lease under this Section 14.5 if Tenant is in default of any of its obligations under the Lease as of the date of the fire or other casualty.

 

15. CONDEMNATION

If the Premises are taken under any public or private power of eminent domain, or sold by Landlord under the threat of the exercise of said power (all of which is herein referred to as “ condemnation ”), or if any portion of the Building is so condemned so that it would not be practical, in Landlord’s judgment, to continue to maintain the Building, this Lease shall terminate as of the date the condemning authority takes title or possession, whichever occurs first. If only a portion of the Premises are so condemned, Landlord or Tenant shall have the right, if more than sixty percent (60%) of rentable square feet of the Premises are so condemned, to terminate this Lease as of the date the condemning authority takes title or possession,

 

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whichever occurs first, by the terminating party giving written notice of such termination to the non-terminating party not later than thirty (30) days after said date, but should the parties not elect not to so terminate this Lease, this Lease shall remain in full force and effect as to the portion of the Premises not so taken, and Tenant’s rental obligations shall be reduced proportionately to reflect the number of rentable square feet remaining in the Premises, and such rental reduction, if any, shall take effect as of the date which is thirty (30) days after the date of which the condemning authority takes title or possession, whichever first occurs. If repairs or restorations to that portion of the Premises not so taken are deemed necessary by Landlord to render such portion reasonably suitable for the purposes for which is was leased, as determined by Landlord, Landlord shall perform such work at its own cost and expense but in no event shall Landlord be required to expend any amount greater than the amount received by Landlord as compensation for the portion of the Premises taken by the condemner. All awards for the taking of any part of the Premises or any payment made under the threat of the exercise of power of eminent domain shall be the property of Landlord, whether made as compensation for diminution of value of this leasehold or for the taking of the fee or as severance damages. No award for any partial or entire taking shall be apportioned, and Tenant hereby assigns to Landlord any award which may be made in such taking or condemnation, together with any and all rights of Tenant now or hereafter arising in or to the same or any part thereof, except that any award or other compensation made for any taking is subject to the rights of the first mortgagee up to the amount of its lien and of any junior mortgagee, as may be permitted by the first mortgagee, up to the full amount of such junior lien; provided, however, that Tenant shall be entitled to any award for loss of or damage to Tenant’s trade fixtures and removable personal property and/or for the interruption of or damage to Tenant’s business; provided, further however, that no such claim by Tenant shall diminish or adversely affect Landlord’s award. In no event shall Tenant have or assert a claim for the value of any unexpired term of this Lease. Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of the California Code of Civil Procedure or any other California law, statute or ordinance now or hereafter in effect, to seek termination of this Lease in the event of a taking, it being the intent of the parties that the provisions of Article 15 of this Lease shall govern the rights of the parties in such event.

 

16. ASSIGNMENT AND SUBLETTING

16.1 Landlord’s Consent Required . Subject to Section 16.5 below, Tenant shall not voluntarily or by operation of law assign, transfer, mortgage, sublet or otherwise transfer or encumber (collectively, a “ Transfer ”) all or any part of Tenant’s interest in this Lease or in the Premises without Landlord’s prior written consent which shall not be unreasonably withheld or delayed. Any attempted assignment, transfer, mortgage, encumbrance or subletting without such consent shall be void and shall constitute a breach of this Lease. Any transfer of Tenant’s interest in this Lease or in the Premises from Tenant by merger, consolidation or liquidation, or by any subsequent change in the ownership of fifty percent (50%) or more of the capital stock of Tenant shall be deemed a prohibited Transfer within the meaning of this Section 16. As a condition of obtaining Landlord’s consent, Tenant shall submit to Landlord, together with its request for consent, the name of the proposed assignee or subtenant, the terms and provisions of the proposed transaction, and such information as to the nature of the proposed assignee’s or subtenant’s business and its financial responsibility and standing as Landlord may reasonably require, together with the effective date of the proposed Transfer which shall be at least sixty (60) days after the date of submission of such information to Landlord. Without limiting other

 

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reasons for which Landlord may reasonably withhold its consent, Landlord’s failure to consent to any proposed transfer under this Section 16.1 shall not be deemed unreasonably withheld if: (a) the occupancy resulting from such transfer will not be consistent with the general character of the business carried on by the tenants of the Building or violates any rights or options held by any other tenant of the Building; (b) the proposed occupant pursuant to the Transfer does not have the financial strength and stability to perform its rental obligations or Landlord is unable to obtain guaranties from one or more affiliates of the proposed occupant in order to secure such financial obligations; (c) any proposed sublease does not incorporate this Lease in its entirety so as to be subject to this Lease’s terms or require the sublessee to attorn to Landlord, at Landlord’s option, in the event of a default by Tenant under this Lease; (d) or any person or entity which directly or indirectly controls, is controlled by or is under common control with the proposed occupant (i) occupies space in the Building at the time of the request for consent, or (ii) is negotiating with Landlord to lease space in the Building; or (e) the proposed occupant if Tenant does not execute an agreement with Landlord requiring Tenant to pay to Landlord, as Additional Rent, fifty percent (50%) of any Transfer Premium (as herein defined) received by Tenant from such transferee, net of Transaction Expenses (as herein defined), which Additional Rent shall be paid to Landlord as and when received by Tenant. As used herein, (1) the term “ Transfer Premium ” means all rent (including minimum guaranteed rent and additional rent) and all monies or other consideration received by Tenant from its transferee (whether paid to Tenant as consideration for Tenant’s transfer of property or other assets to the transferee or as consideration for the transferee’s occupancy of the Premises) in excess of the amounts owed by Tenant to Landlord under this Lease; and (2) the term “ Transaction Expenses ” means, collectively, the sum of any usual and customary real estate commission paid by Tenant to a real estate agent or broker not related to, affiliated with or employed by Tenant or any Tenant Affiliate (as defined in Section 16.5 hereof) in connection with such Transfer; construction, refurbishment and moving allowances paid by Tenant to its transferee; rent concessions afforded to the transferee by Tenant; and reasonable attorneys’ fees incurred by Tenant in connection with such Transfer. Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed sublessee or assignee of Tenant’s interest in this Lease pursuant to a Transfer, claims that Landlord has unreasonably withheld or delayed its consent under this Article 16 or otherwise has breached or acted unreasonably under this Article 16, their sole remedies shall be a declaratory judgment and an injunction for the relief sought without any monetary damages, and Tenant hereby waives all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all applicable laws, on behalf of the proposed sublessee or assignee.

16.2 No Release of Tenant . Regardless of Landlord’s consent, no Transfer described in Section 16.1 shall release Tenant of Tenant’s obligation or alter the primary liability of Tenant to pay the rent and to perform all other obligations to be performed by Tenant hereunder. Consent to one Transfer shall not be deemed consent to any subsequent act. In the event of default by any assignee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against said assignee or successor. Landlord may consent to subsequent Transfers of this Lease or amendments or modifications to this Lease with assignees or successors of Tenant without notifying Tenant and without obtaining its consent thereto and such action shall not relieve Tenant of liability under this Lease. In the event Landlord allows a Transfer hereunder, neither Tenant, the assignee of Tenant, or the sublessee of Tenant shall have any option to extend

 

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the Lease Term even if such option is otherwise granted to Tenant herein and notwithstanding the provisions of any such option granted to Tenant herein, and all rights and options to extend this Lease otherwise granted to Tenant shall be deemed terminated and canceled as of the date of such Transfer. Notwithstanding anything in this Lease to the contrary, Landlord shall have no obligation to grant consent to any transfer as defined in Section 16.1 if Tenant is in default under this Lease at the time the request for consent is made or at any time thereafter through the effective date of the Transfer. In addition, Tenant acknowledges that its intent in executing this Lease is to occupy the Premises and not to make speculative usage of the Premises, and therefore Landlord shall have no obligation whatsoever to consent to any proposed Transfer if the rentals payable by the proposed occupant to the Tenant are less than the rentals sought to be received by Landlord for vacant space in the Building as of the date on which the Tenant is requesting Landlord’s consent to the Transfer. In the event that Tenant proposes to assign this Lease or to sublet all or a portion of the Premises, Landlord shall have the right, exercisable by notice in writing after receipt of the request by Tenant, to terminate this Lease with respect to all or such portion of the Premises (as applicable) upon execution of an agreement between Landlord and the proposed assignee or subtenant, provided that Landlord shall not have any such termination right if Tenant withdraws such request within ten (10) days of being notified by Landlord that it has elected to exercise said termination right.

16.3 Attorneys’ Fees and Administrative Fees . In the event Tenant shall request the consent of Landlord to any Transfer or if Tenant shall request the consent of Landlord for any other act which Tenant proposes to do under any other provision of this Lease, then Tenant shall pay Landlord’s attorneys’ fees incurred in connection with the consideration or evaluation of such request. In addition thereto, in the event that Landlord shall consent to a Transfer under Section 16.1, Tenant shall pay Landlord an administrative fee of $1,500.00 incurred in connection with giving such consent for each such proposed Transfer.

16.4 Right to Collect Rent . The acceptance of rent by Landlord from any person other than Tenant shall not be deemed to be a waiver by Landlord of any provision of this Lease. If the Premises are sublet or occupied by anyone other than Tenant and Tenant is in default hereunder, or this Lease is assigned by Tenant, then, in any such event, Landlord may collect rent from the assignee, subtenant or occupant and apply the net amount collected to the rent reserved in this Lease, but no such collection shall be deemed a waiver of the covenant in this Lease against assignment and subletting or the acceptance of such assignee, subtenant or occupant as tenant, or a release of Tenant from further performance of the covenants contained in this Lease.

16.5 Permitted Disposition . Notwithstanding anything to the contrary contained in this Lease, Tenant shall have the right from time to time during the Lease Term without Landlord’s prior consent or approval to make a Permitted Disposition (as herein defined) provided that each of the following conditions precedent to the proposed Permitted Disposition must first be satisfied as determined by Landlord: (a) as of the effective date of the proposed Permitted Disposition, Tenant shall not then be in default or breach of this Lease after any applicable notice was given and any applicable grace or cure period has expired; and (b) Tenant shall, within a reasonable period after the Permitted Disposition, give Landlord written notice of the Permitted Disposition, which notice shall include the name of the assignee or subtenant, the terms and provisions of the Permitted Disposition and the effective date of the Disposition and shall be

 

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accompanied by Tenant’s payment, in the amount of $1,500.00, of Landlord’s administrative fees and the assignment or sublease agreement executed by Tenant and the assignee or subtenant (which assignment or sublease agreement shall expressly provide that the use of the Premises by the assignee or subtenant shall conform to the Permitted Use, the assignee or subtenant shall comply with all of the provisions of this Lease, and in the case of an assignment, the assignee expressly assumes and agrees to pay and perform all of Tenant’s obligations under this Lease accruing from and after the effective date of the Permitted Disposition). As used in this Lease, the term “ Permitted Disposition ” means, provided all conditions precedent set forth in this Section 16.5 have been satisfied, the right to assign this Lease, or sublease all or any portion of the Premises, without Landlord’s prior consent or approval to (i) a Tenant Affiliate (as herein defined), provided Tenant remains liable to pay the rent and to perform all other obligations to be performed by Tenant hereunder; or (ii) a Successor Entity (as herein defined) whose net worth (as determined by Landlord from the Successor Entity’s most recent signed financial statements prior to the transfer) is equal to or greater than the net worth of Tenant (as determined by Landlord from Tenant’s most recent signed financial statements prior to the transfer). As used in this Lease, the term “ Tenant Affiliate ” means any corporation, limited liability company, partnership or other entity which controls, is controlled by or under common control with Tenant, and the term “ Successor Entity ” means any corporation, limited liability company, partnership or other entity (1) that has merged with or into Tenant; (2) into which Tenant has merged; (3) that was created from any restructuring or reorganization of Tenant; or (4) which acquires all or substantially all of the assets or stock of Tenant.

 

17. DEFAULTS; REMEDIES

17.1 Defaults . The occurrence of any one or more of the following events shall constitute a default and breach of this Lease by Tenant:

(a) The vacating or abandonment of the Premises by Tenant for a continuous period in excess of twenty (20) business days; or

(b) The failure by Tenant to make any payment of Base Rent, Additional Rent or any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of three (3) days; or

(c) The failure by Tenant to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Tenant, other than described in paragraph (b) above, where such failure shall continue for a period of ten (10) business days after written notice thereof from Landlord to Tenant; provided, however, that if the nature of Tenant’s default as determined by Landlord is such that more than ten (10) business days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure as soon as possible within said ten (10) business day period and thereafter diligently prosecutes such cure to completion, and in any case completes said cure within thirty (30) business days after the aforesaid written notice; or

(d) (i) The insolvency of the Tenant or any guarantor or the execution by the Tenant or any guarantor of an assignment for the benefit of creditors, or the convening by Tenant or any guarantor of a meeting of its creditors, or any class thereof, for the purposes of effecting a

 

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moratorium upon or extension or composition of its debts; or the failure of the Tenant or any guarantor to generally pay its debts as they mature; or (ii) the filing by or for reorganization or arrangement of Tenant or any guarantor under any law relating to bankruptcy (unless in the case of a petition filed against Tenant or any guarantor , the same is dismissed within sixty (60) days); or (iii) the appointment of a trustee or receiver to take possession of substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease or of substantially all of any guarantor’s assets, where possession is not restored to Tenant or the guarantor within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Tenant’s assets located at the Premises or of Tenant’s interest in this Lease or of substantially all of any guarantor’s assets, where such seizure is not discharged within thirty (30) days; or

(e) A violation by Tenant under any other lease or agreement with Landlord relating to the Building which is not cured within the time permitted for cure thereunder.

Any notice sent by Landlord to Tenant pursuant to this Section 17.1 shall be in lieu of, and not in addition to, any notice required under California Code of Civil Procedure Section 1161.

17.2 Remedies in Default .

(a) In the event of any such default or breach by Tenant, Landlord shall have the right at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy which Landlord may otherwise have by reason of such default or breach, to terminate this Lease at its option or to re-enter and at its option to attempt to re-let without terminating this Lease and remove all persons and property from the Premises, using any force as may reasonably be necessary to accomplish said purposes, all without service of notice or resort to legal process and without being deemed guilty of trespass or forcible entry or becoming liable for any loss or damage which may be occasioned thereby.

(b) If Tenant shall fail to remove any effects which it is entitled to remove from the Premises upon the termination of this Lease, or any extension or renewal hereof, or upon a re-entry by Landlord for any cause whatsoever, or upon Tenant’s ceasing to possess the Premises for any reason, Landlord, at its option, may remove the same and store or dispose of the said effects without liability for loss or damage thereto, and Tenant agrees to pay to Landlord on demand any and all expenses incurred in such removal, including Court costs, attorneys fees, storage and insurance charges on such effects for any length of time the same shall be in Landlord’s possession; or Landlord, at its option, without notice, may sell such effects, or any of them, at private or public sale and without legal process, for such price or consideration as Landlord may obtain, and apply the proceeds of such sale upon any amounts due under this Lease from the Tenant to Landlord, and upon the expenses incidental to the removing, cleaning the Premises, selling said effects, and any other expense, rendering the surplus, if any, to the Tenant; provided, however, in the event the proceeds of such sale or sales are insufficient to reimburse Landlord, Tenant shall pay such deficiency upon demand. Tenant acknowledges and agrees that any such disposition of Tenant’s property in the above-described manner by Landlord shall be deemed to be commercially reasonable and that no bailment shall be created by Landlord’s exercise of any of its rights under this subparagraph (b).

 

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(c) Should Landlord elect to re-enter, as herein provided, or should it take possession pursuant to legal proceedings, or pursuant to any notice provided for by law, it may make such alterations, additions, improvements and repairs as may be necessary in order to re-let the Premises, and may but need not re-let the Premises or any part thereof for such term or terms (which may be for a term extending beyond the Lease Term of this Lease) and at such rental or rentals and upon such other terms and conditions as Landlord may determine to be advisable; upon each such re-letting all rentals received by Landlord shall be applied: (i) first to the payment of any costs and expenses of such re-letting, including brokerage fees and attorney’s fees and the cost of such alterations, additions, improvements and repairs; and (ii) second, to the payment of Base Rent due and unpaid hereunder, and the residue, if any, shall be held by Landlord and applied in payment of future rent as the same may become due and payable hereunder provided that Tenant shall have no right to claim any interest in all or any portion of said residue and if the rent and other charges paid or to be paid to Landlord by any new tenant pursuant to any re-letting exceed the monetary obligations of Tenant, Tenant shall have no right to claim any interest in all or any portion of said excess. If such rental received from such re-letting during any month shall be less than that to be paid during such month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord, and such deficiency shall be calculated and paid monthly on the date on which the rent would have been payable hereunder if possession had not been retaken. If, during the existing Lease Term of this Lease, the premises covered thereby include other premises not part of the Premises, a fair apportionment of the rent received from such re-letting and the expenses incurred in connection therewith as provided aforesaid will be made in determining the net proceeds from such re-letting, and any rent concessions will be equally apportioned over the term of the new lease. Landlord shall in no event be liable in any way whatsoever for failure to re-let the Premises for any reason, or in the event the Premises are re-let, for failure to collect the rent therefor under such re-letting. No such reentry or taking possession of the Premises by Landlord, nor any acts pursuant thereto, shall be construed as an election on its part to terminate this Lease unless a written notice of such termination is given to Tenant by Landlord. No notice from Landlord under this Lease or under any applicable forcible entry and detainer or eviction statue or similar law shall constitute an election by Landlord to terminate this Lease unless such notice specifically so states. Notwithstanding any such re-letting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach.

(d) Should Landlord at any time terminate this Lease for any default or breach, in addition to any other remedies it may have, it may recover from Tenant the following:

(i) The worth at the time of any unpaid rent which has been earned at the time of such termination; plus

(ii) The worth at the time of the award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(iii) The worth at the time of the award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

 

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(iv) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and

(v) At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

As used in Sections 17.2(d)(i) and (ii), above, the “ worth at the time of award ” shall be computed by allowing interest at the rate set forth in Section 25.4 of this Lease, but in no case greater than the maximum amount of such interest permitted by law. As used in Section 17.2 (d)(iii) above, the worth at the time of award shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

(e) Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue the lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all Rent as it becomes due.

(f) Each of the remedies set forth hereinabove in this Section 17 shall not be exclusive, but rather shall be considered cumulative with any other legal or equitable remedy now or hereafter available to Landlord under the laws or judicial decisions of the state in which the Premises are located. To the extent such waiver is permitted by law, the parties waive trial by jury in any action or proceeding brought in connection with this Lease. Suit or suits for the recovery of the amount of damages set forth hereinabove may be brought by Landlord, from time to time, at Landlord’s election, and nothing herein shall be deemed to require Landlord to await the date whereon this Lease or the Lease Term hereof would have expired had there been no event of default. Nothing contained in this Lease shall limit or prejudice the right of Landlord to prove and obtain as liquidated damages in any bankruptcy, insolvency, receivership, reorganization or dissolution proceeding an amount equal to the maximum allowed by any statue or rule of law governing such proceeding and in effect at the time when such damages are to be proved, whether or not such amount be 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.

17.3 Form of Payment After Default . Following the occurrence of an event of default by Tenant, Landlord shall have the right to require that any or all subsequent amounts paid by Tenant to Landlord hereunder, whether to cure the default in question or otherwise, be paid in the form of cash, money order, cashier’s or certified check drawn on an institution acceptable to Landlord, or by other means approved by Landlord, notwithstanding any prior practice of accepting payments in any different form.

 

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17.4 No Waiver of Redemption by Tenant . Nothing herein shall be deemed to constitute a waiver of Tenant’s right to redeem, by order or judgment of any court or by any legal process or writ, Tenant’s right of occupancy of the Premises after any termination of this Lease.

17.5 Default by Landlord . Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises, specifying the manner in which Landlord has failed to perform such obligation; provided however, that if the nature of Landlord’s obligation is such that more than thirty (30) days are required for performance as determined by Landlord, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion; provided further that Landlord’s obligation to perform any act under this Lease shall be excused for any period of time during which Landlord is prevented from performing because of any circumstance beyond Landlord’s control. Tenant’s remedies upon Landlord’s default are further limited by Section 18.3 and 25.2 below and in no event shall Tenant be entitled to terminate this Lease or recover consequential damages as a result of any default by Landlord.

17.6 Late Charges . Tenant hereby acknowledges that late payment by Tenant to Landlord of rent and other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Landlord by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of Base Rent, Additional Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee within ten (10) days after such amount is due, then Tenant shall immediately pay to Landlord a late charge equal to ten percent (10%) of such overdue amount or the sum of One Hundred and No/100 Dollars ($100.00), whichever is greater. The parties hereby agree that such late charge represents a fair and reasonable estimate of the cost Landlord will incur by reason of late payment by Tenant and is in addition to interest due under Section 25.4. Acceptance of such late charge by Landlord shall in no event constitute a waiver of Tenant’s default with respect to such overdue amount, or prevent Landlord from exercising any of the other rights and remedies granted hereunder.

 

18. RIGHTS OF MORTGAGEES

18.1 Subordination . As used throughout this Section 18, the term “ mortgagee ” shall refer to the holder of a mortgage or deed of trust or ground lease affecting the Premises. This Lease and the rights of Tenant hereunder shall be and are hereby made subject and subordinate to the provisions of any ground lease, mortgage or deed of trust affecting the Premises, and to each advance made or hereafter to be made under the same, and to all renewals, modifications, consolidations and extensions thereof and all substitutions therefor. This Section 18 shall be self-operative and no further instrument of subordination shall be required. However, in confirmation of the provisions of this Section 18, Tenant shall execute and deliver promptly any certification or instrument that Landlord or any mortgagee may request, and failing to do so within ten (10) days after written demand, Tenant does hereby make, constitute and irrevocably appoint Landlord as Tenant’s attorney-in-fact in Tenant’s name, place and stead, to do so, and/or

 

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Landlord may declare this Lease to be in default. If any mortgagee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Tenant, this Lease shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. Tenant shall and does hereby agree to attorn to any mortgagee or successor in title and to recognize such mortgagee or successor as its landlord in the event any such person or entity succeeds to the interest of Landlord. Notwithstanding any other provision of this Lease, in the event that any mortgagee or its respective successor in title shall succeed to the interest or Landlord hereunder, the liability of such mortgagee or successor shall exist only so long as it is the owner of the Building, or any interest therein, or is the tenant under said ground lease. Landlord will use commercially reasonable efforts to provide Tenant with a subordination, non-disturbance and attornment agreement, in a form mutually satisfactory to Tenant and any current or future mortgagee, which Tenant agrees to execute and deliver to Landlord promptly on receipt thereof.

18.2 Mortgagee’s Consent to Amendments . No assignment of this Lease and no agreement to make or accept any surrender, termination or cancellation of this Lease and no agreement to modify so as to reduce the rent, change the Lease Term, or otherwise materially change the rights of Landlord under this Lease, or to relieve Tenant of any obligation or liability under this Lease, shall be valid unless consented to by Landlord’s mortgagees of record, if such is required by the mortgagees, in writing. No Base Rent, Additional Rent, or any other charge (with the exception of the security deposit described in this Lease) shall be paid more than ten (10) days prior to the due date thereof and payments made in violation of this provision (except to the extent that such payments are actually received by a mortgagee) shall be a nullity as against any such mortgagees of record, and Tenant shall be liable for the amount of such payments to such mortgagees.

18.3 Mortgagee’s Right to Cure . No act or failure to act on the part of Landlord which would entitle Tenant under the terms of this Lease, or by law, to be relieved of Tenant’s obligations hereunder or to terminate this Lease, shall result in a release or termination of such obligations or termination of this Lease unless: (a) Tenant shall have first given written notice of Landlord’s act or failure to act to Landlord’s mortgagees of record, if any, specifying the act or failure to act on the part of Landlord which could or would give basis to Tenant’s rights; and (b) such mortgagees, after receipt of such notice, have failed or refused to correct or cure the condition complained of within a reasonable time thereafter, provided that nothing contained in this Section shall be deemed to impose any obligation on any such mortgagees to correct or cure any condition. As used herein, a “ reasonable time ” includes a reasonable time to obtain title to the mortgaged premises if the mortgagee elects to do so and a reasonable time to correct or cure the condition if such condition is determined to exist, but in no event less than one hundred twenty (120) days from the date of the mortgagees’ receipt of the above described notice.

 

19. NOTICES

Except as provided in Section 17.2 and 22, whenever under this Lease demand is made for any notice or declaration of any kind, or where it is deemed desirable or necessary by either party to give or serve any such notice, demand or declaration to the other party, it shall be in writing and served either personally as evidenced by a signed receipt or sent by registered or

 

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certified United States mail, return receipt requested, postage prepaid, or via a nationally recognized overnight courier and shall be effective upon proof of delivery, addressed either to the address set forth in Section 1.1 or 1.11, or to such other address as may be given by a party to the other by proper notice hereunder, or, in the case of notices to the Tenant, to the Premises. Any notices sent by Landlord regarding or relating to eviction procedures, including without limitation three-day notices, may be sent by regular mail.

 

20. INTENTIONALLY OMITTED

 

21. QUIET POSSESSION

Upon Tenant paying the sums due hereunder and observing and performing all of the covenants, conditions and provisions on Tenant’s part to be observed and performed hereunder, Tenant shall have quiet possession of the Premises (as against Landlord and those claiming by, through or under Landlord) for the entire Lease Term subject to all of the provisions of this Lease.

 

22. NO OPTIONS

Except and only to the extent expressly provided in the Addendum to Office Lease attached to this Lease, Tenant shall have no option or right whatsoever to renew or extend the Lease Term or any option to lease, right of first offer to lease, or right of first refusal to lease any other space Building. Tenant hereby acknowledges and agrees that it has no option or right to purchase the Premises, the Building or other property of Landlord and no option or right of first refusal to purchase the Premises, the Building or other property of Landlord.

 

23. INTENTIONALLY OMITTED

 

24. HAZARDOUS MATERIALS

To the best of Landlord’s knowledge, the Building and the Premises shall not contain, as of the Commencement Date, any friable asbestos, EMF radiation or other Hazardous Materials (as herein defined) exceeding permitted background levels. Tenant will (i) obtain and maintain in full force and effect all Environmental Permits (as defined below) that may be required from time to time under any Environmental Laws (as defined below) applicable to Tenant or the Premises, and (ii) be and remain in compliance in all material respects with all terms and conditions of all such Environmental Permits and with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in all Environmental Laws applicable to Tenant or the Premises. As used in this Lease, the term “ Environmental Law ” means any past, present or future federal, state, local or foreign statutory or common law, or any regulation, ordinance, code, plan, order, permit, grant, franchise, concession, restriction or agreement issued, entered, promulgated or approved thereunder, relating to (a) the environment, human health or safety, including, without limitation, emissions, discharges, releases or threatened releases of Hazardous Materials (as defined below) into the environment (including, without limitation, air, surface water, groundwater or land), or (b) the manufacture, generation, refining, processing, distribution, use, sale, treatment, receipt, storage, disposal, transport, arranging for transport, or handling of Hazardous Materials. “ Environmental Permits ” means, collectively, any and all permits, consents, licenses,

 

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approvals and registrations of any nature at any time required pursuant to, or in order to comply with, any Environmental Law. Except for ordinary and general office supplies, such as copier toner, liquid paper, glue, ink and common household cleaning materials (some or all of which may constitute Hazardous Materials as defined in this Lease), Tenant agrees not to cause or permit any Hazardous Materials to be brought upon, stored, used, handled, generated, released or disposed of on, in, under or about the Premises, the Building, the common areas or any other portion of the Building by Tenant, its agents, employees, subtenants, assignees, licensees, contractors or invitees (collectively, “ Tenant’s Parties ”), without the prior written consent of Landlord, which consent Landlord may withhold in its sole and absolute discretion. Upon the expiration or earlier termination of this Lease, Tenant agrees to promptly remove from the Premises, the Building at its sole cost and expense, any and all Hazardous Materials, including any equipment or systems containing Hazardous Materials which are installed, brought upon, stored, used, generated or released upon, in, under or about the Premises, the Building or any portion thereof by Tenant or any of Tenant’s Parties. To the fullest extent permitted by law, Tenant agrees to promptly indemnify, protect, defend and hold harmless Landlord and Landlord’s partners, officers, directors, employees, agents, successors and assigns (collectively, “ Landlord Indemnified Parties ”) from and against any and all claims, damages, judgments, suits, causes of action, losses, liabilities, penalties, fines, expenses and costs (including, without limitation, clean-up, removal, remediation and restoration costs, sums paid in settlement of claims, attorneys’ fees, consultant fees and expert fees and court costs) which arise or result from the presence of Hazardous Materials on, in, under or about the Premises or the Building and which are caused or permitted by Tenant or any of Tenant’s Parties. Tenant agrees to promptly notify Landlord of any release of Hazardous Materials in the Premises or the Building which Tenant becomes aware of during the Lease Term of this Lease, whether caused by Tenant or any other persons or entities. In the event of any release of Hazardous Materials caused or permitted by Tenant or any of Tenant’s Parties, Landlord shall have the right, but not the obligation, to cause Tenant to immediately take all steps Landlord deems necessary or appropriate to remediate such release and prevent any similar future release to the satisfaction of Landlord and Landlord’s mortgagee(s). At all times during the Lease Term of this Lease, Landlord will have the right, but not the obligation, to enter upon the Premises to inspect, investigate, sample and/or monitor the Premises to determine if Tenant is in compliance with the terms of this Lease regarding Hazardous Materials. Tenant will, upon the request of Landlord or any mortgagee at any time during which Tenant is in default under this Lease, cause to be performed an environmental audit of the Premises at Tenant’s expense by an established environmental consulting firm reasonably acceptable to Tenant, Landlord and the mortgagee. As used in this Lease, the term “ Hazardous Materials ” shall mean and include any hazardous or toxic materials, substances or wastes as now or hereafter designated under any law, statute, ordinance, rule, regulation, order or ruling of any agency of the State of California, the United States Government or any local governmental authority, including, without limitation; (i) asbestos, (ii) petroleum, (iii) petroleum hydrocarbons and petroleum based products, (iv) urea formaldehyde foam insulation, (v) polychlorinated biphenyls, and (vi) Freon and other chlorofluorocarbons. The provisions of this Section 24 will survive the expiration or earlier termination of this Lease.

 

25. GENERAL PROVISIONS

25.1 Estoppel Certificate .

 

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(a) Tenant shall at any time upon not less than ten (10) days prior written notice from Landlord, execute, acknowledge and deliver to Landlord a statement in writing: (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification, identifying the instruments of modification and certifying that this Lease, as so modified, is in full force and effect), and the date to which the Base Rent, security deposit, Additional Rent and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenant’s knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults, if any, which are claimed. Any such statement may be conclusively relied upon by any prospective purchaser, encumbrancer or other transferee of the Premises.

(b) Tenant’s failure to deliver such statement within such time shall be conclusive upon Tenant that: (i) this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) there are no uncured defaults in Landlord’s performance, and (iii) no rent has been paid in advance; and

(c) If Landlord desires to finance or refinance the Premises or the Building, or any part thereof, Tenant hereby agrees to deliver to Landlord and/or to any lender designated by Landlord such financial records of Tenant as may be reasonably required by such lender. Such statements may include, but shall not be limited to, the past three (3) years’ financial statements of Tenant. All such financial statements shall be received by Landlord in confidence and shall be used only for the purposes herein set forth.

25.2 Landlord’s Interest and Liability . As used in this Lease, the term Landlord means and includes only the owner or owners at the time in question of the fee title or a tenant’s interest in a ground lease of the real property on which the improvements comprising the Building are situated. In the event of any transfer of such title or interest, Landlord herein named (and in case of any subsequent transfers the then grantor), shall be relieved from and after the date of such transfer of all liability as respects Landlord’s obligations thereafter to be performed, provided that any funds in the hands of Landlord or the then grantor at the time of such transfer in which Tenant has an interest shall be delivered to the grantee. The obligations contained in this Lease to be performed by Landlord shall, except as aforesaid, be binding on Landlord’s successors and assigns only during their respective periods of ownership. Anything to the contrary elsewhere in this Lease notwithstanding, Tenant shall look solely to the estate and property of Landlord in the Building for the satisfaction of Tenant’s remedies for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord in the event of any default or breach by Landlord with respect to any of the terms, covenants and conditions of this Lease to be observed and/or performed by Landlord, and no other property or assets of Landlord or any of its partners, joint venturers, subsidiaries, parents, agents, divisions or affiliates shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant’s remedies.

25.3 Severability . The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

25.4 Interest on Past Due Obligations; Certified Funds . Except as may expressly be provided in this Lease to the contrary, any amount due to Landlord not paid when due shall bear interest at the rate of four percent (4%) per annum greater than the prime rate of Bank of

 

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America (or if Bank of America no longer exists, the largest bank chartered in the State in which the Premises are located), as the same may fluctuate from and after the date on which the payment was first due through the date on which the payment is paid in full, provided, however, that the payment of such interest shall in no event exceed the highest rate allowed under applicable law. Payment of such interest shall not excuse or cure any default by Tenant under this Lease.

25.5 Time of the Essence . Time is of the essence in the performance by each party hereto of its obligations under this Lease.

25.6 Captions . Any captions contained in this Lease are not a part hereof, are for convenience only, and are not to be given any substantive meaning in construing this Lease.

25.7 Entire Agreement . This Lease contains the entire agreement and understanding between the parties hereto. There are no oral understandings, terms, or conditions, and neither party has relied upon any representations, express or implied, not contained in this Lease. All prior understandings, terms, or conditions are deemed merged in this Lease. No modification of this Lease shall be binding unless such modification shall be in writing and signed by the parties hereto. Tenant acknowledges that it has not been induced to enter into this Lease by any promises or representations not expressly set forth in this Lease, and if any such representations were made prior to the execution of this Lease, Tenant acknowledges that it has not relied on the same, and that Landlord shall have no liability with respect to any such representations.

25.8 Waivers . No failure by either party to insist upon the strict performance of any agreement, term, covenant or condition hereof or to exercise any right or remedy consequent upon a breach thereof, and no acceptance of full or partial rent or the continuance of any such breach, shall constitute a waiver of any such breach of such agreement, term, covenant or condition or a relinquishment of the right to exercise such right or remedy. No agreement, term, covenant or condition hereof to be performed or complied with by either party, and no breach thereof, shall be waived, altered or modified except by a written instrument executed by the other party. No waiver of any breach shall affect or alter this Lease, but each and every agreement, term, covenant or condition hereof shall continue in full force and effect with respect to any other then-existing or subsequent breach thereof. Notwithstanding any termination of this Lease, the same shall continue in full force and effect as to any provisions of the Lease, including remedies, which require or permit observance or performance of Landlord or Tenant subsequent to termination.

25.9 Recording . Tenant shall not record this Lease. Any such recordation by Tenant shall be a breach of this Lease.

25.10 Determinations by Landlord . Whenever in this Lease Landlord is to make any determination or decision, Landlord shall make its determination or decision in the exercise of its reasonable discretion and judgment unless another standard is expressly provided; however, any such determination or decision shall not bind Landlord if it has not been confirmed in writing.

 

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25.11 Cumulative Remedies . No remedy or election by Landlord hereunder shall be deemed exclusive, but shall wherever possible be cumulative with all other remedies at law or in equity to which Landlord may be entitled.

25.12 Covenants and Conditions . Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition.

25.13 Binding Effect . Subject to any provisions hereof restricting assignment, subletting or transfer by Tenant and subject to the provisions of Section 25.2, this Lease shall bind the parties, their personal representatives, heirs, successors and assigns.

25.14 Attorneys’ Fees . In the event of litigation relating to this Lease, the prevailing party shall be entitled to recover from the losing party any costs or reasonable attorneys’ fees incurred by the prevailing party in connection with such litigation. If Landlord utilizes the services of an attorney to enforce any of its rights hereunder but which does not result in the bringing of an action, Tenant shall immediately pay to Landlord on demand therefor the amount of reasonable attorneys fees’ incurred by Landlord.

25.15 Landlord’s Access . Upon not less than twenty-four (24) hours prior notice (except that no notice shall be required in the case of an emergency or regularly scheduled service (such as janitorial)) but subject to Tenant’s reasonable safety and security requirements, Landlord and Landlord’s agents, representatives and designees shall have the right to enter the Premises as reasonably necessary or desirable to Landlord for the purpose of inspecting the same, showing the same to prospective purchasers, tenants, lenders or other transferees, making such alterations, repairs, improvements or additions to the Premises or to the Building as Landlord may deem necessary or desirable, or for any other reasonable purpose as Landlord may determine. Landlord may at any time place in, on or about the Premises any “For Sale”, or “For Lease” or similar signs, all without rebate of rent or liability to Tenant.

25.16 Auctions . Tenant shall not conduct any auction, liquidation sale, or going out of business sale in, on or about the Premises.

25.17 Merger . The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at the option of Landlord, terminate all or any existing subtenancies or may, at the option of Landlord, operate as an assignment to Landlord of any or all of such subtenancies.

25.18 Authority . If Tenant is an entity, each individual executing this Lease on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in the State in which the Premises are located and that Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant is authorized to do so. Tenant shall, promptly following Landlord’s request therefor, deliver to Landlord evidence of such formation, existence, qualification and authority.

25.19 Signs . Landlord may prescribe a uniform pattern of identification signs for tenants to be placed on the outside of the doors leading into their respective premises, and other than such identification signs, Tenant shall not install, paint, display, inscribe, place or affix, or otherwise attach, any sign, fixture, advertisement, notice, lettering or direction on any part of the outside of the Building or in the interior or other portion of the Building without obtaining the prior written consent of Landlord.

 

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25.20 Broker . Tenant hereby represents and warrants to Landlord that, except for Broker (as defined in Section 1.18 of this Lease), no other real estate broker, agent or salesperson represented Tenant in connection with this Lease and Tenant did not engage any real estate broker, agent or salesperson, other than Broker, to represent Tenant in connection with this Lease. Tenant hereby indemnifies and holds Landlord harmless against any claim, demand, action, cause of action, lawsuit, damages, judgment, settlement, cost, expense or other obligation of any kind, including, but not limited to, reasonable attorneys’ fees and court costs, incurred by Landlord if Tenant’s representations and warranties contained in this Section 25.20 are untrue or inaccurate. Landlord hereby represents and warrants to Tenant that, except for Broker, no other real estate broker, agent or salesperson represented Landlord in connection with this Lease and Landlord did not engage any real estate broker, agent or salesperson, other than Broker, to represent Landlord in connection with this Lease. Landlord hereby indemnifies and holds Tenant harmless against any claim, demand, action, cause of action, lawsuit, damages, judgment, settlement, cost, expense or other obligation of any kind, including, but not limited to, reasonable attorneys’ fees and court costs, incurred by Tenant if Landlord’s representations and warranties contained in this Section 25.20 are untrue or inaccurate. If this Lease is fully executed by Landlord and Tenant, Landlord shall pay the entire real estate leasing commission due to Broker pursuant to a separate written agreement between Landlord and Broker.

25.21 Intentionally deleted .

25.22 Governing Law . This lease shall be governed by and construed in accordance with the laws of the State of California.

25.23 Joint and Several Liability . If two or more individuals, corporations, partnerships or other business associates (or any combination of two or more thereof) shall sign this Lease as Tenant, the liability of each such individual, corporation, partnership or other business association to pay rent and perform all other obligations hereunder shall be deemed to be joint and several, and all notices, payments and agreements given or made by, with or to any one of such individuals, corporations, partnerships or other business associations shall be deemed to have been given or made by, with or to all of them. In like manner, if Tenant shall be a partnership or other business association, the members of which are, by virtue of statute or federal law, subject to personal liability, the liability of each such member is joint and several.

25.24 No Joint Venture . Any intention to create a joint venture or partnership relation between the parties hereto is hereby expressly disclaimed.

25.25 Americans with Disabilities Act of 1990 . Landlord covenants that, as of the Commencement Date, the Premises shall comply with the Americans with Disabilities Act of 1990 (the “ ADA ”) for the accommodation of disabled individuals and with all applicable municipal codes of the City of San Francisco. After the Commencement Date, excluding any Punch List Items required to be completed by Landlord, Tenant shall be responsible for, and shall pay at its expense, any and all alterations to the Premises, which may be thereafter required by the ADA or any applicable municipal code of the City of San Francisco. Tenant shall

 

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indemnify and hold Landlord harmless from and against any and all liability incurred by Landlord as a result of Tenant failing to make and pay for such alterations, including, but not limited to, all costs and expenses of any fines, civil penalties, and citations assessed against Landlord or the Building (or those assessed against Tenant, which could become a lien encumbering the real property on which the Building is located) and all reasonable attorneys’ fees and expenses and court costs incurred by Landlord. Tenant’s indemnity obligations under this Section 25.25 shall survive the expiration or termination of this Lease and shall not be merged therein.

The parties hereto have executed this Lease after Section 1 of this Lease on the dates specified immediately opposite their respective signatures.

 

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ADDENDUM TO OFFICE LEASE

BETWEEN

989 MARKET STREET, LLC and ZENDESK INC.

THIS ADDENDUM TO OFFICE LEASE (this “ Addendum ”) is executed concurrently with the date of the Lease as first above written by 989 MARKET STREET, LLC (“ Landlord ”) and ZENDESK INC., a Delaware corporation (“ Tenant ”).

WHEREAS, Landlord and Tenant are the parties to that certain Office Lease (the “ Lease ”) to which this Addendum is attached for the lease by Landlord to Tenant of the Premises (as described in the Lease); and

WHEREAS, the parties desire to amend the Lease.

NOW, THEREFORE, in consideration of the mutual promises and obligations contained herein, the adequacy and sufficiency of which is hereby acknowledged, Landlord and Tenant hereby amend the Lease as follows:

 

1. DEFINED TERMS

Unless otherwise defined in this Addendum, each defined term used in this Addendum has the same meaning given to such term in the Lease.

 

2. RENEWAL OPTION

Provided that on the date of any Renewal Notice (as herein defined) and as of the last day of the initial Lease Term, no default or breach by Tenant under the Lease has occurred and is continuing after any applicable notice is given and any applicable cure period has expired, Tenant shall have the option of further extending the Lease Term (the “ Option to Renew ”) for one (1) additional consecutive renewal term (the “ Renewal Term ”) of thirty-six (36) months, subject to and in accordance with the following terms and conditions: (i) Tenant shall exercise the Option to Renew by giving Landlord written notice (the “ Renewal Notice ”) of Tenant’s exercise of the Option to Renew no earlier than twelve (12) months and no later than nine (9) months prior to the expiration of the initial Lease Term; (ii) the Renewal Term, if any, shall commence on the day immediately following the last day of the initial Lease Term; (iii) the rent rate applicable to the Renewal Term shall be equal to 95% of the then Fair Market Rate (as herein defined) as reasonably determined by Landlord for the then Premises; and (iv) if Tenant does not timely exercise the Option to Renew for the Renewal Term, then all of Tenant’s rights to renew or extend the Lease Term shall automatically terminate and be null and void and of no further force or effect. As used herein, the term “ Fair Market Rate ” means the amount per rentable square foot of the then Premises that a willing, comparable tenant would pay and a willing, comparable landlord would accept in an arm’s length transaction, for delivery on or about the expiration of the initial Lease Term for comparable non-renewal, non-expansion space in the Building and other comparable buildings within a radius of six (6) blocks from the Building, taking into account all relevant economic terms pertinent to each lease transaction, including, without limitation, lease concessions, broker representation, improvement allowances,

 

ADDENDUM TO

OFFICE LEASE

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rent abatements, moving allowances, the amount of rentable space covered thereby, the length of the lease term, and whether or not the lease is a gross or net lease, as well as the location, age, functionality, amenities and quality of each such building at the time of the commencement of the Renewal Term. In no event shall the Fair Market Rate impute a value upon leasehold improvements or fixtures constructed or installed in the Premises by Tenant at its expense. Landlord shall have no obligation to determine the Fair Market Rate and other terms and conditions of the Renewal Term, or to notify Tenant thereof, any earlier than sixty (60) days after Landlord’s receipt of the Renewal Notice. If Tenant does not accept Landlord’s determination of the Fair Market Rate of the Renewal Term within fifteen (15) days after Tenant’s receipt of Landlord’s written determination of the Fair Market Rate, then Tenant may retract the Renewal Notice, whereupon Tenant’s right to exercise the Option to Renew hereunder shall automatically terminate and be null and void and of no further force or effect, and the Lease shall automatically expire on the expiration of the initial Lease Term. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS PARAGRAPH 2, (a) Tenant’s rights pursuant to this Paragraph 2 are personal to Tenant and nontransferable and shall automatically terminate if Tenant assigns the Lease, as amended, or any of Tenant’s rights under the Lease, as amended, to any person or entity (other than pursuant to a Permitted Disposition) or subleases all or any portion of the Premises to any person or entity (other than pursuant to a Permitted Disposition); and (b) Tenant’s rights pursuant to this Paragraph 2 shall automatically terminate if, on the date of any Renewal Notice or as of the last day of the initial Lease Term, a default or breach by Tenant under the Lease has occurred and is continuing after any applicable notice is given and any applicable cure period has expired.

 

3. LOBBY DIRECTORY AND PREMISES ENTRY SIGNAGE

As of the Commencement Date, Landlord shall at its expense furnish to Tenant (i) one (1) line in the Building’s lobby directory; and (ii) one (1) initial Building standard suite identification sign at the entry door to the Premises.

 

4. RIGHT OF FIRST OFFER

Provided that, on the date of any ROFO Notice (as herein defined), Tenant is not in breach or default of the Lease after any applicable notice was given and any applicable grace or cure period has expired, Tenant shall have a one-time right of first offer to lease any space located on the fourth (4th) or fifth (5th) floors of the Building (the “ ROFO Space ”), which space becomes available during the initial Lease Term for direct lease from Landlord. If any ROFO Space becomes available during the initial Lease Term for direct lease from Landlord, Landlord shall give Tenant written notice thereof (the “ ROFO Notice ”). The ROFO Notice shall specify the location and rentable square footage of the portion of the ROFO Space that is available for direct lease (the “ Offer Space ”) and the Fair Market Rate as reasonably determined by Landlord for the Offer Space; provided, however, that notwithstanding the foregoing, if the Fair Market Rate, as determined by Landlord, were less than the Base Rent rate payable under the Lease for the lease of the initial Premises, then the Base Rent payable by Tenant for the lease of the Offer Space shall be equal to the Base Rent rate applicable to the initial Premises. Tenant shall have five (5) business days (the “ Acceptance Period ”) after its receipt of the ROFO Notice in which

 

ADDENDUM TO

OFFICE LEASE

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to exercise its right of first offer to lease by delivering to Landlord, before the Acceptance Period expires, written notice executed by Tenant exercising the right of first offer to lease the Offer Space on the terms and conditions contained in the ROFO Notice; provided, however, that notwithstanding the foregoing, if Tenant timely exercises the right of first offer during the Acceptance Period, and Landlord and Tenant do not, within forty-five (45) days after the Acceptance Period expires, execute a mutually-satisfactory amendment to the Lease adding the Offer Space to the Premises at the rate and otherwise on the terms and conditions contained in the ROFO Notice, then Tenant’s exercise of the right of first offer shall thereupon automatically terminate and be null and void and of no force or effect, whereupon Landlord shall no longer have any obligation under the Lease, this Addendum or otherwise to offer to lease any of the ROFO Space to Tenant under any circumstances. If Tenant fails to deliver to Landlord, before the Acceptance Period expires, written notice executed by Tenant exercising the right of first offer to lease the Offer Space, or if Tenant delivers such written notice to Landlord during the Acceptance Period, but Landlord and Tenant do not execute a mutually-satisfactory amendment to this Lease within the period of forty-five (45) days after the Acceptance Period expires, then Landlord shall thereupon be free to lease the Offer Space to any other tenant or prospective tenant of the Building on any terms and conditions agreed to by them. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS PARAGRAPH 4, (i) Tenant’s rights pursuant to this Paragraph 4 are personal to Tenant and nontransferable and shall automatically terminate if Tenant assigns the Lease, as amended, or any of Tenant’s rights under the Lease, as amended, to any person or entity (other than pursuant to a Permitted Disposition) or subleases all or any portion of the Premises to any person or entity (other than pursuant to a Permitted Disposition); and (ii) Tenant’s rights pursuant to this Paragraph 4 shall automatically terminate if, on the date of any ROFO Notice, a default or breach by Tenant under the Lease has occurred and is continuing after any applicable notice is given and any applicable cure period has expired.

 

5. FIBER OPTIC CABLE

After the Commencement Date, Landlord shall cooperate with Tenant to secure fiber optic cable to the MPOE in the Building. Tenant shall be responsible at its expense for executing a service contract with a fiber optic vendor and paying all costs of installation, service, maintenance, operation, repair and removal of the fiber optic cable; provided, however, that Tenant shall not execute such service contract until it has been reviewed and approved in writing by Landlord, which approval shall not be unreasonably withheld or delayed. Landlord disclosed to Tenant that Landlord previously obtained a bid offer from XO COMMUNICATIONS to install a fiber optic feed to the Building’s MPOE at no installation cost or expense, provided the user executes a service contract for an initial term of at least three (3) years and a monthly service fee of $2,200.00.

EXCEPT AS HEREBY AMENDED, all other provisions of the Lease are hereby confirmed and ratified.

(signature page follows )

 

ADDENDUM TO

OFFICE LEASE

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IN WITNESS WHEREOF, the parties hereto have executed this Addendum on the date first above written.

 

Landlord:     989 MARKET STREET, LLC
    By:   Regis Realty I, LLC (Authorized Agent)
Date:         5/6         , 2011       By:  

/s/ Scott Porter

        Scott Porter, Senior Vice President
Tenant :     ZENDESK INC. , a Delaware Corporation
Date:         4/28       , 2011     By:  

/s/ Rick Rigoli

    Name:  

Rick Rigoli

    Its Duly-Authorized  

CFO

 

*NOTE:

If Tenant is a California corporation , then one of the following alternative requirements must be satisfied:

(A) This Lease must be signed by two (2) officers of such corporation: one being the chairman of the board, the president or a vice president, and the other being the secretary, an assistant secretary, the chief financial officer or an assistant treasurer. If one (1) individual is signing in two (2) of the foregoing capacities, that individual must identify the two (2) capacities.

(B) If the requirements of (A) above are not satisfied, then Tenant shall deliver to Landlord evidence in the form reasonably acceptable to Landlord that the signatory(ies) is (are) authorized to execute this Lease.

If Tenant is a corporation incorporated in a state other than California , then Tenant shall deliver to Landlord evidence in the form reasonably acceptable to Landlord that the signatory(ies) is (are) authorized to execute this Lease.

 

ADDENDUM TO

OFFICE LEASE

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EXHIBIT “A”

LEGAL DESCRIPTION

CITY OF SAN FRANCISCO

BEGINNING AT A POINT ON THE SOUTHEASTERLY LINE OF MARKET STREET, DISTANT THEREON 78 FEET NORTHEASTERLY FROM THE NORTHEASTERLY LINE OF SIXTH STREET; RUNNING THENCE NORTHEASTERLY ALONG SAID LINE OF MARKET STREET, 98 FEET AND 6 INCHES; THENCE AT A RIGHT ANGLE SOUTHEASTERLY 170 FEET TO THE NORTHEASTERLY LINE OF STEVENSON STREET; THENCE AT A RIGHT ANGLE SOUTHWESTERLY, ALONG SAID LINE OF STEVENSON STREET, 98 FEET AND 6 INCHES; THENCE AT A RIGHT ANGLE NORTHWESTERLY 170 FEET TO THE POINT OF BEGINNING.

BEING PART OF 100 VARA BLOCK NO. 380.

LOT 068, BLOCK 3704

 

EXHIBIT “A”

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EXHIBIT “B”

SITE PLAN

(SEE ATTACHED)

 

EXHIBIT “B”

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EXHIBIT “C”

RULES AND REGULATIONS

It is agreed that the following rules and regulations shall be and are hereby made a part of this Lease, and Tenant agrees that its employees and agents or any other persons permitted by Tenant to occupy or enter the Premises will at all times abide by these rules and regulations. It is further agreed that a default in the performance and observation of these rules and regulations shall operate the same as any other default under the Lease.

1. The sidewalks, entries, passages, and stairways shall not be obstructed by Tenant or its agents, or used by them for any purpose other than ingress and egress to and from their offices.

2. a. Furniture, equipment, or supplies shall be moved in or out of the Building only during such hours and in such manner as may be prescribed by Landlord.

b. No safe or article, the weight of which may constitute a hazard or danger to the Building or its equipment, shall be moved into the Premises. Safes and other equipment, the weight of which is not excessive, shall be moved into, from or about the Building during such hours and in such manner as shall be prescribed by Landlord, and Landlord shall have the right to designate the location of such articles in the space hereby demised.

3. The name of Tenant and/or signs of Tenant shall not be placed upon any part of the Premises or the Building except as provided by Landlord.

4. Water closets and other water fixtures shall not be used for any purpose other than that for which the same are intended, and any damage resulting to the same from misuse on the part of Tenant, its agents or employees, shall be paid for by Tenant. No person shall waste water by tying back or wedging the faucets or in any other manner.

5. No animals shall be allowed in the office, halls, or corridors of the Building.

6. Bicycles or other vehicles shall not be permitted in the offices, halls, or corridors of the Buildings, nor shall any obstruction of sidewalks of entrances of the Building by such be permitted.

7. No person shall disturb the occupants or guests or invitees of the Building or adjoining buildings or premises by the use of any television, radio, or musical instrument or equipment, or by the making of loud or improper noises.

8. No additional lock or locks shall be placed by Tenant on any door in the Building unless written consent of Landlord shall first be obtained.

9. The use of oil, gas or inflammable liquids for heating, lighting, or any other purpose is expressly prohibited. Explosives or other articles deemed extra hazardous shall not be brought into the Building.

 

EXHIBIT “C”

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10. Tenant shall exercise due care and except in connection with normal interior decorating of the Premises shall not mark upon, paint or affix upon, cut, drill into, drive nails or screws into, or in any way deface the walls, ceiling, partitions, or floors of the Premises or of the Building, and any defacement, damage, or injury caused by Tenant, its agents or employees, shall be paid for by Tenant.

11. Landlord shall at all times have the right by its officers or agents to enter the Premises to inspect and examine the same and to show the same to persons wishing to lease, purchase, or mortgage them.

12. Tenant agrees to use chair pads to be furnished by Tenant under all rolling and ordinary desk chairs in the carpeted areas of the Premises throughout the term of this Lease.

13. Landlord reserves the right to make such other and further reasonable rules and regulations as in its judgment may from time to time be necessary and desirable for the safety, care, and cleanliness of the Premises and for the preservation of good order therein. Such rules and regulations shall be effective upon receipt of changes and/or additions as provided by the provision for Notice, Section 19 of the Lease.

 

EXHIBIT “C”

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EXHIBIT “D”

WORK LETTER

1. Except as otherwise defined in this Work Letter (this “ Work Letter ”), each defined term used in this Work Letter has the same meaning given to such term in that certain Office Lease (the “ Lease ”) executed by 989 MARKET STREET, LLC (“ Landlord ”) and ZENDESK INC., a Delaware corporation (“ Tenant ”), to which this Work Letter is attached for the lease by Landlord to Tenant of the Premises (as described in the Lease).

2. The improvements required to be constructed by Landlord in the Premises are herein referred to, collectively, as the “ Landlord Work ”. The Landlord Work does NOT include any work, installation or cost of any fixtures, work-stations, built-in furniture or other equipment now or hereafter owned or leased by or on behalf of Tenant. A true, correct and complete copy of the plans and specifications for the Landlord Work are attached hereto as Exhibit “D-1” and incorporated herein by reference for all purposes as if copied herein in full (collectively, the “ Approved Plan ”). Landlord and Tenant hereby approve the Approved Plan. The cost of preparing the Approved Plan shall be paid by Landlord. Landlord’s approval of the Approved Plan and any construction management services performed by, or on behalf of, Landlord in connection with the construction of the improvements in the Premises do not constitute a representation or warranty by Landlord or its agents, employees or contractors as to the accuracy, adequacy, sufficiency and propriety of the Approved Plan or the quality of workmanship or compliance thereof with applicable law. Except and only to the extent specified in Exhibit “D-1” attached hereto or in the Approved Plan, the Landlord Work, including, without limitation, doors, signs, hardware, window coverings, partitions, electrical and telephone outlets and jacks, shall be of material, manufacture, design, capacity, finish and color of the Building standard adopted by Landlord for the Building. EXCLUDING ALL COSTS AND EXPENSES OF ANY AND ALL CHANGES REQUESTED BY TENANT PURSUANT TO PARAGRAPH 4 OF THIS WORK LETTER , Landlord at its expense shall construct the Landlord Work. If the actual cost of the Landlord Work is less than any pricing plan approved or hereafter approved by Landlord and Tenant, then Tenant shall not be entitled to any credit, payment or abatement on account thereof.

3. Landlord shall construct the Landlord Work using a general contractor selected by Landlord that is experienced in commercial office construction and licensed by the appropriate governmental agency. In addition, Landlord hereby reserves the right to select and approve any subcontractors used in connection with the construction of the Landlord Work.

4. Tenant may select different or costlier materials in place of materials specified in Exhibit “D-1” or the Approved Plan that would otherwise be furnished by Landlord under the provisions of this Work Letter, subject to Landlord’s written approval of such different or costlier materials, and any associated with the approval and furnishing of such different or costlier materials shall be attributed to Tenant. If Tenant makes any such selection, or if different or costlier materials are required because of a situation created by Tenant, and if the Work Cost (defined below), as reasonably determined by Landlord, of such different or costlier materials exceeds the estimated or actual cost to Landlord of furnishing the materials thereby

 

EXHIBIT “D”

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replaced (the “ Landlord’s Cost ”), as reasonably determined by Landlord, TENANT SHALL PAY TO LANDLORD, AS PROVIDED IN THIS WORK LETTER, THE DIFFERENCE BETWEEN THE WORK COST AND THE LANDLORD’S COST , including, but not limited to, a construction management fee equal to five percent (5%) of such difference. Tenant may also request in writing delivered to Landlord additional work and materials to be constructed in the Premises, but not included in Exhibit “D-1” or the Approved Plan, subject to Landlord’s written approval of such additional work and materials, provided that all such additional work and materials shall be furnished entirely at Tenant’s cost, and TENANT SHALL PAY TO LANDLORD, AS PROVIDED IN THIS WORK LETTER, THE COST OF SUCH ADDITIONAL WORK AND MATERIALS, AS REASONABLY DETERMINED BY LANDLORD , including, but not limited to, a construction management fee equal to five percent (5%) of such cost. As used herein, the term “ Work Cost ” means the actual cost (including the cost of applicable insurance premiums and the cost of additional required engineering, if any) to Landlord’s contractor of furnishing such different and costlier materials in replacement of materials specified in Exhibit “D-1” or the Approved Plan or furnishing such additional work or materials not included in Exhibit “D-1” or the Approved Plan. Landlord shall not furnish such different or costlier materials in replacement of materials specified in Exhibit “D-1” or the Approved Plan or furnish such additional work or materials not included in Exhibit “D-1” or the Approved Plan until Tenant has agreed in writing signed by the parties hereto to pay to Landlord the sum (the “ Aggregate Extras ”) of (i) the difference between the Work Cost and Landlord’s Cost; and (ii) the cost of all such additional work and materials not included in Exhibit “D-1” or the Approved Plan. IF WITHIN TWO (2) BUSINESS DAYS AFTER NOTICE FROM LANDLORD TO TENANT OF THE AMOUNT OF ANY AGGREGATE EXTRAS, TENANT DOES NOT EXECUTE AN AGREEMENT WITH LANDLORD AGREEING THAT TENANT SHALL PAY TO LANDLORD SUCH AMOUNT OF THE AGGREGATE EXTRAS, LANDLORD SHALL HAVE THE RIGHT TO PROCEED WITH THE CONSTRUCTION OF THE LANDLORD WORK IN ACCORDANCE WITH EXHIBIT “D-1” AND THE APPROVED PLAN . All amounts payable by Tenant to Landlord pursuant to this Work Letter shall be paid by Tenant as Additional Rent within ten (10) days after Tenant’s receipt of Landlord’s invoice, it being understood and agreed that invoices may be periodically delivered by Landlord during the course of its construction of the Landlord Work and/or the furnishing of different and costlier materials in the Premises in replacement of materials specified in Exhibit “D-1” or the Approved Plan or additional work or materials in the Premises not included in Exhibit “D-1” or the Approved Plan. Any delay associated with the approval and furnishing of such different or costlier materials or such additional work and materials and any delay in Tenant’s making any payment required under this Work Letter shall constitute Tenant Delay.

5. So long as no default or breach by Tenant has occurred under the Lease, Landlord shall cause the Landlord Work to be constructed substantially in accordance with (i) the Approved Plan; and (ii) any changes approved by the parties hereto and paid by Tenant pursuant to the provisions of Paragraph 4 hereof. When the Landlord Work is substantially completed, Landlord shall notify Tenant that the Landlord Work is Substantially Complete (as herein defined). As used in the Lease and this Work Letter, “Substantial Completion” of Landlord Work shall occur upon completion of the following: (i) a temporary certificate of occupancy has

 

EXHIBIT “D”

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been obtained, or its equivalent (e.g. a final sign-off by a Building Inspector) for the Premises (or the date a temporary certificate of occupancy or its equivalent would have been obtained but for the completion of work to be performed by Tenant), and (ii) substantial completion of construction of the Landlord Work in the Premises pursuant to the Approved Plan has occurred, with the exception of any Punch-List items (as defined in Section 9.2 of the Lease) and any Tenant fixtures, work-stations, built-in furniture, or equipment to be installed by Tenant or under the supervision of Tenant’s contractor.

6. This Work Letter does not govern nor apply to any additional space hereafter added to the initial Premises leased by Tenant under the Lease or to any portion of the initial Premises or any additions or expansions to the initial Premises in the event of any Renewal Term.

7. Landlord’s delay in completing the Landlord Work under this Work Letter shall not excuse or discharge Tenant from the performance of its obligations under the Lease.

8. Landlord shall, within thirty (30) days after Tenant occupies the Premises, reimburse Tenant for the costs of space planning services actually incurred by Tenant, not to exceed $0.15 per rentable square foot of the Premises. The space planning services shall include plotting to maximize 3x5 desks occupancy of the Premises.

( signature page follows )

 

EXHIBIT “D”

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IN WITNESS WHEREOF, the parties hereto have executed this Work Letter on the date first above written.

 

Landlord:   989 MARKET STREET, LLC
  By:   Regis Realty I, LLC (Authorized Agent)
Date:                      , 2010     By:  

 

      Scott Porter, Senior Vice President
Tenant :    

ZENDESK INC. , a Delaware Corporation

Date:                      , 2011  

By:

 

 

  Name:  

 

 

Its Duly-Authorized

 

 

 

* NOTE:

If Tenant is a California corporation , then one of the following alternative requirements must be satisfied:

(A) This Lease must be signed by two (2) officers of such corporation: one being the chairman of the board, the president or a vice president, and the other being the secretary, an assistant secretary, the chief financial officer or an assistant treasurer. If one (1) individual is signing in two (2) of the foregoing capacities, that individual must identify the two (2) capacities.

(B) If the requirements of (A) above are not satisfied, then Tenant shall deliver to Landlord evidence in the form reasonably acceptable to Landlord that the signatory(ies) is (are) authorized to execute this Lease.

If Tenant is a corporation incorporated in a state other than California , then Tenant shall deliver to Landlord evidence in the form reasonably acceptable to Landlord that the signatory(ies) is (are) authorized to execute this Lease.

 

EXHIBIT “D”

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EXHIBIT “D-1”

APPROVED PLAN

(SEE ATTACHED)

 

EXHIBIT “D-1”

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Exhibit 10.9

FIRST AMENDMENT TO LEASE

(989 Market Street)

THIS FIRST AMENDMENT TO LEASE (“ First Amendment ”) is made and entered into as of the 28 th  day of June, 2011 (“ Effective Date ”) by and between 989 MARKET STREET, LLC, a Nevada limited liability company (“ Landlord ”) and ZENDESK INC., a Delaware corporation (“ Tenant ”).

R E C I T A L S:

A. Landlord and Tenant entered into that certain Office Lease dated April 29, 2011 (the “ Lease ”) whereby Landlord leased to Tenant and Tenant leased from Landlord certain office space consisting of approximately 16,200 rentable square feet comprising the entire third (3 rd ) floor of that certain office building (“ Building ”) commonly known as 989 Market Street located and addressed at 989 Market Street, Suite 300, San Francisco, California 94103 (“ Premises ”).

B. Pursuant to the terms and conditions of Exhibit “D” of the Lease (the “ Work Letter ”), Landlord agreed to construct certain improvements (“ Landlord Work ”) in the Premises as further described the Approved Plan attached to the Lease as “D-1” (“ Approved Plan ”). By this First Amendment, Landlord and Tenant wish to (i) replace the Approved Plan originally attached to the Lease with the attached Approved Plan, (ii) clarify Landlord’s and Tenant’s financial obligations relative to the cost of Landlord Work, and (iii) otherwise modify the Lease as provided herein.

C. Unless otherwise defined herein, capitalized terms as used herein shall have the same meanings as given in the Lease.

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

A G R E E M E N T:

1. Landlord Work . Prior to the execution of this First Amendment, Landlord and Tenant have approved (i) a detailed space plan for the construction of Landlord’s Work in the Premises, which space plan has been prepared by Studio O + A (“ Final Approved Plan ”) and (ii) a bid proposal for the construction of Landlord’s Work in the Premises, which bid proposal has been prepared by DA Pope Construction and is dated June 2, 2011 (Rev-2) (“ Bid Proposal ”). The Final Approved Plan and Bid Proposal are approved by the parties as of the Effective Date, are attached hereto collectively, as Exhibit “D-1” and hereby replaces the original Approved Plan attached to the Lease as Exhibit “D-1”. Consequently, all references in the Work Letter to the “Approved Plan” shall mean and refer to the Final Approved Plan and Bid Proposal attached hereto as Exhibit “D-1”. Landlord agrees to construct the Landlord Work, pursuant to the terms and conditions set forth in the Work Letter and as depicted on the Approved Plan (as amended hereby). Landlord shall pay for the cost (including, the cost of obtaining all applicable building permits) of the design and construction of Landlord’s Work in

 

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an amount up to, but not exceeding, Two Hundred Twenty Two Thousand One Hundred Fifty and 00/100 Dollars ($222,150.00) plus any additional costs actually incurred by Landlord in excess of such $222,150.00 amount as a direct result of Landlord’s or Landlord’s contractor’s active negligence or willful misconduct or resulting from change order to the Approved Plans (as amended hereby) if such change order is initiated and executed by Landlord (the “ Landlord’s Contribution ”). Tenant shall pay for all costs in excess of the Landlord’s Contribution (“ Over Allowance Amount ”) which payment shall be made to Landlord in cash within thirty (30) days after Tenant’s receipt of invoice therefor from Landlord. Payment of the Over-Allowance Amount shall be in addition to Tenant’s obligation to pay to Landlord the cost of any Aggregate Extras as provided in Section 4 of the Work Letter.

2. Completion of Landlord’s Work . Landlord shall use good faith and diligent efforts to substantially complete Landlord’s Work on or before July 28, 2011, which July 28, 2011 date will be extended on a day-for-day basis for each day of delay attributable to any Tenant Delay (as defined in Section 3.1 of the Lease and specifically including, any change orders requested by Tenant (with specific reference to the change request proposal 11-0001 dated June 24, 2011) and/or and delay or stoppage due to strikes, lockouts, labor disputes, acts of God, acts of war, terrorist acts, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of Landlord. The parties acknowledge that, for purposes of the immediately preceding sentence, Landlord’s reasonable construction schedule shall not include any scheduled overtime.

3. Defaults . Tenant hereby represents and warrants to Landlord that, as of the Effective Date of this First Amendment, Tenant is in full compliance with all terms, covenants and conditions of the Lease and that there are no breaches or defaults under the Lease by Landlord or Tenant, and that Tenant knows of no events or circumstances which, given the passage of time, would constitute a default under the Lease by either Landlord or Tenant.

4. Brokers . Each party represents and warrants to the other that no broker, agent or finder negotiated or was instrumental in negotiating or consummating this First Amendment. Each party further agrees to defend, indemnify and hold harmless the other party from and against any claim for a commission or finder’s fee by any entity who claims or alleges that they were retained or engaged by the first party or at the request of such party.

5. Signing Authority . Each individual executing this First Amendment on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in the State of California and that Tenant has full right and authority to execute and deliver this First Amendment and that each person signing on behalf of Tenant is authorized to do so.

6. Counterparts and Fax Signatures . This First Amendment may be executed in counterparts, each of which shall be deemed an original, but such counterparts, when taken together, shall constitute one agreement. This First Amendment may be executed by a party’s signature transmitted by facsimile or other electronic means (collectively, “ faxed signatures ”), and copies of this First Amendment executed and delivered by means of faxed signatures shall have the same force and effect as copies hereof executed and delivered with original signatures.

 

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Both parties hereto may rely upon faxed signatures as if such signatures were originals. Either party executing and delivering this First Amendment by facsimile or other electronic means shall promptly thereafter deliver a counterpart signature page of this First Amendment containing said party’s original signature. Both parties hereto agree that a faxed signature page may be introduced into evidence in any proceeding arising out of or related to this First Amendment as if it were an original signature page.

7. No Further Modification . Except as set forth in this First Amendment, all of the terms and provisions of the Lease shall continue to apply and shall remain unmodified and in full force and effect. Effective as of the Effective Date hereof, all references to the “Lease” shall refer to the Lease as amended by this First Amendment.

IN WITNESS WHEREOF, this First Amendment has been executed as of the day and year first above written.

 

Landlord:    

989 MARKET STREET, LLC,

a Nevada limited liability company

    By:  

Regis Realty I LLC, a Texas limited

liability company

    Its:   Authorized Agent
Date: June 28, 2011       By:   /s/ Scott Porter
        Scott Porter, Senior Vice President

Tenant:

   

ZENDESK INC.,

a Delaware corporation

Date: June 28, 2011

    By:     /s/ Richard Rigoli                                                                     
    Name:      Richard Rigoli                                                                     
    Its Duly-Authorized     CFO                                                                 

 

 

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EXHIBIT D-I

APPROVED PLANS

 

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EXHIBIT D-1

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EXHIBIT D-1

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EXHIBIT D-1

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EXHIBIT D-1

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LOGO

 

EXHIBIT D-1

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EXHIBIT D-1

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EXHIBIT D-1

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EXHIBIT D-1

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EXHIBIT D-1

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BID PROPOSAL

 

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EXHIBIT D-1

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Exhibit 10.10

SECOND AMENDMENT TO LEASE

(989 Market Street)

THIS SECOND AMENDMENT TO LEASE (“ Second Amendment ”) is made and entered into as of the 11 th day of August, 2011 (“ Effective Date ”) by and between 989 MARKET ASSOCIATES, LLC, a Delaware limited liability company (“ Landlord ”) and ZENDESK INC., a Delaware corporation (“ Tenant ”).

R E C I T A L S:

A. Tenant and 989 Market Street, LLC, a Nevada limited liability company (“ Former Landlord ”), entered into that certain Office Lease dated April 29, 2011, as amended by that certain First Amendment to Lease dated July 28, 2011, as assigned by Former Landlord to Landlord on July 29, 2011 (collectively, the “ Lease ”), whereby Landlord leases to Tenant and Tenant leases from Landlord certain office space consisting of approximately 16,200 rentable square feet comprising the entire third (3rd) floor of that certain office building (“ Building ”) commonly known as 989 Market Street, located and addressed at 989 Market Street, Suite 300, San Francisco, California 94103 (“ Original Premises ”).

B. Tenant desires to expand its Original Premises and Landlord desires to lease additional space to Tenant on the terms and conditions set forth herein.

C. Unless otherwise defined herein, capitalized terms as used herein shall have the same meanings as given in the Lease.

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

A G R E E M E N T:

1. Premises .

(a) Additional Premises . Effective as of November 1, 2011 (the “ Expansion Date ”), Landlord leases to Tenant and Tenant leases from Landlord, the entire second (2 nd ) Floor of the Building (the “ Additional Premises ”) and deemed to contain 17,588 square feet, as measured by ANSI/BOMA 1996 standards. Tenant’s leasing of the Additional Premises will be upon all of the existing terms of the Lease and any and all references in the Lease to the “Premises” shall be deemed to include the Original Premises and Additional Premises, except as provided to the contrary in this Second Amendment. All furniture and fixtures in the Additional Premises on the Expansion Date shall be deemed to be the property of Tenant. Tenant’s lease of the Additional Premises does not constitute the exercise of any of Tenant’s expansion, first refusal, or first offer rights under the Lease and all of Tenant’s rights thereunder remain in full force and effect, except as modified by this Second Amendment.


(b) Term . Unless the Lease is extended or earlier terminated as provided in the Lease, the term for the Additional Premises is thirty-six (36) months commencing on the Expansion Date and will run concurrently with the Lease Term for the Original Premises, expiring on October 31, 2014.

(c) Term Extension for Premises . The Lease Term for the Original Premises is hereby amended so that it runs concurrently with that of the Additional Premises, expiring on October 31, 2014. Landlord acknowledges and agrees that the Base Rent for the Original Premises during June though October of 2014 shall be $35,910 per month.

(d) Early Access to Additional Premises . Landlord shall give Tenant nonexclusive access to the Additional Premises between the Effective Date and the Expansion Date for the purposes of Tenant’s installing in the Additional Premises voice and data cabling and outlets, telephone equipment and furniture, fixtures, and equipment. During such access period, prior to the Expansion Date, (i) Tenant covenants that Tenant’s access and use of the Additional Premises prior to the Expansion Date shall be subject to all provisions of the Lease, except that Tenant’s obligation to pay Base Rent and Additional Rent for the Additional Premises shall not apply during such access periods and (ii) Tenant shall not conduct any business in the Additional Premises and none of Tenant’s employees shall office in the Additional Premises. Such access shall not advance the Expiration Date of the Lease.

2. Base Rent, Monthly Installments . Tenant shall pay to Landlord the following monthly installments of Base Rent for the lease of the Additional Premises.

 

Full calendar months
of Lease Term

   Annual Base Rent
per rentable square feet
     Monthly Installment
of Base Rent
 

01-12

   $ 33.00       $ 48,367   

13-24

   $ 34.00       $ 49,833   

25-36

   $ 35.00       $ 51,299   

Landlord, at its cost and expense, shall cause all utilities for the Additional Premises to be separately metered or charged directly to Tenant by the provider. Tenant, on a direct-pay basis with the provider, shall pay for all electricity, heat, light, power, telephone, and other utilities and services used on the Additional Premises, all maintenance charges for utilities, and any storm sewer charges or other similar charges for utilities imposed by any governmental entity or utility provider, together with any taxes, penalties, surcharges or the like for utilities, pertaining to Tenant’s use of the Additional Premises. Tenant shall pay its share of all charges for jointly metered utilities based upon consumption, as well as its pro rata share of janitorial, as reasonably determined by Landlord.

3. Security Deposit . Tenant shall deposit an additional security deposit in the amount of $46,475, in cash, with Landlord on the Expansion Date. Effective as of the Expansion Date, Section 1.5 of the Lease is deleted in its entirety and replaced with the following:

“1.16 Security Deposit. (Section 7): $81,035.00 in cash.”

 

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4. Right of First Offer . Paragraph 4 of the Addendum to the Lease is hereby amended in its entirety and replaced with the following:

Provided that on the date of any ROFO Notice (as herein defined), Tenant is not in breach or default of the Lease after any applicable notice was given and any applicable grace or cure period has expired, Tenant shall have a one-time right of first offer to lease any space in the Building (the “ ROFO Space ”), which space becomes available between June 1, 2012 and October 31, 2014, for direct lease from Landlord for a term to expire as of Expiration Date, unless Tenant has otherwise extended its Option to Renew for the Premises, including the Offer Space pursuant to Paragraph 2 of the Addendum to the Lease. Landlord shall give Tenant written notice thereof (the “ ROFO Notice ”). The ROFO Notice shall specify the location and rentable square footage of the portion of the ROFO Space that is available for direct lease (the “ Offer Space ”) and the Fair Market Rate as reasonably determined by Landlord for the Offer Space; provided, however, that notwithstanding the foregoing, if the Fair Market Rate, as determined by Landlord, were less than the Base Rent rate payable under the Lease for the lease of the Additional Premises, then the Base Rent payable by Tenant for the lease of the Offer Space shall be equal to the Base Rent rate applicable to the Additional Premises. Tenant shall have five (5) business days (the “ Acceptance Period ”) after its receipt of the ROFO Notice in which to exercise its right of first offer to lease by delivering to Landlord, before the Acceptance Period expires, written notice executed by Tenant exercising the right of first offer to lease the Offer Space on the terms and conditions contained in the ROFO Notice; provided, however, that notwithstanding the foregoing, if Tenant timely exercises the right of first offer during the Acceptance Period, and Landlord and Tenant do not, within forty-five (45) days after the Acceptance Period expires, execute a mutually-satisfactory amendment to the Lease adding the Offer Space to the Premises at the rate and otherwise on the terms and conditions contained in the ROFO Notice, then Tenant’s exercise of the right of first offer shall thereupon automatically terminate and be null and void and of no force or effect, whereupon Landlord shall no longer have any obligation under the Lease, this Addendum or otherwise to offer to lease any of the ROFO Space to Tenant under any circumstances. If Tenant fails to deliver to Landlord, before the Acceptance Period expires, written notice executed by Tenant exercising the right of first offer to lease the Offer Space, or if Tenant delivers such written notice to Landlord during the Acceptance Period, but Landlord and Tenant do not execute a mutually-satisfactory amendment to this Lease within the period of forty-five (45) days after the Acceptance Period expires, then Landlord shall thereupon be free to lease the Offer Space to any other tenant or prospective tenant of the Building on any terms and conditions agreed to by them. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECOND AMENDMENT, (i) Tenant’s rights pursuant to this Paragraph are personal to Tenant and nontransferable and shall automatically terminate if Tenant assigns the Lease, as amended, or any of Tenant’s rights under the Lease, as amended, to any person or entity (other than pursuant to a Permitted Disposition) or subleases all or any portion of the Premises to any person or entity (other than pursuant to a Permitted Disposition); and (ii) Tenant’s rights pursuant to this Paragraph shall automatically terminate if, on the date of any ROFO Notice, a default or breach by Tenant under the Lease has occurred and is continuing after any applicable notice is given and any applicable cure period has expired.

 

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5. Tenant’s Pro-Rata Share . Effective as of the Expansion Date, Section 1.5 of the Lease is deleted in its entirety and replaced with the following:

“1.5 Tenant’s Pro-Rata Share of the Building Area. (Section 2.1): 34.27% (subject to verification pursuant to Section 2.1).”

6. Landlord’s Share of Operating Expenses . Effective as of the Expansion Date, Section 1.14 of the Lease is deleted in its entirety and replaced with the following:

“1.14 Landlord’s Share of Operating Expenses. (Section 6.2): The amount of Operating Expenses for the Building incurred for the calendar year 2012.”

7. Tenant Improvement Allowance . Tenant shall be entitled to a tenant improvement allowance in the amount of $184,674.00 (constitution $10.50 per square foot) (the “ Allowance ”). Tenant shall be entitled to use the Allowance for soft costs or towards Base Rent. Landlord shall deposit with Tenant the amount of the Allowance, in cash, simultaneously with Tenant’s execution of this Lease.

8. Brokers . Each party represents and warrants to the other that no broker, agent or finder negotiated or was instrumental in negotiating or consummating this Second Amendment other than Cornish & Carey Newmark Knight Frank represented Tenant and Sansome Street Advisors represented Landlord. Each party further agrees to defend, indemnify and hold harmless the other party from and against any claim for a commission or finder’s fee by any entity who claims or alleges that they were retained or engaged by the first party or at the request of such party.

9. Signing Authority . Each individual executing this Second Amendment on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in the State of California and that Tenant has full right and authority to execute and deliver this Second Amendment and that each person signing on behalf of Tenant is authorized to do so.

10. Counterparts and Fax Signatures . This Second Amendment may be executed in counterparts, each of which shall be deemed an original, but such counterparts, when taken together, shall constitute one agreement. This Second Amendment may be executed by a party’s signature transmitted by facsimile or other electronic means (collectively, “ faxed signatures ”), and copies of this Second Amendment executed and delivered by means of faxed signatures shall have the same force and effect as copies hereof executed and delivered with original signatures. Both parties hereto may rely upon faxed signatures as if such signatures were originals. Either party executing and delivering this Second Amendment by facsimile or other electronic means shall promptly thereafter deliver a counterpart signature page of this Second Amendment containing said party’s original signature. Both parties hereto agree that a faxed signature page may be introduced into evidence in any proceeding arising out of or related to this Second Amendment as if it were an original signature page.

 

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11. No Further Modification . Except as set forth in this Second Amendment, all of the terms and provisions of the Lease shall continue to apply and shall remain unmodified and in full force and effect. Effective as of the Effective Date hereof, all references to the “Lease” shall refer to the Lease as amended by this Second Amendment.

[SIGNATURES ATTACHED HERETO]

 

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IN WITNESS WHEREOF, this Second Amendment has been executed as of the day and year first above written.

 

Landlord:    

989 MARKET ASSOCIATES, LLC,

a Nevada limited liability company

Date: 8/11 , 2011

    By:    /s/ Thomas R. Owens
    Name:    Thomas R. Owens
    Its Duly-Authorized    CEO

Tenant:

   

ZENDESK INC.,

a Delaware corporation

Date: 8/10 , 2011

    By:    /s/ Rick Rigoli
    Name:    Rick Rigoli
    Its Duly-Authorized    CFO

 

6

Exhibit 10.11

THIRD AMENDMENT TO LEASE

THIS THIRD AMENDMENT TO LEASE (“ Third Amendment ”) is entered into as of September 11, 2013 (the “ Third Amendment Effective Date ”), by and between HMC MID-MARKET VENTURES LLC, a Delaware limited liability company (“ Landlord ”) and ZENDESK INC., Delaware corporation (“ Tenant ”) with reference to the following facts:

 

A. Landlord (as successor in interest to 989 Market Associates) and Tenant are parties to that certain Office Lease dated April 29, 2011 and that certain Addendum to Office Lease attached thereto (collectively, the “ Original Lease ”), which lease has been previously amended by that certain First Amendment to Lease dated June 28, 2011 (the “ First Amendment ” and by that certain Second Amendment to Lease entered into as of August 11, 2011 (the “ Second Amendment ”) (the Original Lease, as so amended, being referred to herein as the “ Lease ”), pursuant to which Landlord leases to Tenant space described as “ Suite 200 ” and “ Suite 300 ” (collectively, the “ Premises ”), consisting of the entire second (2nd) and third (3rd) floors, respectively, of the building located at 989 Market Street, San Francisco, California (the “ Building ”).

 

B. The Lease, by its terms is scheduled to expire on October 31, 2014 (“ Current Termination Date ”), and the parties desire to extend the Lease Term, all on the following terms and conditions.

 

C. Landlord has remeasured the Premises in accordance with the guidelines for such measurements specified in the American National Institute Publication ANSI.Z65.1-1996, as adopted by the Building Owners and Managers Association, as interpreted and applied by Landlord’s measurement firm to the Building and the Premises (“ 1996 BOMA ”, and such remeasurement being referred to herein as the “ New Measurement ”). As a consequence of the New Measurement, Landlord has determined that the Premises consist of 34,891 rentable square feet.

NOW, THEREFORE , in consideration of the above recitals which by this reference are incorporated herein, the mutual covenants and conditions contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows:

1. Extension . Commencing on November 1, 2014 (“ Extension Date ”), the Lease Term is hereby extended for a period of five (5) years and shall expire on October 31, 2019 (“ Extended Termination Date ”), unless sooner terminated in accordance with the terms of the Lease. That portion of the Lease Term commencing on the Extension Date and ending on the Extended Termination Date shall be referred to herein as the “ Extended Term ”, and unless the context clearly provides otherwise, from and after the Extension Date, references in the Lease to the “Lease Term” shall be deemed to include the Extended Term, and references in the Lease to the “Expiration Date” shall mean Extended Termination Date.


2. Base Rent . The schedule of Base Rent payable with respect to the Premises during the Extended Term shall be as follows:

 

Period

   Annual Rate Per
Rentable Square Foot
     Monthly Base
Rent
 

November 1, 2014—October 31, 2015

   $ 52.00       $ 151,194.33   

November 1, 2015—October 31, 2016

   $ 53.56       $ 155,730.15   

November 1, 2016—October 31, 2017

   $ 55.17       $ 160,411.36   

November 1, 2017—October 31, 2018

   $ 56.82       $ 165,208.88   

November 1, 2018—October 31, 2019

   $ 58.53       $ 170,180.85   

All such Base Rent shall be payable by Tenant in accordance with the terms of the Lease.

3. Operating Expenses, Real Estate Taxes, Services and Utilities .

(a) Generally . Tenant shall continue to pay Tenant’s Pro Rata Share of Operating Expenses and Real Estate Taxes in accordance with the terms of the Lease, except that during the Extended Term, Tenant shall pay for janitorial services and utilities for Suite 300 in the same manner as Tenant pays for janitorial services and utilities for Suite 200, as detailed in Section 2 of the Second Amendment; provided, however, if any utility is not separately metered for Suite 300, then Tenant shall pay Tenant’s Pro Rata Share for such utility to Landlord without regard for Landlord’s cost for such utility with respect to the Building during the Base Year. Accordingly, janitorial services and Building utilities (to the extent Tenant paid for such utilities under this Section 3(a)) shall be excluded from Operating Expenses for the Base Year and subsequent calendar years of the Lease Term for purposes of determining escalations under Section 6.2 of the Original Lease.

(b) Base Year and Tenant’s Pro Rata Share . During the Extended Term, (i) the Base Year shall be calendar 2015, and (ii) based on the New Measurement, Tenant’s Pro Rata Share shall be 31.3%.

4. Improvements to Premises .

(a) Condition . Tenant has inspected the Premises and agrees to accept the same in “as is” condition without any agreements, representations, understandings or obligations on the part of Landlord to (i) perform any alterations, additions, repairs or improvements (other than Landlord’s maintenance and repair obligations under the Original Lease), (ii) fund or otherwise pay for any alterations, additions, repairs or improvements (except as expressly set forth herein), or (iii) grant Tenant any free rent, concessions, credits or contributions of money. Tenant shall be permitted to perform Alterations in the Premises, subject to the terms and conditions set forth in Section 10.4 of the Original Lease.

(b) Allowance .

(i) Allowance . So long as no default has occurred and is continuing after written notice and expiration of the applicable cure periods on the Extension Date (but subject to the terms and conditions of Section 4(c) below), Landlord agrees to contribute a sum of $523,365.00 (i.e., $15.00 per rentable square foot of the Premises) (the “ Allowance ”) toward the cost of Tenant’s Alterations constructed after the Extension Date. If Tenant is in default under the Lease and such default is continuing at the time the Allowance would otherwise be disbursed to Tenant, the Allowance shall not be forfeited, but disbursement thereof shall be postponed until the applicable default is cured. In no event shall Landlord be required to disburse an amount greater than the Allowance.


(ii) Conversion to Rent . Tenant may elect to apply any unused portion of the Allowance toward Rent payable under the Lease (as amended hereby) by delivering written notice of such election to Landlord on or before the Extension Date.

(iii) Use of Allowance . Except as otherwise set forth in this Section 4(b)(iii), Tenant may only use the Allowance for the following: (i) the cost of preparing design and construction documents in connection with the construction of Alterations in the Premises after the Extension Date, (ii) hard costs in connection with the construction of Alterations in the Premises after the Extension Date, (iii) Landlord’s construction management fee in amount equal to five percent (5%) of the total cost of the applicable Alterations, (iv) Rent, pursuant to the provisions of Section 4(b)(ii) above, and (v) permitting costs in connection with Alterations to be installed or constructed in the Premises after the Extension Date (collectively, the “ Allowance Items ”). In no event shall Tenant be permitted to apply the Allowance toward furnishings, equipment, trade fixtures, cabling or moving expenses.

(iv) Allowance Use Periods . If Tenant has not used the entire amount of the Allowance on or before December 31, 2015 or has otherwise elected to apply the Allowance to Base Rent, as permitted by Section 4(b)(ii) above, then any unused portion of the Allowance that Tenant is entitled to use shall automatically be credited against the monthly installment(s) of Base Rent next due and payable until exhausted.

(c) Disbursement of Allowance . If the Allowance is applied to Base Rent, then Landlord shall apply the Allowance monthly toward the payment of Base Rent. If Tenant elects to have the Allowance used for Allowance Items, the Allowance shall be paid to Tenant in periodic disbursements within thirty (30) days after (but no earlier than the fifth day of the calendar month immediately following the expiration of such 30-day period) Landlord’s receipt of the following documentation: (A) Tenant’s application for payment and a certified statement from Tenant’s contractor substantially in the form of AIA Document G-702, covering all work for which disbursement is to be made up to a date specified therein (a “ Tenant Disbursement Request ”); (B) a certification from the applicable project architect substantially in the form of the Architect’s Certificate for Payment which is located on AIA Document G702, Application and Certificate of Payment; and (C) contractor’s, subcontractor’s and material supplier’s waivers of liens which shall cover all Alterations for which disbursement is being requested and all other statements and forms required for compliance with the mechanics’ lien laws of the State of California together with all such invoices, contracts, or other supporting data as Landlord or Landlord’s mortgagee may reasonably require. Upon completion of the applicable Alterations, Tenant shall furnish Landlord with: (1) general contractor and architect’s completion affidavits, (2) full and final waivers of lien, (3) receipted bills covering all labor and materials expended and used, (4) as-built plans for the applicable Alterations in the Premises, and (5) the certification of Tenant’s architect that the applicable Alterations have been installed in a good and workmanlike manner, in accordance with plans approved by Landlord, and in accordance with applicable Laws. Landlord shall not be required to disburse any part of the Allowance more than one time per calendar month, or to disburse any part of the Allowance (taken in the aggregate) during the continuance of an uncured default (without regard to any notice or cure period), and Landlord’s obligation to disburse shall only resume when and if such default is cured. If Landlord, in good faith, disputes any item in a Tenant Disbursement Request based on non-compliance of any work with plans approved by Landlord or due to any substandard work, and Landlord delivers a written objection to any such item setting forth Landlord’s reasons for its dispute (a “ Draw Dispute Notice ”), within ten (10) business days following delivery of the Tenant Disbursement Request, Landlord may deduct the amount of such disputed item from the payment. Landlord and Tenant shall diligently, and in good faith, endeavor to resolve any such dispute. Landlord’s payment of any portion of the Allowance shall not be deemed Landlord’s approval or acceptance of the work furnished or materials supplied as set forth in the applicable Tenant Disbursement Request.


5. Security Deposit . Concurrently with Tenant’s execution and delivery of this Third Amendment, Tenant shall pay Landlord the amount necessary to increase the Security Deposit to $302,388.66.

6. Renewal Options .

(a) Deletion of Prior Renewal Options . Any prior Tenant option to renew or otherwise extend the Lease Term is hereby deleted in its entirety, and shall have no further force or effect.

(b) Grant of Options; Conditions . Tenant shall have the right to further extend the Lease Term (a “ Renewal Optio n”) with respect to the entire Premises for two (2) additional periods as follows: (i) the first for a period of forty-two (42) months commencing on November 1, 2019 and expiring on April 30, 2023 (the “ First Renewal Term ”), and (ii) the second for a period of fifty (50) months, commencing on May 1, 2023 and expiring on June 30, 2027 (the “ Second Renewal Term ”, and collectively referred to herein as the “ Renewal Terms ”) if:

(i) Landlord receives irrevocable notice of exercise of the applicable Renewal Option (“ Renewal Notice ”) no earlier than thirteen (13) months and no later than ten (10) months prior to the expiration of the Extended Term or First Renewal Term, as the case may be; and

(ii) Tenant is not in default under the Lease beyond the applicable notice and the grace period at the time that Tenant delivers its Renewal Notice or at the time Tenant delivers (or is deemed to have delivered) its Binding Notice or Rejection Notice (as said terms are defined below); and

(iii) Tenant occupies the entire Premises at the time that Tenant delivers the applicable Renewal Notice and at the time Tenant delivers (or is deemed to have delivered) its Binding Notice or Rejection Notice; and

(iv) The Lease has not been assigned (other than pursuant to a Permitted Disposition) prior to the date that Tenant delivers the applicable Renewal Notice or at the time Tenant delivers (or is deemed to have delivered) its Binding Notice or Rejection Notice.

(c) Base Rent Payable During Renewal Terms . The Base Rent rate per rentable square foot for the Premises during each Renewal Term shall equal the Prevailing Market (defined below) rate per rentable square foot for the Premises, determined as set forth below.

(d) Initial Procedure for Determining Prevailing Market . After receipt of a Renewal Notice from Tenant, Landlord shall advise Tenant in writing of Landlord’s determination of the Prevailing Market rate for the Premises for the applicable Renewal Term. Within fifteen (15) days after the date on which Landlord delivers such notice, Tenant shall either (i) give Landlord final binding written notice of Tenant’s exercise of the applicable Renewal Option (“ Binding Notice ”) upon the terms set forth in Landlord’s notice, or (ii) if Tenant disagrees with Landlord’s determination, provide Landlord with written notice of rejection (“ Rejection Notice ”). If Tenant fails to provide Landlord with either a Binding Notice or a Rejection Notice within such fifteen (15) day period, Tenant shall be deemed to have delivered a Rejection Notice. If Tenant provides Landlord with a Binding Notice, Landlord and Tenant shall enter into a Renewal Amendment (as defined below) upon the terms and conditions set forth in Landlord’s notice to Tenant. If Tenant provides (or is deemed to have provided) Landlord with a Rejection Notice, Landlord and Tenant shall work together in good faith to agree upon the Prevailing Market rate for the Premises for the applicable Renewal Term. Upon agreement, Landlord and Tenant shall enter into a Renewal Amendment (defined below) in accordance with the terms and conditions


agreed upon. However, if Landlord and Tenant fail to agree upon the Prevailing Market rate within thirty (30) days after the date Tenant provides Landlord with a Rejection Notice (the “ Negotiation Period ”), the Prevailing Market rate shall be determined in accordance with the arbitration procedures described below.

(e) Arbitration Procedure .

(i) Within five (5) business days after the date of expiration of the Negotiation Period, Landlord and Tenant shall each simultaneously submit to the other, in a sealed envelope, its good faith estimate of the Prevailing Market rate for the applicable Renewal Term, together with any documentation and/or materials deemed relevant by said party to support the dollar amount reflected in said estimate (collectively referred to as the “ Estimates ”). If the higher of such Estimates is not more than 105% of the lower of such Estimates, then Prevailing Market rate shall be the average of the two Estimates. If the Prevailing Market rate is not resolved by the exchange of Estimates, then, within fourteen (14) days after the exchange of Estimates, Landlord and Tenant shall each select a real estate broker to determine which of the two Estimates most closely reflects the Prevailing Market rate for the Premises during the applicable Renewal Term. Each such real estate broker so selected shall have had at least the immediately preceding ten (10) years’ experience as a real estate broker leasing first-class office space in the San Francisco financial district and “Mid-Market” area, with working knowledge of current rental rates and practices.

(ii) Upon selection, Landlord’s broker and Tenant’s broker shall work together in good faith to agree upon which of the two Estimates most closely reflects the Prevailing Market rate for the Premises for the applicable Renewal Term. The Estimate chosen by the brokers shall be binding on both Landlord and Tenant. If either Landlord or Tenant fails to appoint a broker within the fourteen (14) day period referred to above, the broker appointed by the other party shall be the sole broker for the purposes hereof. If the two brokers cannot agree upon which of the two Estimates most closely reflects the Prevailing Market within twenty (20) days after their appointment, then, within fourteen (14) days after the expiration of such twenty (20) day period, the two brokers shall select a third broker meeting the aforementioned criteria. After the third broker (the “ Arbitrator ”) has been selected as provided for above, then, as soon thereafter as practicable but in any case within fourteen (14) days, the Arbitrator shall make his or her determination as to which of the two Estimates most closely reflects the Prevailing Market rate for the applicable Renewal Term, and such Estimate shall be binding on both Landlord and Tenant. The parties shall share equally in the costs of the Arbitrator. Any fees of any appraiser, broker, counsel or experts engaged directly by Landlord or Tenant, however, shall be borne by the party retaining such appraiser, broker, counsel or expert.

(iii) If the Prevailing Market rate has not been determined by the commencement date of the applicable Renewal Term, Tenant shall pay Base Rent upon the terms and conditions in effect during the last month of the Extended Term or the First Renewal Term, as the case may be, until the time as the Prevailing Market rate has been determined for such applicable Renewal Term. Upon such determination, the Base Rent for the Premises shall be retroactively adjusted to the commencement of the applicable Renewal Term. If such adjustment results in an underpayment of Base Rent by Tenant, Tenant shall pay Landlord the amount of such underpayment within thirty (30) days after the determination thereof. If such adjustment results in an overpayment of Base Rent by Tenant, Landlord shall credit such overpayment against the next installment of Base Rent due under the Lease (as amended hereby) and, to the extent necessary, any subsequent installments, until the entire amount of such overpayment has been credited against Base Rent.

(iv) Renewal Amendment . If Tenant is entitled to and properly exercises any Renewal Option, Landlord shall prepare an amendment (a “ Renewal Amendment ”) to reflect changes in


the Base Rent, Base Year (which shall be the calendar year in which the commencement of the applicable Renewal Term occurs), term, termination date and other appropriate terms. Tenant shall execute and return the Renewal Amendment to Landlord within fifteen (15) days after Tenant’s receipt of same, but an otherwise valid exercise of a Renewal Option shall be fully effective whether or not the applicable Renewal Amendment is executed.

(v) Prevailing Market . For purposes of this First Renewal Option, “ Prevailing Market ” shall mean the arms length fair market annual rental rate per rentable square foot under renewal leases and amendments (other than renewal amendments with rental rates not based on 100% of the then applicable fair market rental rates) for closed transactions entered into on or about the date on which the Prevailing Market is being determined hereunder for space comparable to the Premises in the Building and office buildings comparable to the Building in the “Mid-Market” district of San Francisco, California. “Mid-Market” is hereby defined as that set of recently renovated office buildings located in the area bordered by Market Street to the north, 3rd Street to the east, Brannan Street to the south, and 11th Street to the west, including buildings located immediately on both sides of each of the aforementioned streets, in San Francisco. The determination of the Prevailing Market shall take into account any material economic differences between the terms of the Lease and any comparison lease, such as rent abatements, tenant improvement allowances, amenities, construction costs and other concessions and the manner, if any, in which the Landlord under any such lease is reimbursed for operating expenses and taxes, as well as the level of improvements and finishes existing in the Premises. The determination of Prevailing Market shall also take into consideration any reasonably anticipated changes in the Prevailing Market rate from the time such Prevailing Market rate is being determined and the time such Prevailing Market rate will become effective under the Lease.

7. Right of First Offer . The Right of First Offer set forth in Section 4 of the Addendum to Office Lease, as superseded and replaced in its entirety by Section 4 of the Second Amendment, is hereby amended so that such Right of First Offer shall become an ongoing right. The limitation on the Right of First Offer set forth in Section 4 of the Second Amendment that the applicable ROFO Space become available between June 1, 2012 and October 31, 2014 is hereby deleted and shall be of no further force or effect, allowing Tenant to exercise its Right of First Offer on space after October 31, 2014 (but during the Term only), subject to the terms and conditions set forth herein and in Section 4 of the Addendum to Office Lease. Further, the following shall be added before the last sentence of Section 4 of the Addendum to Office Lease:

“; provided, however, Landlord may not execute a lease for the Offer Space with any other tenant or prospective tenant of the Building on a per square foot base rental rate that is less than ninety percent (90%) of the base rental rate per square foot set forth in the ROFO Notice. To the extent that Landlord proposes to lease Offer Space to a new tenant or prospective tenant at a base rental rate that is less than ninety percent (90%) of the base rental rate per square foot set forth in the ROFO Notice, then Landlord shall be obligated to send a new ROFO Notice to Tenant with the economic terms offered to the other tenant as required by Section 4 of the Addendum to Office Lease.”

All other terms and conditions of the Right of First Offer set forth in Section 4 of the Second Amendment shall remain in full force and effect.

8. Assignment and Subletting . Section 16 of the Original Lease is hereby amended as follows:

(a) Transfer Premium . With respect to the calculation any Transfer Premium under the terms of Section 16.1 of the Original Lease, if Tenant does not require the applicable subtenant to pay


operating expenses and taxes under the sublease with such subtenant (i.e., a full service gross sublease), then for purposes of determining the Transfer Premium only, the Base Rent rate for the Lease (as amended hereby) in effect for the applicable sublease term shall be increased by $4.00 per rentable square foot for the applicable portion of the Premises that is the subject of such sublease (and such deemed increase in Base Rent for purposes of calculating the Transfer Premium shall be in lieu of Tenant’s obligation to pay Operating Expenses and Real Estate Taxes under the Lease, which amounts to be paid by Tenant shall be excluded from the calculation of any Transfer Premium).

(b) Conditions to Landlord Recapture . Section 16.2 of the Original Lease is hereby amended so that Landlord’s right to recapture the portion of the Premises that is the subject of a proposed sublease, as set forth in the last sentence of Section 16.2, shall be subject to the following conditions:

(i) The portion of the Premises that is the subject of a proposed sublease is greater than fifty-two percent (52%) of the total rentable area of the Premises at the time of the proposed sublease, and

(ii) The proposed sublease term is either (x) two years or longer, or (y) exceeds eighty percent (80%) of the then remaining Lease Term, including any Renewal Term, if Tenant has properly exercised a Renewal Option set forth in Section 6 above.

The reference to ten (10) days for Tenant to rescind a request for Landlord’s consent to a sublease in the last sentence of Section 16.2 is hereby increased to thirty (30) days.

Under all circumstances, Landlord may not unreasonably withhold, condition, or delay its consent to a sublease or assignment by Tenant. Further, the definition of “Permitted Disposition” is hereby amended to include related entities, subsidiaries, parent companies or any other company in which Tenant has a controlling interest.

9. Miscellaneous .

(a) This Third Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements.

(b) Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect.

(c) In the case of any inconsistency between the provisions of the Lease and this Third Amendment, the provisions of this Third Amendment shall govern and control.

(d) Submission of this Third Amendment by Landlord is not an offer to enter into this Third Amendment but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Third Amendment until Landlord has executed and delivered the same to Tenant.(e) Capitalized terms used in this Third Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Third Amendment.

(f) Tenant hereby represents to Landlord that Tenant has dealt with no broker, other than Cornish & Carey Newmark Knight Frank (“ Tenant’s Broker ”) in connection with this Third Amendment. Tenant agrees to defend, indemnify and hold Landlord harmless from all claims of any


brokers (other than Tenant’s Broker) claiming to have represented Tenant in connection with this Third Amendment. Landlord hereby represents to Tenant that Landlord has dealt with no broker in connection with this Third Amendment other than Sansome Street Advisors. Landlord agrees to defend, indemnify and hold Tenant harmless from all claims of any brokers claiming to have represented Landlord in connection with this Third Amendment.

(g) Each signatory of this Third Amendment represents hereby that he or she has the authority to execute and deliver the same on behalf of the party hereto for which such signatory is acting.

(h) Tenant and Landlord acknowledge that the content of the Lease and any related documents are confidential information. Both Landlord and Tenant shall keep such confidential information strictly confidential and shall not disclose such confidential information to any person or entity, other than to the members, shareholders, or parent companies of each respective party (and each such party shall include the prospective investors or any existing investor of such party) and/or their respective financial advisors, legal advisors, leasing brokers and space planning consultants. Either party shall be relieved of its obligations to hold confidential information in strict confidence with respect to any portion of such confidential information that: (i) is or later falls within the public domain without breach of the Lease; (ii) was known to, or independently developed by, the non-disclosing party prior to disclosure; (iii) becomes known to the disclosing party from a third party not owing any obligation of confidence to the non-disclosing party; (iv) the disclosing party is subject to banking, insurance or other regulation, or requirements of the Securities Exchange Commission, that would require confidential information to be disclosed to examiners or auditors, government officials, or other parties in accordance with Laws. Notwithstanding the foregoing, at the request of Tenant, Tenant and Landlord shall mutually agree on a public announcement of the execution of this Third Amendment and the extended Lease Term.

(i) Tenant represents and warrants to Landlord that Tenant is currently in compliance with and shall at all times during the term of the Lease through and including the Expiration Date (including any extension thereof) remain in compliance with the regulations of the Office of Foreign Asset Control (“ OFAC ”) of the Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) and any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action relating thereto.

(j) The Premises have not undergone an inspection by a Certified Access Specialist (CASp). This notice is given pursuant to California Civil Code Section 1938.

(k) This Third Amendment may be executed in multiple counterparts each of which is deemed an original but together constitute one and the same instrument. This Third Amendment may be executed in “pdf” format and each party has the right to rely upon a pdf counterpart of this Third Amendment signed by the other party to the same extent as if such party had received an original counterpart.

[SIGNATURES ARE ON FOLLOWING PAGE]


IN WITNESS WHEREOF , Landlord and Tenant have duly executed this Third Amendment as of the Third Amendment Effective Date.

 

LANDLORD:
HMC MID-MARKET VENTURES LLC,a Delaware limited liability company
By:  

/s/ Illegible

Name:  

Illegible

Title:  

President

TENANT:
ZENDESK INC.,
Delaware corporation
By:  

/s/ Mikkel Svane

Name:  

Mikkel Svane

Title:  

Chief Executive Officer

Exhibit 10.12

SUBLEASE

BETWEEN

ZOOSK, INC.

AND

ZENDESK, INC.

989 MARKET STREET,

SAN FRANCISCO, CALIFORNIA

Portion of the Fourth (4th) Floor


SUBLEASE

THIS SUBLEASE (“ Sublease ”) is entered into as of August 1, 2012 (the “ Effective Date ”), by and between ZOOSK, INC., a Delaware corporation (“ Sublandlord ”) and ZENDESK, INC., a Delaware corporation (“ Subtenant ”), with reference to the following facts:

A. Pursuant to that certain Lease dated April 10, 2012 (the “Master Lease” ), 989 Market Street Associates, LLC, a Delaware limited liability company ( “Landlord” ), as Landlord, leases to Sublandlord, as tenant, certain space (the “Master Lease Premises” ) consisting of fifty-one thousand eight hundred ten (51,810) rentable square feet located on the fourth (4th), fifth (5th) and sixth (6th) floors of the Building located at 989 Market Street in the city of San Francisco, California (the “Building ).

B. Subtenant wishes to sublease from Sublandlord, and Sublandlord wishes to sublease to Subtenant, a portion of the Master Lease Premises containing approximately eight thousand eight hundred ninety-three (8,893) rentable square feet located on the fourth (4th) floor of the Building, said space being more particularly identified and described on the floor plan attached hereto as Exhibit A and incorporated herein by reference (the “Subleased Premises ).

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged by the parties, Sublandlord and Subtenant hereby agree as follows:

1. Sublease . Sublandlord hereby subleases to Subtenant and Subtenant hereby subleases from Sublandlord for the term, at the rental, and upon all of the conditions set forth herein, the Subleased Premises.

2. Term .

2.1 Commencement Date . The term of this Sublease (the “ Term ”) shall commence on August 1, 2012 (the “ Commencement Date ”) and shall end on October 31, 2014 (the “ Expiration Date ”), unless sooner terminated pursuant to any provision hereof. Notwithstanding the foregoing, this Sublease is expressly conditioned upon Landlord’s written consent to this Sublease (the “ Consent ”) and the Commencement Date shall not start until the date upon which Sublandlord procures the Consent and delivers possession of the Subleased Premises.

2.2 Delay in Commencement Date . If the Commencement Date does not occur by August 1st, 2012 (as such date may be extended by Force Majeure, as defined in the Master Lease), then Subtenant shall have the option to terminate this Sublease by written notice to Sublandlord within ten (10) days thereafter, unless the Consent and such delivery of possession, as applicable, occurs prior to the expiration of such ten (10) day period, and, upon any such termination, all deposits and prepayments shall be refunded. The aforesaid right of termination shall be the sole remedy available to Subtenant as a result of any delay in the Commencement Date due to Sublandlord’s failure to obtain Consent and/or deliver possession.

3. Rent .

3.1 Rent Payments .

 

1


(a) Generally . Subtenant shall pay to Sublandlord as base rent for the Subleased Premises during the Term (“ Base Rent ”) the following:

 

Period

   Rate Per Rentable Square
Foot Per Annum
     Monthly
Base Rent
 

August 1, 2012 - July 31, 2013

   $ 40.00       $ 29,643.33   

August 1, 2013 - July 31, 2014

   $ 41.00       $ 30,384.42   

August 1, 2014 - Expiration Date

   $ 42.00       $ 31,125.50   

Base Rent shall be paid in advance on the first day of each month of the Term, except that Subtenant shall pay one (1) month’s Base Rent to Sublandlord upon execution of this Sublease and delivery of this Sublease to Sublandlord; said pre-paid Base Rent will be applied to the first (1st) month’s Base Rent due and payable hereunder following the Abatement Period, defined below. If the Term does not begin on the first day of a calendar month or end on the last day of a month, the Base Rent and Additional Rent (hereinafter defined) for any partial month shall be prorated by multiplying the monthly Base Rent and Additional Rent by a fraction, the numerator of which is the number of days of the partial month included in the Term and the denominator of which is the total number of days in the full calendar month. All Rent (hereinafter defined) shall be payable in lawful money of the United States, by regular bank check of Subtenant, to Sublandlord at the following address:

989 Market Street, 5th Floor

San Francisco, CA 94103

Attn: Facilities

or to such other persons or at such other places as Sublandlord may designate in writing.

(b) Abatement . Notwithstanding anything in Section 3.1(a) above to the contrary, so long as Subtenant is not in default under this Sublease (beyond applicable notice and cure periods), Subtenant shall be entitled to an abatement of Base Rent for the first four (4) full calendar month(s) of the Term (the “Abatement Period” ). The total amount of Base Rent abated during the Abatement Period is referred to herein as the “Abated Rent” . If Subtenant is in material default hereunder (beyond applicable notice and cure periods) at any time prior to the expiration of the Abatement Period, then there will be no further Abatement of Base Rent pursuant to this Section 3.1(b). During the Abatement Period, only Base Rent shall be abated and all other costs and charges specified in this Sublease shall remain as due and payable pursuant to the provisions of this Sublease.

3.2 Operating Costs .

(a) Definitions . For purposes of this Sublease and in addition to the terms defined elsewhere in this Sublease, the following terms shall have the meanings set forth below:

(1) “Additional Rent” shall mean the sums payable pursuant to Section 3.2(b) below.

 

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(2) “Operating Costs” shall mean Additional Rent (as defined in Section 4.1 of the Master Lease) charged by Landlord to Sublandlord pursuant to the Master Lease.

(3) “Rent” shall mean, collectively, Base Rent, Additional Rent, and all other sums payable by Subtenant to Sublandlord under this Sublease, whether or not expressly designated as “rent”, all of which are deemed and designated as rent pursuant to the terms of this Sublease.

(4) “Subtenant’s Percentage Share” shall mean 17.16%.

(b) Payment of Additional Rent . In addition to the Base Rent payable pursuant to Section 3.1 above, from and after the Commencement Date, for each calendar year, or portion thereof, of the Term, Subtenant, as Additional Rent, shall pay Subtenant’s Percentage Share of Operating Costs payable by Sublandlord under the Master Lease for the then current calendar year; provided, however, that (a) for any partial calendar year occurring during the Term, such Operating Costs shall be prorated based upon the number of days of such partial calendar year occurring during the Term (i.e., such Operating Costs shall be multiplied by a fraction, the numerator of which is the number of days of such partial calendar year occurring during the Term and the denominator of which is 365, and Subtenant shall pay Subtenant’s Percentage Share of such prorated amount), and (b) if Sublandlord receives any refund of Operating Costs with respect to the Term, Sublandlord shall pay the Subtenant’s Percentage Share of such refund to Subtenant (which obligation shall survive the expiration or termination of this Sublease). Sublandlord shall give Subtenant written notice of Sublandlord’s estimate (which estimate shall be accompanied by Landlord’s estimate of the Operating Costs payable under the Master Lease) of the amount of Additional Rent per month payable pursuant to this Section 3.2(b) for each calendar year promptly following the Sublandlord’s receipt of Landlord’s estimate of the Operating Costs payable under the Master Lease. Thereafter, the Additional Rent payable pursuant to this Section 3.2(b) shall be determined and adjusted in accordance with the provisions of Section 3.2(c) below.

(c) Procedure . The determination and adjustment of Additional Rent payable hereunder shall be made in accordance with the following procedures:

(1) Delivery of Estimate; Payment . Promptly following receipt of a statement from Landlord specifying the estimated Operating Costs to be charged to Sublandlord under the Master Lease with respect to each calendar year, Sublandlord shall give Subtenant written notice of its estimate of Additional Rent payable under Section 3.2(b) for the ensuing calendar year, which estimate shall be prepared based on the estimate received from Landlord (as Landlord’s estimate may change from time to time to the extent not prohibited under the Master Lease), together with a copy of the statement received from Landlord. On or before the first day of each month during each calendar year (or any portion thereof during the Term), Subtenant shall pay to Sublandlord as Additional Rent one-twelfth (1/12th) of such estimated amount together with the Base Rent.

(2) Sublandlord’s Failure to Deliver Estimate . In the event Sublandlord’s notice set forth in Subsection 3.2(c)(1) is not given on or before December of the calendar year preceding the calendar year for which Sublandlord’s notice is applicable, as the case may be, because Sublandlord has not received Landlord’s statement for such calendar

 

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year, then until the calendar month after such notice is delivered by Sublandlord, Subtenant shall continue to pay to Sublandlord monthly, during the ensuing calendar year, estimated payments equal to the amounts payable hereunder during the calendar year just ended. Upon receipt of any such post-December notice (which shall include Landlord’s statement), Subtenant shall (i) commence as of the immediately following calendar month, and continue for the remainder of the calendar year (occurring during the Term), to pay to Sublandlord monthly such new estimated payments and (ii) if the monthly installment of the new estimate of such Additional Rent is greater than the monthly installment of the estimate for the previous calendar year, pay to Sublandlord within thirty (30) days of the receipt of such notice an amount equal to the difference of such monthly installment multiplied by the number of calendar months of such year occurring during the Term preceding the calendar month.

(d) Year End Reconciliation . Following the receipt by Sublandlord of a final statement of Operating Costs from Landlord with respect to each calendar year, Sublandlord shall deliver to Subtenant a statement of the adjustment to be made pursuant to Section 3.2 above for the calendar year just ended, together with a copy of the corresponding statement received by Sublandlord from Landlord. If on the basis of such statements, Subtenant owes an amount that is less than the estimated payments actually made by Subtenant for the calendar year just ended, Sublandlord shall credit such excess to the next payments of Rent coming due or, if the term of this Sublease is about to expire, promptly refund such excess to Subtenant. If on the basis of such statements Subtenant owes an amount that is more than the estimated payments for the calendar year just ended previously made by Subtenant, Subtenant shall pay the deficiency to Sublandlord within thirty (30) days after delivery of the statement from Sublandlord to Subtenant.

(e) Survival . The expiration or earlier termination of this Sublease shall not affect the obligations of Sublandlord and Subtenant pursuant to Subsection 3.2(d), and, except as otherwise provided herein, such obligations shall survive, remain to be performed after, any expiration or earlier termination of this Sublease.

4. Letter of Credit .

4.1 Upon Sublease execution, Subtenant shall deliver to Sublandlord as security for the performance of Subtenant’s obligations under this Sublease an unconditional, irrevocable letter of credit (the “Security L-C” ) in the amount of $355,720.00). Any such Security L-C shall:

(a) be issued by a commercial bank reasonably satisfactory to Sublandlord ( “Issuer );

(b) be a stand-by, at-sight, irrevocable letter of credit;

(c) identify Sublandlord as beneficiary and be payable by delivery of the Security L-C to Issuer by overnight courier, if not payable in San Francisco, California;

(d) be for an initial one (1) year term, automatically renew for successive periods of one (1) year, subject to (30) days prior notice to Sublandlord in the event of non-renewal, and in the event of non-renewal, Subtenant shall provide a new Security L-C or cash security deposit to Sublandlord prior to the date of non-renewal, satisfying the requirements set forth herein;

 

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(e) provide that it is governed by the Uniform Customs and Practice for Documentary Credits (1993 revisions), International Chamber of Commerce Publication No. 500;

(f) provide that it is unconditional, may be drawn without prior notice of default to the Subtenant and provided that in an event of insolvency, including bankruptcy, or assignment for the benefit of creditors by Subtenant, gives rise to the right of Sublandlord to demand payment under the Security L-C and the resulting obligation to pay; and

(g) be in a form and content reasonably acceptable to Sublandlord.

Subtenant shall pay all expenses, points and/or fees incurred by Subtenant in obtaining the Security L-C.

4.2 The Security L-C shall be held by Sublandlord as security for the faithful performance by Subtenant of all the terms, covenants, and conditions of this Sublease to be kept and performed by Subtenant during the Term. The Security L-C shall not be mortgaged, assigned or encumbered in any manner whatsoever by Subtenant without the prior written consent of Sublandlord. Upon a default by Subtenant, including, but not limited to, the provisions relating to the payment of Rent, or if Subtenant fails to renew the Security L-C at least thirty (30) days before its expiration, Sublandlord may, but shall not be required to, draw upon all or any portion of the Security L-C for payment of any Rent or any other sum in default, or for the payment of any amount that Sublandlord may reasonably spend or may become obligated to spend by reason of Subtenant’s default, or to compensate Sublandlord for any other loss or damage that Sublandlord may suffer by reason of Subtenant’s default. The use, application or retention of the Security L-C, or any portion thereof, by Sublandlord shall not (a) prevent Sublandlord from exercising any other right or remedy provided by this Sublease or by law, it being intended that Sublandlord shall not first be required to proceed against the Security L-C, nor (b) operate as a limitation on any recovery to which Sublandlord may otherwise be entitled. Any amount of the Security L-C which is drawn upon by Sublandlord, but is not used or applied by Sublandlord shall be held by Sublandlord and deemed a security deposit (the “Security L-C Security Deposit”). If all or any portion of the Security L-C is drawn upon, Subtenant shall, within five (5) days after written demand therefore, either (i) deposit cash with Sublandlord (which cash shall be applied by Sublandlord to the Security L-C Security Deposit) in an amount sufficient to cause the sum of the Security L-C Security Deposit and the amount of the remaining Security L-C to be equivalent to the amount of the Security L-C then required under this Sublease, or (ii) reinstate the Security L-C to the amount then required under this Sublease, and any remaining Security L-C Security Deposit shall be returned to Subtenant within ten (10) days thereafter. If any portion of the Security L-C Security Deposit is used or applied, Subtenant shall, within five (5) days after written demand therefore, deposit cash with Sublandlord (which cash shall be applied by Sublandlord to the Security L-C Security Deposit) in an amount sufficient to restore the Security L-C Security Deposit to its original amount, and Subtenant’s failure to do so shall be a non-curable default. The Security L-C Security Deposit and/or the Security L-C, or any balance thereof, shall either be drawn upon and applied by Sublandlord in accordance with the terms hereof or shall be returned to Subtenant within thirty (30) days following the Expiration

 

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Date or earlier termination of the Sublease. Subtenant acknowledges and agrees that the Security L-C constitutes a separate and independent contract between Sublandlord and the issuing bank, that Subtenant is not a third party beneficiary of such contract, and that Sublandlord’s claim under the Security L-C for the full amount due and owing thereunder shall not be, in any way, restricted, limited, altered or impaired by virtue of any provision of the Bankruptcy Code, including, but not limited to, Section 502(b)(6) of the Bankruptcy Code.

4.3 Notwithstanding anything herein to the contrary, Subtenant shall have the option, from time to time, to deliver to Sublandlord a cash security deposit in lieu of the Security L-C. Subtenant hereby waives the provisions of California Civil Code Section 1950.7, and all other provisions of law now in force or that become in force after the date of execution of this Sublease that restrict Subtenant’s use or application of the Security L-C Security Deposit, or any cash security deposit, and following any default by Subtenant Sublandlord shall have the right to hold the Security L-C Security Deposit and/or any cash security deposit until determination of any damages payable by Subtenant in accordance with Section 1951.2 of the California Civil Code.

4.4 As long as Subtenant has not breached its obligations under this Sublease, and has not been late in the payment of Rent, Subtenant shall have the right to reduce the amount of the Security L-C by the amount of $158,097.77 on each of the first and second anniversary of the Commencement Date. If the Sublease is terminated in advance of the Expiration Date for a reason other than a default by Subtenant, and Subtenant has performed its obligations under this Sublease, then Sublandlord shall reasonably cooperate with Subtenant in the return of any remaining portion of the Security L-C.

5. Use and Occupancy .

5.1 Use . The Subleased Premises shall be used and occupied only for general office use and uses ancillary thereto, and for no other use or purpose.

5.2 Compliance with Master Lease . During the Term, Subtenant will occupy the Subleased Premises in accordance with the terms of the Master Lease and will not suffer to be done in or about the Subleased Premises, or omit to do in or about the Subleased Premises, any act which would result in a violation of or a default under the Master Lease, or render Sublandlord liable for any damage, charge or expense thereunder. Subtenant will indemnify, defend protect and hold Sublandlord harmless from and against any loss, cost, damage or liability (including attorneys’ fees) of any kind or nature arising out of, by reason of, or resulting from, Subtenant’s failure to perform or observe any of the terms and conditions of this Sublease, or, to the extent incorporated herein, the Master Lease. Notwithstanding anything herein to the contrary, Subtenant is not responsible for the acts or omissions of Sublandlord or its agents, employees, contractors or invitees. Any other provision in this Sublease to the contrary notwithstanding, Subtenant shall pay to Sublandlord as Rent hereunder any and all sums which Sublandlord may be required to pay the Landlord arising out of a request by Subtenant for, or the use by Subtenant of, additional or over-standard Building services from Landlord (for example, but not by way of limitation, charges associated with after-hour HVAC usage and over-standard electrical charges) in each case, in respect to the Subleased Premises. Sublandlord agrees to perform all of its obligations under the Master Lease and maintain the same in full force and effect, except to the extent that any failure to maintain the Master Lease is due to the failure of Subtenant to comply with any of its obligations under this Sublease, and provided further that the

 

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foregoing shall in no event limit the exercise by Sublandlord of any express rights it may have under the Master Lease, including without limitation any rights of termination of the Master Lease following a casualty or condemnation.

5.3 Landlord’s Obligations . To the extent that the provision of any services or the performance of any maintenance or any other act respecting the Subleased Premises, the Master Lease Premises or the Building is the responsibility of Landlord, including without limitation providing the services described in Section 7 of the Master Lease (collectively “ Landlord Obligations ”), upon Subtenant’s request, Sublandlord shall make diligent commercial efforts to cause Landlord to perform such Landlord Obligations. Provided Sublandlord makes such diligent commercial efforts, in no event shall Sublandlord be liable to Subtenant for any liability, loss or damage whatsoever in the event that Landlord should fail to perform the same despite Sublandlord’s diligent commercial efforts, nor shall Subtenant be entitled to withhold the payment of Rent or terminate this Sublease in such case; provided, further, that if Landlord fails to perform the same under the Master Lease then Subtenant shall have all of the rights under this Sublease that Sublandlord has under the Master Lease with respect to such failure to act despite Sublandlord’s diligent commercial efforts. Such diligent commercial efforts by Sublandlord shall include, without limitation, upon becoming aware of non-performance by the Landlord, (a) immediately notifying Landlord of its non-performance under the Master Lease and requesting that Landlord perform its obligations under the Master Lease and (b) reasonably cooperating with any efforts by Subtenant (at no cost to Sublandlord) in causing Landlord to perform such Landlord Obligations. Without limiting the generality of the foregoing, Subtenant agrees that Sublandlord shall not be required to perform any of the Landlord Obligations, nor shall any representations or warranties made by Landlord under the Master Lease be deemed to have been made by Sublandlord. Sublandlord shall not be responsible for any failure or interruption, for any reason whatsoever, of the services or facilities that may be appurtenant to or supplied at the Building by Landlord or otherwise, including, without limitation, heat, air conditioning, ventilation, life-safety, water, electricity, elevator service and cleaning service, if any; and no failure to furnish, or interruption of, any such services or facilities shall give rise to any (i) liability on the part of Sublandlord, or (ii) abatement, diminution or reduction of Subtenant’s obligations under this Sublease. In addition to such diligent commercial efforts, in the event any failure by Landlord to perform the Landlord Obligations materially interferes with Subtenant’s rights under this Sublease, then following written request by Subtenant, Sublandlord agrees to institute legal proceedings against Landlord to obtain the performance of the Landlord Obligations under the Master Lease; provided, however, that Subtenant shall indemnify Sublandlord against, and hold Sublandlord harmless from, all costs and expenses incurred by Sublandlord in connection therewith.

6. Master Lease and Sublease Terms .

6.1 Subject to Master Lease . This Sublease is and shall be at all times subject and subordinate to the Master Lease. Subtenant acknowledges that Subtenant has reviewed and is familiar with all of the terms, agreements, covenants and conditions of the Master Lease. Those provisions of the Master Lease which are applicable to the Subleased Premises and are expressly stated in the Master Lease to survive the expiration or termination of the Master Lease shall survive the expiration or termination of this Sublease. During the Term, with respect to Subtenant’s use and occupancy of the Subleased Premises, Subtenant agrees to perform and comply with, for the benefit of Sublandlord and Landlord, the obligations of Sublandlord under the Master Lease which pertain to the Subleased Premises and/or this

 

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Sublease, except for those provisions of the Master Lease which are contradicted by this Sublease, in which event the terms of this Sublease document shall control over the Master Lease.

6.2 Incorporation of Terms of Master Lease . The terms, conditions and respective obligations of Sublandlord and Subtenant to each other under this Sublease shall be the terms and conditions of the Master Lease, except for those provisions of the Master Lease which are contradicted by this Sublease, in which event the terms of this Sublease shall control over the Master Lease. Therefore, for the purposes of this Sublease, wherever in the Master Lease the word “Landlord” is used it shall be deemed to mean Sublandlord and wherever in the Master Lease the word “Tenant” is used it shall be deemed to mean Subtenant. Additionally, wherever in the Master Lease the word “Premises” is used it shall be deemed to mean the Subleased Premises. Any non-liability, release, indemnity or hold harmless provision in the Master Lease for the benefit of Landlord that is incorporated herein by reference, shall be deemed to inure to the benefit of Sublandlord, Landlord, and any other person intended to be benefited by said provision, for the purpose of incorporation by reference in this Sublease. Any non-liability, release, indemnity or hold harmless provision in the Master Lease for the benefit of Sublandlord that is incorporated herein by reference, shall, to the extent possible under any legal theory, be deemed to inure to the benefit of both Sublandlord and Subtenant and any other person intended to be benefited by said provision, for the purpose of incorporation by reference in this Sublease. Any right of Landlord under the Master Lease (a) of access or inspection, (b) to do work in the Master Lease Premises or in the Building, (c) in respect of rules and regulations, which is incorporated herein by reference, shall be deemed to inure to the benefit of Sublandlord, Landlord, and any other person intended to be benefited by said provision, for the purpose of incorporation by reference in this Sublease. Sublandlord represents and warrants to Subtenant that as of the Effective Date (i) the Master Lease represents the entire agreement between Sublandlord and Subtenant with respect to the Subleased Premises, and (ii) each of Sublandlord and, to Sublandlord’s knowledge, Landlord is in compliance with all of the terms and conditions of the Master Lease. Sublandlord covenants that it will not (without Subtenant’s prior written consent) amend or modify the Master Lease in any manner which would materially affect Subtenant’s rights and obligations under this Sublease; provided, however that the foregoing shall in no event limit the exercise by Sublandlord of any express rights of termination as set forth in the Master Lease following a casualty or condemnation.

6.3 Modifications . For the purposes of incorporation herein, the terms of the Master Lease are subject to the following additional modifications:

(a) Approvals . In all provisions of the Master Lease (under the terms thereof and without regard to modifications thereof for purposes of incorporation into this Sublease) requiring the approval or consent of Landlord, Subtenant shall be required to obtain the approval or consent of both Sublandlord and Landlord; provided, however, that upon Subtenant’s request, Sublandlord shall submit to Landlord the request of Subtenant for approval or consent.

(b) Deliveries . In all provisions of the Master Lease requiring Tenant to submit, exhibit to, supply or provide Landlord with evidence, certificates, or any other matter or thing, Subtenant shall be required to submit, exhibit to, supply or provide with respect to the Subleased Premises, as the case may be, the same to both Landlord and Sublandlord.

 

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(c) Damage; Condemnation . Sublandlord shall have no obligation to restore or rebuild any portion of the Subleased Premises after any destruction or taking by eminent domain; provided, however, that Subtenant shall have the same rights of termination and abatement under this Sublease as available to “Tenant” as set forth in Sections 10 and 11 of the Master Lease, and Sublandlord shall make a commercially diligent effort to assist Subtenant in exercising such rights as set forth in the Master Lease.

(d) Insurance . In all provisions of the Master Lease requiring Tenant to designate Landlord as an additional or named insured on its insurance policy, Subtenant shall be required to so designate Landlord and Sublandlord on its insurance policy.

6.4 Exclusions . Notwithstanding the terms of Section 6.2 above, Subtenant shall have no rights nor obligations under the following parts, Sections and Exhibits of the Master Lease: Basic Lease Information, Recitals, Sections 2.1, 2.3, 2.4, 3.1, 3.2, 3.3, 4.1, 4.2, the third sentence of 4.3(i), 4.3(ii), 4.4, 5.1, 5.2, 5.3, 5.4, 6.8, 8.4, 19, 20.1, 20.2, 20.3, 20.4, 20.5, 20.6, 21, 22, 24, 26, 27, and 29; Exhibits A, B and D. Additionally, the term “Landlord” in the following sections of the Master Lease shall mean Landlord, not Sublandlord, as defined herein: 7.1, 7.2, 7.3, 7.4, and 12.3.

6.5 Alterations . Notwithstanding the terms of Section 6.2 above, the following provisions of the Master Lease are modified as described below for the purpose of their incorporation into this Sublease: the reference in Section 8.1 to $100,000 is hereby revised to be a reference to $30,000; provided that notwithstanding this Section 6.5 or Section 8.1 of the Master Lease it is understood and agreed herein that Subtenant can make the Subtenant Improvements pursuant to Section 14.2 and Exhibit C.

7. Assignment and Subletting . Subtenant shall not assign this Sublease or further sublet all or any part of the Subleased Premises except subject to and in compliance with all of the terms and conditions of the Master Lease, and Sublandlord (in addition to Landlord) shall have the same rights with respect to assignment and subleasing as Landlord has under the Master Lease. Subtenant shall pay all fees and costs payable to Landlord pursuant to the Master Lease in connection with any proposed assignment, sublease or transfer of the Subleased Premises by Subtenant, together with all of Sublandlord’s reasonable out-of-pocket costs relating to Subtenant’s request for such consent, regardless of whether such consent is granted, and the effectiveness of any such consent shall be conditioned upon Landlord’s and Sublandlord’s receipt of all such fees and costs.

8. Default . Except as expressly set forth herein, Subtenant shall perform all obligations in respect of the Subleased Premises that Sublandlord would be required to perform pursuant to the Master Lease to the extent that such obligations accrue during the Term; provided, however, that Subtenant shall not be responsible for the acts or omissions of Sublandlord or its agents, contractors or representatives. The provisions of Section 16.1(b) of the Master Lease shall apply to a default by Tenant under this Sublease; provided, however, that, for purposes hereof, the references therein to “30 day(s)” and “60 days” shall be deemed to be references to “25 day(s)” and “50 days,” respectively.

9. Remedies . In the event of any default (after the giving of any required notice and the expiration of applicable cure periods) hereunder by Subtenant, Sublandlord shall have all remedies provided to the “Landlord” in the Master Lease as if a default had occurred thereunder and all other rights and remedies otherwise available at law and in equity. Sublandlord may resort to its remedies cumulatively or in the alternative.

 

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10. Right to Cure Defaults . If Subtenant fails to perform any of its obligations under this Sublease after the giving of any required notice and the expiration of applicable grace or cure periods, then Sublandlord may, but shall not be obligated to, perform any such obligations for Subtenant’s account. All costs and expenses incurred by Sublandlord in performing any such act for the account of Subtenant shall be deemed Rent payable by Subtenant to Sublandlord upon demand, together with interest thereon at the lesser of (i) twelve percent (12%) per annum or (ii) the maximum rate allowable under law from the date of the expenditure until repaid. If Sublandlord undertakes to perform any of Subtenant’s obligations for the account of Subtenant pursuant hereto, the taking of such action shall not constitute a waiver of any of Sublandlord’s remedies. Subtenant hereby expressly waives its rights under any statute to make repairs at the expense of Sublandlord.

11. Consents and Approvals . In any instance when Sublandlord’s consent or approval is required under this Sublease, Sublandlord’s refusal to consent to or approve any matter or thing shall be deemed reasonable if, among other matters, such consent or approval is required under the provisions of the Master Lease incorporated herein by reference but has not been obtained from Landlord. Except as otherwise provided herein, Sublandlord shall not unreasonably withhold, or delay its consent to or approval of a matter if such consent or approval is required under the provisions of the Master Lease and Landlord has consented to or approved of such matter.

12. Liability . Notwithstanding any other term or provision of this Sublease, neither Sublandlord nor Subtenant shall be liable to the other for lost revenues, lost profit or other consequential, special or punitive damages arising in connection with this Sublease. Except as otherwise expressly set forth herein, Sublandlord has not made any representation or warranty regarding the condition of the Subleased Premises or suitability of the Subleased Premises for Subtenant’s intended uses. Notwithstanding any other term or provision of this Sublease, no personal liability shall at any time be asserted or enforceable against Sublandlord’s or Subtenant’s stockholders, directors, officers, or partners on account of any of Sublandlord’s or Subtenant’s obligations or actions under this Sublease. As used in this Sublease, the term “Sublandlord” means the holder of the tenant’s interest under the Master Lease and “Sublandlord” means the holder of sublandlord’s interest under this Sublease. In the event of any assignment or transfer of the Sublandlord’s interest under this Sublease, which assignment or transfer may occur at any time during the Term in Sublandlord’s sole discretion (provided that Sublandlord’s assignee or transferee assumes all such obligations in a writing delivered to Subtenant), Sublandlord shall be and hereby is entirely relieved of all covenants and obligations of Sublandlord hereunder accruing subsequent to the date of the transfer. Subject to Subtenant’s receipt of the foregoing assumption agreement, Sublandlord may transfer and deliver any then existing Security L-C, the Security L-C Security Deposit and/or any cash security deposit to the transferee of Sublandlord’s interest under this Sublease, and thereupon Sublandlord shall be discharged from any further liability with respect thereto, and Subtenant shall look solely to such transferee for the return of the Security L-C, the Security L-C Security Deposit and/or any cash security deposit.

13. Attorneys’ Fees . If Sublandlord or Subtenant brings an action to enforce the terms hereof or to declare rights hereunder, the prevailing party who recovers substantially

 

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all of the damages, equitable relief or other remedy sought in any such action on trial and appeal shall be entitled to receive from the other party its costs associated therewith, including, without limitation, reasonable attorney’s fees. Without limiting the generality of the foregoing, if Sublandlord utilizes the services of an attorney for the purpose of collecting any undisputed Rent due and unpaid by Subtenant or in connection with any other breach of this Sublease by Subtenant, Subtenant agrees to pay Sublandlord reasonable actual attorneys’ fees for such services.

14. Delivery of Possession .

14.1 Generally .

(a) The Subleased Premises shall be leased by Subtenant in their “AS IS” condition without any improvements or alterations by Sublandlord, except as expressly provided in this Section 14.1. At its sole cost and expense, Sublandlord shall cause the following modifications to be constructed in a good and workmanlike manner and in compliance with applicable laws within the Subleased Premises, (i) removal of all carpet within the Subleased Premises, and (ii) demolition of the interior walls of the Subleased Premises, as more particularly detailed on Exhibit B (collectively, the “Sublandlord Modifications” ). The type and quality of the Sublandlord Modifications shall be typical of standard interior modifications by Sublandlord which are of the nature and quality required by specifications developed for the Master Lease Premises by the Landlord and Sublandlord.

(b) In the event any delay in the substantial completion of the Sublandlord Modification is caused by any interference with the construction of the Sublandlord Modifications by Subtenant (a “Tenant Delay” ), then the Sublandlord Modifications shall be deemed to have been substantially complete on the date they would have been substantially complete but for such Tenant Delay; provided, however, that Sublandlord shall promptly notify Subtenant of the existence of any Tenant Delay. Subject to the foregoing, except as otherwise expressly set forth in this Sublease, Sublandlord shall have no obligation to furnish, render or supply any work, labor, services, materials, furniture, fixtures, equipment, decorations or other items to make the Subleased Premises ready or suitable for Subtenant’s occupancy. In making and executing this Sublease, Subtenant has relied solely on such investigations, examinations and inspections as Subtenant has chosen to make or has made and has not relied on any representation or warranty concerning the Subleased Premises or the Building, except as expressly set forth in this Sublease. By accepting Sublandlord’s delivery of the Subleased Premises, Subtenant acknowledges that Sublandlord has afforded Subtenant the opportunity for full and complete investigations, examinations and inspections of the Subleased Premises and the common areas of the Building.

14.2 Subtenant’s Improvements . Subtenant shall be solely responsible for all improvements that Subtenant desires to prepare the Subleased Premises for Subtenant’s use and occupancy thereof ( “Subtenant Improvements” ), which shall be carried out in accordance with the applicable provisions of the Master Lease as incorporated herein, including without limitation the consent of the Master Landlord and compliance with the terms of Schedule 1 to Exhibit C of the Master Lease. Sublandlord will have the right to approve the plans and specifications for any proposed Subtenant Improvements, as well as any contractors whom Subtenant proposes to retain to perform such work, and Sublandlord has approved such plans and specifications for the Subtenant Improvements attached hereto as Exhibit C (the “Approved

 

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Space Plans ), as well as P3 Construction and Remodeling, Inc. as Subtenant’s general contractor. Subtenant will submit all such information for Sublandlord’s review and written approval prior to commencement of any such work. Subtenant expressly acknowledges that Landlord or Sublandlord may require Subtenant to remove some or all of the Subtenant Improvements at the expiration or sooner termination of the Term; provided, however, that no such removal shall be required unless Landlord’s or Sublandlord’s consent requires such removal. The refrigerator and dishwasher to be installed in the Subleased Premises shall, following the expiration or earlier termination of this Sublease, be surrendered by Subtenant and remain in the Subleased Premises as the property of Sublandlord. Subtenant shall not, at any time prior to or during the Term, directly or indirectly employ, or permit the employment of, any contractor, mechanic or laborer in the Subleased Premises, whether in connection with any Subtenant Improvements or otherwise, if it knows that such employment will materially interfere or cause any material conflict with other contractors, mechanics, or laborers engaged in the construction, maintenance or operation of the Property by Landlord, Sublandlord, Subtenant or others. In the event of any such interference or conflict, Subtenant, upon demand of Sublandlord or Landlord, shall cause all contractors, mechanics or laborers causing such interference or conflict to leave the Property immediately. Promptly following the completion of any Subtenant Improvements or subsequent alterations or additions by or on behalf of Subtenant, Subtenant will deliver to Sublandlord a reproducible copy of “as built” drawings of such work together with a CAD file of the “as-built” drawings in the then-current version of AutoCad.

14.3 Construction Allowance . Subject to the terms and provisions hereof, Sublandlord agrees to contribute an amount not to exceed Fifty-Five Thousand Seven Hundred Eighty-Six and 09/100 Dollars ($55,786.09) (the “Construction Allowance” ) toward the cost of the Subtenant Improvements to the Subleased Premises provided the same are (A) constructed substantially in accordance with the Approved Space Plans, and (B) completed on or before December 31, 2012, except that no portion of the Construction Allowance shall be applied toward Subtenant’s personal property. If any Subtenant Improvements are not completed on or before December 31, 2012, then Sublandlord shall have no obligation to pay all or any portion of the Construction Allowance to Subtenant relative to the portion of Subtenant Improvements not completed by such date. If the cost of the Subtenant Improvements exceeds the Construction Allowance, such excess amount shall be borne solely by Subtenant. Sublandlord shall pay the Construction Allowance to Subtenant within thirty (30) days following the later to occur of (i) Sublandlord’s receipt of Subtenant’s Certificate of Occupancy for the Premises, if applicable; (ii) Sublandlord’s receipt of a certificate from Subtenant’s licensed contractor certifying completion of the Subtenant Improvements in substantial accordance with the Approved Space Plans; (iii) Sublandlord’s receipt of documentary evidence reasonably satisfactory to Sublandlord of all of Subtenant’s expenditures for work performed and materials used in completing the Subtenant Improvements; and Sublandlord’s receipt of final, unconditional lien releases in form and content reasonably satisfactory to Sublandlord from all persons or entities providing labor and/or materials in connection with the Subtenant Improvements. In addition to the Construction Allowance, Subtenant acknowledges that Sublandlord has directly incurred certain soft costs and expenses related to the design of the Tenant Improvements, including the preparation of the Approved Space Plan, and in the event Subtenant does not construct Tenant Improvements in substantial accordance with the Approved Space Plans and on or before December 31, 2012, then Subtenant shall, upon demand, reimburse Sublandlord the sum of Eight Thousand Five Hundred Eighty-Nine Dollars ($8,589.00) to reimburse Sublandlord for such costs.

 

12


14.4 Data Lines . Within thirty (30) days after the expiration or sooner termination of this Sublease, Sublandlord may elect by written notice to Subtenant to (a) retain any or all telecommunications and data cabling installed by or for the benefit of Subtenant during the Term (hereafter, “Lines” ), or (b) at Subtenant’s sole cost and expense, require Subtenant to remove any or all such Lines and repair any damage occasioned thereby. In the event Sublandlord elects to retain the Lines, Subtenant covenants that Subtenant shall have good right to surrender such Lines, free of all liens and encumbrances, and that all Lines shall be left in their then existing condition, labeled at each end and in each telecommunications/electrical closet and junction box, and in a safe condition.

15. Holding Over . If Subtenant fails to surrender the Subleased Premises at the expiration or earlier termination of this Sublease, occupancy of the Subleased Premises after the termination or expiration shall be that of a tenancy at sufferance. Subtenant’s occupancy of the Subleased Premises during the holdover shall be subject to all the terms and provisions of this Sublease and Subtenant shall pay an amount equal to 150% of the sum of the Base Rent and Additional Rent due for the period immediately preceding the holdover. No holdover by Subtenant or payment by Subtenant after the expiration or early termination of this Sublease shall be construed to extend the Term or prevent Sublandlord from immediate recovery of possession of the Subleased Premises by summary proceedings or otherwise. In addition to the payment of the amounts provided above, if Sublandlord is unable to deliver possession of the Subleased Premises to a new subtenant or to Landlord, as the case may be, or to perform improvements for a new subtenant, as a result of Subtenant’s holdover, Subtenant shall be liable to Sublandlord for all damages, including, without limitation, consequential damages, that Sublandlord suffers from the holdover; Subtenant expressly acknowledges that such damages may include all of the holdover rent charged by Landlord under the Master Lease as a result of Subtenant’s holdover, which Master Lease holdover rent may apply to the entire Master Lease Premises.

16. Notices : Any notice by either party to the other required, permitted or provided for herein shall be valid only if in writing and shall be deemed to be duly given only if (a) delivered personally, or (b) sent by means of Federal Express, UPS Next Day Air or another reputable express mail delivery service guaranteeing next day delivery, or (c) sent by United States certified or registered mail, return receipt requested, addressed: (i) if to Sublandlord, at the following addresses:

Zoosk, Inc.

989 Market Street, 5th Floor

San Francisco, California 94103

Attn: General Counsel

with a copy to:

Shartsis Friese

One Maritime Plaza

Eighteenth Floor

San Francisco, California 94111

Attn: Derek Boswell, Esq.

 

13


and (ii) if to Subtenant, at the following address:

Zendesk, Inc.

989 Market Street, 2 nd Floor

San Francisco, California 94103

Attn: Efi Harari, Legal Counsel

or at such other address for either party as that party may designate by notice to the other. A notice shall be deemed given and effective, if delivered personally, upon hand delivery thereof (unless such delivery takes place after hours or on a holiday or weekend, in which event the notice shall be deemed given on the next succeeding business day), if sent via overnight courier, on the business day next succeeding delivery to the courier, and if mailed by United States certified or registered mail, three (3) business days following such mailing in accordance with this Section.

17. Brokers . Sublandlord and Subtenant each represents that it has not dealt with any broker in connection with this Sublease. Sublandlord and Subtenant shall indemnify and hold each other harmless from all claims of any brokers other than Subtenant’s Broker and Sublandlord’s Broker claiming to have represented Sublandlord or Subtenant in connection with this Sublease.

18. Complete Agreement . There are no representations, warranties, agreements, arrangements or understandings, oral or written, between the parties or their representatives relating to the subject matter of this Sublease which are not fully expressed in this Sublease. This Sublease cannot be changed or terminated nor may any of its provisions be waived orally or in any manner other than by a written agreement executed by both parties.

19. Interpretation . Irrespective of the place of execution or performance, this Sublease shall be governed by and construed in accordance with the laws of the State of California. If any provision of this Sublease or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, the remainder of this Sublease and the application of that provision to other persons or circumstances shall not be affected but rather shall be enforced to the extent permitted by law. The table of contents, captions, headings and titles, if any, in this Sublease are solely for convenience of reference and shall not affect its interpretation. This Sublease shall be construed without regard to any presumption or other rule requiring construction against the party causing this Sublease or any part thereof to be drafted. If any words or phrases in this Sublease shall have been stricken out or otherwise eliminated, whether or not any other words or phrases have been added, this Sublease shall be construed as if the words or phrases so stricken out or otherwise eliminated were never included in this Sublease and no implication or inference shall be drawn from the fact that said words or phrases were so stricken out or otherwise eliminated. Each covenant, agreement, obligation or other provision of this Sublease shall be deemed and construed as a separate and independent covenant of the party bound by, undertaking or making same, not dependent on any other provision of this Sublease unless otherwise expressly provided. All terms and words used in this Sublease, regardless of the number or gender in which they are used, shall be deemed to include any other number and any other gender as the context may require. The word “person” as used in this Sublease shall mean a natural person or persons, a partnership, a corporation or any other form of business or legal association or entity.

20. USA Patriot Act Disclosures . Subtenant is currently in compliance with and shall at all times during the Term remain in compliance with the regulations of the Office of

 

14


Foreign Asset Control ( “OFAC ) of the Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) and any statute, executive order (including the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action relating thereto.

21. Counterparts . This Sublease may be executed in separate counterparts, each of which shall constitute an original and all of which together shall constitute one and the same instrument. This Sublease shall be fully executed when each party whose signature is required has signed and delivered to each of the parties at least one counterpart, even though no single counterpart contains the signatures of all parties hereto.

 

15


IN WITNESS WHEREOF, the parties herein hereby execute this Sublease as of the day and year first above written.

 

SUBLANDLORD:   ZOOSK, INC.,
  a Delaware corporation
By:  

 /s/ Alex Mehr

Print Name:   Alex Mehr
Title:   Co-CEO
SUBTENANT:   ZENDESK, INC.,
  a Delaware corporation
By:  

 /s/ Alan Black

Print Name:   Alan Black
Title:   CFO

 

16


EXHIBIT A

Subleased Premises

 

1


EXHIBIT B

Sublandlord Modifications

 

1

Exhibit 10.13

1019 MARKET STREET

LEASE AGREEMENT

1019 MARKET ST. PROPERTY, LLC,

a Delaware limited liability company,

as Landlord,

and

ZENDESK, INC.,

a Delaware corporation,

as Tenant


SUMMARY OF BASIC LEASE INFORMATION

This Summary of Basic Lease Information (“Summary”) is hereby incorporated into and made a part of the attached Lease Agreement. Each reference in the Lease Agreement to any term of this Summary shall have the meaning as set forth in this Summary for such term. In the event of a conflict between the terms of this Summary and the Lease Agreement, the terms of the Lease Agreement shall prevail. Any capitalized terms used herein and not otherwise defined herein shall have the meaning as set forth in the Lease Agreement.

 

TERMS OF LEASE

(References are to

the Lease Agreement)

   DESCRIPTION

1. Lease Date:

   September 6, 2013

2. Landlord:

  

1019 MARKET ST. PROPERTY, LLC,

a Delaware limited liability company

3. Address of Landlord

    (Section 24.17):

  

c/o Westport Capital Partners LLC

2121 Rosecrans Ave., Suite 4325

El Segundo, California 90245

Attn: Wm. Gregory Geiger

 

and

 

c/o Cannae Partners

703 Market Street, Suite 400

San Francisco, California 94103

Attn: Jay Atkinson

 

And an additional copies to:

 

c/o Westport Capital Partners LLC

40 Danbury Rd.

Wilton, Connecticut 06897

Attn: Marc Porosoff

 

and

 

Kennerly, Lamishaw & Rossi LLP

707 Wilshire Boulevard, Suite 1400

Los Angles, California 90017

Attn: William J. Birney, Esq.

4. Tenant:

  

ZENDESK, INC.,

a Delaware corporation

 

(i)


5. Address of Tenant

    (Section 24.17):

  

989 Market Street, Suite 300

San Francisco, California 94103

Attn: Ainsley Hill

 

with a copy to:

 

989 Market Street, Suite 300

San Francisco, California 94103

Attn: Alan Black

 

and a copy to:

 

Goodwin Procter LLP

601 S. Figueroa Street, 41st Floor

Los Angeles, California 90017

Attn: Douglas A. Praw, Esq.

(Prior to Lease Commencement Date)

 

And

 

1019 Market Street

San Francisco, California 94103

Attn: Ainsley Hill

 

with a copy to:

 

1019 Market Street

San Francisco, California 94103

Attn: Alan Black

 

and a copy to:

 

Goodwin Procter LLP

 

601 S. Figueroa Street, 41st Floor

Los Angeles, California 90017

Attn: Douglas A. Praw, Esq.

(After Lease Commencement Date)

6. Premises (Article 1):

   Approximately 72,933 rentable square feet of space, comprising the entire office portion of the Building located at 1019 Market Street, San Francisco, California, as depicted in the floor plans attached hereto as Exhibit A .

7. Term (Article 2).

  

    7.1 Lease Term:

   Approximately eight (8) years and five (5) months.

    7.2 Lease Commencement       Date:

   The earliest to occur of (i) the date upon which Tenant first commences to conduct business in the Premises, (ii) the date upon which a certificate of occupancy (or its legal equivalent) is issued for the Premises by the City of San Francisco, (iii) March 5, 2014, or (iv) the date that is one hundred fifty (150) days after the Effective Date, subject to the provisions of the Tenant Work Letter, attached hereto as Exhibit B , including Landlord Caused Delay.

    7.3 Lease Expiration       Date:

   The last day of the one hundred first (101st) full calendar month following the Lease Commencement Date.

    7.4 Amendment to Lease:

   Subject to Article 2 of the Lease Agreement, Landlord and Tenant may confirm the Lease Commencement Date and Lease Expiration Date in an Amendment to Lease ( Exhibit C ).

 

(ii)


    7.5 Option Term:    One five (5) year Option Term in accordance with the Extension Option Rider attached to the Lease.

8. Base Rent (Article 3):

  

 

Months of Lease

Term

   Annual Base Rent      Monthly Installment
of Base Rent
     Annual Rental Rate
per Rentable Square
Foot
 

1 - 12*

   $ 3,373,151.25       $ 281,095.94       $ 46.25   

13 - 24

   $ 3,474,528.12       $ 289,544.01       $ 47.64   

25 - 36

   $ 3,578,822.31       $ 298,235.19       $ 49.07   

37 - 48

   $ 3,686,033.82       $ 307,169.49       $ 50.54   

49 - 60

   $ 3,796,162.65       $ 316,346.89       $ 52.05   

61 - 72

   $ 3,910,667.46       $ 325,888.96       $ 53.62   

73 - 84

   $ 4,027,360.26       $ 335,613.36       $ 55.22   

85 - 96

   $ 4,148,429.04       $ 345,702.42       $ 56.88   

97 - 101

   $ 4,273,144.47       $ 356,095.37       $ 58.59   

 

* Month 1 through 5 subject to abatement as provided in Section 3.2 of the Lease Agreement

 

9. Additional Rent

    (Article 4):

  

    9.1 Expense Base Year

   Calendar year 2014.

    9.2 Utilities Base Year

   Calendar year 2014.

    9.3 Tenant’s Share of Direct Expenses and Utilities Costs

   96.70% (i.e., 72,933 rentable square feet within the Premises / 75,423 rentable square feet within the Building).

10. Letter of Credit Amount:

   $3,608,344.90, subject to reduction as provided in the Letter of Credit Rider.

11. Tenant Improvement Allowance:

   $3,537,250.50, payable in accordance with to Exhibit B .

12. Brokers

     ( Section 24.23 ):

   The CAC Group, representing Landlord and Cornish & Carey Commercial Newmark Knight Frank, representing Tenant

13. Effective Date

   The date on which the Substantial Completion of the Storefront Work occurs in accordance with Exhibit B .

 

(iii)


TABLE OF CONTENTS

 

     Page  

ARTICLE 1 REAL PROPERTY, BUILDING AND PREMISES

     1   

1.1 Real Property, Building and Premises

     1   

1.2 Condition of Premises

     1   

1.3 Rentable Square Feet

     1   

ARTICLE 2 LEASE TERM

     2   

ARTICLE 3 BASE RENT

     2   

3.1 Base Rent

     2   

3.2 Conditional Abatement of Base Rent

     3   

ARTICLE 4 ADDITIONAL RENT

     3   

4.1 Additional Rent

     3   

4.2 Definitions

     4   

4.3 Calculation and Payment of Additional Rent

     9   

4.4

     9   

4.5 Taxes and Other Charges for Which Tenant Is Directly Responsible

     11   

4.6 Late Charges

     11   

4.7 Tenant’s Audit Rights

     11   

ARTICLE 5 USE OF PREMISES

     12   

ARTICLE 6 SERVICES AND UTILITIES

     13   

6.1 Standard Tenant Services

     13   

6.2 Overstandard Tenant Use

     14   

6.3 Interruption of Use

     15   

6.4 Access to Premises

     15   

6.5 Janitorial

     15   

6.6 Additional Services

     16   

ARTICLE 7 REPAIRS

     16   

7.1 Tenant’s Repairs

     16   

7.2 Landlord’s Repairs

     16   

7.3 Tenant’s Right to Repair

     17   

ARTICLE 8 ADDITIONS AND ALTERATIONS

     18   

8.1 Landlord’s Consent to Alterations

     18   

8.2 Manner of Construction

     19   

8.3 Landlord’s Property

     20   

 

(iv)


ARTICLE 9 COVENANT AGAINST LIENS

     20   

ARTICLE 10 INDEMNIFICATION AND INSURANCE

     21   

10.1 Indemnification and Waiver

     21   

10.2 Tenant’s Compliance with Landlord’s Fire and Casualty Insurance

     22   

10.3 Tenant’s Insurance

     22   

10.4 Subrogation

     23   

10.5 Additional Insurance Obligations

     24   

ARTICLE 11 DAMAGE AND DESTRUCTION

     24   

11.1 Repair of Damage to Premises by Landlord

     24   

11.2 Landlord’s Option to Repair

     25   

11.3 Damage at the End of Lease Term

     26   

11.4 Waiver of Statutory Provisions

     27   

11.5 Abatement of Rent When Tenant Is Prevented From Using Premises

     27   

ARTICLE 12 CONDEMNATION

     28   

12.1 Permanent Taking

     28   

12.2 Temporary Taking

     28   

ARTICLE 13 COVENANT OF QUIET ENJOYMENT

     29   

ARTICLE 14 ASSIGNMENT AND SUBLETTING

     29   

14.1 Transfers

     29   

14.2 Landlord’s Consent

     30   

14.3 Transfer Premium

     31   

14.4 Landlord’s Option as to Subject Space

     31   

14.5 Effect of Transfer

     32   

14.6 Additional Transfers

     32   

14.7 Affiliated Companies/Restructuring of Business Organization

     32   

ARTICLE 15 SURRENDER; OWNERSHIP AND REMOVAL OF TRADE FIXTURES

     33   

15.1 Surrender of Premises

     33   

15.2 Removal of Tenant Property by Tenant

     33   

ARTICLE 16 HOLDING OVER

     34   

ARTICLE 17 ESTOPPEL CERTIFICATES

     34   

ARTICLE 18 SUBORDINATION

     35   

 

(v)


ARTICLE 19 TENANT’S DEFAULTS; LANDLORD’S REMEDIES; LANDLORD DEFAULTS

     35   

19.1 Events of Default by Tenant

     35   

19.2 Landlord’s Remedies Upon Default

     36   

19.3 Payment by Tenant

     37   

19.4 Security for Performance of Tenant’s Obligations

     37   

19.5 Sublessees of Tenant

     38   

19.6 Waiver of Default

     38   

19.7 Payment of Rent and Security Deposit After Default

     38   

19.8 Efforts to Relet

     38   

19.9 Waiver of Reinstatement

     38   

19.10 Default by Landlord

     39   

ARTICLE 20 SIGNS

     39   

20.1 Building Standard Signage

     39   

20.2 Exterior Signage

     39   

20.3 Transferability

     40   

20.4 Maintenance/Removal

     40   

20.5 Use of Exterior Portion of the Building

     40   

ARTICLE 21 COMPLIANCE WITH LAW

     41   

ARTICLE 22 ENTRY BY LANDLORD

     41   

ARTICLE 23 ROOFTOP RIGHTS

     42   

23.1 Telecommunications Equipment

     42   

23.2 Rooftop Deck

     43   

ARTICLE 24 MISCELLANEOUS PROVISIONS

     43   

24.1 Terms; Captions

     43   

24.2 Binding Effect

     43   

24.3 No Waiver

     43   

24.4 Modification of Lease

     44   

24.5 Transfer of Landlord’s Interest

     44   

24.6 Prohibition Against Recording

     44   

24.7 Landlord’s Title; Air Rights

     44   

24.8 Relationship of Parties

     45   

24.9 Application of Payments

     45   

24.10 Time of Essence

     45   

24.11 Partial Invalidity

     45   

24.12 No Warranty

     45   

24.13 Landlord Exculpation

     45   

 

(vi)


24.14 Entire Agreement

     45   

24.15 Right to Lease

     46   

24.16 Force Majeure

     46   

24.17 Notices

     46   

24.18 Joint and Several

     47   

24.19 Authority

     47   

24.20 Attorneys’ Fees; Landlord Bankruptcy Proceedings

     47   

24.21 Governing Law

     47   

24.22 Submission of Lease

     47   

24.23 Brokers

     47   

24.24 Independent Covenants

     47   

24.25 Confidentiality

     48   

24.26 Property Management

     48   

24.27 Landlord Renovations

     48   

24.28 Prohibited Party Transactions

     49   

24.29 Certified Access Specialist (CASp) Inspection

     49   

24.30 Consent and Approvals

     49   

24.31 Counterparts

     50   

EXHIBITS

 

A    FLOOR PLANS OF THE PREMISES
B    TENANT WORK LETTER
C    AMENDMENT TO LEASE
D    RULES AND REGULATIONS
E    FORM OF TENANT’S ESTOPPEL CERTIFICATE
F-1    APPROXIMATE LOCATION OF TENANT’S BUILDING EXTERIOR SIGNS
F-2    RETAIL SIGNAGE LOCATION
G    JANITORIAL SCHEDULE
H    HVAC DEPRECIATION SCHEDULE
I    PROHIBITED USES

 

(vii)


EXTENSION OPTION RIDER

LETTER OF CREDIT RIDER

 

(viii)


INDEX OF DEFINED TERMS

 

     Page  

Abated Rent

     3   

Abatement Event

     27   

Abatement Period

     3   

Acceptable Changes

     18   

Accountant

     12   

Additional Rent

     3   

Affiliates

     32   

Alteration Supervision Fee

     18   

Alterations

     18   

Base Operating Expenses

     12   

Base Rent

     2   

Base, Shell, and Core

     1   

BOMA

     1   

Brokers

     47   

Building

     1   

Building Exterior Signs

     39   

Business Hours

     15   

Calendar Year

     4   

Claims

     21   

Codes

     49   

Comparable Buildings

     1   

Cost Pools

     5   

Damage Termination Date

     26   

Damage Termination Notice

     26   

Direct Expenses

     4   

Eligibility Period

     27   

Estimate

     10   

Estimate Statement

     10   

Estimated Excess

     10   

Estimated Repair Period

     25   

Excess

     10   

Excluded Claims

     21   

Expense Base Year

     4   

Expense Year

     4   

Force Majeure

     46   

Hazardous Material

     13   

Holidays

     15   

HVAC

     13   

Interest Rate

     11   

Landlord

     1   

Landlord Objection Notice

     17   

Landlord Parties

     21   

Landlord’s Damage Notice

     25   

 

(ix)


Laws

     41   

Lease Commencement Date

     2   

Lease Expiration Date

     2   

Lease Term

     2   

Lease Year

     2   

Mortgagee

     35   

Notices

     46   

Operating Expenses

     4   

Original Tenant

     40   

Outside Repair Period

     17   

Overlap Period

     28   

Premises

     1   

Project

     1   

Proposition 13

     8   

Real Property

     1   

Recapture Notice

     31   

Renovations

     48   

Rent

     2   

Review Period

     11   

Roof Deck

     43   

Special Use Improvements

     20   

Statement

     10   

Subject Space

     29   

Subsequent Year

     7   

Systems and Equipment

     7   

Tax Expenses

     7   

Telecommunications Equipment

     42   

Tenant

     1   

Tenant Damage Event

     25   

Tenant’s Share

     9   

Transfer Notice

     29   

Transfer Premium

     31   

Transferee

     29   

Transfers

     29   

Utilities Base Year

     9   

Utilities Costs

     9   

Work Letter

     1   

 

(x)


LEASE AGREEMENT

This Lease Agreement, which includes the preceding Summary attached hereto and incorporated herein by this reference (the Lease Agreement and Summary to be known sometimes collectively hereafter as the “ Lease ”), dated as of the date set forth in Section 1 of the Summary, is made by and between 1019 MARKET ST. PROPERTY, LLC, a Delaware limited liability company (“ Landlord ”), and ZENDESK, INC., a Delaware corporation (“ Tenant ”).

ARTICLE 1

REAL PROPERTY, BUILDING AND PREMISES

1.1 Real Property, Building and Premises . Upon and subject to the terms, covenants and conditions hereinafter set forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 6 of the Summary (the “ Premises ”), which Premises constitutes the entire office portion of the building (the “ Building ”) located at 1019 Market Street, San Francisco, California. The outlines of the floor plans of the Premises is set forth in Exhibit A attached hereto and incorporated herein by this reference. The Building and the land upon which the Building is situated are herein sometimes collectively referred to as the “ Real Property ” or “ Project ” Tenant is hereby granted the right to the nonexclusive use of the common corridors and hallways, stairwells, elevators, restrooms and other public or common areas located in the Building. The common areas shall be maintained and operated in a manner consistent with that provided by landlords of the similarly renovated office buildings in the mid-Market corridor of the City of San Francisco between 5th Street and 11th Street, which are institutionally owned (the “ Comparable Buildings ”) by Landlord or its designated property manager and the use thereof shall be subject to such reasonable and non-discriminatory rules, regulations and restrictions as Landlord may make from time to time Landlord reserves the right to make alterations or additions to or to change the location of elements of the Real Property and the common areas thereof. However, Landlord shall not make alterations or additions that impair Tenant’s use of, or access to, the Premises and/or the Building.

1.2 Condition of Premises . Except as expressly set forth in this Section 1.2 and in the Tenant Work Letter attached hereto as Exhibit B and incorporated herein by this reference (the “ Work Letter ”), Landlord shall not be obligated to provide or pay for any improvement, remodeling or refurbishment work or services related to the improvement, remodeling or refurbishment of the Premises, Building or Real Property, and Tenant shall accept the same in its “As Is” condition on the Lease Commencement Date.

1.3 Rentable Square Feet . For purposes hereof, the “rentable square feet” of the Premises and the Building have been calculated by Landlord pursuant to the Standard Method for Measuring Floor Area in Office Buildings, ANSI Z65.1 1996 (“ BOMA ”). The parties hereby stipulate that the Premises contain the rentable square feet set forth in Section 6.1 of the Summary, and such square footage amount is not subject to adjustment or remeasurement by Landlord or Tenant. Accordingly, there shall be no adjustment in the Base Rent or other amounts set forth in this Lease which are determined based upon rentable square feet of the Premises.

 

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ARTICLE 2

LEASE TERM

The terms and provisions of this Lease shall be effective as of the date of this Lease except for the provisions of this Lease relating to the payment of Rent. The term of this Lease (the “ Lease Term ”) shall be as set forth in Section 7.1 of the Summary and shall commence on the date (the “ Lease Commencement Date ”) set forth in Section 7.2 of the Summary (subject, however, to the terms of the Tenant Work Letter, including any Landlord Caused Delay), and shall terminate on the date (the “ Lease Expiration Date ”) set forth in Section 7.3 of the Summary, unless this Lease is sooner terminated as hereinafter provided. For purposes of this Lease, the term “ Lease Year ” shall mean each consecutive twelve (12) month period during the Lease Term; provided , however , that the first Lease Year shall commence on the Lease Commencement Date and end and end on the last day of the eleventh month thereafter and the second and each succeeding Lease Year shall commence on the first day of the next calendar month; and further provided that the last Lease Year shall end on the Lease Expiration Date. In the event that the Lease Commencement Date is a date which is other than the date set forth in Section 7.2(iii) of the Summary, within a reasonable period of time after the date Tenant takes possession of the Premises or receives the certificate of occupancy for the Premises, Landlord shall deliver to Tenant an Amendment to Lease in the form as set forth in Exhibit C attached hereto and incorporated herein by this reference, wherein the parties shall specify such different Lease Commencement Date and the Lease Expiration Date, and which Amendment to Lease Tenant shall execute and return to Landlord within ten (10) days of receipt thereof. Notwithstanding anything herein to the contrary, in no event shall the Lease Commencement Date be a date which is later than the date set forth in Section 7.2(iii) of the Summary. Subject to Section 6.1 of the Work Letter, Landlord shall give Tenant nonexclusive access to the Premises during a period of fourteen (14) days prior to the Lease Commencement Date for the purposes of Tenant’s installing in the Premises voice and data cabling and outlets, telephone equipment and furniture, fixtures and equipment. During such access period prior to the Commencement Date, (i) Tenant covenants that Tenant, its employees, agents and contractors shall not interfere with or cause any delay in Landlord’s completion of the Landlord Work; (ii) Tenant’s access and use of the Premises prior to the Lease Commencement Date shall be subject to all provisions of this Lease; and (iii) Tenant shall not conduct any business in the Premises and none of Tenant’s employees shall office in the Premises. Such access period shall not advance the Expiration Date of this Lease.

ARTICLE 3

BASE RENT

3.1 Base Rent . Tenant shall pay, without notice or demand, to Landlord or Landlord’s agent at the management office of the Building, or at such other place as Landlord may from time to time designate in writing, in currency or a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, pursuant to a monthly invoice sent to Tenant, base rent (“ Base Rent ”) as set forth in Section 8 of the Summary, payable in equal monthly installments as set forth in Section 8 of the Summary in advance on or before the first (1 st ) day of each and every month during the Lease Term, without

 

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any setoff or deduction whatsoever. The Base Rent for the first full month of the Lease Term (after the abatement period set forth in Section 3.2 below) shall be paid at the time of Tenant’s execution of this Lease. If any rental payment date (including the Lease Commencement Date) falls on a day of the month other than the first (1 st ) day of such month or if any rental payment is for a period which is shorter than one month, then the rental for any such fractional month shall be a proportionate amount of a full calendar month’s rental based on the proportion that the number of days in such fractional month bears to the number of days in the calendar month during which such fractional month occurs. All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis.

3.2 Conditional Abatement of Base Rent . Notwithstanding anything to the contrary contained in Section 3.1 above and provided that Tenant faithfully performs all of the terms and conditions of this Lease during the Abatement Period (as defined below), Landlord hereby agrees to abate Tenant’s obligation to pay Tenant’s monthly Base Rent (the “ Abated Rent ”) for the first five (5) full months of the Lease Term (the “ Abatement Period ”), which total amount of Abated Rent is $1,405,479.70 (i.e., 5 months x $281,095.94 per month = $1,405,479.70). During the Abatement Period, Tenant shall remain responsible for the payment of all of its other monetary obligations under this Lease. If at any time during the Abatement Period an uncured default by Tenant occurs, then the abatement of Base Rent provided for in this Section 3.1 shall immediately become void, the Base Rent payable by Tenant to Landlord shall immediately equal the amount set forth in Section 8 of the Summary without abatement, and in the event such default results in the early termination of this Lease pursuant to the provisions of Section 19.1 , then as a part of the recovery set forth in Section 19.2 below, Landlord shall be entitled to the recovery of the Abated Rent.

ARTICLE 4

ADDITIONAL RENT

4.1 Additional Rent . In addition to paying the Base Rent specified in Article 3 above, Tenant shall pay as additional rent the sum of the following: (i) Tenant’s Share (as such term is defined below) of the annual Direct Expenses which are in excess of the amount of Direct Expenses applicable to the Expense Base Year; plus (ii) Tenant’s Share of the annual Utilities Costs which are in excess of the amount of Utilities Costs applicable to the Utilities Base Year. Such additional rent, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease (including, without limitation, pursuant to Article 6 ), shall be hereinafter collectively referred to as the “ Additional Rent .” The Base Rent and Additional Rent are herein collectively referred to as the “ Rent .” All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner, time and place as the Base Rent. Without limitation on other obligations of Tenant which shall survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term.

 

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4.2 Definitions . As used in this Article 4, the following terms shall have the meanings hereinafter set forth:

4.2.1 “ Calendar Year ” shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Expiration Date.

4.2.2 “ Expense Base Year ” shall mean the year set forth in Section 9.1 of the Summary.

4.2.3 “ Direct Expenses ” shall mean “ Operating Expenses ” and “ Tax Expenses .

4.2.4 “ Expense Year ” shall mean each Calendar Year.

4.2.5 “ Operating Expenses ” shall mean all expenses, costs and amounts of every kind and nature which Landlord shall pay during any Expense Year because of or in connection with the ownership, management, maintenance, repair, replacement, restoration or operation of the Building and Real Property, including, without limitation, any amounts paid for: (i) the cost of operating, maintaining, repairing, renovating and managing the utility systems, mechanical systems, sanitary and storm drainage systems, any elevator systems and all other “Systems and Equipment” (as defined in Section 4.2.6 of this Lease), and the cost of supplies and equipment and maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections (except for those incurred with respect to the installation of Tenant’s or other occupant’s improvements in the Building or incurred in renovating or otherwise improving vacant space in the Building), and the cost of contesting the validity or applicability of any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with implementation and operation of a transportation system management program or similar program; (iii) the cost of insurance carried by Landlord, in such amounts as Landlord may reasonably determine or as may be required by any mortgagees or the lessor of any underlying or ground lease affecting the Real Property and/or the Building; (iv) the cost of landscaping, relamping, supplies, tools, equipment and materials, and all fees, charges and other costs (including consulting fees, legal fees and accounting fees) incurred in connection with the management, operation, repair and maintenance of the Building and Real Property; (v) alarm and security services; (vi) any equipment rental agreements or management agreements (including the cost of any reasonable management fee and the fair rental value of any office space provided thereunder); (vii) wages, salaries and other compensation and benefits of all persons actually engaged in the operation, management, maintenance or security of the Building and Real Property, and employer’s Social Security taxes, unemployment taxes or insurance, and any other taxes which may be levied on such wages, salaries, compensation and benefits (but not any of Landlord’s general corporate overhead and general administrative expenses); (viii) payments under any easement, license, operating agreement, declaration, restrictive covenant, underlying or ground lease (excluding rent), or instrument pertaining to the sharing of costs by the Building or Real Property; (ix)

 

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the cost of janitorial service for the Project, but excluding janitorial services for the premises, window cleaning, trash removal, replacement of wall and floor coverings, ceiling tiles and fixtures in lobbies, corridors, restrooms and other common or public areas or facilities, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing; (x) amortization (including interest on the unamortized cost) of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Building and Real Property; (xi) the cost of any capital improvements or other costs (I) which are intended as a labor-saving device or to materially reduce the costs associated with the operation or maintenance of the Building and Real Property, (II) made to the Building or Real Property after the Lease Commencement Date that are required under any governmental law or regulation, or (III) which are reasonably determined by Landlord to be in the best interests of the Building and/or the Real Property; provided, however, that if any such cost described in (I), (II) or (III) above, is a capital expenditure, such cost shall be amortized (including interest on the unamortized cost) over its useful life as Landlord shall reasonably determine and (x) costs of pest control, if any, undertaken by Landlord in the Common Areas, but excluding therefrom any pest control costs to the extent such work is conducted with regard to pests and vermin located in, or originating from, the retail space in the Building. If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant. If the Building is less than one hundred percent (100%) occupied during all or a portion of any Expense Year (including the Expense Base Year), Landlord shall make an appropriate adjustment to the variable components of Operating Expenses for such year or applicable portion thereof, employing sound accounting and management principles, to determine the amount of Operating Expenses that would have been paid had the Building been one hundred percent (100%) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year, or applicable portion thereof. Each time Landlord provides Tenant with an actual and/or estimated statement of Operating Expenses, such statement shall be itemized on a line item by line item basis, showing the applicable expense of the applicable year and the year prior to the applicable year. The parties acknowledge that Tenant is not anticipated to be conducting business in the entire Premises during the entirety of the Expense Base Year, so that a gross-up of the Operating Expenses for the Expense Base Year will likely be required pursuant to the above. Without limitation of the foregoing, for purposes of extrapolating the Operating Expenses for the Expense Base Year (notwithstanding the fact that Tenant did not conduct business in the entirety of the Premises for the entire Base Expense Year) Landlord’s gross-up of the actual Operating Expenses shall take into account the actual costs incurred for those floors of the Premises that were fully operational during the Base Expense Year and shall, based on discussions with Tenant and Landlord’s property manager, extrapolate the variable components of the Operating Expenses for the Building during the Expense Base Year based on the number of floors of the Premises that were fully operations during the Expense Base Year. For purposes of this Section Landlord shall consider a particular floor of the Premises to be fully operational if Tenant is conducting any business therefrom. (The final grammatical paragraph of Paragraph 4.7 below sets forth Tenant’s rights to audit Landlord’s calculation of the Operating Expenses for the Base Year, including the gross-up of the same pursuant to the above, as applicable).

Landlord shall have the right, from time to time, in its discretion, but with prior written notice to Tenant, to equitably allocate some or all of the Direct Expenses (and/or Utilities Costs) between the office and retail portions of the Building for purposes of determining Direct Expenses (and/or Utilities Costs) and/or the provision of various services and amenities thereto (the “ Cost Pools ”).

 

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Notwithstanding anything to the contrary set forth in this Article 6 , when calculating Operating Expenses for the Expense Base Year, Operating Expenses shall exclude market-wide labor-rate increases due to extraordinary circumstances, including, but not limited to, boycotts and strikes and costs relating to capital improvements or expenditures.

Notwithstanding the foregoing, Operating Expenses shall not, however, include: (A) costs of leasing commissions, attorneys’ fees and other costs and expenses incurred in connection with negotiations or disputes with present or prospective tenants or other occupants of the Building; (B) costs (including permit, license and inspection costs) incurred in renovating or otherwise improving, decorating or redecorating rentable space for other tenants or vacant rentable space; (C) costs incurred due to the violation by Landlord of the terms and conditions of any lease of space in the Building; (D) costs of overhead or profit increment paid to Landlord or to subsidiaries or affiliates of Landlord for services in or in connection with the Building to the extent the same exceeds the costs of overhead and profit increment included in the costs of such services which could be obtained from third parties on a competitive basis; (E) except as otherwise specifically provided in this Section 4.2.5 , costs of interest on debt or amortization on any mortgages, and rent payable under any ground lease of the Real Property; (F) Utilities Costs; (G) contributions to operating expense reserves and any bad debt loss, rent loss or other reserve for bad debt or rent loss; (H) any costs incurred to test, survey, clean up, contain, abate or remove any environmental or hazardous waste or materials, including without limitation, asbestos containing materials, from the Building, any other building in the Project or the common areas, or to remedy any breach or violation of any environmental laws; (I) interest, fines or penalties for any late payments by Landlord not due to the act or neglect of Tenant or its agents, contractors or employees; (J) “in-house” legal and/or account fees; (K) legal fees, late charges and penalties incurred in connection with Landlord’s noncompliance with or violation of law; (L) costs resulting from the negligence or willful misconduct of Landlord, its employees, agents and/or contractors and not reimbursed by insurance; (M) advertising and promotional expenses and costs associated with maintaining Landlord’s corporate (or other entity) existence and other overhead and administrative costs of Landlord not directly incurred in the operation and maintenance of the Building or the Project; (N)) any entertainment, dining or travel expenses of Landlord for any purpose: (O) costs incurred in connection with the making of repairs or replacements which are the obligation of any other tenant or occupant; (P) political contributions or contributions to charitable organizations; (Q) costs or fees relating to the defense of Landlord’s title to or interest in the Project, or any part thereof; (R) costs (including, without limitation, fines, penalties, interest, and costs of repairs, replacements, alterations and/or improvements) incurred in bringing the Real Property into compliance with building codes and other applicable Laws in effect as of the Lease Commencement Date and as interpreted by applicable governmental authorities as of such date, including, without limitation, any costs to correct building code violations pertaining to the Building or any other improvements to the Real Property, to the extent such violations exist as of the Lease Commencement Date under any applicable building codes in effect and as interpreted by applicable governmental authorities as of such date; (S) depreciation or amortization of the Building or its components or the common area; (T) any costs in connection with an expansion of the rentable area of the Building or adding any new Building amenities, or any costs incurred in connection with any additions to the common areas, including the purchase of additional land or other development rights; (U) the cost of any item or service for which Tenant separately reimburses Landlord or pays to third parties, or that Landlord provides selectively to one or more, but not all Tenants of the Building,

 

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other than Tenant, whether or not Landlord is reimbursed by such other tenant(s), including, without limitation, the actual cost of any special electrical, heating, ventilation or air conditioning required by any tenant that exceeds the standard for the Building; (V) the cost of correcting defects in the initial construction in the Building or any common area; (W) the costs of leasing equipment or other items which if purchased would constitute a capital expenditure; (X) the cost of Landlord in performing work expressly provided in this Lease to be at Landlord’s expense; and (Y) any personal property taxes of Landlord for equipment or items not used directly in the operation or maintenance of the Building or the Common Area.

If, in any calendar year following the Base Year (a “ Subsequent Year ”), a new type of expense item (e.g. earthquake insurance) is included in Operating Expenses which was not included in the Base Year Operating Expenses, then the cost of such new type of item shall be added to the Base Year Operating Expenses for purposes of determining the Operating Expenses payable under this Lease for such Subsequent Year and no additional amounts shall be paid by Tenant as a result of the addition of the new type of expense item except to the extent of Tenant’s Share of amounts in excess of the Base Year amount for such item. During each Subsequent Year, the same amount shall continue to be included in the computation of Operating Expenses for the Base Year, resulting in each such Subsequent Year Operating Expenses only including the increase in the cost of such new item over the Base Year, as so adjusted. However, if in any Subsequent Year thereafter, such new item is not included in Operating Expenses, no such addition shall be made to Base Year Operating Expenses. Conversely, as reasonably determined by Landlord, when an expense item that was originally included in the Base Year Operating Expenses is, in any Subsequent Year, no longer included in Operating Expenses, then the cost of such item shall be deleted from the Base Year Operating Expenses for purposes of determining the Operating Expenses payable under this Lease for such Subsequent Year and Tenant shall be entitled to a reimbursement to the extent of any over payment pertaining to such item as provided in Section 4.3 below. The same amount shall continue to be deleted from the Base Year Operating Expenses for each Subsequent Year thereafter that the item is not included.

4.2.6 “ Systems and Equipment ” shall mean any plant, machinery, transformers, duct work, cable, wires, and other equipment, facilities, and systems designed to supply heat, ventilation, air conditioning and humidity or any other services or utilities, or comprising or serving as any component or portion of the electrical, gas, steam, plumbing, sprinkler, communications, alarm, security, or fire/life safety systems or equipment, or any other mechanical, electrical, electronic, computer or other systems or equipment which serve the Building in whole or in part.

4.2.7 “ Tax Expenses ” shall mean all federal, state, county, or local governmental or municipal taxes, fees, assessments, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary, (including, without limitation, real estate taxes, general and special assessments, transit assessments, fees and taxes, child care subsidies, fees and/or assessments, job training subsidies, fees and/or assessments, open space fees and/or assessments, housing subsidies and/or housing fund fees or assessments, public art fees and/or assessments, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, personal property taxes imposed upon the fixtures, machinery, equipment, apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Real Property), which Landlord shall pay

 

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during any Expense Year because of or in connection with the ownership, leasing and operation of the Real Property or Landlord’s interest therein. For purposes of this Lease, Tax Expenses shall be calculated as if all of the renovations and the tenant improvements in the Building were fully constructed and the Real Property, the Building, and all renovations and tenant improvements in the Building were fully assessed for real estate tax purposes.

4.2.7.1 Tax Expenses shall include, without limitation:

(i) Any tax on Landlord’s rent, right to rent or other income from the Real Property or as against Landlord’s business of leasing any of the Real Property;

(ii) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax, it being acknowledged by Tenant and Landlord that Proposition 13 was adopted by the voters of the State of California in the June 1978 election (“ Proposition 13 ”) and that assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such services as fire protection, street, sidewalk and road maintenance, refuse removal and for other governmental services formerly provided without charge to property owners or occupants. It is the intention of Tenant and Landlord that all such new and increased assessments, taxes, fees, levies, and charges and all similar assessments, taxes, fees, levies and charges be included within the definition of Tax Expenses for purposes of this Lease;

(iii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the rent payable hereunder, including, without limitation, any gross income tax upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof;

(iv) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises; and

(v) Any reasonable expenses incurred by Landlord in attempting to protest, reduce or minimize Tax Expenses.

4.2.7.2 In no event shall Tax Expenses for any Expense Year be less than the component of Tax Expenses included in Direct Expenses for the Expense Base Year.

4.2.7.3 Notwithstanding anything to the contrary contained in this Section 4.2.7 , there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, federal and state net income taxes, and other taxes to the extent applicable to Landlord’s net income (as opposed to rents, receipts or income attributable to operations at the Building or Real Property), (ii) any items included as Operating Expenses or Utilities Costs, and (iii) any items paid by Tenant under Section 4.4 of this Lease.

 

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4.2.8 “ Tenant’s Share ” shall mean the percentage set forth in Section 9.3 of the Summary. Tenant’s Share was calculated by multiplying the number of rentable square feet of the Premises by 100 and dividing the product by the total rentable square feet in the Building. In the event either the rentable square feet of the Premises and/or the total rentable square feet of the Building is changed, Tenant’s Share shall be appropriately adjusted, and, as to the Expense Year in which such change occurs, Tenant’s Share for such year shall be determined on the basis of the number of days during such Expense Year that each such Tenant’s Share was in effect.

4.2.9 “ Utilities Base Year ” shall mean the calendar year set forth in Section 9.2 of the Summary.

4.2.10 “ Utilities Costs ” shall mean all actual charges for utilities for the Building and the Real Property, but excluding the utilities for the Premises which Tenant shall pay directly to the utility provider therefor pursuant to Article 6 below, which Landlord shall pay during any Expense Year, including, but not limited to, the costs of water, sewer and electricity and other utilities as well as related fees, assessments and surcharges (but excluding those charges (if any) for which tenants directly reimburse Landlord or otherwise pay directly to the utility company). Utilities Costs shall be calculated assuming the Building is at least one hundred percent (100%) occupied during all or any portion of an Expense Year (including the Utilities Base Year). If, during all or any part of any Expense Year, Landlord does not provide any utilities (the cost of which, if provided by Landlord, would be included in Utilities Costs) to a tenant (including Tenant) who has undertaken to provide the same instead of Landlord, Utilities Costs shall be deemed to be decreased by the amount equal to the Utilities Costs which would reasonably have been incurred during such period by Landlord if Landlord had at its own expense provided such utilities to such tenant. Utilities Costs shall include any costs of utilities which are allocated to the Real Property under any declaration, restrictive covenant, or other instrument pertaining to the sharing of costs by the Real Property or any portion thereof, including any covenants, conditions or restrictions now or hereafter recorded against or affecting the Real Property. For purposes of determining Utilities Costs incurred for the Utilities Base Year, Utilities Costs for the Utilities Base Year shall not include any one time special charges, “tap fees,” costs or fees or extraordinary charges or costs incurred in the Utilities Base Year only, including those attributable to deregulation, boycotts, embargoes, strikes or other shortages of services or fuel. In addition, if in any Expense Year subsequent to the Utilities Base Year, the amount of Utilities Costs decreases due to a reduction in the cost of providing utilities to the Real Property for any reason, including without limitation, because of deregulation of the utility industry and/or reduction in rates achieved in contracts with utilities providers, then for purposes of the Expense Year in which such decrease in Utilities Costs occurred and all subsequent Expense Years, the Utilities Costs for the Utilities Base Year shall be decreased by an amount equal to such decrease.

4.3 Calculation and Payment of Additional Rent.

4.4.1 Calculation of Excess . If for any Expense Year ending or commencing within the Lease Term, (i) Tenant’s Share of Direct Expenses for such Expense Year exceeds Tenant’s Share of Direct Expenses for the Expense Base Year and/or (ii) Tenant’s Share of

 

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Utilities Costs for such Expense Year exceeds Tenant’s Share of Utilities Costs for the Utilities Base Year, then Tenant shall pay to Landlord, in the manner set forth in Section 4.3.2, below, and as Additional Rent, an amount equal to such excess (the “ Excess ”).

4.4.2 Statement of Actual Direct Expenses and Utilities Costs and Payment by Tenant . Landlord shall endeavor to give to Tenant on or before the first day of April following the end of each Expense Year, a statement (the “ Statement ”) which shall state the Direct Expenses and Utilities Costs incurred or accrued for such preceding Expense Year, and which shall indicate the amount, if any, of any Excess. Upon receipt of the Statement for each Expense Year ending during the Lease Term, if an Excess is present, Tenant shall pay, with its next installment of Base Rent due, the full amount of the Excess for such Expense Year, less the amounts, if any, paid during such Expense Year as “Estimated Excess,” as that term is defined in Section 4.3.3 of this Lease. The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord from enforcing its rights under this Article 4 . Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of the Direct Expenses and Utilities Costs for the Expense Year in which this Lease terminates, if an Excess is present, Tenant shall immediately pay to Landlord an amount as calculated pursuant to the provisions of Section 4.3.1 of this Lease. The provisions of this Section 4.3.2 shall survive the expiration or earlier termination of the Lease Term.

4.4.3 Statement of Estimated Direct Expenses and Utilities Costs . In addition, Landlord shall endeavor to give Tenant a yearly expense estimate statement (the “ Estimate Statement ”) which shall set forth Landlord’s reasonable estimate (the “ Estimate ” ) of what the total amount of Direct Expenses and Utilities Costs for the then-current Expense Year shall be and the estimated Excess (the “ Estimated Excess ”) as calculated by comparing (i) Tenant’s Share of Direct Expenses, which shall be based upon the Estimate, to Tenant’s Share of Direct Expenses for the Expense Base Year, and (ii) Tenant’s Share of Utilities Costs, which shall be based upon the Estimate, to Tenant’s Share of Utilities Costs for the Utilities Base Year. The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Estimated Excess under this Article 4 . If pursuant to the Estimate Statement an Estimated Excess is calculated for the then-current Expense Year, Tenant shall pay, with its next installment of Base Rent due, a fraction of the Estimated Excess for the then-current Expense Year (reduced by any amounts paid pursuant to the last sentence of this Section 4.3.3 ). Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year to the month of such payment, both months inclusive, and shall have twelve (12) as its denominator. Until a new Estimate Statement is furnished, Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Excess set forth in the previous Estimate Statement delivered by Landlord to Tenant.

 

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4.5 Taxes and Other Charges for Which Tenant Is Directly Responsible . Tenant shall reimburse Landlord upon demand for any and all taxes or assessments required to be paid by Landlord (except to the extent included in Tax Expenses by Landlord), excluding state, local and federal personal or corporate income taxes measured by the net income of Landlord from all sources and estate and inheritance taxes, whether or not now customary or within the contemplation of the parties hereto, when:

4.5.1 Said taxes are measured by or reasonably attributable to the cost or value of Tenant’s equipment, furniture, fixtures and other personal property located in the Premises, or by the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, to the extent the cost or value of such leasehold improvements exceeds the cost or value of a building standard build-out as determined by Landlord regardless of whether title to such improvements shall be vested in Tenant or Landlord;

4.5.2 Said taxes are assessed upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion of the Real Property; or

4.5.3 Said taxes are assessed upon this transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises.

4.6 Late Charges . If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee by the due date therefor, then Tenant shall pay to Landlord a late charge equal to five percent (5%) of the amount due plus any attorneys’ fees incurred by Landlord by reason of Tenant’s failure to pay Rent and/or other charges when due hereunder; provided, that the foregoing late charge shall be revised to ten percent (10%) upon the second (2 nd ) time that any installment of Rent or any other sum is delinquent in any twelve (12) month period. The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord’s other rights and remedies hereunder, at law and/or in equity and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner. In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid by the date that they are due shall thereafter bear interest until paid at a rate (the “ Interest Rate ”) equal to the lesser of (i) the “Prime Rate” or “Reference Rate” announced from time to time by the Bank of America (or such reasonable comparable national banking institution as selected by Landlord in the event Bank of America ceases to exist or publish a Prime Rate or Reference Rate), plus four percent (4%), or (ii) the highest rate permitted by applicable law.

4.7 Tenant’s Audit Rights . Within one hundred twenty (120) days after receipt of a Statement by Tenant (“ Review Period ”), if Tenant disputes the amount set forth in the Statement, Tenant’s employees or an independent certified public accountant (which accountant is a member of a nationally or regionally recognized accounting firm and is not paid on a contingency fee basis), designated by Tenant, may, after reasonable notice to Landlord and at reasonable times, inspect Landlord’s records at Landlord’s offices at the location of the Building or such other location in San Francisco County, California as may be designated by Landlord; provided, however, that notwithstanding any such timely objection, dispute, inspection, and/or audit, and as a condition precedent to Tenant’s exercise of its right of objection, dispute, inspection and/or audit as set forth in this Section 4.6 , Tenant shall not be permitted to withhold payment of, and Tenant shall timely pay to Landlord, the full amounts as required by the provisions of this Article 4 in accordance with such Statement. However, such payment may be made under protest pending the outcome of any audit which may be performed by the accountant as described below. Notwithstanding the foregoing, Tenant shall only have the right to review Landlord’s records one (1) time during any twelve (12) month period. No subtenant shall have any right to conduct an audit, and no assignee shall conduct an audit for any period during which

 

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such assignee was not in possession of the Premises. Tenant’s failure to dispute and/or audit the amounts set forth in any Statement within the Review Period shall be deemed to be Tenant’s approval of such Statement and Tenant, thereafter, waives the right or ability to dispute the amounts set forth in such Statement. If after such inspection, but within thirty (30) days after the Review Period, Tenant notifies Landlord in writing that Tenant still disputes such amounts, a certification as to the proper amount shall be made, at Tenant’s expense (except as provided hereinbelow), by an independent certified public accountant selected by Landlord and who is a member of a nationally or regionally recognized accounting firm and is not paid on a contingency fee basis (the “ Accountant ”). Such certification shall be binding upon Landlord and Tenant. Landlord shall cooperate in good faith with Tenant and the Accountant to show Tenant and the accountant the information upon which the certification is to be based. If such certification by the Accountant proves that the Direct Expenses and Utilities Cost set forth in the Statement were overstated by more than five percent (5%), then the cost of the Accountant and the cost of such certification shall be paid for by Landlord. Promptly following the parties’ receipt of such certification, the parties shall make such appropriate payments or reimbursements, as the case may be, to each other, as are determined to be owing pursuant to such certification. Tenant agrees to keep, and to cause all of Tenant’s employees and consultants to keep, all of Landlord’s books and records and the audit, and all information pertaining thereto and the results thereof, strictly confidential, and in connection therewith, Tenant shall cause such employees, consultants to execute such reasonable confidentiality agreements as Landlord may require prior to conducting any such inspections and/or audits.

Upon written request by Tenant to Landlord at any time following the last day of the Expense Base Year and after which Landlord has completed Landlord’s calculation of Operating Expenses for the Expense Base Year (“ Base Operating Expenses ” ) (and Landlord shall use reasonable efforts to complete such calculation within one hundred fifty (150) days following the last day of the Expense Base Year), Landlord shall deliver to Tenant for Tenant’s review a Landlord’s Statement setting forth Landlord’s calculation of Base Operating Expenses, and, upon receipt of such Landlord’s Statement, Tenant shall have the right to review Landlord’s books and records related to Landlord’s statement and, if necessary, audit Landlord’s books and records, with respect to the calculation of Base Operating Expenses, with such review and/or audit to be in accordance with the provisions above in this Section 4.7 , as they apply to Tenant’s review and audit of Landlord’s Statement for a particular calendar year (including, without limitation, the procedures that apply in the event the parties disagree regarding the results of Tenant’s review or audit of Base Operating Expenses) and, once the foregoing review and/or audit process has been completed as to the Base Operating Expenses, Tenant shall not be permitted to re-evaluate the Base Operating Expenses at a later date unless additional information pertinent to the gross-up has been obtained and requires an adjustment to Landlord’s Statement for the Base Operating Expenses.

ARTICLE 5

USE OF PREMISES

Tenant shall use the Premises solely for general office purposes consistent with the character of the Building as a first-class office building (and such other incidental uses, as kitchens, dining areas, storage areas, meeting space, including on the roof deck, and showers,

 

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and bicycle storage and parking contemplated under this Lease or as otherwise approved by Landlord), and Tenant shall not use or permit the Premises to be used for any other purpose or purposes whatsoever. By way of example and not limitation, general office use shall not include medical office use or any similar use, laboratory use, classroom use, an executive suite or similar use, any use not characterized by applicable zoning and land use restrictions as general office use, any use which would require Landlord or Tenant to obtain a conditional use permit or variance from any federal, state or local authority, or any other use not compatible, in Landlord’s sole judgment, with the Building. Tenant further covenants and agrees that it shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the provisions of Exhibit D , attached hereto and incorporated herein by this reference, or in violation of the laws of the United States of America, the state in which the Building is located, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Building. Tenant shall comply with all recorded covenants, conditions, and restrictions, and the provisions of all ground or underlying leases, now or hereafter affecting the Real Property. Tenant shall not use or allow another person or entity to use any part of the Premises for the storage, use, treatment, manufacture or sale of “ Hazardous Material, ” as that term is defined below, except for ordinary and general office supplies, such as copier toner, liquid paper, glue, ink and common household cleaning materials (some or all of which may constitute Hazardous Materials as defined in this Lease). As used herein, the term “ Hazardous Material ” means any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the state in which the Building is located or the United States Government.

ARTICLE 6

SERVICES AND UTILITIES

6.1 Standard Tenant Services . Landlord shall provide the following services on all days during the Lease Term, in a manner consistent with that provided by landlords of the Comparable Buildings unless otherwise stated below.

6.1.1 Subject to the terms of Section 6.2 below, Landlord shall provide heat, ventilation and air conditioning (“ HVAC ”) for normal comfort for normal office use in the Premises at Landlord’s actual cost, which may include the actual charges of the HVAC, the depreciation of the HVAC equipment, pursuant to a schedule agreed upon by Tenant and Landlord, and engineer time). Tenant shall have full control over the HVAC provided to the Premises and be entitled to use HVAC on demand at the hours and periods desired by Tenant subject to the terms of Section 6.2 below.

6.1.2 Landlord shall provide adequate electrical wiring and facilities for normal general office use as determined by Landlord. Tenant shall contract for and pay directly to the utility company pursuant to the utility company’s separate meters (or to Landlord in the event that Landlord provides submeters instead of the utility company’s meters), the cost of all electricity provided to and/or consumed in the Premises. Upon request, Landlord shall replace lamps, starters and ballasts for Building standard lighting fixtures within the Premises as part of Operating Expenses.

 

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6.1.3 Landlord shall provide city water from the regular Building outlets for drinking, lavatory, toilet, shower and kitchen purposes.

6.1.4 Landlord shall provide window washing services.

6.1.5 Landlord shall provide automatic passenger elevator service at all times.

6.1.6 Tenant shall be fully responsible for janitorial services for the Premises pursuant to Section 6.5 below. Landlord shall provide trash removal from the trash bins provided for the Building and shall provide janitorial services for the common areas, exterior of the Building, elevators, and common area restrooms, according to the Schedule attached hereto as Exhibit G .

6.1.7 Landlord shall, throughout the Lease Term, retain a reputable and licensed security services firm for the provision of security for the Building seven (7) days per week and twenty four (24) hours per day, pursuant to such security procedures, hours, rules and scheduling; provided , however , that neither Landlord nor any of the “Landlord Parties” (as defined in Section 10.1.1 below) shall be liable for, and Landlord and the Landlord Parties are hereby released from any responsibility for, any damage either to person or property or any losses, costs, expenses or claims incurred in connection with or arising from any acts or omissions of Landlord’s security personnel. After the fourth (4 th ) Lease Year, Landlord will review the security procedures at the Comparable Buildings. Based on this review, in Landlord’s reasonable opinion, if other buildings are providing security services less than 24 hours a day, 7 days a week, then Landlord will request an adjustment to the security services provided to the Building’s and shall present the adjustment, including the proposed hours, schedule, and procedures, in writing, for Tenant’s review and approval, which shall not be unreasonably withheld, conditioned or delayed. Landlord will reserve the right to modify the Building security services after the initial Lease Term; provided, that any changes to the security services provided during the Option Term shall be agreed to by Tenant in the lease amendment memorializing the extension of the Lease Term. As a component of the security services provided by Landlord, at Landlord’s expense, Landlord shall install a card reader security system at the Building entrances, elevators and stair corridors. Tenant shall be entitled to use the stairwells for internal connectivity between floors.

6.2 Overstandard Tenant Use . Tenant shall not, without Landlord’s prior written consent, use heat-generating machines, machines other than normal fractional horsepower office machines, or equipment or lighting other than building standard lights in the Premises, which may affect the temperature otherwise maintained by the air conditioning system or increase the water normally furnished for the Premises by Landlord pursuant to the terms of Section 6.1 of this Lease. If Tenant’s consumption of electricity shall exceed three (3) watts per usable square foot of the Premises, calculated on an annualized basis for the Business Hours (as defined below), Tenant shall pay to Landlord, concurrently with the next payment of Base Rent due Landlord, the actual cost of such excess consumption, the actual cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption, and the actual cost of the increased wear and tear on existing equipment caused by such excess consumption; and Landlord may install devices to separately meter any increased use and in such event Tenant shall pay the increased cost directly to Landlord, concurrently with

 

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the next payment of Base Rent due Landlord, including the cost of such additional metering devices. If the Building is not fully occupied by Tenant pursuant to this Lease and Tenant desires to use HVAC in the Premises during hours other than between Monday through Friday, during the period from 7:00 a.m. to 6:00 p.m. (the “ Business Hours ”), except for the date of observation of New Year’s Day, Presidents’ Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and other locally or nationally recognized holidays as designated by Landlord (collectively, the “ Holidays ”): (x) Tenant shall give Landlord such prior notice, as Landlord shall from time to time establish as appropriate, of Tenant’s desired use thereof (Tenant can give as little as two hours’ notice of its desired use); (y) Landlord shall supply such after-hours HVAC to Tenant at Landlord’s actual hourly cost, determined on a per floor basis equal the actual cost incurred by Landlord to supply such after-hours HVAC on an hourly basis; and (z) Tenant shall pay such cost to Landlord as Additional Rent within thirty (30) days after billing. Notwithstanding the foregoing, in all instances where Tenant is using HVAC in excess of eleven (11) hours per day on a floor-by-floor basis, measured weekly on an average daily basis, or on days other as described hereinabove, Tenant shall pay to Landlord (1) the increased wear and tear and depreciation on equipment to provide such after-hours HVAC, based on the depreciation schedule attached hereto as Exhibit H , and (2) any additional maintenance costs incurred by Landlord, as Additional Rent within thirty (30) days after billing.

6.3 Interruption of Use . Except as otherwise set forth in this Lease, Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building after reasonable effort to do so, by any accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause beyond Landlord’s reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent (except as provided in Section 11.5 below) or performing any of its obligations under this Lease. Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant’s business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6 .

6.4 Access to Premises . Subject to all of the terms and conditions of this Lease, including the Rules and Regulations attached hereto as Exhibit D , and all applicable Laws, Tenant shall have access to the Premises twenty-four (24) hours per day, seven (7) days per week.

6.5 Janitorial . Tenant shall be fully responsible, at Tenant’s sole cost and expense, for providing janitorial services for the Premises. Such janitorial services shall be provided by licensed contractors selected by Tenant and reasonably approved by Landlord (and if required by Landlord shall be union or non-union affiliated and shall have such other labor affiliations so as to not cause any labor disharmony at the Project, as determined by Landlord). In addition, such janitorial services shall be consistent with the operation and appearance of the Building and conform to the cleaning specifications reasonably provided from time to time by Landlord,

 

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including, without limitation, the daily cleaning of all interior surfaces of the Premises. Landlord’s initial minimum cleaning standards and schedule for the Premises are set forth on Exhibit G attached hereto.

6.6 Additional Services . Landlord shall also have the exclusive right, but not the obligation, to provide any additional services which may be requested by Tenant, including, without limitation, locksmithing, lamp replacement, additional janitorial service, mold removal, and additional repairs and maintenance, provided that Tenant shall pay to Landlord upon billing, the sum of all costs to Landlord of such additional services plus an administration fee. Charges for any utilities or services for which Tenant is required to pay from time to time hereunder, shall be deemed Additional Rent hereunder and shall be billed on a monthly basis.

ARTICLE 7

REPAIRS

7.1 Tenant’s Repairs . Subject to Landlord’s repair obligations in Sections 7.2 and 11.1 below, Tenant shall, at Tenant’s own expense, keep the Premises, including all improvements, fixtures and furnishings therein, in good order, repair and condition at all times during the Lease Term, which repair obligations shall include, without limitation, the obligation to promptly and adequately repair all damage to the Premises and replace or repair all damaged or broken fixtures and appurtenances. By way of example, and not limitation, Tenant shall be responsible, at Tenant’s sole expense, for repairing and/or replacing, carpet, marble, tile or other flooring, paint, wall coverings, corridor and interior doors and door hardware, telephone and computer equipment, interior glass, window treatments, ceiling tiles, shelving, cabinets, millwork and other tenant improvements. In addition, Tenant shall be responsible for the installation, maintenance and repair of all telephone, computer and related cabling from the telephone terminal room on the floor on which the Premises is located to and throughout the Premises, and Tenant shall be responsible for any loss, cost, damage, liability and expense (including attorneys’ fees) arising out of or related to the installation, maintenance, repair and replacement of such cabling. At Landlord’s option, or if Tenant fails to make such repairs, Landlord may, but need not, make such repairs and replacements, and Tenant shall pay Landlord the cost thereof, including a percentage of the cost thereof (to be uniformly established for the Building) sufficient to reimburse Landlord for all overhead, general conditions, fees and other costs or expenses arising from Landlord’s involvement with such repairs and replacements forthwith upon being billed for same.

7.2 Landlord’s Repairs . Anything contained in Section 7.1 above to the contrary notwithstanding, and subject to Articles 11 and 12 below, Landlord shall repair and maintain the structural portions of the Building, including the basic plumbing, heating, ventilating, air conditioning and electrical systems serving the Building and not located in the Premises; provided, however, if such maintenance and repairs are caused in part or in whole by the act, neglect, fault of or omission of any duty by Tenant, its agents, servants, employees or invitees, Tenant shall pay to Landlord as additional rent, the reasonable cost of such maintenance and repairs. Except as otherwise set forth in this Lease, Landlord shall not be liable for any failure to make any such repairs, or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice of the need of such repairs or maintenance is given to

 

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Landlord by Tenant. Except as otherwise set forth in this Lease, there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant’s business arising from the making of any repairs, alterations or improvements in or to any portion of the Building or the Premises or in or to fixtures, appurtenances and equipment therein. Tenant hereby waives and releases its right (if any) to make repairs at Landlord’s expense under Section 1932, Subdivision 1, and Sections 1941 and 1942 of the California Civil Code, Section 431.70 of the California Code of Civil Procedure, and under any similar law, statute, or ordinance now or hereafter in effect.

7.3 Tenant’s Right to Repair . Notwithstanding anything to the contrary set forth in this Article 7 , if Tenant provides written notice to Landlord of the need for repairs and/or maintenance which are Landlord’s obligation to perform pursuant to Section 7.2 above, and Landlord fails to undertake such repairs and/or maintenance within a reasonable period of time, given the circumstances, after receipt of such notice, but in any event not later than ten (10) business days after receipt of such notice (or such longer time as is reasonably necessary if more than ten (10) business days are reasonably required to complete such repairs and Landlord commences such repairs within such 10 business-day period and thereafter diligently attempts to complete same, but in no event longer than ninety (90) days), then Tenant may proceed to undertake such repairs and/or maintenance upon delivery of an additional five (5) business days’ notice to Landlord that Tenant is taking such required action (provided, however that neither of the notices shall be required in the event of an emergency which threatens life or where there is imminent danger to property or a possibility that a failure to take immediate action could cause an imminent and material disruption in Tenant’s normal and customary business activities within the Premises). If such repairs and/or maintenance were required under the terms of this Lease to be performed by Landlord and are not performed by Landlord prior to the expiration of such 5-business day period (the “ Outside Repair Period ”), then Tenant shall be entitled to reimbursement by Landlord of Tenant’s actual, reasonable, and documented costs and expenses in performing such maintenance and/or repairs. Such reimbursement shall be made within thirty (30) days after Landlord’s receipt of invoice of such costs and expenses, and if Landlord fails to so reimburse Tenant within such 30-day period, then Tenant shall be entitled to offset against the Rent payable by Tenant under this Lease the amount of such invoice, which shall have accrued on the amount of such invoice during the period from and after Tenant’s delivery of such invoice to Landlord through and including the earlier of the date Landlord delivers the payment to Tenant or the date Tenant offsets such amount against the Rent; provided, however, that notwithstanding the foregoing to the contrary, if (i) Landlord delivers to Tenant prior to the expiration of the Outside Repair Period described above, a written objection (the “ Landlord Objection Notice ”) to Tenant’s right to receive any such reimbursement based upon Landlord’s good faith claim that such action did not have to be taken by Landlord pursuant to the terms of this Lease, or (ii) Landlord delivers to Tenant, within thirty (30) days after receipt of Tenant’s invoice, a written objection to the payment of such invoice based upon Landlord’s good faith claim that such charges are excessive (in which case, Landlord shall reimburse Tenant, within such 30-day period, the amount Landlord contends would not be excessive), then Tenant shall not be entitled to such reimbursement or offset against Rent. Tenant, as its sole remedy, may require that such disagreement be submitted by the parties to a dispute resolution procedure mutually and reasonably agreed to by the parties, which shall be the Expedited JAMS Procedures or another reputable dispute resolution group mutually agreed upon by Landlord and Tenant or a mutually agreed upon expert acting independently; provided that any expert selected for such

 

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procedure shall be a building manager or other building management expert with substantial experience in first-class building operations. (If Landlord and Tenant have not agreed upon the dispute resolution group or independent expert within fifteen (15) days after their agreement to submit the dispute to the dispute resolution procedure, then the parties shall be deemed to have selected JAMS as the dispute resolution group.) If the parties engage in a dispute resolution procedure pursuant to the immediately preceding sentence, the parties shall be bound by the results of such procedure. Each party shall bear one-half (1/2) of the cost of the dispute resolution procedure; provided, however, if the resolution of the dispute includes an award of costs to one of the parties, then the losing party shall pay the entire cost of the dispute resolution procedure in accordance with such resolution. In the event Tenant undertakes such repairs and/or maintenance, and such work will affect the Systems and Equipment, any structural portions of the Building, any common areas of the Real Property and/or the exterior appearance of the Building, Tenant shall use only those unrelated third party contractors used by Landlord in the Building for such work unless such contractors are unwilling or unable to perform such work at competitive prices, in which event Tenant may utilize the services of any other qualified contractor which normally and regularly performs similar work in the Comparable Buildings. Tenant shall comply with the other terms and conditions of this Lease if Tenant takes the required action, except that Tenant is not required to obtain Landlord’s consent for such repairs.

ARTICLE 8

ADDITIONS AND ALTERATIONS

8.1 Landlord’s Consent to Alterations . Except as provided hereinbelow, Tenant may not make any improvements, alterations, additions or changes to the Premises (collectively, the “ Alterations ”) without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than fifteen (15) business days prior to the commencement thereof. Landlord shall not unreasonably withhold or delay its consent for any Alterations, except that Landlord may withhold its consent, in its sole and absolute discretion, with respect to such Alterations which (i) affect any area, or which can be seen from any area, outside the Premises or the Building, and/or (ii) affect the structural components or Systems and Equipment of the Building. Notwithstanding anything to the contrary contained in this Section 8.1, Tenant may make non-structural interior alterations, additions or improvements to the interior of the Premises (collectively, the “ Acceptable Changes ”) without Landlord’s consent, provided that: (a) Tenant delivers to Landlord written notice of such Acceptable Changes at least ten (10) days prior to the commencement thereof; (b) the aggregate cost of all such Acceptable Changes during any twelve (12) consecutive month period does not exceed Fifty Thousand Dollars ($50,000.00); (c) such Acceptable Changes shall be performed by or on behalf of Tenant in compliance with the other provisions of this Article 8 ; (d) such Acceptable Changes do not require the issuance of a building permit or other governmental approval; (e) such Acceptable Changes do not affect any Systems and Equipment, the ground floor lobby areas of the Building, pertain to painting of the exposed brick portions of the Premises, and cannot be seen from outside the Premises; and (f) such Acceptable Changes shall be performed by qualified contractors and subcontractors which normally and regularly perform similar work in the Comparable Buildings. Tenant shall pay for all overhead, general conditions, fees, taxes and other costs and expenses of the Alterations and except for Acceptable Changes, Tenant shall pay to Landlord the Alteration Supervision Fee. The “ Alteration Supervision Fee ” shall be an

 

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amount equal to zero percent (0%) of the costs of the Alterations if such costs are, in the aggregate, up to $49,999.99, six percent (6%) of the costs of such Alterations if such costs are, in the aggregate, between $50,000.00 and $99,999.99, five percent (5%) of the cost of the Alterations, if such costs are, in the aggregate, between $100,000.00 and $250,000.00, or four percent (4%) of the costs of such Alterations, if such costs are, in the aggregate, in excess of $250,000.00. The construction of the initial improvements to the Premises (and the Landlord supervision fee therefor) shall be governed by the terms of the Tenant Work Letter and not the terms of this Article 8 .

8.2 Manner of Construction . Landlord may impose, as a condition of its consent to all Alterations or repairs of the Premises or about the Premises, such requirements as Landlord in its reasonable discretion may deem desirable, including, but not limited to, the requirement that Tenant provide Landlord with detailed plans and specifications and an estimated budget for the proposed Alteration and that Tenant utilize for such purposes only contractors, materials, mechanics and materialmen approved by Landlord; provided , however , Landlord may impose such requirements as Landlord may determine, in its sole and absolute discretion, with respect to any work affecting the structural components of the Building or Systems and Equipment (including designating specific contractors to perform such work). Tenant shall construct such Alterations and perform such repairs in conformance with any and all applicable rules and regulations of any federal, state, county or municipal code or ordinance and pursuant to a valid building permit, issued by the city in which the Building is located, and in conformance with Landlord’s construction rules and regulations. Landlord’s approval of the plans, specifications and working drawings for Tenant’s Alterations shall create no responsibility or liability on the part of Landlord for their completeness, design sufficiency, or compliance with all laws, rules and regulations of governmental agencies or authorities. All work with respect to any Alterations must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the Premises shall at all times be a complete unit except during the period of work. In performing the work of any such Alterations, Tenant shall have the work performed in such manner as not to obstruct access to the Building or the common areas for any other tenant of the Building, and as not to obstruct the business of Landlord or other tenants in the Building, or interfere with the labor force working in the Building. If Tenant makes any Alterations, Tenant agrees to carry “Builder’s All Risk” insurance in an amount approved by Landlord covering the construction of such Alterations, and such other insurance as Landlord may require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 below immediately upon completion thereof. In addition, with respect to any Alterations to be made in the Building which cost in excess of $100,000.00, Landlord may, in its discretion, require Tenant to obtain a lien and completion bond, or, at Tenant’s option, some alternate form of security reasonably satisfactory to Landlord, in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee. Upon completion of any Alterations, Tenant shall (i) cause a Notice of Completion to be recorded in the office of the Recorder of the county in which the Building is located in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, (ii) deliver to the Building management office a reproducible copy of the “as built” drawings of the Alterations, and (iii) deliver to Landlord evidence of payment, contractors’ affidavits and full and final waivers of all liens for labor, services or materials.

 

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8.3 Landlord’s Property . All Alterations, improvements and/or fixtures (excluding Tenant’s trade fixtures, moveable furniture and personal property) which may be installed or placed in or about the Premises, from time to time, shall be at the sole cost of Tenant and shall become the property of Landlord upon expiration of the Lease Term or earlier termination of this Lease; provided, however: (i) Tenant may not remove any Tenant Improvements or Alterations paid for by Landlord with Landlord’s own funds or out of any tenant improvement allowances provided by Landlord (except any such removal made in connection with Alterations approved by Landlord); and (ii) Landlord may, by written notice delivered to Tenant concurrently with Landlord’s approval of the final working drawings for any Alterations (or for the initial tenant improvements constructed for the Premises), identify those Alterations (or initial tenant improvements for Tenant’s initial occupancy, as the case may be) which Landlord will require Tenant to remove at the expiration or earlier termination of this Lease; provided further, however, that Tenant shall in no event be required to remove any such Alterations (or initial tenant improvements, as the case may be) other than (a) any raised floors, internal stairwells, vaults and other similar special use tenant improvements, (b) the Telecommunications Equipment (as defined in Section 23.1 below) and all phone and data cabling, (c) those other improvements or alterations which are of such specialized nature or application that the same are not reasonably suited for use by a successor occupant of the Premises and (d) the Rooftop Deck (as defined in Section 23.1 below) to the extent required by the governmental approvals permitting the installation and use of the Rooftop Deck (collectively, “ Special Use Improvements ”). If Landlord requires Tenant to remove any such Alterations (or any such initial tenant improvements which are constructed for the Premises, Tenant, at its sole cost and expense, shall remove the identified Alterations and improvements on or before the expiration or earlier termination of this Lease and repair any damage to the Premises caused by such removal. If Tenant fails to complete such removal and/or to repair any damage caused by the removal of any Alterations or Special Use Improvements, Landlord may do so and may charge the actual cost thereof to Tenant.

ARTICLE 9

COVENANT AGAINST LIENS

Tenant has no authority or power to cause or permit any lien or encumbrance of any kind whatsoever, whether created by act of Tenant, operation of law or otherwise, to attach to or be placed upon the Real Property, Building or Premises, and any and all liens and encumbrances created by Tenant shall attach to Tenant’s interest only. Tenant may obtain leasehold financing and other financing secured by Tenant’s leasehold interest in the Premises and Tenant’s personal property. Any such financing obtained by Tenant shall not violate the provisions of this Article 9 or the provisions of Article 14 below. Landlord shall have the right at all times to post and keep posted on the Premises any notice which it deems necessary for protection from such liens. Tenant covenants and agrees not to suffer or permit any lien of mechanics or materialmen or others to be placed against the Real Property, the Building or the Premises with respect to work or services claimed to have been performed for or materials claimed to have been furnished to Tenant or the Premises (excluding any work performed by Landlord), and, in case of any such lien attaching or notice of any lien (excluding any liens attached as a result of work performed by Landlord), Tenant covenants and agrees to cause it to be released and removed of record (by payment, statutory bond or other lawful means) within twenty (20) days after Tenant has notice

 

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of such lien. Notwithstanding anything to the contrary set forth in this Lease, in the event that such lien is not released and removed of record within such 20-day period, then Landlord, at its sole option, may immediately take all action necessary to release and remove such lien, without any duty to investigate the validity thereof, and all reasonable sums, costs and expenses, including reasonable attorneys’ fees and costs, incurred by Landlord in connection with such lien shall be deemed Additional Rent under this Lease and shall be paid by Landlord to Tenant within thirty (30) days after written demand by Landlord.

ARTICLE 10

INDEMNIFICATION AND INSURANCE

10.1 Indemnification and Waiver .

10.1.1 Except as expressly provided in Section 10.1.2 below, Tenant hereby assumes all risk of damage to property and injury to persons, in, on, or about the Premises from any cause whatsoever and agrees that Landlord, and its partners and subpartners, and their respective officers, agents, property managers, employees, and independent contractors (collectively, “ Landlord Parties ”) shall not be liable for, and are hereby released from any responsibility for, any damage to property or injury to persons or resulting from the loss of use thereof, which damage or injury is sustained by Tenant or by other persons claiming through Tenant. In addition, except as expressly provided in Section 10.1.2 below, Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all loss, cost, damage, expense and liability, including without limitation court costs and reasonable attorneys’ fees (collectively, “ Claims ”) incurred in connection with or arising from any cause in, on or about the Premises (including, without limitation, Tenant’s installation, placement and removal of Alterations, improvements, fixtures and/or equipment in, on or about the Premises), and any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, or of the contractors, agents, servants, employees, subtenants, licensees or invitees of Tenant or any such person, in, on or about the Premises, Buildings and Real Property; provided, however, such indemnity shall not include any lost profit, loss of business or other consequential damages. Notwithstanding the foregoing, prior to the Effective Date the foregoing indemnity shall apply only to the acts, omissions or negligence of Tenant.

10.1.2 Notwithstanding the foregoing to the contrary, the assumption of risk and release by Tenant set forth in Section 10.1.1 above, and Tenant’s indemnity of Landlord in Section 10.1.1 above, shall not apply to: (i) any Claims to the extent resulting from the gross negligence or willful misconduct of the Landlord Parties (collectively, the “ Excluded Claims ”); or (ii) any loss of or damage to Landlord’s property to the extent Landlord has waived such loss or damage pursuant to Section 10.4 below. In addition, Landlord shall indemnify, defend, protect and hold Tenant harmless from all such Excluded Claims, except for (A) any loss or damage to Tenant’s property to the extent Tenant has waived such loss or damage pursuant to Section 10.4 below, and (B) any lost profits, loss of business or other consequential damages. In no event shall Tenant be liable to Landlord for any special or consequential damages, except for damages expressly provided for in Article 16 of this Lease with regard to Tenant’s failure to timely surrender the Premises to Landlord as provided in Article 16. In no event shall lost rent or other damages of Landlord provided for in Article 19 below be deemed special or consequential damages.

 

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10.1.3 The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease.

10.2 Tenant’s Compliance with Landlord’s Fire and Casualty Insurance . Landlord shall, from and after the date hereof until the expiration of the Lease Term, maintain in effect the following insurance: (i) physical damage insurance (including a rental loss endorsement) providing coverage in the event of fire, vandalism, malicious mischief and all other risks normally covered under “special form” policies in the geographical area of the Building, covering the Building (excluding, at Landlord’s option, the property required to be insured by Tenant pursuant to Section 10.3 below) in an amount not less than one hundred percent (100%) of the full replacement value (less reasonable deductibles) of the Building, together with such other risks as Landlord may from time to time determine (provided however, that Landlord shall have the right, but not the obligation, to obtain earthquake and/or flood insurance); and (ii) commercial general liability insurance including a Commercial Broad Form Endorsement or the equivalent in the amount of at least Five Million Dollars ($5,000,000.00), against claims of bodily injury, personal injury or property damage arising out of Landlord’s operations, assumed liabilities (including the liabilities assumed by Landlord under this Lease), contractual liabilities, or use of the Building and common areas. Such coverages may be carried under blanket insurance policies. The insurers providing such insurance shall be licensed to do business in the State of California and the policies of insurance with respect to property loss or damage by fire or other casualty shall contain a waiver of subrogation as provided in Section 10.4 below. Tenant shall, at Tenant’s expense, comply as to the Premises with all insurance company requirements pertaining to the use of the Premises. If Tenant’s conduct or use of the Premises causes any increase in the premium for Landlord’s insurance policies, then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant’s expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body where applicable due to Tenant’s Alterations or use of the Premises.

10.3 Tenant’s Insurance . Tenant shall maintain the following coverages in the following amounts, from and after the Effective Date.

10.3.1 Commercial General Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage arising out of Tenant’s operations, assumed liabilities or use of the Premises, including a Broad Form Commercial General Liability endorsement covering the insuring provisions of this Lease and the performance by Tenant of the indemnity agreements set forth in Section 10.1 of this Lease, for limits of liability not less than:

 

Bodily Injury and

   $ 5,000,000 each occurrence   

Property Damage Liability

   $ 5,000,000 annual aggregate   

Personal Injury Liability

   $ 5,000,000 each occurrence   
   $ 5,000,000 annual aggregate   

 

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10.3.2 Physical Damage Insurance covering (i) all office furniture, trade fixtures, office equipment, merchandise and all other items of Tenant’s property on the Premises installed by, for, or at the expense of Tenant, (ii) the Tenant Improvements, including any Tenant Improvements which Landlord permits to be installed above the ceiling of the Premises or below the floor of the Premises, and (iii) all other improvements, alterations and additions to the Premises, including any improvements, alterations or additions installed at Tenant’s request above the ceiling of the Premises or below the floor of the Premises. Such insurance shall be written on a “special form” of physical loss or damage basis, for the full replacement cost value new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include a vandalism and malicious mischief endorsement, sprinkler leakage coverage and earthquake sprinkler leakage coverage.

10.3.3 Worker’s compensation insurance as required by law.

10.3.4 Business interruption, loss of income and extra expense insurance in amounts sufficient to pay for Tenant’s operating income, continuing expenses and extra expenses attributable to perils commonly insured against by prudent tenants or attributable to prevention of access to the Premises as a result of such perils.

10.3.5 Form of Policies . The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance shall (i) name Landlord, and any other party it so specifies, as an additional insured; (ii) specifically cover the liability assumed by Tenant under this Lease, including, but not limited to, Tenant’s obligations under Section 10.1 of this Lease; (iii) be issued by an insurance company having a rating of not less than A-VII in Best’s Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the state in which the Building is located; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance requirement of Tenant; (v) provide that said insurance shall not be canceled, other than for non-payment, unless thirty (30) days’ prior written notice shall have been given to Landlord and any mortgagee or ground or underlying lessor of Landlord; and (vi) contain a cross-liability endorsement or severability of interest clause acceptable to Landlord. Tenant shall deliver certificates thereof to Landlord on or before the Lease Commencement Date and within thirty (30) days of the expiration dates thereof. If Tenant shall fail to procure such insurance, or deliver such certificate, within such time periods, Landlord may, at its option after ten (10) days written notice, in addition to all of its other rights and remedies under this Lease, and without regard to any notice and cure periods set forth in Section 19.1 , procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord as Additional Rent within ten (10) days after delivery of bills therefor.

10.4 Subrogation . Landlord and Tenant agree to have their respective insurance companies issuing property damage insurance waive any rights of subrogation that such companies may have against Landlord or Tenant, as the case may be. As long as such waivers of subrogation are contained in their respective insurance policies, or would have been contained in such insurance policies had the responsible party used commercially reasonable efforts to obtain such waivers and such waivers are routinely and customarily available, Landlord and Tenant hereby waive any right that either may have against the other on account of any loss or damage to their respective property to the extent such loss or damage is insurable under policies of

 

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insurance for fire and all risk coverage, theft, or other similar insurance. If either party fails to carry the amounts and types of insurance required to be carried by it pursuant to this Article 10 , such failure shall be deemed to be a covenant and agreement by such party to self-insure with respect to the type and amount of insurance which such party so failed to carry, with full waiver of subrogation with respect thereto. In furtherance of the foregoing, Tenant acknowledges and agrees that notwithstanding the negligence or breach of this Lease by Landlord or its agents, neither Landlord nor its agents shall be liable under any circumstances for: (i) injury or damage to the person or goods, wares, merchandise or other property of Tenant, Tenant’s employees, contractors, invitees, customers, or any other person in or about the Premises, from any cause, (ii) any damages arising from any act or neglect of any other tenant of Landlord or from the failure of Landlord or its agents to enforce the provisions of any other lease in the Project, or (iii) injury to Tenant’s business or for any loss of income or profit therefrom. Instead, it is intended that Tenant’s sole recourse in the event of such damages or injury be to file a claim on the insurance policy(ies) that Tenant is required to maintain pursuant to the provisions of this Article 10 .

10.5 Additional Insurance Obligations . Tenant shall carry and maintain during the entire Lease Term, at Tenant’s sole cost and expense, increased amounts of the insurance required to be carried by Tenant pursuant to this Article 10, and such other reasonable types of insurance coverage and in such reasonable amounts covering the Premises and Tenant’s operations therein, as may be reasonably requested by Landlord, but in no event shall such increased amounts of insurance or such other reasonable types of insurance be in excess of that required by landlords of the Comparable Buildings for tenants of comparable financial strength and consistent with the size of the space leased by such tenants and any new insurance shall be added to the Base Year Operating Expenses in accordance with the provisions of Section 4.2.5 above; provided, further, that Tenant shall only be required to obtain any types of new insurance coverage (as opposed to increased coverage under types of insurance already required under this Lease) if such coverage is available to Tenant at commercially reasonable rates.

ARTICLE 11

DAMAGE AND DESTRUCTION

11.1 Repair of Damage to Premises by Landlord . Tenant shall promptly notify Landlord after Tenant becomes aware of any damage to the Premises resulting from fire or any other casualty. If the Premises or any common areas of the Building or Real Property serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord’s reasonable control, and subject to all other terms of this Article 11, restore the Base, Shell, and Core of the Premises and such common areas. Such restoration shall be to substantially the same condition of the Base, Shell, and Core of the Premises and common areas prior to the casualty, except for modifications required by zoning and building codes and other laws, or any other modifications to the common areas deemed reasonably desirable by Landlord provided access to the Premises and any common restrooms serving the Premises shall not be materially impaired thereby. Notwithstanding any other provision of this Lease, upon the occurrence of any damage to the Premises, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant’s insurance

 

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required under Sections 10.3.2(ii) and (iii)  of this Lease, and Landlord shall repair any injury or damage to the Tenant Improvements and Alterations installed in the Premises and shall return such Tenant Improvements and Alterations to their original condition; provided that if the cost of such repair by Landlord (based on competitive pricing by all contractors and subcontractors and without any profit mark-up or supervision fees to Landlord) exceeds the amount of insurance proceeds received by Landlord from Tenant’s insurance carrier, as assigned by Tenant, the cost of such repairs shall be paid by Tenant to Landlord on a progress payment basis with the first such payment being due from Tenant after Landlord’s commencement of the repair of the damage. In connection with such repairs and replacements, Tenant shall, prior to the commencement of construction, submit to Landlord, for Landlord’s reasonable review and approval, all plans, specifications and working drawings relating thereto, and Landlord shall select the contractors to perform such improvement work pursuant to Landlord’s standard competitive bidding procedures. Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business resulting in any way from such damage or the repair thereof; provided however, that if such fire or other casualty shall have damaged the Premises or common areas necessary to Tenant’s occupancy to such a degree that Tenant is prevented from using, and does not use, all or any part of the Premises as a result thereof and such fire or other casualty is not the result of Tenant’s gross negligence or willful misconduct, then Landlord shall allow Tenant a proportionate abatement of Rent during the time and to the extent Tenant is so prevented from using and does not use the Premises as a result thereof. Landlord shall use commercially reasonable efforts to minimize any such inconvenience, annoyance or interference to Tenant resulting from Landlord’s repair of any damage pursuant to this Section 11.1 .

11.2 Landlord’s Option to Repair . Within forty-five (45) days after Landlord becomes aware of such damage, Landlord shall notify Tenant in writing (“ Landlord’s Damage Notice ”) of the estimated time, in Landlord’s reasonable judgment, required to substantially complete the repairs of such damage (the “ Estimated Repair Period ”). Notwithstanding the terms of Section 11.1 above, Landlord may elect not to rebuild and/or restore the Premises and/or the Building and instead terminate this Lease by notifying Tenant in writing of such termination within forty-five (45) days after Landlord becomes aware of such damage, but Landlord may so elect only if the Building shall be damaged by fire or other casualty or cause, whether or not the Premises are affected and one or more of the following conditions is present: (i) repairs cannot in Landlord’s opinion, as set forth in Landlord’s Damage Notice, reasonably be completed within ten (10) months after the date of Landlord’s Damage Notice (when such repairs are made without the payment of overtime or other premiums); or (ii) the damage is not fully covered by Landlord’s insurance policies obtained or required to be obtained by Landlord pursuant to Section 10.2 above. If (a) Landlord does not elect to terminate this Lease pursuant to Landlord’s termination right as provided above, (b) the damage constitutes a Tenant Damage Event (as defined below), and (c) the repair of such damage cannot, in the reasonable opinion of Landlord, as set forth in Landlord’s Damage Notice, be completed within one year after Landlord becomes aware of such damage, then Tenant may elect to terminate this Lease by delivering written notice thereof to Landlord within thirty (30) days after Tenant’s receipt of Landlord’s Damage Notice, which termination shall be effective as of the date of such termination notice thereof to Landlord. As used herein, a “ Tenant Damage Event ” shall mean damage to all or any part of the Premises or any common areas of the Building providing access to the Premises by fire or other casualty, which damage (x) is not the result of the gross negligence or willful misconduct of Tenant or any

 

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of Tenant’s employees, agents, contractors, licensees or invitees, (y) substantially interferes with Tenant’s use of or access to the Premises and (z) would entitle Tenant to an abatement of Rent pursuant to Section 11.1 above. In addition, in the event of a Tenant Damage Event, and if neither Landlord nor Tenant has elected to terminate this Lease as provided hereinabove, but Landlord fails to substantially complete the repair and restoration of such Tenant Damage Event within the Estimated Repair Period plus ninety (90) days, plus the number of days of delay, if any, attributable to events of “Force Majeure,” as that term is defined in Section 24.16 below, plus the number of days of delay, if any, as are attributable to the acts or omissions of Tenant or Tenant’s employees, agents, contractors, licensees or invitees, then Tenant shall have the right to terminate this Lease during the first five (5) business days of each calendar month following the end of such period until such time as the repairs to be made by Landlord are complete, by notice to Landlord (the “ Damage Termination Notice ”), effective as of a date set forth in the Damage Termination Notice (the “ Damage Termination Date ”), which Damage Termination Date shall not be less than ten (10) business days following the end of each such month. Notwithstanding the foregoing, if Tenant delivers a Damage Termination Notice to Landlord, then Landlord shall have the right to suspend the occurrence of the Damage Termination Date for a period ending thirty (30) days after the Damage Termination Date set forth in the Damage Termination Notice by delivering to Tenant, within five (5) business days of Landlord’s receipt of the Damage Termination Notice, a certificate of Landlord’s contractor responsible for the repair of the damage certifying that it is such contractor’s good faith judgment that the repairs to be made by Landlord shall be substantially completed within thirty (30) days after the Damage Termination Date. If such repairs shall be substantially completed prior to the expiration of such thirty-day period, then the Damage Termination Notice shall be of no force or effect, but if such repairs shall not be substantially completed within such 30-day period, then this Lease shall terminate upon the expiration of such thirty-day period. At any time, and from time to time, after the date of the damage, Tenant may request that Landlord inform Tenant of the reasonable opinion of Landlord’s contractor of the date of completion of Landlord’s repair work, and Landlord shall respond to such request within ten (10) business days.

11.3 Damage at the End of Lease Term . Further, in the event that the Premises or the Building are destroyed or damaged to any substantial extent during the last twelve (12) months of the Lease Term (except that, in the event that Tenant shall have exercised its option to renew pursuant to the Extension Option Rider attached to this Lease, such twelve (12) month period shall be the last twelve (12) months of the Option Term), then notwithstanding anything contained in this Article 11 , Landlord shall have the option to terminate this Lease, and to the extent such destruction or damage constitutes a Tenant Damage Event and the repair of same is reasonably expected by Landlord to require more than sixty (60) days to substantially complete, Tenant shall have the option to terminate this Lease, by giving written termination notice to the other party of the exercise of such option within thirty (30) days after the date such party becomes aware of such damage or destruction. If either Landlord or Tenant exercises any of its options to terminate this Lease as provided above in Section 11.2 above: (1) this Lease shall cease and terminate as of the date set forth in such party’s termination notice, which termination date shall be no less than thirty (30) days and no more than one hundred twenty (120) days after such termination notice is delivered to the other party; (2) Tenant shall pay the Base Rent and Additional Rent, properly apportioned up to such date of termination and subject to abatement as provided in Section 11.1 above; and (3) both parties hereto shall thereafter be freed and discharged of all further obligations hereunder, except as provided for in provisions of this Lease which by their terms survive the expiration or earlier termination of the Lease Term.

 

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11.4 Waiver of Statutory Provisions . The provisions of this Lease, including this Article 11 , constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or any other portion of the Real Property, and any statute or regulation of the state in which the Building is located, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or any other portion of the Real Property.

11.5 Abatement of Rent When Tenant Is Prevented From Using Premises . In the event that Tenant is prevented from using, and does not use, the Premises or any portion thereof as a result of (i) any failure by Landlord to provide any of the essential utilities and services to the Premises required to be provided by Landlord under Section 6.1 of this Lease, (ii) any failure by Landlord to provide access to the Premises (including, without limitation, as a result of any Renovations undertaken by Landlord pursuant to Section 24.27 below), or (iii) any failure by Landlord to perform Landlord’s repair obligations pursuant to Section 7.2 above, and such failure is not the result of the negligence or willful misconduct of Tenant or any of Tenant’s employees, agents, contractors, licensees or invitees (such event shall be known as a “ Abatement Event ”), then Tenant shall give Landlord notice of such Abatement Event. If such Abatement Event continues for five (5) consecutive business days after Landlord’s receipt of any such notice from Tenant (“ Eligibility Period ”), then the Rent shall be abated or reduced, as the case may be, during such time after the Eligibility Period that Tenant continues to be so prevented from using, and does not use, the Premises or a portion thereof, in the proportion that the usable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total usable area of the Premises; provided, however, in the event that Tenant is prevented from using, and does not use, a portion of the Premises for a period of time in excess of the Eligibility Period, and the remaining portion of the Premises is not sufficient to allow Tenant to effectively conduct its business therein, and if Tenant does not conduct its business from such remaining portion, then for such time after expiration of the Eligibility Period during which Tenant is so prevented from effectively conducting its business therein, then Rent shall be abated for such time as Tenant continues to be so prevented from using, and does not use, the Premises. If, however, Tenant re-occupies any portion of the Premises during such period, the Rent allocable to such re-occupied portion, based on the proportion that the usable area of such re-occupied portion of the Premises bears to the total usable area of the Premises, shall be payable by Tenant from the date Tenant re-occupies such portion of the Premises. Except as expressly provided in this Section 11.5 , nothing contained herein shall be interpreted to mean that Tenant is excused from paying Rent due hereunder. Notwithstanding the foregoing provisions of this Section 11.5 to the contrary which limits Tenant’s right to abatement for only those time periods which follow the Eligibility Period, (A) to the extent Tenant is specifically entitled to abatement without regard to the Eligibility Period because of an eminent domain taking and/or because of a casualty damage or destruction pursuant to the provisions of this Article 11 or Article 12 below, then the Eligibility Period shall not be applicable, and (B) the Eligibility Period shall also not be applicable following the occurrence of any other Abatement

 

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Event described above which is not an eminent domain taking or a casualty damage or destruction, to the extent and for the number of days that Landlord is reimbursed from the proceeds of rental interruption insurance purchased by Landlord as part of Operating Expenses. Further, if Tenant’s right to abatement occurs during a free rent period (for these purposes, free rent shall be deemed to include half rent, etc.) which arises after the Lease Commencement Date, Tenant’s free rent period shall be extended for the number of days that the abatement period overlapped the free rent period (“ Overlap Period ”). Landlord shall have the right to extend the Expiration Date for a period of time equal to the Overlap Period if Landlord sends a notice to Tenant of such election within ten (10) days following the end of the extended free rent period. To the extent Tenant has prepaid Rent (as it does each month since Rent is due on the first day of each month) and Tenant is subsequently entitled to an abatement, such prepaid, and subsequently abated, Rent should be refunded to, and paid by Landlord to, Tenant within thirty (30) days after the end of the appropriate month.

ARTICLE 12

CONDEMNATION

12.1 Permanent Taking . If the whole or any part of the Premises or Building shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises or Building, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease upon ninety (90) days’ notice, provided such notice is given no later than one hundred eighty (180) days after the date of such taking, condemnation, reconfiguration, vacation, deed or other instrument. If more than twenty-five percent (25%) of the rentable square feet of the Premises is taken, or if access to the Premises is substantially impaired, Tenant shall have the option to terminate this Lease upon ninety (90) days’ notice, provided such notice is given no later than one hundred eighty (180) days after the date of such taking. Landlord shall be entitled to receive the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant’s personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claim does not diminish the award available to Landlord, its ground lessor with respect to the Real Property or its mortgagee, and such claim is payable separately to Tenant. All Rent shall be apportioned as of the date of such termination, or the date of such taking, whichever shall first occur. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Base Rent and Tenant’s Share of Direct Expenses and Utilities Costs shall be proportionately abated. Tenant hereby waives any provision of California law that conflicts with the foregoing provisions of this Article 12 including, without limitation, Sections 1265.110-1265.160 of the California Code of Civil Procedure.

12.2 Temporary Taking . Notwithstanding anything to the contrary contained in this Article 12 , in the event of a temporary taking of all or any portion of the Premises for a period of one hundred and eighty (180) days or less, then this Lease shall not terminate but the Base Rent and Tenant’s Share of Direct Expenses and Utilities Costs shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises. Landlord shall be entitled to receive the entire award made in connection with any such temporary taking.

 

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ARTICLE 13

COVENANT OF QUIET ENJOYMENT

Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other terms, covenants, conditions, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord. The foregoing covenant is in lieu of any other covenant express or implied.

ARTICLE 14

ASSIGNMENT AND SUBLETTING

14.1 Transfers . Except as provided in Section 14.7 below, Tenant shall not, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment or other such foregoing transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or permit the use of the Premises by any persons other than Tenant and its employees (all of the foregoing are hereinafter sometimes referred to collectively as “ Transfers ” and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a “ Transferee ”). If Tenant shall desire Landlord’s consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the “ Transfer Notice ”) shall include (i) the proposed effective date of the Transfer, which shall not be less than thirty (30) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the “ Subject Space ”), (iii) all of the terms of the proposed Transfer, the name and address of the proposed Transferee, and a copy of all existing and/or proposed documentation pertaining to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer, (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, and (v) such other information as Landlord may reasonably require. Any Transfer made without Landlord’s prior written consent shall, at Landlord’s option, be null, void and of no effect, and shall, at Landlord’s option, constitute a default by Tenant under this Lease. Each time Tenant requests Landlord’s consent to a proposed Transfer, whether or not Landlord shall grant consent, within thirty (30) days after written request by Landlord, as Additional Rent hereunder, Tenant shall pay to Landlord Seven Hundred Fifty Dollars ($750.00) for Landlord’s review and processing fees, and, in addition, Tenant shall reimburse Landlord for any reasonable out-of-pocket legal fees incurred by Landlord in connection with Tenant’s proposed Transfer.

 

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14.2 Landlord’s Consent . Landlord shall not unreasonably withhold its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. Notwithstanding the foregoing, Tenant hereby waives Tenant’s rights (if any) under Section 1995.310 of the California Civil Code and agrees that it shall be reasonable under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply, without limitation as to other reasonable grounds for withholding consent:

14.2.1 Landlord has sued or been sued by the proposed Transferee or has otherwise been involved in a legal dispute with the proposed Transferee or one of its affiliates;

14.2.2 The Transferee engages in any of the Prohibited Uses (as defined below), either within the Premises or, with regard to the Prohibited Uses listed as items 3 and 10 on Exhibit I hereto, in any other locations or online;

14.2.3 The Transferee intends to use the Subject Space for purposes which are not permitted under this Lease;

14.2.4 The Transferee is either a governmental agency or instrumentality thereof;

14.2.5 The Transfer will result in more than a reasonable and safe number of occupants per floor within the Subject Space; and

14.2.6 In the event that Landlord has recaptured any portion of the Premises pursuant to Section 14.4 below, then from and after such date, it shall be reasonable for Landlord to withhold its consent if either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, (i) occupies space in the Building at the time of the request for consent, (ii) is negotiating with Landlord to lease space in the Building at such time, or (iii) has negotiated with Landlord during the six (6)-month period immediately preceding the Transfer Notice, and in each instance Landlord has adequate available space in the Building to reasonably meet such tenant’s space requirements.

If Landlord consents to any Transfer pursuant to the terms of this Section 14.2 (and does not exercise any recapture rights Landlord may have under Section 14.4 of this Lease), Tenant may within six (6) months after Landlord’s consent, but not later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if there are any changes in the terms and conditions from those specified in the Transfer Notice (i) such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2 , or (ii) which would cause the proposed Transfer to be more favorable to the Transferee than the terms set forth in Tenant’s original Transfer Notice, Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14 (including Landlord’s right of recapture, if any, under Section 14.4 of this Lease). Tenant’s sole remedy in the event that Landlord shall wrongfully withhold consent to or disapprove any assignment or sublease shall be to obtain an order by a court of competent jurisdiction that Landlord grant such consent; in no event shall Landlord be liable for damages with respect to its granting or withholding consent to any proposed assignment or sublease.

 

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14.3 Transfer Premium . Except as otherwise provided in Section 14.7 below, if Landlord consents to a Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any “Transfer Premium,” as that term is defined in this Section 14.3 , received by Tenant from such Transferee. “ Transfer Premium ” shall mean all rent, additional rent and other consideration received from such Transferee in excess of the Rent, Additional Rent and other consideration payable by Tenant under this Lease on a per rentable square foot basis if less than all of the Premises is transferred, after deducting the actual, reasonable and documented expenses incurred by Tenant for (i) any changes, alterations and improvements made to the Premises, and/or any tenant improvement allowance provided by Tenant to the Transferee, in connection with the Transfer, (ii) any brokerage commissions and advertising expenses in connection with the Transfer, (iii) reasonable legal fees incurred by Tenant in negotiating the Transfer and obtaining Landlord’s consent thereto, (iv) costs of advertising the space for sublease or assignment, (v) unamortized cost of initial and subsequent improvements to the Premises by Tenant, and (vi) any other costs actually paid in assigning or subletting the Subject Space. The Transfer Premium shall not apply to any assignment or sublease to an Affiliate pursuant to the provisions of Section 14.7 below. “Transfer Premium” shall also include, but not be limited to, key money and bonus money paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to the Transferee in connection with such Transfer. For purposes of calculating Transfer Premium during the Abatement Period, the Base Rent shall be equal to $46.25 per rentable square of the Subject Space. Throughout the Lease Term, Tenant shall have the right to modify Base Rent for potential Transfer to full service by adding $4.00 per rentable square of the Subject Space without paying a Transfer Premium to Landlord to cover such gross-up expenses.

14.4 Landlord’s Option as to Subject Space . Notwithstanding anything to the contrary contained in this Article 14 , in the event that (i) the Subject Space of the proposed Transfer pertains to more than thirty-nine percent (39%) of the rentable area of the Premises and (ii) the term of the proposed Transfer is longer than eighty percent (80%) of the remaining Lease Term (including the Option Term, if Tenant has exercised such Option pursuant to the Extension Option Rider), then Landlord shall have the option, by giving written notice to Tenant (the “ Recapture Notice ”) within thirty (30) days after receipt of any Transfer Notice, to recapture the Subject Space. Such Recapture Notice shall cancel and terminate this Lease with respect to the Subject Space as of the date stated in the Transfer Notice as the effective date of the proposed Transfer until the last day of the term of the Transfer as set forth in the Transfer Notice. If Landlord provides its Recapture Notice to Tenant, Tenant has thirty (30) days in which to rescind the Transfer Notice and shall retain the Subject Space without a Transfer. If this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same. If Landlord declines, or fails to elect in a timely manner to recapture the Subject Space under this Section 14.4 , then, provided Landlord has consented to the proposed Transfer, Tenant shall be entitled to proceed to transfer the Subject Space to the proposed Transferee, subject to provisions of the last paragraph of Section 14.2 of this Lease.

 

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14.5 Effect of Transfer . If Landlord consents to a Transfer, (i) the terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, and (iv) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord’s consent, shall relieve Tenant or any guarantor of the Lease from liability under this Lease. Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof. If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency and Landlord’s costs of such audit.

14.6 Additional Transfers . Except as provided in Section 14.7 below, for purposes of this Lease, the term “Transfer” shall also include (i) if Tenant is a partnership, the withdrawal or change, voluntary, involuntary or by operation of law, of fifty percent (50%) or more of the partners, or transfer of twenty-five percent or more of partnership interests, within a twelve (12)-month period, or the dissolution of the partnership without immediate reconstitution thereof, and (ii) if Tenant is a closely held corporation (i.e., whose stock is not publicly held and not traded through an exchange or over the counter), (A) the dissolution, merger, consolidation or other reorganization of Tenant, (B) the sale or other transfer of more than an aggregate of fifty percent (50%) of the voting shares of Tenant (other than to immediate family members by reason of gift or death), within a twelve (12) month period or (C) the sale, mortgage, hypothecation or pledge of more than an aggregate of fifty percent (50%) of the value of the unencumbered assets of Tenant within a twelve (12) month period.

14.7 Affiliated Companies/Restructuring of Business Organization . The assignment or subletting by Tenant of all or any portion of this Lease or the Premises to, or the use of the Premises by, (i) any person or entity which controls, is controlled by or under common control with Tenant (with control being defined as ownership, directly or indirectly, of at least fifty percent (50%) of the voting stock of such entity), or (ii) any entity which purchases all or substantially all of the assets of Tenant, or (iii) any entity into which Tenant is merged or consolidated (all such persons or entities described in (i), (ii) and (iii) being sometimes hereinafter referred to as “ Affiliates ”) shall not be deemed a Transfer under this Article 14 , and thus shall not be subject to Landlord’s right to receive any Transfer Premium pursuant to Section 14.3 above, or Landlord’s recapture right in Section 14.4 above, provided that:

(a) any such Affiliate was not formed as a subterfuge to avoid the obligations of this Article 14 ;

(b) Tenant gives Landlord at least ten (10) days’ prior notice of any such assignment or sublease to an Affiliate;

 

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(c) Any such Affiliate has, as of the effective date of any such assignment or sublease a tangible net worth and net income, in the aggregate, computed in accordance with generally accepted accounting principles (but excluding goodwill as an asset), which is equal to or greater than Tenant as of the effective date of any such assignment or sublease and sufficient to meet the obligations of Tenant under the assignment or sublease;

(d) any such assignment or sublease shall be subject and subordinate to all of the terms and provisions of this Lease, and such assignee, if applicable, shall assume, in a written document delivered to Landlord upon or prior to the effective date of such assignment, all the obligations of Tenant under this Lease arising after the effective date of such assignment, including, without limitation, the provisions of Article 5 of the Lease regarding the use of the Premises; and

(e) Tenant shall remain fully liable for all obligations to be performed by Tenant under this Lease.

Notwithstanding anything hereinabove contained, Tenant acknowledges and agrees that Landlord’s consent shall be required, and may be withheld in Landlord’s sole discretion, if the proposed Transferee (or any Affiliate of such Transferee) is a person or entity that has previously defaulted under a lease or other agreement with Landlord or any Affiliate of Landlord, or against which Landlord or such Landlord Affiliate has entered into adversarial litigation, arbitration, mediation or other dispute resolution/settlement proceedings.

ARTICLE 15

SURRENDER; OWNERSHIP AND REMOVAL OF TRADE FIXTURES

15.1 Surrender of Premises . No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in a writing signed by Landlord. The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated. The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises.

15.2 Removal of Tenant Property by Tenant . Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15 , quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and repairs which are specifically made the responsibility of Landlord hereunder excepted. Upon such expiration or termination, subject to the terms of Section 8.3 above, Tenant shall, without expense to Landlord, remove or cause to be removed

 

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from the Premises all debris and rubbish, and such items of furniture, equipment, telephone, computer and any satellite cabling, free-standing cabinet work, and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises and Building resulting from such removal.

ARTICLE 16

HOLDING OVER

If Tenant holds over after the expiration of the Lease Term hereof, with or without the express or implied consent of Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Base Rent shall be payable at a monthly rate equal to (i) for the first two (2) months of the holdover, one hundred fifty percent (150%) of the Base Rent applicable during the last rental period of the Lease Term under this Lease and (ii) for the remainder of the holdover period, two hundred percent (200%) of the Base Rent applicable during the last rental period of the Lease Term under this Lease. Such month-to-month tenancy shall be subject to every other term, covenant and agreement contained herein. Landlord hereby expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law. If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys’ fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender, and any lost profits to Landlord resulting therefrom.

ARTICLE 17

ESTOPPEL CERTIFICATES

Within ten (10) business days following a request in writing by a party, the other party shall execute and deliver to the requesting party an estoppel certificate, which shall be substantially in the form of Exhibit E , attached hereto (or such other commercially reasonable form as may be reasonably required by any prospective mortgagee or purchaser of the Project, or any portion thereof, if Landlord is the requesting party), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by the requesting party. Failure of a party to execute and deliver such estoppel certificate within such 10-business day period, where such failure continues for an additional five (5) business days after a subsequent notice of such failure is delivered by the requesting party to such party, shall constitute an acknowledgment by such party that statements included in the estoppel certificate delivered to such party by the requesting party made in connection with a proposed sale or financing by Landlord or proposed Transfer by Tenant, as the case may be, are true and correct, without exception.

 

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ARTICLE 18

SUBORDINATION

This Lease is subject and subordinate to all present and future ground or underlying leases of the Real Property and to the lien of any mortgages or trust deeds, now or hereafter in force against the Real Property and the Building, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages or trust deeds, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto. Notwithstanding any contrary provision of this Article 18, a condition precedent to the subordination of this Lease to any future mortgage, deed of trust, ground or underlying lease is that Landlord shall obtain for the benefit of Tenant a commercially reasonable subordination, non-disturbance and attornment agreement from the mortgagee, beneficiary or lessor (collectively, a “ Mortgagee ”) under such future instrument. Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage, or if any ground or underlying lease is terminated, to attorn, without any deductions or set-offs whatsoever, to the purchaser upon any such foreclosure sale, or to the lessor of such ground or underlying lease, as the case may be, if so requested to do so by such purchaser or lessor, and to recognize such purchaser or lessor as the lessor under this Lease. Tenant shall, within ten (10) business days of request by Landlord, execute such further commercially reasonable instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases. Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale. Landlord represents and warrants to Tenant that as of the Lease Date, there are no other deeds of trust or ground leases encumbering the Real Property.

ARTICLE 19

TENANT’S DEFAULTS; LANDLORD’S REMEDIES; LANDLORD DEFAULTS

19.1 Events of Default by Tenant . All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant’s sole cost and expense and without any reduction of Rent. The occurrence of any of the following shall constitute a default of this Lease by Tenant:

19.1.1 Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, when due, where such failure shall continue for a period of three (3) days after written notice thereof from Landlord; or

19.1.2 Any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided however, that if the nature of such default is such that the same cannot reasonably be cured within a 30 day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure said default as soon as possible but in no event longer than ninety (90) days; or

 

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19.1.3 Abandonment or vacation of the Premises by Tenant. Abandonment is herein defined to include, but is not limited to, any absence by Tenant from the Premises for twenty (20) days or longer while in default of any provision of this Lease.

19.1.4 Any failure by Tenant to execute and deliver any statement described in Article 18 requested by Landlord, where such failure continues for five (5) business days after delivery of written notice of such failure by Landlord to Tenant.

Any notice given pursuant to this Section 15.1 shall be in lieu of, and not in addition to, any notice required under Section 1161 of the California Code of Civil Procedure, or any similar or successor statute.

19.2 Landlord’s Remedies Upon Default . Upon the occurrence of any such default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

19.2.1 Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim for damages therefor; and Landlord may recover from Tenant the following:

(i) The worth at the time of award of any unpaid rent which has been earned at the time of such termination; plus

(ii) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(iii) The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

(iv) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and

 

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(v) (v) At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

The term “ rent ” as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others. As used in Paragraphs 19.2.1(i) and (ii) , above, the “worth at the time of award” shall be computed by allowing interest at the Interest Rate set forth in Section 4.5 of this Lease. As used in Paragraph 19.2.1(iii) above, the “worth at the time of award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

19.2.2 Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.

19.2.3 Landlord may, but shall not be obligated to, make any such payment or perform or otherwise cure any such obligation, provision, covenant or condition on Tenant’s part to be observed or performed (and may enter the Premises for such purposes). Any such actions undertaken by Landlord pursuant to the foregoing provisions of this Section 19.2.3 shall not be deemed a waiver of Landlord’s rights and remedies as a result of Tenant’s failure to perform and shall not release Tenant from any of its obligations under this Lease. Tenant shall have no right of self-help to perform repairs or any other obligation of Landlord, and shall have no right to withhold, set-off, or abate Rent. Without limitation of the preceding sentence, Tenant hereby waives Tenant’s rights (if any) under Section 1932, Subdivision 1, and Section 1942 of the California Civil Code, Section 431.70 of the California Code of Civil Procedure, and similar laws.

19.3 Payment by Tenant . Tenant shall pay to Landlord, within fifteen (15) days after delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with Landlord’s performance or cure of any of Tenant’s obligations pursuant to the provisions of Section 19.2.3 above; and (ii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all legal fees and other amounts so expended. Tenant’s obligations under this Section 19.3 shall survive the expiration or sooner termination of the Lease Term.

19.4 Security for Performance of Tenant’s Obligations . Notwithstanding any security deposit held by Landlord pursuant to Article 20 , Tenant hereby agrees that in the event of a default by Tenant, Landlord shall be entitled to seek and obtain a writ of attachment and/or a temporary protective order and Tenant hereby waives any rights or defenses to contest such a writ of attachment and/or temporary protective order on the basis of California Code of Civil Procedure Section 483.010 or any other related statute or rule.

 

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19.5 Sublessees of Tenant . Whether or not Landlord elects to terminate this Lease on account of any default by Tenant, as set forth in this Article 19 , Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord’s sole discretion, succeed to Tenant’s interest in such subleases, licenses, concessions or arrangements. In the event of Landlord’s election to succeed to Tenant’s interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

19.6 Waiver of Default . No waiver by Landlord of any violation or breach by Tenant of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other or later violation or breach by Tenant of the same or any other of the terms, provisions, and covenants herein contained. Forbearance by Landlord in enforcement of one or more of the remedies herein provided upon a default by Tenant shall not be deemed or construed to constitute a waiver of such default. The acceptance of any Rent hereunder by Landlord following the occurrence of any default, whether or not known to Landlord, shall not be deemed a waiver of any such default, except only a default in the payment of the Rent so accepted.

19.7 Payment of Rent and Security Deposit After Default . If Tenant fails to pay Base Rent, Tenant’s Share of Direct Expenses or any other monetary obligation due hereunder on the date it is due, then after Tenant’s third failure to pay any monetary obligation on the date it is due, at Landlord’s option, all monetary obligations of Tenant hereunder shall thereafter be paid by cashier’s check, and Tenant shall, upon demand, provide Landlord with an additional security deposit equal to three (3) months’ Base Rent. If Landlord has required Tenant to make said payments by cashier’s check or to provide an additional security deposit, Tenant’s failure to make a payment by cashier’s check or to provide the additional security deposit shall be a default hereunder.

19.8 Efforts to Relet . For the purposes of this Article 19 , Tenant’s right to possession shall not be deemed to have been terminated by efforts of Landlord to relet the Premises, by its acts of maintenance or preservation with respect to the Premises, or by appointment of a receiver to protect Landlord’s interests hereunder. If Landlord elects to terminate this Lease pursuant to Section 19.2.1 above following Tenant’s default, Landlord shall use commercially reasonable efforts to mitigate its damages to the extent required by applicable Laws. The foregoing enumeration is not exhaustive, but merely illustrative of acts which may be performed by Landlord without terminating Tenant’s right to possession.

19.9 Waiver of Reinstatement . Tenant hereby waives all rights under California Code of Civil Procedure Sections 1174 and 1179 and California Civil Code Section 3275 providing for relief from forfeiture and any other right now or hereafter existing to redeem the Premises or reinstate this Lease after termination pursuant to this Article 19 or by order or judgment of any court or by any legal process.

 

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19.10 Default by Landlord . Landlord shall be in default under this Lease if (i) Landlord fails to perform any of its obligations hereunder and said failure continues for a period of thirty (30) days after written notice thereof from Tenant to Landlord; provided that if such failure cannot reasonably be cured within said 30-day period, Landlord shall be in default hereunder only if Landlord fails to commence the cure of said failure within said 30-day period, or having commenced the curative action within said 30-day period, fails to diligently pursue same, and (ii) each Mortgagee of whose identity Tenant has been notified in writing shall have failed to cure such default within thirty (30) days (or such longer period of time as may be specified in any written agreement between Tenant and Mortgagee regarding such matter) after receipt of written notice from Tenant of Landlord’s failure to cure within the time periods provided above. In the event of an uncured default by Landlord under the Lease, Tenant shall use reasonable efforts to mitigate its damages and losses arising from any such default and Tenant may pursue any and all remedies available to it at Law or in equity, provided, however, in no event shall Tenant claim a constructive or actual eviction or that the Premises have become unsuitable or uninhabitable prior to a default and failure to cure by Landlord and its Mortgagee under this Lease and, further provided, in no event shall Tenant be entitled to receive more than its actual direct damages, it being agreed that Tenant hereby waives any claim it otherwise may have for special or consequential damages.

ARTICLE 20

SIGNS

20.1 Building Standard Signage . Landlord shall provide space on the Building directory on the ground floor lobby of the Building for a listing identifying Tenant’s name and suite numbers in a location and with a design reasonably acceptable to Landlord and Tenant. Landlord shall also install signage identifying Tenant’s name: (a) either (i) on the entry door to the Premises located on each floor of the Building or (ii) on one (1) of the walls adjacent to such entry door; and (b) in any common elevator lobbies of the Building. All such signage described in this Section 20.1 shall use Building standard materials and lettering and shall otherwise be subject to Landlord’s reasonable approval. Landlord shall pay for the cost of the initial installation of such signage, and Tenant shall pay for the cost of any changes thereto.

20.2 Exterior Signage . Tenant shall not place, affix or maintain any signs, advertising placards, names, insignia, trademarks, descriptive material or any other similar item or items in, on or attached to the storefront, the glass panes and supports of the windows, the door, the roof or the demising walls of the Premises except as Landlord shall approve in writing in accordance with the provisions of this Section 20.2 . Subject to Tenant obtaining the approval of all applicable governmental entities and Tenant’s compliance with all applicable Laws and the terms of this Article 20 , Tenant shall have the right to install, at Tenant’s cost, one (1) sign displaying Tenant’s logo and Tenant’s name, “Zendesk” on (i) the Market Street elevation of the Building, (ii) the East elevation of the Building and (iii) the West elevation of the Building, each in the approximate location depicted on Exhibit F-1 attached hereto and labeled “office” or “Zendesk”, as applicable (the “ Building Exterior Signs ”). Regardless of whether any such items are depicted on Exhibit F-1 attached hereto, the graphics, materials, color, design, lettering, lighting, size, specifications, manner of affixing and exact location of the Building Exterior Signs shall be subject to Landlord’s reasonable approval. Tenant shall pay for all costs and expenses related to

 

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the Building Exterior Signs, including, without limitation, costs of the design, construction, installation, maintenance, insurance, utilities, repair and replacement of the Building Exterior Signs. Tenant shall install and maintain the Building Exterior Signs in compliance with all Laws and subject to the applicable provisions of Articles 8 and 9 above.

20.3 Transferability . The rights granted to Tenant under this Article 20 are personal to the original tenant executing this Lease (the “ Original Tenant ”) and any Affiliate to which Tenant’s entire interest in this Lease has been assigned pursuant to Section 14.7 (but any name change on the Building Exterior Signs to reflect such Affiliate assignee shall be subject to Landlord’s approval, which approval shall not be unreasonably withheld or delayed) and may not be exercised or used by or assigned to any other person or entity.

20.4 Maintenance/Removal . Should the Building Exterior Signs require maintenance, repairs or replacement as determined in Landlord’s reasonable judgment, Landlord shall have the right to provide written notice thereof to Tenant and Tenant shall cause such repairs, replacement and/or maintenance to be performed within fifteen (15) days after receipt of such notice from Landlord, at Tenant’s sole cost and expense; provided, however, if such repairs, replacement and/or maintenance are reasonably expected to require longer than fifteen (15) days to perform, Tenant shall commence such repairs, replacement and/or maintenance within such fifteen (15) day period and shall diligently prosecute such repairs, replacement and maintenance to completion. Should Tenant fail to perform such maintenance, repairs or replacement within the periods described in the immediately preceding sentence, Landlord shall have the right to cause such work to be performed and to charge Tenant as Additional Rent for the costs of such work. Upon the expiration or earlier termination of this Lease, Tenant shall, at Tenant’s sole cost and expense, cause the Building Exterior Signs to be removed, and Tenant shall repair all damage occasioned thereby and restore the affected areas to their original condition prior to the installation of Building Exterior Sign, normal wear and tear excepted. If Tenant fails to remove such signage and repair and restore the affected areas as provided in the immediately preceding sentence, within fifteen (15) days following the expiration or earlier termination of this Lease, then Landlord may perform such work, and all costs and expenses incurred by Landlord in so performing such work shall be reimbursed by Tenant to Landlord within fifteen (15) days after Tenant’s receipt of invoice therefor. The immediately preceding sentence shall survive the expiration or earlier termination of this Lease. Tenant shall be responsible for maintaining insurance on the Building Exterior Signs as part of the insurance required to be carried by Tenant pursuant to Section 10.2 above.

20.5 Use of Exterior Portion of the Building . Landlord agrees that except for bona fide identity signage and/or logos installed on the Building for the benefit of bona fide tenants in the Building, Landlord shall not grant any rights to any tenant or other third party to utilize the exterior surfaces (or any material portion thereof) of the Building for the purpose of advertising, promoting or identifying a person, sign, cause, project, product, service or the like by the placement of a billboard or similar advertising on the walls of the Building. Further, Landlord shall use reasonable efforts to inform Tenant of the type and location of the signage for the retail tenant at the Building. Any retail signage for the Building may only be placed within the area depicted and labeled “Retail” on Exhibit F-2 attached hereto.

 

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ARTICLE 21

COMPLIANCE WITH LAW

On and after the Lease Commencement Date, Landlord shall be responsible for ensuring that all common areas, including restrooms, are in compliance with all Laws (as defined below). Tenant shall not do anything or suffer anything to be done in or about the Premises or Buildings which will in any way conflict with any federal, state or local laws, statutes, ordinances or other governmental rules, regulations or requirements now in force or which may hereafter be enacted or promulgated, including, without limitation the Americans with Disabilities Act of 1990 (collectively, the “ Laws ”). At its sole cost and expense, Tenant shall promptly comply with all such Laws, including, without limitation, the making of any alterations and improvements to the Premises. Notwithstanding the foregoing to the contrary, Landlord shall be responsible for making all alterations and improvements required by applicable Laws with respect to the items which are Landlord’s responsibility to repair and maintain pursuant to Section 7.2 of this Lease (i.e., the structural portions of the Building, the exterior windows of the Building, the roof of the Building (other than the portions upon which Telecommunications Equipment and/or the Roof Deck are situated), the Base, Shell and Core components of the Building and the common areas of the Building and Real Property); provided , however , that Tenant shall reimburse Landlord, within thirty (30) days after invoice, for the costs of any such improvements and alterations and other compliance costs to the extent necessitated by or resulting from (i) any Alterations installed by or on behalf of Tenant (including, without limitation, the installation of the Telecommunications Equipment and/or the Roof Deck), (ii) any specific act, omission or negligence of tenant or Tenant’s agents, contractors, employees or licensees, and/or (iii) Tenant’s specific manner of use of the Premises (as distinguished from general office use). The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said Laws, shall be conclusive of that fact as between Landlord and Tenant.

ARTICLE 22

ENTRY BY LANDLORD

Landlord reserves the right at all reasonable times and upon at least 48 hours’ advance written notice to Tenant (except no such notice shall be required in emergencies) to enter the Premises to: (i) inspect them; (ii) show the Premises to prospective purchasers, or mortgagees, or to the ground or underlying lessors and, during the last year of the Lease Term, to prospective tenants; (iii) post reasonable and customary notices of nonresponsibility; and/or (iv) alter, improve or repair the Premises or the Building if necessary to comply with current building codes or other applicable laws, or for structural alterations, repairs or improvements to the Building which Landlord is required to perform under this Lease. Notwithstanding anything to the contrary contained in this Article 22 , Landlord may enter the Premises at any time to (a) perform regularly scheduled services required of Landlord; and (b) perform any covenants of Tenant which Tenant fails to perform. Any such entries shall be without the abatement of Rent and shall include the right to take such reasonable steps as required to accomplish the stated purposes. Subject to Landlord’s indemnity of Tenant in Section 10.1.2 above, Tenant hereby waives any claims for damages or for any injuries or inconvenience to or interference with

 

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Tenant’s business, lost profits, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the above purposes, Landlord shall at all times have a key with which to unlock all the doors in the Premises, excluding Tenant’s vaults, safes and special security areas designated in advance by Tenant. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises. Any entry into the Premises in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises. Notwithstanding anything to the contrary set forth above, Landlord agrees to use commercially reasonable efforts to minimize interference with Tenant’s use of and access to the Premises as a result of Landlord’s exercise of its entry rights under this Article 22 .

ARTICLE 23

ROOFTOP RIGHTS

23.1 Telecommunications Equipment . Notwithstanding the terms and provisions of the Lease to the contrary, if Tenant requires the use of telecommunications services, including, without limitation, satellite service, Internet access, credit card verification or other data transmission equipment (collectively, the “ Telecommunications Equipment ”), then upon fifteen (15) days advance written notice to Landlord and subject to available capacity and Tenant’s compliance with all applicable Laws and Landlord’s requirements for property and roof maintenance and repair, Tenant shall have the non-exclusive right to place such Telecommunications Equipment on the roof of the Building in a location approved by Landlord. The Telecommunications Equipment and Tenant’s right to use the roof of the Building for the installation of such equipment shall be for Tenant’s sole use and such right may not be transferred, assigned, subleased or otherwise alienated by Tenant to a third party telecommunications carrier or other third party that does not occupy space in the Premises. Tenant agrees that Tenant shall not sell the use of the Telecommunications Equipment to provide services to any party other than Tenant and its subtenant(s)’ employees and clients in connection with its business, or to transmit to any other location other than the Premises. The installation of the Telecommunications Equipment shall constitute work and shall be performed in accordance with and subject to the provisions of Article 8 above, and the portion of the roof of the Building affected by the Telecommunications Equipment shall be deemed to be a portion of the Premises (provided, however, that no Rent or Additional Rent shall be charged for the use of the roof); consequently, all of the provisions of the Lease with respect to Tenant’s obligations hereunder shall apply to the installation, use and maintenance of the Telecommunications Equipment, including without limitation, provisions relating to compliance with requirements as to insurance, indemnity, repairs and maintenance. The cost of the Telecommunications Equipment and all costs of installing, maintaining and removing the Telecommunications Equipment shall be borne solely by Tenant. Upon the expiration of the Lease Term or upon any earlier termination of this Lease, Tenant shall, at Tenant’s sole cost and expense and subject to the control of and direction from Landlord, remove the Telecommunications Equipment, repair and damage caused thereby, and restore the roof to the condition existing prior to the installation of the Telecommunications Equipment, reasonable wear and tear excepted.

 

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23.2 Rooftop Deck . Subject to Tenant’s compliance with all applicable Laws and this Section 23.2 , Tenant shall have the right to use a portion of the roof of the Building to install a deck (the “ Roof Deck ”) for the sole purpose of providing outside lounge space and meeting space for Tenant’s employees, invitees, guests, and visitors, and for receptions. Tenant shall not be entitled to use the Roof Deck for any other purpose whatsoever. Landlord makes no representation that necessary permits and approvals to install the Roof Deck can be obtained or that Tenant’s use of the Roof Deck is permitted by governmental laws, rules and regulations. The installation of the Roof Deck, if at all, shall be made after the completion of the Tenant Improvements and shall constitute an Alteration to be performed by Tenant, at Tenant’s sole cost and expense, in accordance with and subject to the provisions of Article 8 above. The portion of the roof of the Building where the Roof Deck is situated shall be deemed to be a portion of the Premises; consequently, all of the provisions of the Lease with respect to Tenant’s obligations hereunder shall apply to the installation, use, maintenance and cleaning of the Roof Deck, including without limitation, provisions relating to compliance with requirements as to insurance, indemnity, repairs and maintenance; provided, however, Tenant shall not be required to pay any Base Rent or Additional Rent for the use of the Roof Deck nor shall such area be included with any rentable area calculations for purposes of this Lease. Landlord may require that Tenant install, at Tenant’s expense, safety fencing or other perimeter boundary improvements to separate the Roof Deck from the remaining areas of the roof. The cost of installing and maintaining the Roof Deck shall be borne solely by Tenant. Tenant shall be responsible for all taxes and charges imposed for any of Tenant’s personal property in the Roof Deck and shall comply with all rules and regulations promulgated by Landlord with regard to Tenant’s use of the Roof Deck. Tenant shall not make any alterations to the Roof Deck without the prior written consent of Landlord, which consent may be withheld by Landlord in its sole and absolute discretion. Unless required as part of the governmental approvals for the installation and use of the Roof Deck, Tenant shall not be required to remove the Roof Deck at the expiration or earlier termination of this Lease.

ARTICLE 24

MISCELLANEOUS PROVISIONS

24.1 Terms; Captions . The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed. The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.

24.2 Binding Effect . Each of the provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 of this Lease.

24.3 No Waiver . No waiver of any provision of this Lease shall be implied by any failure of a party to enforce any remedy on account of the violation of such provision, even if such violation shall continue or be repeated subsequently, any waiver by a party of any provision of this Lease may only be in writing, and no express waiver shall affect any provision other than

 

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the one specified in such waiver and that one only for the time and in the manner specifically stated. No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant’s right of possession hereunder or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.

24.4 Modification of Lease . Should any current or prospective mortgagee or ground lessor for the Building require a modification or modifications of this Lease, which modification or modifications will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are required therefor and deliver the same to Landlord within ten (10) business days following the request therefor. Should Landlord or any such current or prospective mortgagee or ground lessor require execution of a short form of Lease for recording, containing, among other customary provisions, the names of the parties, a description of the Premises and the Lease Term, Tenant agrees to execute such short form of Lease and to deliver the same to Landlord within ten (10) business days following the request therefor.

24.5 Transfer of Landlord’s Interest . Tenant acknowledges that Landlord has the right to transfer all or any portion of its interest in the Real Property, the Building and/or in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease and Tenant agrees to look solely to such transferee for the performance of Landlord’s obligations hereunder after the date of transfer; provided that the transferee has executed an assignment and assumption agreement that provides that the transferee assumes all of the obligations of Landlord. The liability of any transferee of Landlord shall be limited to the interest of such transferee in the Real Property and Building and such transferee shall be without personal liability under this Lease, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant. Tenant further acknowledges that Landlord may assign its interest in this Lease to a mortgage lender as additional security, subject to the provisions of Article 18 above, including the delivery of a commercially reasonable subordination, non-disturbance and attornment agreement from the Mortgagee, and agrees that such an assignment shall not release Landlord from its obligations hereunder and that Tenant shall continue to look to Landlord for the performance of its obligations hereunder.

24.6 Prohibition Against Recording . Except as provided in Section 24.4 of this Lease, neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant, and the recording thereof in violation of this provision shall make this Lease null and void at Landlord’s election.

24.7 Landlord’s Title; Air Rights . Landlord’s title is and always shall be paramount to the title of Tenant. Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord; provided, however, that Landlord shall not construct any improvements in its airspace during the pendency of this Lease. No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease.

 

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24.8 Relationship of Parties . Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint-venturer or any association between Landlord and Tenant, it being expressly understood and agreed that neither the method of computation of Rent nor any act of the parties hereto shall be deemed to create any relationship between Landlord and Tenant other than the relationship of landlord and tenant.

24.9 Application of Payments . Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant’s designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.

24.10 Time of Essence . Time is of the essence of this Lease and each of its provisions.

24.11 Partial Invalidity . If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.

24.12 No Warranty . In executing and delivering this Lease, Tenant has not relied on any representation, including, but not limited to, any representation whatsoever as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not expressly set forth in Article 4 or in one or more of the Exhibits attached hereto.

24.13 Landlord Exculpation . It is expressly understood and agreed that notwithstanding anything in this Lease to the contrary, and notwithstanding any applicable law to the contrary, the liability of Landlord and the Landlord Parties hereunder (including any successor landlord) and any recourse by Tenant against Landlord or the Landlord Parties shall be limited solely and exclusively to an amount which is equal to the interest of Landlord in the Building, and neither Landlord, nor any of the Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant.

24.14 Entire Agreement . It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. This Lease and any side letter or separate agreement executed by Landlord and Tenant in connection with this Lease and dated of even date herewith contain all of the terms, covenants, conditions, warranties

 

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and agreements of the parties relating in any manner to the rental, use and occupancy of the Premises, shall be considered to be the only agreement between the parties hereto and their representatives and agents, and none of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto. All negotiations and oral agreements acceptable to both parties have been merged into and are included herein. There are no other representations or warranties between the parties, and all reliance with respect to representations is based totally upon the representations and agreements expressly contained in this Lease.

24.15 Right to Lease . Landlord reserves the absolute right to effect such other tenancies in the Building as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building; provided, however, that Landlord shall not enter into a lease permitting any tenant to engage in any of the uses set forth on Exhibit I attached hereto (the “ Prohibited Uses ”). Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant, type of use or number of tenants shall, during the Lease Term, occupy any space in the Building.

24.16 Force Majeure . Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, delay due to changes in any Laws (including, without limitation, the ADA), or the interpretation thereof, or delay attributable to lightning, earthquake, fire, storm, hurricane, tornado, flood, washout, explosion, or any other similar industry-wide or Building-wide cause beyond the reasonable control of the party from whom performance is required, or any of its contractors or other representative, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease and except with respect to Tenant’s obligations under the Tenant Work Letter (collectively, the “ Force Majeure ”), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.

24.17 Notices . All notices, demands, statements or communications (collectively, “ Notices ”) given or required to be given by either party to the other hereunder shall be in writing, shall be sent by United States certified or registered mail, postage prepaid, return receipt requested, by nationally recognized overnight courier service or delivered personally (i) to Tenant at the appropriate address set forth in Section 5 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord; or (ii) to Landlord at the addresses set forth in Section 3 of the Summary, or to such other firm or to such other place as Landlord may from time to time designate in a Notice to Tenant. Any Notice will be deemed given on the date it is mailed as provided in this Section 24.17 or upon the date personal delivery is made. If Tenant is notified of the identity and address of Landlord’s mortgagee or ground or underlying lessor, Tenant shall give to such mortgagee or ground or underlying lessor written notice of any default by Landlord under the terms of this Lease by registered or certified mail, and such mortgagee or ground or underlying lessor shall be given a reasonable opportunity to cure such default prior to Tenant’s exercising any remedy available to Tenant.

 

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24.18 Joint and Several . If there is more than one Tenant, the obligations imposed upon Tenant under this Lease shall be joint and several. In such event it is agreed that any one of the named Tenants shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Tenants, and Landlord may rely on the same as if all of the named Tenants had executed such document.

24.19 Authority . If Tenant is a corporation or partnership, each individual executing this Lease on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in the state in which the Building is located and that Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant is authorized to do so.

24.20 Attorneys’ Fees; Landlord Bankruptcy Proceedings . If Landlord or Tenant brings an action to enforce the terms hereof or declare rights hereunder, the prevailing party in any such action, or appeal thereon, shall be entitled to its reasonable attorneys’ fees and court costs to be paid by the losing party as fixed by the court in the same or separate suit, and whether or not such action is pursued to decision or judgment. The attorneys’ fee award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees and court costs reasonably incurred in good faith. Landlord shall be entitled to reasonable attorneys’ fees and all other costs and expenses incurred in the preparation and service of notices of default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such default. Landlord and Tenant agree that attorneys’ fees incurred with respect to defaults and bankruptcy are actual pecuniary losses within the meaning of Section 365(b)(1)(B) of the Bankruptcy Code or any successor statute.

24.21 Governing Law . This Lease shall be construed and enforced in accordance with the laws of the state in which the Building is located.

24.22 Submission of Lease . Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or an option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.

24.23 Brokers . Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 13 of the Summary (the “ Brokers ”), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of the indemnifying party’s dealings with any real estate broker or agent other than the Brokers.

24.24 Independent Covenants . This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or

 

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perform any acts hereunder at Landlord’s expense or to any setoff of the Rent or other amounts owing hereunder against Landlord; provided , however , that the foregoing shall in no way impair the right of Tenant to commence a separate action against Landlord for any violation by Landlord of the provisions hereof so long as notice is first given to Landlord and any holder of a mortgage or deed of trust covering the Building, Real Property or any portion thereof, of whose address Tenant has theretofore been notified, and an opportunity is granted to Landlord and such holder to correct such violations as provided above.

24.25 Confidentiality . Tenant and Landlord each acknowledge that the content of this Lease and any related documents are confidential information. Tenant and Landlord shall each keep such confidential information strictly confidential and shall not disclose such confidential information to any person or entity other than such party’s financial, legal, and space planning consultants. In addition, Landlord shall be permitted to disclose the contents of this Lease and any related documents to its lenders, partners, investors, prospective investors, and prospective purchasers. Each party shall be relieved of its obligations to hold confidential information in strict confidence with respect to any portion of such confidential information that: (i) is or later falls within the public domain without breach of this Lease; (ii) was known to, or independently developed by, such party prior to disclosure by the other party; (iii) becomes known to such party from a third party not owing any obligation of confidence to such party; (iv) such party is subject to banking, insurance or other regulation, or requirements of the Securities Exchange Commission, that would require confidential information to be disclosed to examiners or auditors, government officials, or other parties in accordance with Laws.

24.26 Property Management . Landlord shall engage a property manager that has experience in managing properties similar to the Building in its improved condition.

24.27 Landlord Renovations . It is specifically understood and agreed that Landlord has no obligation and has made no promises to alter, remodel, improve, renovate, repair or decorate the Premises, Building, Real Property, or any part thereof and that no representations or warranties respecting the condition of the Premises, the Building or the Real Property have been made by Landlord to Tenant, except as specifically expressly set forth in this Lease or in Exhibit B attached to this Lease. However, Tenant acknowledges that Landlord may from time to time, at Landlord’s sole option, renovate, improve, alter, or modify (collectively, the “ Renovations ”) the Building, Premises, and/or Real Property, including without limitation, the common areas, systems and equipment, roof, and structural portions of the same, which Renovations may include, without limitation, (i) modifying the common areas and tenant spaces to comply with applicable laws and regulations, including regulations relating to the physically disabled, seismic conditions, and building safety and security, and (ii) installing new carpeting, lighting, and wall coverings in the Building common areas, and in connection with such Renovations, Landlord may, among other things, erect scaffolding or other necessary structures in the Building, limit or eliminate access to portions of the Real Property, including portions of the common areas, or perform work in the Building, which work may create noise, dust or leave debris in the Building. Tenant hereby agrees that such Renovations and Landlord’s actions in connection with such Renovations shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of Rent (except to the extent provided under Section 11.5 above). Landlord shall have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenant’s business arising from the Renovations, nor

 

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shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or of Tenant’s personal property or improvements resulting from the Renovations or Landlord’s actions in connection with such Renovations, or for any inconvenience or annoyance occasioned by such Renovations or Landlord’s actions in connection with such Renovations except to the extent provided under Section 11.5 above. All Renovations that are performed during the Business Hours and are reasonably anticipated to disturb Tenant’s use or enjoyment of the Premise shall be done only after Tenant has provided its prior written consent, which shall not be unreasonably withheld or delayed, and provided that Landlord delivers to Tenant detailed information about the nature of the Renovations, including the scope of the Renovations, the times during which construction work will take place, the schedule for the construction, and location of the Renovations. Notwithstanding the foregoing, Tenant’s consent shall not be required with respect to any Renovations that are necessitated for Landlord to comply with its obligations under Article 21 above, but Landlord shall in such event, except in the event of an emergency, provide Tenant with detailed information about the nature of such Renovations, including the scope of the applicable Renovations, the times during which construction work will take place, the schedule for the construction, and location of the applicable Renovations.

24.28 Prohibited Party Transactions . Tenant represents and warrants to Landlord that (1) Tenant is not acting, directly or indirectly, for or on behalf of any person, group, entity, or nation named by any Executive Order or the United States Treasury Department as a terrorist, “Specially Designated National,” “Blocked Person,” or other banned or blocked person, entity, nation, or transaction pursuant to any law, order, rule, or regulation that is enforced or administered by the Office of Foreign Assets Control; and (2) Tenant is not engaged in this transaction, directly or indirectly on behalf of, or instigating or facilitating this transaction, directly or indirectly on behalf of, any such person, group, entity or nation. Tenant agrees to defend, indemnify, and hold harmless Landlord from and against any and all claims, damages, losses, risks, liabilities, and expenses (including reasonable attorney’s fees and costs) arising or related to any breach of the foregoing representation and warranty.

24.29 Certified Access Specialist (CASp) Inspection . Please be advised that the Premises has not undergone an inspection by a Certified Access Specialist (CASp). Since compliance with the Americans with Disabilities Act of 1990, the California Building Code and similar legislation and/or codes, all as amended or supplemented from time to time (collectively referred to herein as the “ Codes ”) is dependent upon Tenant’s specific use of the Premises and Tenant’s intended leasehold improvements and alterations, Landlord makes no warranty or representation as to whether or not the Premises complies with the Codes except as otherwise expressly set forth in this Lease. See also Senate Bill No. 1186, California Civil Code §1938 and §55.53, as amended or supplemented from time to time.

24.30 Consent and Approvals . Any time the consent or approval of Landlord or Tenant is required under this Lease, such consent or approval shall not be unreasonably withheld, conditioned or delayed, and whenever this Lease grants Landlord or Tenant the right to take action, exercise discretion, establish rules and regulations or make an allocation or other determination, Landlord and Tenant shall act reasonably and in good faith. Notwithstanding the foregoing, (i) Landlord shall be entitled to grant or withhold its consent or approval or exercise its discretion in its sole and absolute discretion with respect to (A) matters which could affect the

 

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common areas of the Real Property or the exterior appearance of the Building or Real Property, (B) actions taken by Landlord pursuant to Article 19 of this Lease, or (C) matters which could have an adverse effect on the structural components or Systems and Equipment of the Building, and (ii) Landlord and Tenant shall grant or withhold its consent or exercise its discretion with respect to matters for which there is a standard of consent or approval or discretion specifically set forth in this Lease in accordance with such specific standards.

24.31 Counterparts . This Lease may be executed in counterparts, all of which, when taken together, shall constitute a fully executed original.

LANDLORD AND TENANT ACKNOWLEDGE THAT THEY HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND TENANT WITH RESPECT TO THE PREMISES. TENANT ACKNOWLEDGES THAT IT HAS BEEN GIVEN THE OPPORTUNITY TO HAVE THIS LEASE REVIEWED BY ITS LEGAL COUNSEL PRIOR TO ITS EXECUTION. PREPARATION OF THIS LEASE BY LANDLORD OR LANDLORD’S AGENT AND SUBMISSION OF SAME TO TENANT SHALL NOT BE DEEMED AN OFFER BY LANDLORD TO LEASE THE PREMISES TO TENANT OR THE GRANT OF AN OPTION TO TENANT TO LEASE THE PREMISES. THIS LEASE SHALL BECOME BINDING UPON LANDLORD ONLY WHEN FULLY EXECUTED BY BOTH PARTIES AND WHEN LANDLORD HAS DELIVERED A FULLY EXECUTED ORIGINAL OF THIS LEASE TO TENANT. THE DELIVERY OF A DRAFT OF THIS LEASE TO TENANT SHALL NOT CONSTITUTE AN AGREEMENT BY LANDLORD TO NEGOTIATE IN GOOD FAITH, AND LANDLORD EXPRESSLY DISCLAIMS ANY LEGAL OBLIGATION TO NEGOTIATE IN GOOD FAITH.

[SIGNATURES APPEAR ON THE IMMEDIATELY FOLLOWING PAGE.]

 

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IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.

 

“Landlord”:    

1019 MARKET ST. PROPERTY, LLC,

a Delaware limited liability company

    By:  

1019 Market St. Holdings III, LLC,

a Delaware limited liability company Its

Managing Member

      By:   /s/ W. Greg Geiger
        Printed Name:  W. Greg Geiger                                             
        Title:  Authorized Signer                                                         
      By:   /s/ Sean Armstrong
        Printed Name:  Sean Armstrong                                             
        Title:  Authorized Signer                                                         
“Tenant”:    

ZENDESK, INC.,

a Delaware corporation

      By:   /s/ Mikkel Svane
        Printed Name:  Mikkel Svane                                                 
        Title:  CEO and President                                                     
      By:   /s/ John Geschke
        Printed Name:  John Geschke                                                 
        Title:  General Counsel and Secretary                                     

 

*** If Tenant is a corporation, the authorized officers must sign on behalf of the corporation and indicate the capacity in which they are signing. The Lease must be executed by the president or vice president and the secretary or assistant secretary, unless the bylaws or a resolution of the board of directors shall otherwise provide, in which event, the bylaws or a certified copy of the resolution, as the case may be, must be attached to this Lease.

 

Signature Page


EXHIBIT A

OUTLINE OF FLOOR PLANS OF PREMISES

Exhibit A to that certain Lease Agreement dated as of September 6, 2013, between 1019 MARKET ST. PROPERTY, LLC, a Delaware limited liability company (“ Landlord ”), and ZENDESK, INC., a Delaware corporation (“ Tenant ”).

The Outline of the Floor Plan of Premises comprising this Exhibit A is attached hereto as the immediately following page and is incorporated herein by this reference.


 

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EXHIBIT B

TENANT WORK LETTER

This Tenant Work Letter (“ Tenant Work Letter ”) shall set forth the terms and conditions relating to the initial construction of Tenant Improvements (as defined in Section 2.1 below) in the Premises. This Tenant Work Letter is essentially organized chronologically and addresses the issues of the construction of the Tenant Improvements, in sequence, as such issues will arise during the actual construction of the Tenant Improvements in the Premises. All references in this Tenant Work Letter to Sections of “ this Lease ” shall mean the relevant portion of the Lease Agreement to which this Tenant Work Letter is attached as Exhibit B and of which this Tenant Work Letter forms a part.

SECTION 1

GENERAL CONSTRUCTION OF THE PREMISES

1.1 Delivery of Base, Shell and Core . Prior to the Effective Date, Landlord shall construct (a) the base, shell, and core (i) of the Premises and (ii) of the floors of the Building on which the Premises are located, including, without limitation, certain finishes in and to the 5th Floor, (b) certain additional improvements to the Building and its facade (collectively, the “ Base , Shell , and Core ”), all as further specified in the plans and specifications described on Schedule 1 attached hereto (the “ Project Plans ”) copies of which have been provided or made available to Tenant. Tenant represents and warrants that it has had an opportunity to review and inspect the Project Plans and the Building, including, without limitation, the Premises as improved pursuant to the Project Plans, and by executing the Lease, Tenant accepts the Building and the Base, Shell and Core, except for those items listed on Schedule 3 attached hereto (the “ Storefront Work ”), in its current “As-Is” condition existing as of the Lease Date and the Lease Commencement Date, subject to Landlord’s obligations with regard to the Compliance Condition set forth in this Section 1.1 . Landlord shall install in the Premises certain “ Tenant Improvements ” (as defined below) pursuant to the provisions of this Tenant Work Letter. Except for the Tenant Improvement work described in this Tenant Work Letter and except for the Tenant Improvement Allowance set forth below, Landlord shall not be obligated to make any other alterations or improvements to the Premises, the Building or the Real Property. On the Lease Commencement Date, Landlord shall deliver the Base, Shell and Core, the Tenant Improvements and the Systems and Equipment in good working order and condition and in compliance with all Laws (herein the “ Compliance Condition ”). In the event that as of the Lease Commencement Date (x) the Base, Shell and Core, the Tenant Improvements and/or the Systems and Equipment are not in the Compliance Condition or and (y) Tenant delivers to Landlord written notice of the existence of the Compliance Condition (the “ Non-Compliance Notice ”) by the date which is one hundred eighty (180) days after the Lease Commencement Date (the “ Non-Compliance Outside Date ”), then Landlord shall, at Landlord’s sole cost and expense which expense shall not be included in Additional Rent, do that which is necessary to put the applicable components of the Base, Shell and Core, the Tenant Improvements and/or the Systems and Equipment described in the Non-Compliance Notice into the Compliance Condition within a reasonable period of time after Landlord’s receipt of the Non-Compliance Notice or such shorter period as is required by Law; provided, further, that to the extent any such work is required or triggered by Tenant’s proposed

 

Exhibit B

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use of the Premises or the Tenant Improvements to be constructed therein, then Landlord shall perform such work, but Tenant shall pay Landlord for the cost of such work within thirty (30) days after invoice by Landlord or (as to the interior area of the Premises only) Tenant shall perform such work at Tenant’s sole cost and expense. If Tenant fails to deliver the Non-Compliance Notice to Landlord on or prior to the Non-Compliance Outside Date, Landlord shall have no obligation to perform the work described in the foregoing provisions of this Section 1; provided that Landlord shall remain responsible for making all alterations and improvements which are Landlord’s responsibility to make pursuant to Section 7.2 and Article 21 of the Lease.

1.2 Termination Right . If Landlord fails to cause the Substantial Completion of the Storefront Work to occur by the date that is one hundred fifty (150) days after the Lease Date (the “ Outside Date ”), as such date may be extended as provided hereinbelow, then the sole remedy of Tenant for such failure shall be the right to deliver a notice to Landlord (a “ Termination Notice ”) electing to terminate this Lease effective upon the date occurring five (5) business days following Landlord’s receipt of the Termination Notice (the “ Termination Effective Date ”). The effectiveness of any such Termination Notice delivered by Tenant to Landlord shall be governed by the terms of this Section 1.2. The Termination Effective Date and the Outside Date shall be extended to the extent of any delays beyond the reasonable control of Landlord, including any delay or delays caused by “Force Majeure,” as that term is defined in Section 24.16 of the Lease. Upon any termination of this Lease as set forth in this Section 1.2, Landlord and Tenant shall be relieved from any and all liability to each other resulting hereunder except that Landlord shall return to Tenant any prepaid rent. Tenant’s rights to terminate this Lease, as set forth in this Section 1.2, shall be Tenant’s sole and exclusive remedy at law or in equity for the failure of the Substantial Completion of the Storefront Work to occur as set forth above. Upon the occurrence of the Substantial Completion of the Storefront Work, Tenant’s rights to terminate this Lease, as set forth in this Section 1.2, shall be null and void.

SECTION 2

TENANT IMPROVEMENTS

2.1 Tenant Improvement Allowance . Tenant shall be entitled to a one-time tenant improvement allowance (the “ Tenant Improvement Allowance ”) in the amount of up to, but not exceeding Forty-Eight Dollars ($48.50) per rentable square foot of the Premises (i.e., up to Three Million Five Hundred Thirty-seven Thousand Two Hundred Fifty and 50/100ths Dollars ($3,537,250.50), based on 72,933 rentable square feet in the Premises), for the costs relating to the initial design and construction of Tenant’s improvements which are permanently affixed to the Premises (the “ Tenant Improvements ”) over and above the items included in the Base, Shell, and Core. Tenant shall not be responsible for nor shall Tenant fund any construction to the Base, Shell, and Core and to any of the structural components of the Building. In no event shall Landlord be obligated to make disbursements pursuant to this Tenant Work Letter in a total amount which exceeds the Tenant Improvement Allowance. Tenant shall not be entitled to receive any cash payment or credit against Rent or otherwise for any portion of the Tenant Improvement Allowance which is not used to pay for the Tenant Improvement Allowance Items (as such term is defined below); provided, however, upon the completion of the Tenant Improvements, and provided that Tenant completed the Tenant Improvements in a manner substantially consistent with the Final Space Plans, as amended from time to time by mutual

 

Exhibit B

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consent of Landlord and Tenant, to the extent that any portion of the Tenant Improvement Allowance is unused, then Tenant shall have the right, exercisable by written notice to Landlord (the “ Unused Allowance Exercise Notice ”), to elect to use such unused amount of the Tenant Improvement Allowance (the “ Unused Allowance Amount ”), if any, to receive a credit against consecutive future installments of Base Rent next coming due under the Lease immediately following the Abatement Period, and for no other purpose. Notwithstanding anything in this Section 2.1 to the contrary, in no event shall the aggregate of any Base Rent credit received by Tenant exceed the amount of the Unused Allowance Amount.

2.2 A llowable Items Eligible for Disbursement from the Tenant Improvement Allowance . Except as otherwise set forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be disbursed by Landlord (each of which disbursement shall be made pursuant to Landlord’s standard disbursement process), only for the following items and costs (collectively, the “ Tenant Improvement Allowance Items ”):

2.2.1 payment of the fees of the “ Architect ” and the “ Engineers ,” as those terms are defined in Section 3.1 of this Tenant Work Letter, Tenant’s project coordinator, construction consultant or similar consultant providing actual and direct services to Tenant with respect to the construction of the Tenant Improvements; provided, however, that only an amount not to exceed $7.00 per rentable square foot of the Premises (i.e., up to Five Hundred Ten Thousand Five Hundred Thirty-One Dollars ($510,531.00)) may be deducted from the Tenant Improvement Allowance to pay for such fees, and payment of the fees incurred by, and the cost of documents and materials supplied by, Landlord and Landlord’s consultants in connection with the preparation and review of the “Construction Drawings,” as that term is defined in Section 3.1 of this Tenant Work Letter and such work as may be undertaken by such consultants;

2.2.2 the payment of plan check, permit and license fees relating to construction of the Tenant Improvements, including, any utility connection fees or subcharges assessed based upon Tenant’s use of the Premises;

2.2.3 the cost of construction of the Tenant Improvements, including, without limitation, contractors’ fees and general conditions, testing and inspection costs, costs of utilities, trash removal, parking and hoists, and the costs of after-hours freight elevator usage;

2.2.4 the cost of any changes in the Base, Shell and Core when such changes are required by the Construction Drawings (including if such changes are due to the fact that such work is prepared on an unoccupied basis), such cost to include all direct architectural and/or engineering fees and expenses incurred in connection therewith;

2.2.5 the cost of any changes to the Construction Drawings or Tenant Improvements required by applicable laws and building codes (collectively, “ Code ”);

2.2.6 sales and use taxes and Title 24 fees;

2.2.7 the Landlord Supervision Fee, as that term is defined in Section 4.3.2 of this Tenant Work Letter; and

 

Exhibit B

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2.2.8 All other costs to be expended by Landlord in connection with the construction of the Tenant Improvements.

2.2.9 [Intentionally deleted]

2.3 Disbursement of the Tenant Improvement Allowance . During the design and construction of the Tenant Improvements, Landlord shall make monthly disbursements of the Tenant Improvement Allowance for Tenant Improvement Allowance Items for the benefit of Tenant and shall authorize the release of monies for the benefit of Tenant pursuant to Landlord’s standard disbursement process; provided, however, that Landlord shall have no obligation to disburse any portion of the Tenant Improvement Allowance until after Landlord’s receipt of (i) an application and certification for payment of the “Contractor,” as that term is defined in Section 4.1 of this Tenant Work Letter, showing the schedule, by trade of percentage of completion of the Tenant Improvements in the Premises, detailing the portion of the work completed and the portion not completed, (ii) appropriate executed progress mechanics’ lien releases which comply with the applicable provisions of California Civil Code Sections 8132¬8138 (although Landlord (and not Tenant) shall be responsible for obtaining such lien releases, and in connection therewith Landlord shall use commercially reasonable efforts to promptly obtain such lien releases), (iii) if there is an Over-Allowance Amount required to be paid by Tenant pursuant to Section 4.3 below for such disbursement, Landlord shall only be required to make a disbursement equal to Landlord’s pro rata share of the Tenant Improvement Allowance and only after Tenant has paid its pro rata share of the Over-Allowance Amount. For purposes hereof, Landlord’s pro rata share for each such disbursement amount of the Tenant Improvement Allowance shall equal the percentage resulting from dividing the Tenant Improvement Allowance (less sums already disbursed for any Non-Construction Allowance Items, as defined below), by the total cost of the Tenant Improvement Allowance Items (less sums already disbursed for any Non-Construction Allowance Items) as estimated in the Cost Proposal (defined below) delivered pursuant to Section 4.2 (as may be revised from time to time), and Tenant’s pro rata share for each such disbursement of the Over-Allowance Amount shall equal the Over-Allowance Amount divided by such total cost of the Tenant Improvement Allowance Items (less sums already disbursed for any Non-Construction Allowance Items, as defined below). Notwithstanding the foregoing, with respect to fees and expenses of the Architect or Engineers or any other pre-construction items for which the payment scheme set forth in items (i) and (ii) of the immediately preceding sentence is not applicable (collectively, the “ Non-Construction Allowance Items ”), Landlord shall make disbursements of the Tenant Improvement Allowance therefor on a monthly basis following Landlord’s receipt of invoices and other reasonable evidence that Tenant has incurred the cost for the applicable Non-Construction Allowance Items (unless Landlord has received a preliminary notice in connection with such costs, in which event conditional lien releases must be submitted in connection with such costs) and such other information and documentation reasonably required by Landlord.

2.4 Other Terms . Landlord shall only be obligated to make disbursements from the Tenant Improvement Allowance following the occurrence of the Effective Date and to the extent costs are incurred by Tenant for Tenant Improvement Allowance Items. All Tenant Improvement Allowance Items for which the Tenant Improvement Allowance has been made available shall be deemed Landlord’s property under the terms of the Lease, as amended, provided that Landlord, at the time of Landlord’s approval of the Final Working Drawings (defined in Section 3.3

 

Exhibit B

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below), may require that Tenant, at Tenant’s expense, at the end of the Lease Term, remove such non-general office Tenant Improvements (including any vertical (not horizontal) cabling, wiring and/or conduit installed by or on behalf of Tenant) from the Premises and repair any damage to the Premises and Building caused by such removal in accordance with the terms of the Lease, as amended.

SECTION 3

CONSTRUCTION DRAWINGS

3.1 Selection of Architect/Construction Drawings . Tenant shall retain Blitz Architecture, or such other architect as may be reasonably approved by Landlord and Tenant, (the “ Architect ”) to prepare the Construction Drawings. Tenant shall retain engineering consultants designated by Tenant, subject to the reasonable approval of Landlord (the “ Engineers ”) to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, lifesafety, and sprinkler work in the Premises. The plans and drawings to be prepared by Architect and the Engineers hereunder shall be known collectively as the “ Construction Drawings .” All Construction Drawings shall comply with the drawing format and specifications determined by Landlord, and shall be subject to Landlord’s approval. Landlord shall approve, or disapprove, the Construction Drawings, or such portion as has from time to time been submitted, within five business (5) days after receipt of same or designate by notice given within such time period to Tenant the specific changes reasonably required to be made to the Construction Drawings in order to correct any issues and shall return the Construction Drawings to Tenant. Tenant shall make the changes necessary in order to correct any such issue and shall return the Construction Drawings to Landlord, which Landlord shall approve, or disapprove, within three (3) business days after Landlord receives the revised Construction Drawings. This procedure shall be repeated until all of the Construction Drawings are approved by Landlord and written approval has been delivered to and received by Tenant. Tenant and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, and Tenant and Architect shall be solely responsible for the same, and Landlord shall have no responsibility in connection therewith. Landlord’s review of the Construction Drawings as set forth in this Section 3 , shall be for its sole purpose and shall not imply Landlord’s review of the same, or obligate Landlord to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Drawings are reviewed by Landlord or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Tenant by Landlord or Landlord’s space planner, architect, engineers, and consultants, Landlord shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings.

3.2 Final Space Plan . On or before the date set forth in Schedule 2 , attached hereto, Tenant and Architect shall prepare the final space plan for Tenant Improvements in the Premises (the “ Final Space Plan ”), which Final Space Plan shall include a layout and designation of all offices, rooms and other partitioning, their intended use, and equipment to be contained therein, and shall deliver the Final Space Plan to Landlord for Landlord’s approval. Tenant shall submit to Landlord the Space Plan for Landlord’s review and approval. Within five (5) business days after Landlord receives the Space Plan, Landlord shall either approve or disapprove the Space

 

Exhibit B

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Plan for reasonable and material reasons (which shall be limited to the following: (i) adverse effect on the Building; (ii) possible damage to the Systems and Equipment; (iii) non¬compliance with applicable codes; (iv) effect on the exterior appearance of the Building, (v) reduction of the scope of the Tenant Improvements resulting in a failure to construct Tenant Improvements in the entire Premises (for the avoidance of doubt, it shall be reasonable for Landlord to disapprove a change to the Final Space Plan if such change contemplates the elimination of Tenant’s construction of certain floor(s) within the Premises), or (vi) unreasonable interference with the normal and customary business operations of other tenants in the Building (each, a “ Design Problem ”)) and return the Space Plan to Tenant. In such event, Landlord shall require, and Tenant shall make the changes necessary in order to correct the Design Problems and shall return the Space Plan to Landlord, which Landlord shall approve or disapprove within three (3) business days after Landlord receives the revised Space Plan. This procedure shall be repeated until the Space Plan is finally approved by Landlord and written approval has been delivered to and received by Tenant. The Space Plan may be submitted by Tenant in one or more stages and at one or more times, and the time periods for Landlord’s approval shall apply with respect to each such portion submitted.

3.3 Final Working Drawings . On or before the date set forth in Schedule 2, Tenant, Architect and the Engineers shall complete the architectural and engineering drawings for the Premises, and Architect shall compile a fully coordinated set of architectural, structural, mechanical, electrical and plumbing working drawings in a form which is complete to allow subcontractors to bid on the work and to obtain all applicable permits (collectively, the “ Final Working Drawings ”), and shall submit the same to Landlord for Landlord’s approval. Landlord shall approve, or disapprove, the Final Working Drawings, or such portion as has from time to time been submitted, within five business (5) days after receipt of same or designate by notice given within such time period to Tenant the specific changes reasonably required to be made to the Final Working Drawings in order to correct any issues and shall return the Final Working Drawings to Tenant. Tenant shall make the changes necessary in order to correct any such issue and shall return the Final Working Drawings to Landlord, which Landlord shall approve within three (3) business days after Landlord receives the revised Final Working Drawings.

3.4 Approved Working Drawings . On or before the date set forth therefor in Schedule 2 , Tenant shall cause the Architect to submit the Final Working Drawings approved by Landlord (the “ Approved Working Drawings ”) to the applicable local governmental agency for all applicable building permits necessary to allow “Contractor,” as that term is defined in Section 4.1 of this Tenant Work Letter, to commence and fully complete the construction of the Tenant Improvements (collectively, the “ Permits ”), and, in connection therewith, Tenant shall coordinate with Landlord in order to allow Landlord, at Landlord’s option, to take part in all phases of the permitting process, and shall supply Landlord, as soon as possible, with all plan check numbers and dates of submittal. Landlord shall cooperate with Tenant in executing permit applications and performing other ministerial acts reasonably necessary to enable Tenant to obtain any such permit or certificate of occupancy. No changes, modifications or alterations in the Approved Working Drawings may be made without the prior written consent of Landlord.

3.5 Time Deadlines . Tenant shall cooperate with Architect, the Engineer, and Landlord to complete all phases of the Construction Drawings and the permitting process and to receive the permits, and with Contractor, for approval of the “ Cost Proposal ,” as that term is

 

Exhibit B

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defined in Section 4.2 , below, in accordance with the dates set forth in Schedule 2 . Tenant shall meet with Landlord on a weekly basis to discuss Tenant’s progress in connection with the same. Certain of applicable dates for approval of items, plans and drawings as described in this Section 3 , Section 4 , below, and in this Tenant Work Letter are set forth and further elaborated upon in Schedule 2 (the “ Time Deadlines ”), attached hereto. Tenant agrees to comply with the Time Deadlines.

SECTION 4

CONSTRUCTION OF THE TENANT IMPROVEMENTS

4.1 Contractor . Following the parties’ approval of the Approved Working Drawings, Landlord shall submit the Approved Working Drawings for competitive bidding to at least three (3) contractors from a list approved by Landlord and Tenant in their respective reasonable discretion, but which list shall include Howard S. Wright. The contractor with the lowest sealed fixed price qualified bid shall be selected by Landlord, unless otherwise mutually approved by Tenant and Landlord, and shall serve as the general contractor (the “ Contractor ”) to construct the Tenant Improvements. Once the Contractor is selected, the Contractor shall submit the Approved Working Drawings for competitive bidding to at least three (3) subcontractors per trade selected by the Contractor and Landlord. The subcontractor bids shall be submitted promptly to Landlord and a reconciliation shall be performed by Landlord to adjust inconsistent or incorrect assumptions so that a like-kind comparison can be made and a low bidder determined for such subcontract. The subcontractors with the lowest qualified bids per trade shall be selected, unless otherwise mutually approved by Tenant and Landlord. Notwithstanding anything to the contrary contained in this Tenant Work Letter: (a) Landlord and the Contractor shall not be required to solicit bids from subcontractors relating to the structural, mechanical, electrical, plumbing, HVAC, life safety and sprinkler work of the Tenant Improvements (it being agreed that Landlord shall be entitled to designate and select such subcontractors without going through a bidding process, but in such case, the costs charged by such subcontractors shall not exceed generally competitive rates); (b) Landlord may require the Contractor bid certain trades to union affiliated subcontractors, and (c) Landlord may require Contractor to use union affiliated subcontractors for certain trades irrespective of whether such subcontractors were the lowest bidder for such trade.

4.2 Cost Proposal . After the Approved Working Drawings are signed by Landlord and Tenant, Landlord shall provide Tenant with a cost proposal in accordance with the Approved Working Drawings, which cost proposal shall include, as nearly as possible, the cost of all Tenant Improvement Allowance Items to be incurred by Tenant in connection with the construction of the Tenant Improvements (the “ Cost Proposal ”). Notwithstanding the foregoing, portions of the cost of the Tenant Improvements may be delivered to Tenant as such portions of the Tenant Improvements are priced by Contractor (on an individual item-by-item or trade-by-trade basis), even before the Approved Working Drawings are completed (the “ Partial Cost Proposal ”). Tenant shall approve and deliver the Cost Proposal to Landlord within five (5) business days of the receipt of the same (or, as to a Partial Cost Proposal, within five (5) business days of receipt of the same). The date by which Tenant must approve and deliver the Cost Proposal, or the last Partial Cost Proposal to Landlord, as the case may be, shall be known hereafter as the “ Cost Proposal Delivery Date .” The total of all Partial Cost Proposals, if any, shall be known as the Cost Proposal.

 

Exhibit B

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4.3 Construction of Tenant Improvements by Landlord’s Contractor under the Supervision of Landlord .

4.3.1 Over-Allowance Amount . On the Cost Proposal Delivery Date, Tenant shall deliver to Landlord cash in an amount (the “ Over-Allowance Amount ”) equal to the difference, if any, between (i) the amount of the Cost Proposal and (ii) the amount of the Tenant Improvement Allowance (less any portion thereof already disbursed by Landlord, or in the process of being disbursed by Landlord, on or before the Cost Proposal Delivery Date). The Over-Allowance Amount shall be disbursed by Landlord prior to the disbursement of any then remaining portion of the Tenant Improvement Allowance, and such disbursement shall be pursuant to the same procedure as the Tenant Improvement Allowance. In the event that, after the Cost Proposal Date, any revisions, changes, or substitutions shall be made to the Construction Drawings or the Tenant Improvements, any additional costs which arise in connection with such revisions, changes or substitutions shall be added to the last Proposal and shall be paid by Tenant to Landlord immediately upon Landlord’s request to the extent such additional costs increase any existing Over-Allowance Amount or result in an Over-Allowance Amount.

4.3.2 Cost Increases . In the event that the cost of the Tenant Improvements increases following Tenant’s approval of the Cost Proposal due to the requirements of any governmental agency imposed with respect to the construction of the Tenant Improvements or due to any other circumstances, Tenant shall pay to Landlord the amount of such increase within five (5) business days of Landlord’s written notice; provided, however, that Landlord shall first apply toward such increase any remaining balance in the Tenant Improvement Allowance.

4.3.3 Change Orders . In the event that Tenant requests any changes to the Approved Working Drawings, Landlord shall not unreasonably withhold its consent to any such changes so long as such changes do not constitute a Design Problem and will not materially delay the Substantial Completion of the Tenant Improvements, and shall grant its consent to such changes within one (10) business day after Landlord’s receipt of the same, provided, that the changes do not create any design problems. If such changes increase the costs to Landlord of constructing the Tenant Improvements shown on the Approved Working Drawings, Landlord shall provide Tenant with invoices documenting and evidencing such increased costs, and Tenant shall pay Landlord for such increases prior to the commencement of such work. The costs charged by Landlord to Tenant pursuant to this Section shall be an amount equal to the actual construction costs incurred by Landlord to implement the requested changes and revise the Approved Working Drawings.

4.3.4 Landlord Supervision . After Landlord selects the Contractor, Landlord shall independently retain Contractor to construct the Tenant Improvements in accordance with the Approved Working Drawings and the Cost Proposal and Landlord shall supervise the construction by Contractor, and Tenant shall pay a construction supervision and management fee (the “ Landlord Supervision Fee ”) to Landlord in an amount (a) equal to the product of (i) three percent (3%) and (ii) an amount equal to the Tenant Improvement Allowance; and (b) equal to the product of (i) two percent (2%) and (ii) the amount of costs of the hard Tenant Improvements in excess of the Tenant Improvement Allowance, if any, including, without limitation, hard costs to be paid from the Over-Allowance Amount.

 

Exhibit B

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4.3.5 Contractor’s Warranties and Guarantees . Landlord hereby assigns to Tenant all warranties and guarantees by Contractor relating to the Tenant Improvements, which assignment shall be on a non-exclusive basis such that the warranties and guarantees may be enforced by Landlord and/or Tenant, and Tenant hereby waives all claims against Landlord relating to, or arising out of the construction of, the Tenant Improvements.

4.3.6 Tenant’s Indemnity; Landlord’s Covenants . From and after the Effective Date, Tenant hereby indemnifies Landlord for any loss, claims, damages or delays arising from the actions of Architect and the Engineers on the Premises or in the Building. Within ten (10) days after completion of construction of the Tenant Improvements, Landlord shall cause Contractor and Architect to cause a Notice of Completion to be recorded in the office of the Recorder of the County in which the Building is located in accordance with Section 8182 of the Civil Code of the State of California or any successor statute and furnish a copy thereof to Landlord upon recordation. In addition, Landlord, following the Substantial Completion of the Premises, shall have prepared and delivered to the Building management office, with a copy to Tenant, a copy of the “as built” plans and specifications (including all working drawings) for the Tenant Improvements.

SECTION 5

SUBSTANTIAL COMPLETION;

LEASE COMMENCEMENT DATE

5.1 Substantial Completion . For purposes of this Lease, “ Substantial Completion ” of the Premises shall mean (1) Landlord has substantially completed the Tenant Improvements in accordance with the Approved Working Drawings (with the exception of any punch-list items which will not materially and adversely interfere with Tenant’s ability to commence its business operations in the Premises), such that Tenant can install its freestanding work stations, fixtures, furniture, equipment, and telecommunication and cabling systems and to move into the Premises; (2) Landlord has obtained a certificate of occupancy for the Building and Premises, or its equivalent; and (3) Tenant has been delivered complete and uninterrupted access to the Premises (and other required portions of the Building) sufficient to allow Tenant to install its freestanding work stations, fixtures, furniture, equipment, and telecommunication and cabling systems and to move into the Premises. For purposes of this Lease, “Substantial Completion” of the Storefront Work shall mean that Landlord has substantially completed the Storefront Work in accordance with the Project Plans (with the exception of any minor punch-list items which will not materially and adversely interfere with Landlord’s ability to commence construction of the Tenant Improvements and do not otherwise constitute structural components of the Base, Shell and Core). Landlord shall promptly notify Tenant in writing of the Substantial Completion of the Storefront Work (and the occurrence of the Effective Date), and within two (2) days of such notice, Landlord shall cause its contractor to inspect the Premises with a representative of Tenant and complete a punch list of unfinished items to the Storefront Work. Authorized representatives for Landlord and Tenant shall execute said punch list to indicate their approval thereof. The items listed on such punch list shall be completed by the Contractor within thirty (30) days after the approval of such punch list or as soon thereafter as reasonably practicable.

 

Exhibit B

-9-


5.2 Landlord Delays . If Tenant contends that a Landlord Caused Delay has occurred (as defined below), Tenant shall notify Landlord in writing within five (5) business days of each of (i) the date upon which such Landlord Caused Delay becomes known to Tenant, Architect, or Contractor and (ii) the date upon which such Landlord Caused Delay ends (the “ Delay Termination Date ”). Tenant’s failure to deliver both of such notices to Landlord within the required time period shall be deemed to be a waiver by Tenant of the contended Landlord Caused Delay to which such notices would have related. If such actions, inaction or circumstances described in the notice set forth in clause (i) above (the “ Delay Notice ”) are not cured by Landlord within five (5) business days following Landlord’s receipt of the Delay Notice and if such actions, inaction or circumstances otherwise qualify as a Landlord Caused Delay, then a Landlord Caused Delay shall be deemed to have occurred commencing as of the date of Landlord’s receipt of the Delay Notice and ending as of the Delay Termination Date.

5.2.1 Abatement of Base Rent for a Landlord Caused Delay . The Lease Commencement Dates shall occur as provided in Section 7.2 of Summary attached to the Lease; provided that the one hundred fifty (150) day component of the Lease Commencement Date (as set forth in Section 7.2 of the Summary) shall be extended on a day-for-day basis for each day of Landlord Caused Delay which actually delays the Substantial Completion of the Tenant Improvements.

5.2.2 Definition of Landlord Caused Delay . The term “ Landlord Caused Delay ” as used in the Lease or this Agreement shall mean any delay in the design of the Tenant Improvements or Tenant’s move-in into the Premises during the move-in period which is due to any act or omission of Landlord (wrongful, negligent or otherwise), its agents or contractors (including acts or omissions while acting as agent or contractor for Tenant). The term Landlord Delay shall include, but shall not be limited to any: (1) delay in the giving of authorizations or approvals by Landlord, including, but not limited to the approval of the Construction Drawings; (2) delay attributable to the acts or failures to act, whether willful, negligent or otherwise, of Landlord, its agents or contractors; (3) delay attributable to the interference of Landlord, its agents or contractors with the design of the Tenant Improvements or the failure or refusal of any such party to permit Tenant, its agents or contractors, access to and priority use of the Building or any Building facilities or services, including freight elevators, passenger elevators, and loading docks, which access and use are required for the orderly and continuous performance of the work necessary for Tenant to complete its move-in into the Premises during the move-in period; (4) delay attributable to Landlord giving Tenant incorrect or incomplete Project Plans, or revisions made to such Project Plans subsequent to the delivery of such items to Tenant (collectively, “ Incomplete Plans ”) in either case, in addition to such delay being deemed a Landlord Delay, any increased costs incurred by Landlord as a result of such Incomplete Plans shall not be deducted from the Tenant Improvement Allowance; (6) delay attributable to Landlord’s failure to allow Tenant sufficient access to the Building and/or the Premises during the move-in period to move into the Premises over one (1) weekend; (7) delay by Landlord in administering and paying when due the Tenant Improvement Allowance; and (8) delay caused by the failure of the Base Core and Shell to comply with the ADA (in which case, in addition to such delay being deemed a Landlord Delay, any increased costs incurred by Landlord as a result

 

Exhibit B

-10-


of such non-compliance shall not be deducted from the Tenant Improvement Allowance). In no event shall Tenant’s remedies or entitlements for the occurrence of a Landlord Delay be abated, deferred, diminished or rendered inoperative because of a prior, concurrent, or subsequent delay resulting from any action or inaction of Tenant.

5.2.3 Determination of Landlord Caused Delay . If Tenant contends that a Landlord Caused Delay has occurred, Tenant shall notify Landlord in writing within two (2) business days of each of (i) the date upon which such Landlord Caused Delay becomes known to Tenant, Architect, or Contractor and (ii) the date upon which such Landlord Caused Delay ends (the “ Delay Termination Date ”). Tenant’s failure to deliver both of such notices to Landlord within the required time period shall be deemed to be a waiver by Tenant of the contended Landlord Caused Delay to which such notices would have related. If such actions, inaction or circumstances described in the notice set forth in clause (i) above (the “ Delay Notice ”) are not cured by Landlord within two (2) business days following Landlord’s receipt of the Delay Notice and if such actions, inaction or circumstances otherwise qualify as a Landlord Caused Delay, then a Landlord Caused Delay shall be deemed to have occurred commencing as of the date of Landlord’s receipt of the Delay Notice and ending as of the Delay Termination Date.

5.3 Inspection . After the Tenant Improvements to the Premises are Substantially Completed (excepting punch list items) and prior to Tenant’s move-in into the Premises (“ First Time ”), and within thirty (30) days after Tenant’s move-in period (“ Second Time ”), in each case following two (2) days’ advance written notice from Tenant to Landlord, Landlord shall cause the Contractor to inspect the Premises with a representative of Tenant and complete a punch list of unfinished items to the Tenant Improvements. Authorized representatives for Landlord and Tenant shall execute said punch list to indicate their approval thereof. The items listed on such punch list shall be completed by the Contractor within thirty (30) days after the approval of such punch list or as soon thereafter as reasonably practicable.

SECTION 6

MISCELLANEOUS

6.1 Tenant’s Entry Into the Premises Prior to Substantial Completion . Subject to the terms hereof and provided that Tenant and its agents do not interfere with, or delay, Contractor’s work in the Building and the Premises, at Landlord’s reasonable discretion, Contractor shall allow Tenant access to the Premises prior to the Substantial Completion of the Premises for the purpose of Tenant installing overstandard equipment or fixtures (including Tenant’s data and telephone equipment) in the Premises. Prior to Tenant’s entry into the Premises as permitted by the terms of this Section 6.1 , Tenant shall submit a schedule to Landlord and Contractor, for their approval, which schedule shall detail the timing and purpose of Tenant’s entry. In connection with any such entry, Tenant acknowledges and agrees that Tenant’s employees, agents, contractors, consultants, workmen, mechanics, suppliers and invitees shall fully cooperate, work in harmony and not, in any manner, interfere with Landlord or Landlord’s Contractor, agents or representatives in performing work in the Building and the Premises, or interfere with the general operation of the Building and/or the Real Property. If at any time any such person representing Tenant shall not be cooperative or shall otherwise cause or threaten to cause any such disharmony or interference, including, without limitation, labor disharmony, and Tenant

 

Exhibit B

-11-


fails to immediately institute and maintain corrective actions as directed by Landlord, then Landlord may revoke Tenant’s entry rights upon twenty-four (24) hours’ prior written notice to Tenant. Tenant acknowledges and agrees that any such entry into and occupancy of the Premises or any portion thereof by Tenant or any person or entity working for or on behalf of Tenant shall be deemed to be subject to all of the terms, covenants, conditions and provisions of the Lease, excluding only the covenant to pay Rent (until the occurrence of the Lease Commencement Date). Tenant further acknowledges and agrees that Landlord shall not be liable for any injury, loss or damage which may occur to any of Tenant’s work made in or about the Premises in connection with such entry or to any property placed therein prior to the Lease Commencement Date, the same being at Tenant’s sole risk and liability. Tenant shall be liable to Landlord for any damage to any portion of the Premises, including the Tenant Improvement work, caused by Tenant or any of Tenant’s employees, agents, contractors, consultants, workmen, mechanics, suppliers and invitees. In the event that the performance of Tenant’s work in connection with such entry causes extra costs to be incurred by Landlord or requires the use of any Building services, Tenant shall promptly reimburse Landlord for such extra costs and/or shall pay Landlord for such Building services at Landlord’s standard rates then in effect. In addition, Tenant shall hold Landlord harmless from and indemnify, protect and defend Landlord against any loss or damage to the Building or Premises and against injury to any persons caused by Tenant’s actions pursuant to this Section 6.1 . Notwithstanding the foregoing or anything in this Tenant Work Letter to the contrary, prior to the Effective Date the foregoing liability and indemnity shall apply only to Tenant’s actions pursuant to this Section 6.1 . In addition, should any of Tenant’s agents, contractors, consultants, workmen, mechanics, suppliers and invitees desire to enter the Premises or Building prior to the Effective Date, prior to any such entry such agents, contractors, consultants, workmen, mechanics, suppliers and invitees shall enter into a access agreement, in form and substance reasonably acceptable to Landlord, whereby such agents, contractors, consultants, workmen, mechanics, suppliers and invitees agree to hold Landlord harmless from and indemnify, protect and defend Landlord against any loss or damage to the Building or Premises and against injury to any persons caused by such party’s actions.

6.2 Tenant’s Representative . Tenant has designated AINSLEY HILL (Telephone No.: (415) 940-7897 ext. 328, E-Mail: ahill@zendesk.com) as its sole representative with respect to the matters set forth in this Tenant Work Letter, who shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter.

6.3 Landlord’s Representative . Landlord has designated ERIC CLAPP (Telephone No.: (310) 294-1239, E-Mail: eclapp@westportcp.com) as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Tenant Work Letter.

6.4 Time of the Essence in This Tenant Work Letter . Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days. In all instances where Tenant is required to approve or deliver an item, if no written notice of approval is given or the item is not delivered within the stated time period, at Landlord’s sole option, at the end of said period the item shall automatically be deemed approved or delivered by Tenant and the next succeeding time period shall commence.

 

Exhibit B

-12-


6.5 Tenant’s Lease Default . Notwithstanding any provision to the contrary contained in the Lease, if an event of default by Tenant as described in Section 19.1 of the Lease or any uncured default by Tenant under this Tenant Work Letter has occurred at any time on or before the Substantial Completion of the Premises, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, at law or in equity, Landlord shall have the right to withhold payment of all or any portion of the Tenant Improvement Allowance and/or Landlord may cause Contractor to cease the construction of the Premises, and (ii) all other obligations of Landlord under the terms of this Tenant Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease. In addition, if the Lease is terminated prior to the Lease Commencement Date, for any reason due to a default by Tenant as described in Section 19.1 of the Lease or under this Tenant Work Letter, in addition to any other remedies available to Landlord under the Lease, at law and/or in equity, Tenant shall pay to Landlord, as Additional Rent under the Lease, within five (5) days of receipt of a statement therefor, any and all costs incurred by Landlord (including any portion of the Tenant Improvement Allowance disbursed by Landlord) and not reimbursed or otherwise paid by Tenant through the date of such termination in connection with the Tenant Improvements to the extent planned, installed and/or constructed as of such date of termination, including, but not limited to, any costs related to the removal of all or any portion of the Tenant Improvements and restoration costs related thereto.

6.6. Tenant’s Early Occupancy Rights . Notwithstanding anything to the contrary in this Tenant Work Letter or any other provision of this Lease, but subject to the provisions of this grammatical paragraph, Tenant may require that Landlord accelerate the construction of the Tenant Improvements on two (2) floors of the Premises (the “ Early Access Floors ”) in order to accommodate Tenant’s desire to commence business in those floors prior to Substantial Completion of the Tenant Improvements for the entire Premises. The particular floors that will constitute the Early Access Floor shall be subject to Landlord’s reasonable approval. All costs arising from the acceleration of construction on the Early Access Floors shall be at Tenant’s expense (although the Tenant Improvement Allowance may be applied to such costs) [subject to Tenant’s Construction Period Maximum Liability set forth in Section 4.3.4. above.] Promptly following the identification of the Early Access Floors, Landlord and Tenant shall amend the Time Deadlines to reflect the revised construction schedule. Without limitation of the foregoing, any delays in the Substantial Completion of the Tenant Improvements on floors other than the Early Access Floors caused by the acceleration of the construction on the Early Access Floors shall be attributed to Tenant and shall not be deemed a Landlord Caused Delay. After Substantial Completion of the Early Access Floors, Tenant may have access to such floors and may commence doing business therefrom. Tenant shall be bound to all of the terms of the Lease with respect to the Early Access Floors as of the date Tenant commence occupancy therein and shall pay Base Rent for the Early Access Floors based on the below schedule (provided, that Tenant’s presence on the Early Access Floors does not trigger the Abatement Period as set forth in Section 3.2 of the Lease and does not trigger the Lease Commencement Date). Prior to commencing occupancy of the Early Access Floors, Tenant shall deliver to Landlord the insurance certificates required under Section 10.3 of the Lease.

 

Exhibit B

-13-


Rent Schedule for Early Access Floors:

 

Floor

   Monthly Installment of Base Rent

B

   $36,603.02

G

   $17,933.44

2

   $38,059.90

3

   $37,308.33

4

   $37,555.00

5

   $37,805.52

6

   $37,878.75

7

   $37,951.98

By way of example, if Tenant occupies the third (3rd) and fourth (4th) floors as Early Access Floors, then Tenant’s total monthly Base Rent for such floors would be $74,863.33 per month.

 

Exhibit B

-14-


SCHEDULE 1 TO TENANT WORK LETTER

DESCRIPTION OF PROJECT PLANS

1). Storefront and Window Renovations –

a). Storefront & Window Renovation, prepared by Petra Structural Engineers, Dated 8.22.13.

b). Storefront & Window Renovation, prepared by Studio TMT Architects, Dated 8.29.3

c). Eastern Outfitting Building Exterior & Structural Alterations—Specifications, Prepared by Studio TMT Architects, Dated 1.22.13.

d). PCO #18 between Howard S. Wright and Weber Electric. Restoration of Marquee Lighting, Dated 3.26.13.

2). Mechanical, Electrical, Plumbing and Fire As-Built Drawings -

a). Mechanical Shell As-Built Drawings, Prepared by AMI, Dated 8.19.13.

b). Mechanical As-Built Drawings—5th Floor TI, Prepared by AMI, Dated 8.19.13.

c). Electrical As-Built Drawings—Complete Building, Prepared by Weber Electric, Dated 3.8.13

d). Plumbing As-Built Drawings—Complete Building, Prepared by Ayoob Mechanical, Inc., Dated 8.23.13.

e). Fire Sprinkler As-Built Drawings, Prepared by AAA Fire Protection, Dated 2.7.13.

3). 5th Floor Market Ready Tenant Improvement -

a). Tenant Improvement Drawings, Prepared by Studio TMT, Dated 5.28.13.

b).Tenant Improvement Drawings, Prepared by Studio TMT, Dated 5.13.13.

4). Interior Core Improvements -

a). Interior Core Improvement Drawings, Prepared by Studio TMT, Dated 12.5.12.

b). Eastern Outfitting Building Exterior & Structural Alterations—Specifications, Prepared by Studio TMT Architects, Dated 12.14.13.

c). Minor Permit Submittal—1017-1019 Location, Prepared by KC Glass, Dated 11.27.13

d). Elevator Cab Finish Submittal, Prepared by Howard S. Wright, Dated 6.25.13

5). Interior and Structural Alterations -

a). Interior Floor Alterations, Prepared by Studio TMT, Dated 2.19.13.

b). Eastern Outfitting Building Exterior & Structural Alterations—Specifications, Prepared by Studio TMT Architects and Petra Structural Engineers, Dated 1.22.13.

 

Schedule 1 to Tenant

Work Letter

-1-


SCHEDULE 2 TO TENANT WORK LETTER

TIME DEADLINES

 

Dates

  

Actions to be Performed

1. October 28, 2013

   Final Space Plan to be completed by Tenant and delivered to Landlord.

2. February 24, 2014

   Tenant to deliver Final Working Drawings to Landlord.

3. March 3, 2014

   Tenant to submit Approved Working Drawings to the City of San Francisco for all applicable building permits.

 

Schedule 2 to Tenant

Work Letter

-1-


SCHEDULE 3 TO TENANT WORK LETTER

DESCRIPTION OF STOREFRONT WORK

(All based on the Minor Permit to Alter set of drawings)

Market Street -

 

    Extend 2nd floor decking to meet new storefront assembly.

 

    Erect steel frame work for new storefront system at 1st and 2nd floor.

 

    Install new aluminum storefront system, doors and glazing.

 

    Install replacement light bulbs on Market Street window mullions, floors 3 thru 7.

 

    Repair Terra Cotta and Sheet Metal per Page and Turnbull Specifications.

 

    Install new stone surround at Market Street storefront.

Stevenson Street -

 

    Cut low wall at Stevenson Elevation to accommodate new glass line at 1st floor, which will run from floor level to underside of 2nd floor decking.

 

    Install new storefront system and glazing to match floors above.

 

    Paint to match above.

 

    Install 3 wall mounted light fixtures on exterior.

 

Schedule 3 to Tenant

Work Letter

-1-


EXHIBIT C

AMENDMENT TO LEASE

This AMENDMENT TO LEASE (“ Amendment ”) is made and entered into effective as of              , 20      , by and between 1019 MARKET ST. PROPERTY, LLC, a Delaware limited liability company (“ Landlord ”), and ZENDESK, INC., a Delaware corporation (“ Tenant ”)

R E C I T A L S :

A. Landlord and Tenant entered into that certain Lease Agreement dated as of September 6, 2013 (the “ Lease ”) pursuant to which Landlord leased to Tenant and Tenant leased from Landlord certain “Premises”, within the Building located at 1019 Market Street, San Francisco, California.

B. Except as otherwise set forth herein, all capitalized terms used in this Amendment shall have the same meaning given such terms in the Lease.

C. Landlord and Tenant desire to amend the Lease to confirm the commencement and expiration dates of the term, as hereinafter provided.

NOW, THEREFORE , in consideration of the foregoing Recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Confirmation of Dates . The parties hereby confirm that the term of the Lease commenced as of                      (the “ Lease Commencement Date ”) for a term of approximately one hundred one (101) months ending on                      (unless sooner terminated as provided in the Lease.

2. No Further Modification . Except as set forth in this Amendment, all of the terms and provisions of the Lease shall remain unmodified and in full force and effect.

IN WITNESS WHEREOF, this Amendment to Lease has been executed as of the day and year first above written.

 

“Landlord”:    

1019 MARKET ST. PROPERTY, LLC ,

a Delaware limited liability company

 

      By:  

1019 Market St. Holdings III, LLC,

a Delaware limited liability company

Its Managing Member

 

By:    
  Printed Name:    
  Title:    

 

Exhibit C

-1-


By:    
  Printed Name:    
  Title:    

 

“Tenant”:    

ZENDESK, INC. ,

a Delaware corporation

      By:    
        Printed Name:    
        Title:    
      By:        
        Printed Name:    
        Title:    

 

Exhibit C

-2-


EXHIBIT D

RULES AND REGULATIONS

Tenant shall faithfully observe and comply with the following Rules and Regulations. Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Building.

1. Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord’s prior written consent. Tenant shall bear the cost of any lock changes or repairs required by Tenant. Two keys will be furnished by Landlord for the Premises, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord.

2. All doors opening to public corridors shall be kept closed at all times except for normal ingress and egress to the Premises, unless electrical hold backs have been installed.

3. Landlord reserves the right to close and keep locked all entrance and exit doors of the Building during such hours as are customary for comparable buildings in the vicinity of the Building. Tenant, its employees and agents must be sure that the doors to the Building are securely closed and locked when leaving the Premises if it is after the normal hours of business for the Building. Any tenant, its employees, agents or any other persons entering or leaving the Building at any time when it is so locked, or any time when it is considered to be after normal business hours for the Building, may be required to sign the Building register when so doing. Access to the Building may be refused unless the person seeking access has proper identification or has a previously arranged pass for access to the Building. Landlord and its agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building during the continuance of same by any means it deems appropriate for the safety and protection of life and property.

4. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building. Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property in any case. All damage done to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility of Tenant and any expense of said damage or injury shall be borne by Tenant.

5. Other than furniture, packages, supplies, and equipment delivered in the ordinary course of Tenant’s business, no furniture, freight, packages, supplies, equipment or merchandise will be brought into or removed from the Building or carried up or down in the elevators, except upon prior notice to Landlord, and in such manner, in such specific elevator, and between such hours as shall be designated by Landlord. Tenant shall provide Landlord with not less than 24 hours prior notice of the need to utilize an elevator for any such purpose, so as to provide Landlord with a reasonable period to schedule such use and to install such padding or take such other actions or prescribe such procedures as are appropriate to protect against damage to the elevators or other parts of the Building.

 

Exhibit D

-1-


6. Landlord shall have the right to control and operate the public portions of the Building, the public facilities, the HVAC, and any other facilities furnished for the common use of tenants, in such manner as is customary for comparable buildings in the vicinity of the Building.

7. The requirements of Tenant will be attended to only upon application at the management office of the Building or at such office location designated by Landlord. Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions from Landlord.

8. Tenant shall not disturb, solicit, or canvass any occupant of the Building and shall cooperate with Landlord or Landlord’s agents to prevent same.

9. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. 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 agents, shall have caused it.

10. Tenant shall not overload the floor of the Premises, nor mark, drive nails or screws, or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof without Landlord’s consent first had and obtained.

11. Except for vending machines intended for the sole use of Tenant’s employees and invitees, no vending machine or machines of any description other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord.

12. Tenant shall not use any method of HVAC other than that which may be supplied by Landlord, without the prior written consent of Landlord.

13. Tenant shall not use or keep in or on the Premises or the Building any kerosene, gasoline or other inflammable or combustible fluid or material. Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors, or vibrations, or interfere in any way with other tenants or those having business therein.

14. Tenant shall not bring into or keep within the Building or the Premises any animals, birds, fish or reptiles. Bicycles, but no other electric or motorized vehicles may be kept in the Building in the areas designated by Landlord.

15. 16. Landlord will approve where and how telephone and telegraph wires are to be introduced to the Premises. No boring or cutting for wires shall be allowed without the consent of Landlord. The location of telephone, call boxes and other office equipment affixed to the Premises shall be subject to the approval of Landlord.

 

Exhibit D

-2-


17. Landlord reserves the right to exclude or expel from the Building any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations.

18. Tenant, its employees and agents shall not loiter in the entrances or corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or elevators, and shall use the same only as a means of ingress and egress for the Premises.

19. Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord to ensure the most effective operation of the Building’s HVAC system, and shall refrain from attempting to adjust any controls.

20. Tenant shall store all its trash and garbage within the interior of the Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the city in which the Building is located without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Landlord shall designate.

21. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

22. Tenant shall assume any and all responsibility for protecting the Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed, when the Premises are not occupied.

23. No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord. No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises without the prior written consent of Landlord. The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills. All electrical ceiling fixtures hung in offices or spaces along the perimeter of the Building must be fluorescent and/or of a quality, type, design and bulb color approved by Landlord.

24. The washing and/or detailing of or, the installation of windshields, radios, telephones in or general work on, automobiles shall not be allowed on the Real Property.

25. Food vendors shall be allowed in the Building upon receipt of a written request from the Tenant. The food vendor shall service only the tenants that have a written request on file in the Building’s management office. Under no circumstance shall the food vendor display their products in a public or common area including corridors and elevator lobbies. Any failure to comply with this rule shall result in immediate permanent withdrawal of the vendor from the Building.

 

Exhibit D

-3-


26. Tenant must comply with requests by the Landlord concerning the informing of their employees of items of importance to the Landlord.

27. Tenant shall comply with any non-smoking ordinance adopted by any applicable governmental authority.

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 or Regulations against any or all tenants of the Building. The Rules and Regulations shall not supersede any provision of the Tenant’s Lease and to the extent of any inconsistency between Tenant’s Lease and the Rules and Regulations, the Lease shall govern. Any of the Rules and Regulations that Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord’s judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises and Building, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein. Landlord shall not be responsible to Tenant or to any other person for the nonobservance of the Rules and Regulations by another tenant or other person. Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.

 

Exhibit D

-4-


EXHIBIT E

FORM OF ESTOPPEL CERTIFICATE

The undersigned, as Tenant/Landlord under that certain Lease Agreement (the “ Lease ”) made and entered into as of                      ,                      and between                      , a                      as Landlord, and the undersigned as Tenant, for Premises on the                      (                       ) floor(s) of the Building located at                                                               hereby certifies as follows:

1. Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto. The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises.

2. The undersigned has commenced occupancy of the Premises described in the Lease, currently occupies the Premises, and the Lease Term commenced on              .

3. The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in Exhibit A .

4. Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows:

5. The Lease Term expires on              .

6. All conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied and Landlord is not in default thereunder.

7. No rental has been paid in advance and no security has been deposited with Landlord except as provided in the Lease.

8. To Tenant’s actual knowledge (without inquiry or investigation), as of the date hereof, there are no existing defenses or offsets that the undersigned has, which preclude enforcement of the Lease by Landlord.

9. All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through              . The current monthly installment of Base Rent is $              .

10. The undersigned acknowledges that this Estoppel certificate may be delivered to Landlord’s prospective mortgagee, or a prospective purchaser, and acknowledges that it recognizes that if same is done, said mortgagee, prospective mortgagee, or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part, and in accepting an assignment of the Lease as collateral security, and that receipt by it of this certificate is a condition of making of the loan or acquisition of such property.

 

Exhibit E

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11. If Tenant is a corporation or partnership, each individual executing this Estoppel Certificate on behalf of Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in the state in which the Building is located and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so.

Executed at              on the              day of              ,              .

 

“Tenant”:      
    a
      By:    
        Printed Name:    
        Title:    
      By:        
        Printed Name:    
        Title:    

 

Exhibit E

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EXHIBIT F-1

APPOXIMATE LOCATION OF TENANT’S BUILDING EXTERIOR SIGNS

Exhibit F-1 to that certain Lease Agreement dated as of September 6, 2013, between 1019 MARKET ST. PROPERTY, LLC, a Delaware limited liability company (“ Landlord ”), and ZENDESK, INC., a Delaware corporation (“ Tenant ”).

The depictions of the approximate locations of Tenant’s Building Exterior Signs comprising this Exhibit F-1 are attached hereto as the immediately following pages and is incorporated herein by this reference.

 

Exhibit F-1

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EXHIBIT F-2

RETAIL SIGNAGE LOCATION

Exhibit F-2 to that certain Lease Agreement dated as of September 6, 2013, between 1019 MARKET ST. PROPERTY, LLC, a Delaware limited liability company (“ Landlord ”), and ZENDESK, INC., a Delaware corporation (“ Tenant ”).

The depictions of the Retail Signage Location comprising this Exhibit F-2 are attached hereto as the immediately following pages and is incorporated herein by this reference.

 

Exhibit F-2

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EXHIBIT G TO LEASE

JANITORIAL SCHEDULE

Janitorial Specifications

1019 Market Street

Tenant Premises

Office Areas

Nightly (five days/week):

 

  1. Sweep non-carpeted areas with chemically treated dust mop

 

  2. Empty all waste paper containers, spot clean, replace liners

 

  3. Clean telephone handsets

 

  4. Turn off lights ASAP each night

 

  5. Remove all trash from floors, return waste baskets and chairs to proper positions

 

  6. Spot mop any spillage off non-carpeted areas

Every other night:

 

  1. Vacuum all carpeted areas

 

  a. Carpet sweep any visible debris on non-vacuuming days

Weekly:

 

  1. Dust all horizontal surfaces including ledges, window sills, pictures, shelves and furniture

 

  2. Spot clean doors, door frames, and counters

 

  3. Spot clean around light switches

 

  4. Spot clean partition door glass

 

  5. Clean telephone handsets

Monthly:

 

  1. Perform high dusting beyond normal reach

Quarterly:

 

  1. Scrub, re-seal and refinish all VCT flooring

 

  2. Thoroughly vacuum upholstered furniture

 

  3. Edge vacuum all carpeted areas

 

Exhibit G

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Conference Rooms

Nightly (five days/week):

 

  1. Polish table tops

 

  2. Empty all waste paper containers

 

  3. Vacuum carpets

 

  4. Spot clean walls

 

  5. Arrange chairs in an orderly manner

Weekly:

 

  1. Dust tables, chairs and cabinets

Monthly:

 

  1. Vacuum all chairs

Kitchenettes, Coffee Bars & Vending Areas

Nightly (five days/week):

 

  1. Clean table tops

 

  2. Clean sinks and counter tops

 

  3. Clean chairs as required to maintain a neat appearance

 

  4. Damp mop non-carpeted areas

 

  5. Empty all waste containers and replace liners

 

  6. Spot clean outside of refrigerators

 

  7. Wipe clean exterior surface of cabinets and drawers

Tenant Restrooms

Nightly (five days/week):

 

  1. Empty and wipe out all waste paper containers

 

  2. Empty feminine dispensers and replace liner

 

  3. Clean and polish all metal and mirrors

 

  4. Clean and polish all dispensers

 

  5. Clean and disinfect wash basins, urinals, and toilets including both top and underside of toilet seat

 

  6. Spot clean tile walls and toilet partitions (inside/outside)

 

  7. Spot clean walls around wash basins

 

  8. Clean floors with germicidal solution

 

  9. Refill soap, towels, tissue, and seat covers

 

  10. Check all fixtures, flush valves, etc. and report non-working or leaking items to Maintenance and Engineering

Weekly:

 

  1. Dust all low reach and high reach areas including but not limited to structural ledges, mirror tops and ledges, A/C diffusers, return air grills and light fixtures

Monthly:

 

  1. Wash down all partitions inside and outside

 

Exhibit G

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Bimonthly (6 times a year):

 

  1. Machine scrub floors INCLUDING corners and cove base

Landlord Responsibilities for Common Area

Entrance Lobbies

Nightly (five days/week):

 

  1. Sweep and spot clean tile flooring

 

  2. Damp mop all spillage

 

  3. Vacuum carpets

 

  4. Spot clean carpets

 

  5. Dust ledges within reach

 

  6. Dust all horizontal surfaces

 

  7. Empty all waste containers, spot clean, and replace liners

 

  8. Spot clean walls

 

  9. Clean chrome and painted hand rails

 

  10. Clean entrance door glass, frames, and thresholds

 

  11. Police sidewalks immediately outside entrance areas

 

  12. Spot clean all glass including low partitions, mirrors and the corridor side of all windows and glass to tenant premises

 

  13. Thoroughly clean all door thresholds of dirt and debris

 

  14. Spot clean and dust directory board glass and ledges

Weekly:

 

  1. Dust all high ledges

 

  2. Edge vacuum all carpets

 

  3. Damp sponge clean all baseboards

 

  4. Vacuum all chairs and sofas

Monthly:

 

  1. Dust and vacuum air supply and exhaust diffusers

 

  2. Machine scrub guard station

Freight Car Lobbies

Nightly (five days/week):

 

  1. Damp mop and spot clean VCT flooring if applicable

Monthly :

 

  1. Machine scrub, re-seal and refinish floors

 

Exhibit G

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Passenger Elevator Cleaning

Nightly (five days/week):

 

  1. Clean elevator cab floor

 

  2. Vacuum and clean all elevator thresholds

 

  3. Wipe down walls

 

  4. Polish stainless steel doors

Monthly:

 

  1. Clean elevator cab lights

 

  2. Clean entire cab ceiling

 

  3. Clean and polish all wood surfaces

 

  4. Polish elevator thresholds with #000—steel wool

 

  5. Clean carpet in elevator lobby floors

Exterior

Windows

 

  1. Exterior portion of windows washed twice per year

Sidewalks

 

  1. Power washed between at least two times per month

 

Exhibit G

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EXHIBIT H TO LEASE

HVAC DEPRECIATION SCHEDULE

 

25    years
52    weeks per year
55    Hours per week
71,500    - Useful Life in terms of hours
(    $290,000 Central Plant Replacement +(# of Heat Pumps * $80,000) ) / Overtime Hours
$290,000   

Central

Plant $20,000 Heat Pump Cost

40    # of Heat Pumps
$15.24    Cost Per Hour of Overtime HVAC assuming 40 Heat Pumps (5 per floor)

 

Exhibit H

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EXHIBIT I TO LEASE

PROHIBITED USES

 

1. A facility for any use which is illegal or would reasonably be determined to cause a threat of imminent harm to persons or property, constitutes a public or private nuisance or emits an obnoxious odor, noise, or sound which can be heard or smelled (in either event to more than a de minimus extent) outside of the Building.

 

2. Any medical marijuana facility, or similar use whether it is styled as a collective or otherwise.

 

3. Establishment providing nude or topless entertainment or wait-staff, or any establishment selling or exhibiting pornographic materials (including, without limitation, adult books or videos). Materials shall be considered “adult” or “pornographic” under this paragraph if the same are not available for sale or rental to children under 18 years old because they explicitly deal with or depict sexuality). Any company or business that engages in the business of providing any of the foregoing materials or services at locations other than the Building shall also be prohibited.

 

3. Any operation primarily used as a storage warehouse operation (except incidental to Tenant’s primary retail business) and any assembling, manufacturing, distilling, refining, smelting, agricultural, or mining operation.

 

4. Any pawn shop, “second hand” store, schlock store, or “surplus” store.

 

5. Any fire sale, bankruptcy sale (unless pursuant to a court order) or auction house operation (but this provision shall not restrict the absolute freedom of an occupant to determine its own selling prices nor shall it preclude the conduct of any seasonal sales, promotional or clearance sales or legitimate going out of business sales in compliance with applicable Laws).

 

6. Any central laundry, dry cleaning plant, or laundromat; including, nominal supportive facilities for on-site service oriented to pickup and delivery by the ultimate consumer.

 

7. Any bar, pub, tavern or night club, where the sale of beer, wine and/or alcohol is more than 70% of the facilities annual revenue.

 

8. Any flea market, amusement, video arcade, children’s play center (including, without limitation, any business primarily providing physical play activities for children, kiddie rides or games), pinball, computer or other gamerooms, pool or billiard hall, dance or music hall, disco or nightclub or any other facility operated solely for entertainment purposes, such as a “laser tag” or “virtual reality” theme operation.

 

9. Any training or educational facility.

 

10. Any gambling facility or operation, including but not limited to: off-track or sports betting parlor; table games such as blackjack or poker; slot machines, video poker/blackjack keno machines or similar devices; or bingo hall.

 

Exhibit I

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11. Any tattoo parlor.

 

12. Any house of worship

 

13. Any liquor store (provided, however, that the foregoing shall not be deemed to prohibit the sale of beer, wine and/or alcohol by any occupant ancillary to its primary use of the premises, or the sale of beer, wine or alcohol for on-premises consumption at any restaurant or bar permitted hereunder).

 

Exhibit I

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EXTENSION OPTION RIDER

1. This EXTENSION OPTION RIDER (this “ Extension Rider ”) is made and entered into by and between 1019 MARKET ST. PROPERTY, LLC, a Delaware limited liability company (“ Landlord ”), and ZENDESK, INC., a Delaware corporation (“ Tenant ”), and is dated as of the date of the Lease Agreement (“ Lease ”) by and between Landlord and Tenant to which this Extension Rider is attached. The agreements set forth in this Extension Rider shall have the same force and effect as if set forth in the Lease. To the extent the terms of this Extension Rider are inconsistent with the terms of the Lease, the terms of this Extension Rider shall control.

1. Option Right . Landlord hereby grants Tenant one (1) option to extend the Lease Term for a period of five (5) years (the “ Option Term ”), which option shall be exercisable only by written Exercise Notice (as defined below) delivered by Tenant to Landlord as provided below. Upon the proper exercise of such option to extend, the Lease Term shall be extended for the Option Term.

2. Option Rent . The annual Base Rent payable by Tenant during the Option Term (the “ Option Rent ”) shall be equal to the Fair Market Rental Rate for the Premises. As used herein, the “ Fair Market Rental Rate ” shall mean the annual Base Rent at which non-affiliated parties from new, non-expansion, non-renewal and non-equity tenants, as of the commencement of the Option Term, will be leasing non-sublease, non-equity, unencumbered space comparable in size, location, and quality to the Premises for a comparable term, with comparable tenant improvement allowances, if any, and other generally applicable conditions of tenancy, which comparable space is located in the Building and in other comparable recently renovated office buildings located in the area bordered by Market Street to the north, 3rd Street to the east, Brannan Street to the south, and 11th Street to the west, including buildings located immediately on both sides of each of the aforementioned streets, in San Francisco, California (the “ Market Area ”), taking into consideration all base rent and other out-of-pocket concessions generally being granted at such time for such comparable space for the Option Term (including, without limitation, any tenant improvement allowance provided for such comparable space, with the amount of such tenant improvement allowance to be provided for the Premises during the Option Term to be determined after taking into account the age, quality and layout of the tenant improvements in the Premises as of the commencement of the Option Term). All other terms and conditions of the Lease shall apply throughout the Option Term; however, Tenant shall, in no event, have the option to extend the Lease Term beyond the Option Term described in Section 1 above.

3. Exercise of Option. The option contained in this Extension Rider shall be exercised by Tenant, if at all, only in the following manner: (i) Tenant shall deliver written notice (“ Interest Notice ”) to Landlord not more than fifteen (15) months nor less than twelve (12) months prior to the expiration of the initial Lease Term stating that Tenant may be interested in exercising its option; (ii) Landlord, after receipt of Tenant’s notice, shall deliver notice (the “ Option Rent Notice ”) to Tenant within thirty (30) days after Landlord’s receipt of the Interest Notice setting forth Landlord’s determination of the Option Rent; and (iii) if Tenant wishes to exercise such option, Tenant shall, on or before the date (the “ Exercise Date ”) which is thirty (30) days after Tenant’s receipt of the Option Rent Notice, exercise the option by delivering written notice (“ Exercise Notice ”) thereof to Landlord. Concurrently with Tenant’s delivery of

 

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the Exercise Notice, Tenant may object, in writing, to Landlord’s determination of the Fair Market Rental Rate set forth in the Option Rent Notice, in which event such Fair Market Rental Rate shall be determined pursuant to Section 4 below. Tenant’s failure to deliver the Exercise Notice on or before the Exercise Date, shall be deemed to constitute Tenant’s waiver of its extension right hereunder. If Tenant timely delivers the Exercise Notice but fails to timely object in writing to Landlord’s determination of the Fair Market Rental Rate set forth in the Option Rent Notice, Tenant shall be deemed to have accepted Landlord’s determination of the Option Rent and the following provisions of Section 4 shall not apply.

4. Determination of Fair Market Rental Rate. In the event Tenant timely and appropriately objects in writing to the Fair Market Rental Rate initially determined by Landlord in the Option Rent Notice, Landlord and Tenant shall thereafter attempt in good faith to agree upon such Fair Market Rental Rate, using their best good faith efforts. If Landlord and Tenant fail to reach agreement on such Fair Market Rental Rate within twenty (20) days following Tenant’s objection to such Fair Market Rental Rate (the “ Outside Agreement Date ”) then each party shall submit to the other party a separate written determination of the Option Rent within ten (10) business days after the Outside Agreement Date, and such determinations shall be submitted to arbitration in accordance with Sections 4.1 through 4.7 below. If Landlord’s and Tenant’s determinations do not differ by an amount in excess of five (5%) percent, the two determinations shall be averaged and the resulting figure shall be conclusively deemed to be the Fair Market Rental Rate. If the two determinations differ by an amount in excess of five (5%) percent, then such determinations shall be submitted to arbitration in accordance with Sections 4.1 through 4.7 below. Failure of Tenant or Landlord to submit a written determination of the Option Rent within such ten (10) business day period shall conclusively be deemed to be the non-determining party’s approval of the Option Rent submitted within such ten (10) business day period by the other party.

4.1 Landlord and Tenant shall each appoint one (1) appraiser who shall by profession be a real estate appraiser who shall have been active over the five (5) year period ending on the date of such appointment in the appraisal of office buildings in Market Area. The determination of the appraisers shall be limited solely to the issue of whether Landlord’s or Tenant’s submitted Fair Market Rental Rate is the closer to the actual Fair Market Rental Rate as determined by the appraisers, taking into account the requirements with respect thereto set forth in Section 2 above. Each such appraiser shall be appointed within thirty (30) days after the Outside Agreement Date.

4.2 The two (2) appraisers so appointed shall, within ten (10) days of the date of the appointment of the last appointed appraiser, agree upon and appoint a third appraiser who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two (2) appraisers.

4.3 The three (3) appraisers shall, within thirty (30) days of the appointment of the third appraiser, reach a decision as to which of Landlord’s or Tenant’s submitted Fair Market Rental Rate is closer to the actual Fair Market Rental Rate and shall select such closer determination as the Fair Market Rental Rate and notify Landlord and Tenant thereof.

4.4 The decision of the majority of the three (3) appraisers shall be binding upon Landlord and Tenant.

 

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4.5 If either Landlord or Tenant fails to appoint an appraiser within the time period specified in Section 4.1 hereinabove, the appraiser appointed by one of them shall reach a decision, notify Landlord and Tenant thereof, and such appraiser’s decision shall be binding upon Landlord and Tenant.

4.6 If the two (2) arbitrators fail to agree upon and appoint a third arbitrator within the time period provided in Section 4.3 above, then the parties shall mutually select the third arbitrator. If Landlord and Tenant are unable to agree upon the third arbitrator within ten (10) days, then either party may, upon at least five (5) days prior written notice to the other party, request the Presiding Judge of the San Francisco County Superior Court, acting in his private and nonjudicial capacity, to appoint the third arbitrator. Following the appointment of the third arbitrator, the panel of arbitrators shall within thirty (30) days thereafter reach a decision as to whether Landlord’s or Tenant’s submitted Option Rent shall be used and shall notify Landlord and Tenant thereof.

4.7 Each party shall pay the fees and expenses of the appraiser appointed by or on behalf of it, and each shall pay one-half of the fees and expenses of the third appraiser, if any.

5. Suspension of Right to Extend Lease Term . Notwithstanding anything in the foregoing to the contrary, at Landlord’s option, and in addition to all of Landlord’s remedies under the Lease, at law or in equity, the right to extend the Lease Term hereinabove granted to Tenant shall not be deemed to be properly exercised if, as of the date Tenant delivers the Exercise Notice or as of the end of the initial Lease Term, Tenant is in default under this Lease. In addition, Tenant’s right to extend the Lease Term is personal to the Original Tenant, and any Affiliate to which Tenant’s entire interest in this Lease has been assigned pursuant to Section 14.7 of the Lease, and may not be assigned or exercised, voluntarily or involuntarily, by or to, any person or entity other than the Original Tenant, or such Affiliate assignee, as the case may be, and shall only be available to and exercisable by the Tenant, or such Affiliate assignee, when the Original Tenant, or such Affiliate assignee, is in actual and physical possession of the entire Premises.

[SIGNATURES APPEAR ON THE IMMEDIATELY FOLLOWING PAGE.]

 

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IN WITNESS WHEREOF, Landlord and Tenant have caused this Extension Rider to be executed the day and date of the Lease.

 

“Landlord”:    

1019 MARKET ST. PROPERTY, LLC ,

a Delaware limited liability company

    By:  

1019 Market St. Holdings III, LLC,

a Delaware limited liability company Its Managing Member

      By:   /s/ W. Greg Geiger
       

Printed Name:  W. Greg Geiger                                             

       

Title:  Authorized Signer                                                         

      By:   /s/ Sean Armstrong
        Printed Name:  Sean Armstrong                                             
        Title:  Authorized Signer                                                         

 

“Tenant”:    

ZENDESK, INC. ,

a Delaware corporation

      By:   /s/ Mikkel Svane
        Printed Name:  Mikkel Svane                                                     
        Title:  CEO and President                                                         
      By:   /s/ John Geschke
        Printed Name:  John Geschke                                                     
        Title:  General Counsel and Secretary                                     

Signature Page


LETTER OF CREDIT RIDER

This LETTER OF CREDIT RIDER (this “ LC Rider ”) is made and entered into by and between by and between 1019 MARKET ST. PROPERTY, LLC, a Delaware limited liability company (“ Landlord ”), and ZENDESK, INC., a Delaware corporation (“ Tenant ”), and is dated as of the date of the Lease Agreement (“ Lease ”) by and between Landlord and Tenant to which this Extension Rider is attached. The agreements set forth in this LC Rider shall have the same force and effect as if set forth in the Lease. To the extent the terms of this LC Rider are inconsistent with the terms of the Lease, the terms of this LC Rider shall control.

1. Concurrently upon execution of the Lease, Tenant shall deliver to Landlord, as collateral for the full and faithful performance by Tenant of all of its obligations under the Lease and for all losses and damages Landlord may suffer as a result of any default by Tenant under the Lease, subject to Tenant’s rights to notice and cure pursuant to Article 19 of the Lease, an irrevocable and unconditional negotiable letter of credit (the “ Letter of Credit ”), in the form attached hereto as Exhibit 1 and containing the terms required herein, payable in the County of San Francisco, California, running in favor of Landlord issued by a solvent bank under the supervision of the Superintendent of Banks of the State of California, or a National Banking Association, in the amount of THREE MILLION SIX HUNDRED EIGHT THOUSAND THREE HUNDRED FORTY-FOUR AND 90/100 DOLLARS ($3,608,344.90) (“ LC Amount ”), as the same may be reduced pursuant to Paragraph 5 below. Should Tenant fail to deliver the original Letter of Credit to Landlord by September 10, 2013, such failure shall constitute an immediate event of default under the Lease without further notice or cure rights. The Letter of Credit shall be (i) at sight and irrevocable, (ii) subject to the terms of this LC Rider, maintained in effect, whether through replacement, renewal or extension, for the entire period from the date of execution of this Lease through the date which is sixty (60) days after the Lease Expiration Date (subject, however, to the reduction and termination provisions of Paragraph 5 below), and Tenant shall deliver a new Letter of Credit or certificate of renewal or extension to Landlord at least fifteen (15) days prior to the expiration of the Letter of Credit, without any action whatsoever on the part of Landlord, (iii) subject to the International Standby Practices 1998, International Chamber of Commerce Publication No. 590, and (iv) fully assignable by Landlord in connection with a transfer of Landlord’s interest in the Lease and permit partial draws. In addition to the foregoing, the form and terms of the Letter of Credit (and the bank issuing the same) shall be acceptable to Landlord, in Landlord’s reasonable discretion, and shall provide, among other things, in effect that: (A) Landlord, or its then managing agent, shall have the right to draw down an amount up to the face amount of the Letter of Credit upon the presentation to the issuing bank of Landlord’s (or Landlord’s then managing agent’s) of a written statement certifying that such amount is due to Landlord under the terms and conditions of the Lease, it being understood that if Landlord or its managing agent be a corporation, partnership or other entity, then such statement shall be signed by an officer (if a corporation), a general partner (if a partnership), or any authorized party (if another entity); (B) the Letter of Credit will be honored by the issuing bank without inquiry as to the accuracy thereof and regardless of whether the Tenant disputes the content of such statement; and (C) in the event of a transfer of Landlord’s interest in the Building, Landlord shall transfer the Letter of Credit, in whole or in part (or cause a substitute letter of credit to be delivered, as applicable) to the transferee and thereupon the Landlord shall, without any further agreement between the parties, be released by Tenant from all liability therefor, and it is agreed that the provisions hereof shall apply to every transfer or assignment of the whole or any portion of said Letter of Credit to a new Landlord. The bank issuing the Letter of Credit shall at all times remain solvent and open for business.

 

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2. If, as result of any application or use by Landlord of all or any part of the Letter of Credit (or any “Cash Collateral,” as that term is defined, below), the amount of the Letter of Credit and Cash Collateral shall collectively be less than the LC Amount, Tenant shall, within ten (10) days thereafter, provide Landlord with either (i) cash (the “Cash Collateral” ) to be held and applied by Landlord as collateral in the same manner as if Landlord held such amount as part of the Letter of Credit, or (ii) additional letter(s) of credit in an amount equal to the deficiency (or a replacement letter of credit in the total amount of the LC Amount) and any such additional (or replacement) letter of credit shall comply with all of the provisions of this LC Rider, and if Tenant fails to comply with the foregoing, the same shall constitute an uncurable default by Tenant. Tenant further covenants and warrants that it will neither assign nor encumber the Letter of Credit or Cash Collateral, as the case may be, or any part thereof and that neither Landlord nor its successors or assigns will be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. Without limiting the generality of the foregoing, if the Letter of Credit expires earlier than the date which is sixty (60) days after the Lease Expiration Date and the conditions for the release of the Letter of Credit set forth in Paragraph 5 , below, have not been satisfied, and Tenant has not provided Landlord with cash in lieu of the entire LC amount then outstanding pursuant to Paragraph 1 above, Landlord will accept Cash Collateral, a renewal letter of credit or substitute letter of credit (such renewal or substitute letter of credit or Cash Collateral to be in effect and delivered to Landlord, as applicable, not later than fifteen (15) days prior to the expiration of the Letter of Credit), which with respect to any letter of credit shall be irrevocable and automatically renewable as above provided through the date which is sixty (60) days after the Lease Expiration Date upon the same terms as the expiring Letter of Credit or such other terms as may be acceptable to Landlord in its reasonable discretion. In the event that Tenant provides Cash Collateral pursuant to the foregoing provisions of this Paragraph 2 , Landlord shall have no obligation to maintain such Cash Collateral in a separate account, and Tenant shall not be entitled to receive any interest accruing thereon. However, if Cash Collateral is not timely delivered or the Letter of Credit is not timely renewed or a substitute Letter of Credit is not timely received, or if Tenant fails to maintain the Letter of Credit and/or the Cash Collateral in the amount and in accordance with the terms set forth in this LC Rider, Landlord shall have the right to present the Letter of Credit to the bank in accordance with the terms of this LC Rider, and the entire sum evidenced thereby shall be paid to and held by Landlord as Cash Collateral for performance of all of Tenant’s obligations under the Lease and for all losses and damages Landlord may suffer as a result of any default by Tenant under the Lease, subject to Tenant’s rights to notice and cure pursuant to Article 19 of the Lease.

3. If there shall occur a default under the Lease as set forth in Article 19 of the Lease and such default remains uncured beyond the applicable notice and cure periods set forth in Article 19 , Landlord may, but without obligation to do so, draw upon the Letter of Credit and/or utilize the Cash Collateral, in part or in whole, to cure any default of Tenant and/or to compensate Landlord for any and all damages of any kind or nature sustained or which may be sustained by Landlord resulting from Tenant’s default. Tenant agrees not to interfere in any way with payment to Landlord of the proceeds of the Letter of Credit, either prior to or following a “draw” by Landlord of any portion of the Letter of Credit, regardless of whether any dispute exists between Tenant and Landlord as to Landlord’s right to draw from the Letter of Credit. No condition or term of the Lease shall be deemed to render the Letter of Credit conditional to justify the issuer of the Letter of Credit in failing to honor a drawing upon such Letter of Credit in a timely manner.

 

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4. Landlord and Tenant acknowledge and agree that in no event or circumstance shall the Letter of Credit or any renewal thereof or substitute therefor or Cash Collateral be (i) deemed to be or treated as a “security deposit” within the meaning of California Civil Code Section 1950.7, (ii) subject to the terms of such Section 1950.7, or (iii) intended to serve as a “security deposit” within the meaning of such Section 1950.7. The parties hereto (A) recite that the Letter of Credit and/or Cash Collateral, as the case may be, is not intended to serve as a security deposit and such Section 1950.7 and any and all other laws, rules and regulations applicable to security deposits in the commercial context ( “Security Deposit Laws” ) shall have no applicability or relevancy thereto and (B) waive any and all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws.

5. Notwithstanding anything to the contrary set forth in this LC Rider, but subject to the provisions of Paragraphs 5(a) and (b)  below, it is hereby agreed that the LC Amount shall be reduced by and to the amounts on the dates set forth on the schedule below:

 

Reduction Date

   Amount of Reduction      Revised LC Amount  

First day of 37th month of initial Lease Term

   $ 601,390.82       $ 3,006,954.08   

First day of 49th month of initial Lease Term

   $ 601,390.82       $ 2,405,563.27   

First day of 61st month of initial Lease Term

   $ 601,390.82       $ 1,804,172.45   

Further, in the event that Tenant successfully completes an initial public offering of stock in Tenant through the New York Stock Exchange or other nationally recognized stock exchange that raises a minimum of One Hundred Million Dollars ($100,000,000) in gross proceeds for Tenant in the primary offering, then it is hereby agreed that the LC Amount shall be reduced by and to the amounts on the dates set forth on the schedule below:

 

Reduction Date

   Amount of Reduction      Revised LC Amount  

First day of 25th month of initial Lease Term

   $ 902,086.23       $ 2,706,258.68   

First day of 36th month of initial Lease Term

   $ 902,086.23       $ 1,804,172.45   

(a) Notwithstanding the foregoing provisions of this Paragraph 5 to the contrary, there shall be no reduction in the LC Amount, or waiver of the Letter of Credit requirement and/or return of the Letter of Credit to Tenant, at any time while Tenant is in default of any of its obligations under the Lease.

(b) Any such reductions in the LC Amount pursuant this Paragraph 5 shall be accomplished through an amendment or replacement Letter of Credit, to be provided by Tenant to Landlord at Tenant’s sole cost and expense.

[SIGNATURES APPEAR ON THE IMMEDIATELY FOLLOWING PAGE.]

 

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IN WITNESS WHEREOF , Landlord and Tenant have caused this Letter of Rider to be executed the day and date of the Lease.

 

“Landlord”:     1019 MARKET ST. PROPERTY, LLC,
a Delaware limited liability company
    By:   1019 Market St. Holdings III, LLC,
a Delaware limited liability company Its Managing Member
       
      By:     /s/ W. Greg Geiger
        Printed Name: W. Greg Geiger                                             
        Title: Authorized Signer                                                       
       
      By:   /s/ Sean Armstrong
        Printed Name: Sean Armstrong                                         
        Title: Authorized Signer                                                     
       
“Tenant”:     ZENDESK, INC. ,
a Delaware corporation
       
    By:   /s/ Mikkel Svane
      Printed Name:  Mikkel Svane                                                     
      Title:  CEO and President                                                           
       
    By:   /s/ John Geschke
      Printed Name:  John Geschke                                                     
      Title:  General Counsel and Secretary                                    

Signature Page

Exhibit 10.14

EXECUTION VERSION

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this “ Agreement ”) dated as of June 12, 2012 (the “ Effective Date ”) between SILICON VALLEY BANK , a California corporation (“ Bank ”), and ZENDESK, INC ., a Delaware corporation (“ Borrower ”), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank. The parties agree as follows:

1 ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.

2 LOAN AND TERMS OF PAYMENT

2.1 Promise to Pay . Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.

2.1.1 Revolving Advances .

(a) Availability . Subject to the terms and conditions of this Agreement, Bank shall make Advances not exceeding the Availability Amount. Amounts borrowed hereunder may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.

(b) Termination; Repayment . The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable.

2.1.2 Mezzanine Term Loans .

(a) Availability . Subject to the terms and conditions of this Agreement, prior to the expiration of the Draw Period, Borrower may request, and Bank shall thereafter make, up to two (2) mezzanine term loans in an aggregate amount of up to the Mezzanine Term Loan Amount (each, a “ Mezzanine Term Loan ” and collectively, the “ Mezzanine Term Loans ”). Each Mezzanine Term Loan must be in an amount equal to at least Two Million Five Hundred Thousand Dollars ($2,500,000.00), provided that the second Mezzanine Term Loan, if borrowed, may be in an amount less than Two Million Five Hundred Thousand Dollars ($2,500,000.00) so long as it is in an amount equal to the entire remaining amount Borrower has available to borrow under this Section 2.1.2.

(b) Interest Payments . Commencing on the first Payment Date following the Funding Date for the initial Mezzanine Term Loan, and continuing on each Payment Date thereafter, Borrower shall make monthly payments of interest, in arrears, on the aggregate principal amount of the Mezzanine Term Loans at the rate set forth in Section 2.3(a)(ii).

(c) Repayment . Borrower shall repay the full amount of the Mezzanine Term Loans, together with any accrued and unpaid interest with respect to the Mezzanine Term Loans, on the Mezzanine Term Loan Maturity Date. Borrower may prepay the Mezzanine Term Loans, together with any accrued and unpaid interest with respect to the Mezzanine Term Loans, at any time without penalty or premium of any kind. Once repaid, the Mezzanine Term Loan (or any portion thereof) may not be reborrowed.

2.2 Overadvances . If, at any time, the outstanding principal amount of any Advances exceeds the lesser of either the Revolving Line or the Borrowing Base, Borrower shall immediately pay to Bank in cash such excess.

 


2.3 Payment of Interest on the Credit Extensions.

(a) Interest Rate .

(i) Revolving Advances. Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating rate per annum equal to two percentage points (2.00%) above the Prime Rate, which interest shall be payable monthly in accordance with Section 2.3(f) below.

(ii) Mezzanine Term Loans. Subject to Section 2.3(b), the principal amount of Mezzanine Term Loans shall accrue interest at a fixed rate equal to eleven percent (11.00%) per annum, which interest shall be payable monthly in accordance with Section 2.3(f) below.

(b) Default Rate . Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.00%) above the rate that is otherwise applicable thereto (the “ Default Rate ”) unless Bank otherwise elects from time to time in its sole discretion to impose a smaller increase. Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations. Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.

(c) Adjustment to Interest Rate . Changes to the interest rate of any Advance based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change.

(d) Computation; 360-Day Year . In computing interest, the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided , however , that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension. Interest shall be computed on the basis of a 360-day year for the actual number of days elapsed.

(e) Debit of Accounts . Bank may debit the Designated Deposit Account, or such other deposit account as Borrower and bank may from time to time agree in writing by Borrower, for principal and interest payments or any other amounts Borrower owes Bank when due hereunder. These debits shall not constitute a set-off.

(f) Interest Payment Date . Unless otherwise provided, interest is payable monthly in arrears on each Payment Date.

2.4 Fees . Borrower shall pay to Bank:

(a) Commitment Fee . A fully earned, non-refundable commitment fee of One Hundred Thousand Dollars ($100,000), on the Effective Date;

(b) Anniversary Fee . The fully earned, non-refundable anniversary fee of Fifty Thousand Dollars ($50,000), on the first anniversary of the Effective Date; and

(c) Bank Expenses . All Bank Expenses (including reasonable documented out-of-pocket attorneys’ fees and expenses for documentation and negotiation of this Agreement) incurred and invoiced to Borrower through and after the Effective Date, when due hereunder.

2.5 Payments; Application of Payments.

(a) All payments (including prepayments) to be made by Borrower under any Loan Document shall be made in immediately available funds in U.S. Dollars, without setoff or counterclaim, before 2:00 p.m. Pacific time on the date when due. Payments of principal and/or interest received after 2:00 p.m. Pacific time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.

 

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(b) Bank shall apply the whole or any part of collected funds against the Revolving Line or credit such collected funds to a depository account of Borrower with Bank (or an account maintained by an Affiliate of Bank), the order and method of such application, after the occurrence and during the continuance of an Event of Default, to be in the sole discretion of Bank. If an Event of Default has occurred and is continuing, Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement.

3 CONDITIONS OF LOANS

3.1 Conditions Precedent to Initial Credit Extension . Bank’s obligation to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:

(a) duly executed original signatures to the Loan Documents;

(b) duly executed original signatures to the Control Agreement(s);

(c) Borrower’s Operating Documents and a good standing certificate of Borrower certified by the Secretary of State of the State of Delaware as of a date no earlier than thirty (30) days prior to the Effective Date;

(d) duly executed original signatures to the completed Borrowing Resolutions for Borrower;

(e) certified copies, dated as of a recent date, of financing statement searches, as Bank shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;

(f) the Perfection Certificate of Borrower, together with the duly executed original signature thereto;

(g) a copy of Borrower’s investor rights agreement (and any amendments thereto) and a capitalization table;

(h) evidence satisfactory to Bank that the insurance policies required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing lender loss payable and/or additional insured clauses or endorsements in favor of Bank;

(i) the completion of the Initial Audit with results satisfactory to Bank in its sole and absolute discretion; and

(j) payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof.

3.2 Conditions Precedent to all Credit Extensions . Bank’s obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:

(a) timely receipt of an executed Payment/Advance Form;

(b) the representations and warranties in this Agreement shall be true and correct in all material respects on the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided , however , that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true and correct in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties in this Agreement are true and correct in all material respects as of such date; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true and correct in all material respects as of such date; and

 

 

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(c) in Bank’s sole discretion, there has not been a Material Adverse Change.

3.3 Covenant to Deliver . Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension. Borrower expressly agrees that a Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrower’s obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Bank’s sole discretion.

3.4 Procedures for Borrowing . Subject to the prior satisfaction of all other applicable conditions to the making of a Credit Extension set forth in this Agreement, to obtain a Credit Extension, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the Funding Date of the Credit Extension. Together with any such electronic or facsimile notification, Borrower shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Bank shall credit Credit Extensions to the Designated Deposit Account. Bank may make Credit Extensions under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Credit Extensions are necessary to meet Obligations which have become due.

4 CREATION OF SECURITY INTEREST

4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.

Borrower acknowledges that it previously has entered, and/or may in the future enter, into Bank Services Agreements with Bank. Regardless of the terms of any Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank thereunder shall be deemed to be Obligations hereunder and that it is the intent of Borrower and Bank to have all such Obligations secured by the first priority perfected security interest in the Collateral granted herein (subject only to Permitted Liens that may have superior priority to Bank’s Lien in this Agreement).

Borrower agrees that, unless otherwise agreed in a writing signed by Bank and Borrower (a) the security interest granted herein by Borrower shall survive the termination of this Agreement and shall terminate only upon the termination of all Bank Services Agreements, and (b) if, on the effective date of the termination of this Agreement, there are any outstanding Letters of Credit, then on such date Borrower shall provide to Bank cash collateral in an amount equal to 105% of the Dollar Equivalent of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to such Letters of Credit.

4.2 Priority of Security Interest . Borrower represents, warrants, and covenants that the security interest granted herein (a) to secure the Revolving Line is and shall at all times continue to be a first priority perfected security interest in the Collateral and (b) to secure the Mezzanine Term Loan is and shall at all times continue to be subordinated in right of payment to the security interest described in clause (a) above (in each case, subject only to Permitted Liens that may have superior priority to Bank’s Lien under this Agreement). If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.

If this Agreement is terminated, Bank’s Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity or inchoate reimbursement obligations) are repaid in full in cash. Upon payment in full in cash of the Obligations and at such time as Bank’s obligation to make Credit Extensions has terminated, Bank’s Liens in the Collateral shall automatically terminate and all rights therein shall revert to Borrower and Bank shall, at Borrower’s sole cost and expense, take such actions and execute such documents as Borrower may reasonably request from time to time to evidence such termination and release Bank’s Liens in the Collateral.

 

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4.3 Authorization to File Financing Statements . Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Bank’s interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code. Such financing statements may indicate the Collateral as “all assets of the Debtor” or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Bank’s discretion.

5 REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

5.1 Due Organization, Authorization; Power and Authority. Borrower is duly existing and in good standing as a Registered Organization in its jurisdiction of formation and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower’s business. In connection with this Agreement, Borrower has delivered to Bank a completed certificate signed by Borrower, entitled “Perfection Certificate” (the “ Perfection Certificate ”). Borrower represents and warrants to Bank that (a) Borrower’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower’s place of business, or, if more than one, its chief executive office as well as Borrower’s mailing address (if different than its chief executive office); (e) other than as disclosed on the Perfection Certificate, Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is true and correct (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement).

The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification by Borrower with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect) or (v) constitute an event of default under any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower’s business.

5.2 Collateral. Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. Borrower has no deposit accounts other than the deposit accounts with Bank, the deposit accounts, if any, described in the Perfection Certificate delivered to Bank in connection herewith, or of which Borrower has given Bank notice and taken such actions as are necessary to give Bank a perfected security interest therein.

The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate. None of the components of the Collateral (other than mobile equipment in the possession of Borrower’s employees or agents) shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2.

All Inventory is in all material respects of good and marketable quality, free from material defects.

Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) non-exclusive licenses granted to its customers in the ordinary course of business, (b) over-the-counter software that is commercially available to the public, and (c) material Intellectual Property licensed to Borrower and noted on the Perfection Certificate. Each Patent which it owns or purports to own and which is material to Borrower’s business is valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrower’s business has been judged invalid or unenforceable, in whole or in part. To Borrower’s knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrower’s business.

 

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Except as noted on the Perfection Certificate, Borrower is not a party to, nor is it bound by, any Restricted License.

5.3 Litigation . There are no actions or proceedings pending or, to the knowledge of the Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries involving more than, individually or in the aggregate, Five Hundred Thousand Dollars ($500,000).

5.4 Financial Statements; Financial Condition . All consolidated financial statements for Borrower and its Subsidiaries delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of operations as of the respective dates of, and for the periods covered by, such financial statements. There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Bank.

5.5 Solvency . Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.

5.6 Regulatory Compliance. Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries is a “holding company” or an “affiliate” of a “holding company” or a “subsidiary company” of a “holding company” as each term is defined and used in the Public Utility Holding Company Act of 2005. Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on its business. None of Borrower’s or any of its Subsidiaries’ properties or assets has been used by Borrower or any Subsidiary or, to Borrower’s knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Government Authorities that are necessary to continue their respective businesses as currently conducted.

5.7 Subsidiaries; Investments . Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments.

5.8 Tax Returns and Payments; Pension Contributions . Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower, except for taxes, assessments, deposits and contributions owed to a Governmental Authority that (i) do not at any time exceed an amount of Twenty-Five Thousand Dollars ($25,000) individually or Two Hundred Thousand Dollars ($200,000) in the aggregate and (ii) are not secured by any Lien on any of the Collateral that is other than a “Permitted Lien”. Borrower may defer payment of any contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Bank in writing of the commencement of, and any material development in, the proceedings, (c) posts bonds or takes any other steps required to prevent the Governmental Authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien”. Borrower is unaware of any claims or adjustments proposed for any of Borrower’s prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

5.9 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as working capital and to fund its general business requirements and not for personal, family, household or agricultural purposes.

 

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5.10 Full Disclosure . No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank in connection with or in contemplation of the Loan Documents, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading (it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).

5.11 Definition of “Knowledge . ” For purposes of the Loan Documents, whenever a representation or warranty is made to Borrower’s knowledge or awareness, or with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable investigation, of any Responsible Officer.

6 AFFIRMATIVE COVENANTS

Borrower shall do all of the following:

6.1 Government Compliance .

(a) Maintain its and all its Subsidiaries’ legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrower’s business or operations. Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could reasonably be expected to have a material adverse effect on Borrower’s business.

(b) Obtain all of the Governmental Approvals necessary for the performance by Borrower of its obligations under the Loan Documents to which it is a party and the grant of a security interest to Bank in all of its property. Borrower shall promptly provide copies of any such obtained Governmental Approvals to Bank.

6.2 Financial Statements, Reports, Certificates . Deliver to Bank:

(a) Borrowing Base Reports . Within thirty (30) days after the last day of each month, a monthly Borrowing Base report and key performance metrics reports (of the type that is normally shared with the Board of Directors, including without limitation bookings, billings, Committed Monthly Recurring Revenue, Annual Recurring Revenue and renewal/retention rates);

(b) (i) prior to the consummation of an Initial Public Offering, as soon as available, but no later than thirty (30) days after the last day of each month or (ii) following the consummation of an Initial Public Offering, as soon as available, but no later than thirty (30) days after the last day of each quarter, in each case, detailed reports showing (A) aged listings of accounts receivable and accounts payable (by invoice date) and (B) monthly reconciliations of accounts receivable agings (aged by invoice date), transaction reports and general ledger,

(c) Unaudited Financial Statements. (i) prior to the consummation of an Initial Public Offering, as soon as available, but no later than thirty (30) days after the last day of each of the first two months of any fiscal quarter, a company prepared balance sheet and income statement covering the operations of Borrower and its Subsidiaries on a consolidated basis for such month, which monthly financial statements shall not be required to be prepared in accordance with GAAP and (ii) as soon as available, but no later than thirty (30) days after the last day of each quarter, a company prepared consolidating balance sheet and income statement covering Borrower’s and each Subsidiary’s consolidating operations for such quarter, which quarterly financial statements shall be prepared in accordance with GAAP consistently applied, in each case certified by a Responsible Officer and in a form reasonably acceptable to Bank;

(d) Compliance Certificates. Together with the each of the financial statements delivered pursuant to Section 6.2(c) or (e), a duly completed Compliance Certificate signed by a Responsible Officer, certifying that as of the end of such month, quarter or year then ended, Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Bank shall reasonably request;

(e) Annual Audited Financial Statements. As soon as available, but no later than (i) in the case of the fiscal year ended December 31, 2011, no later than two hundred and seventy (270) days of the end of such fiscal year, and (ii) for each fiscal year of Borrower ending thereafter, no later than one hundred and eighty

 

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(180) days after the last day of Borrower’s fiscal year, in each case audited consolidating financial statements prepared in accordance with GAAP consistently applied, together with an unqualified opinion on the financial statements from Deloitte LLP or any other independent certified public accounting firm acceptable to Bank in its reasonable discretion;

(f) Foreign Bank Statements . Together with each of the financial statements delivered pursuant to Section 6.2(c) or (e), a summary statement of each of Borrower’s and any of its Subsidiaries’ bank accounts maintained outside the United States;

(g) Other Statements . Within five (5) days of delivery, copies of all statements, reports and notices made available to Borrower’s security holders;

(h) SEC Filings . In the event that Borrower becomes subject to the reporting requirements under the Exchange Act within five (5) days of filing, copies of all periodic and other reports, proxy statements and other materials filed by Borrower with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be. Documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower posts such documents, or provides a link thereto, on Borrower’s website on the Internet at Borrower’s website address;

(i) Legal Action Notice . A prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, Five Hundred Thousand Dollars ($500,000) or more;

(j) Projections . Annually, no later than thirty (30) days after the earlier of board approval or the last day of Borrower’s fiscal year, and contemporaneously with any updates thereto, board-approved operating budgets and projections for the then-current fiscal year in the form provided to Borrower’s security holders.

(k) Intellectual Property Notice . Prompt written notice of (i) any material change in the composition of the Intellectual Property, (ii) the registration of any copyright, including any subsequent ownership right of Borrower in or to any copyright, patent or trademark not previously disclosed in writing to Bank, and (iii) Borrower’s knowledge of an event that could reasonably be expected to materially and adversely affect the value of the Intellectual Property material to Borrower’s business; and

(l) Other Financial Information . Budgets, sales projections, operating plans and other financial information regarding Borrower and its Subsidiaries reasonably requested by Bank.

6.3 Inventory; Returns . Keep all Inventory in good and marketable condition, free from material defects (ordinary wear and tear and casualty damage excepted). Returns and allowances between Borrower and its Account Debtors shall follow Borrower’s customary practices as they exist at the Effective Date. Borrower must promptly notify Bank of all returns, recoveries, disputes and claims that involve more than One Hundred Thousand Dollars ($100,000).

6.4 Taxes; Pensions; Withholding . Timely file, and require each of its Subsidiaries to timely file, all required tax returns and reports and timely pay, and require each of its Subsidiaries to timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.8 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.

6.5 Insurance . Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower’s industry and location and as Bank may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Bank. All property policies shall have a lender’s loss payable endorsement showing Bank as lender loss payee and waive subrogation against Bank. All liability policies shall show, or have endorsements showing, Bank as an additional insured. All policies (or the loss payable and additional insured endorsements) shall provide that the insurer shall give Bank at least thirty (30) days notice (10 days notice for nonpayment of premium) before canceling, amending, or declining to renew its policy. At Bank’s request, Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any policy shall, at Bank’s option, be payable to Bank on account of the Obligations. Notwithstanding the

 

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foregoing, (a) so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy up to Five Hundred Thousand Dollars ($500,000) in the aggregate for all losses under all casualty policies in any one year toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Bank has been granted a first priority security interest, and (b) after the occurrence and during the continuance of an Event of Default, all proceeds payable under such casualty policy shall, at the option of Bank, be payable to Bank on account of the Obligations. If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Bank deems prudent.

6.6 Operating Accounts .

(a) Maintain all of its primary operating and other deposit accounts and securities accounts (other than deposit accounts described in the Perfection Certificate that are in existence on the Effective Date and maintained at banks in the Kingdom of Denmark, the United Kingdom or the Commonwealth of Australia) with Bank.

(b) Provide Bank five (5) days prior written notice before establishing any Collateral Account of Borrower at or with any bank or financial institution other than Bank or Bank’s Affiliates. For each Collateral Account that Borrower at any time maintains, Borrower shall use commercially reasonable efforts to cause the applicable bank or financial institution (other than Bank) at or with which such Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank’s Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees and identified to Bank by Borrower as such.

6.7 Financial Covenant . Maintain at all times, to be tested as of the last day of each month, unless otherwise noted, a ratio of Quick Assets to Current Liabilities minus the current portion of Deferred Revenue of at least 1.25 to 1.0.

6.8 Protection and Registration of Intellectual Property Rights .

(a) (i) Protect, defend and maintain the validity and enforceability of the Intellectual Property material to Borrower’s business; (ii) promptly advise Bank in writing of material infringements of its Intellectual Property; and (iii) not allow any Intellectual Property material to Borrower’s business to be abandoned, forfeited or dedicated to the public without Bank’s written consent.

(b) If Borrower (i) obtains any Patent, registered Trademark, registered Copyright, registered mask work, or any pending application for any of the foregoing, whether as owner, licensee or otherwise, or (ii) applies for any Patent or the registration of any Trademark or Copyright, then Borrower shall promptly provide written notice thereof to Bank.

(c) Provide written notice to Bank within thirty (30) days of entering or becoming bound by any Restricted License (other than over-the-counter software that is commercially available to the public).

6.9 Litigation Cooperation . From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees and agents and Borrower’s books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower.

6.10 Access to Collateral; Books and Records . Allow Bank, or its agents, at reasonable times during normal business hours, on five (5) Business Days’ notice (provided no notice is required if an Event of Default has occurred and is continuing), to inspect the Collateral and audit and copy Borrower’s Books. Such inspections or audits shall be conducted no more often than once every twelve (12) months unless an Event of Default has occurred and is continuing. The foregoing inspections and audits shall be at Borrower’s expense, and the charge therefor shall be $850 per person per day (or such higher amount as shall represent Bank’s then-current standard charge for

 

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the same), plus reasonable documented out-of-pocket expenses. In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedule the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank’s rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any reasonable documented out-of-pocket expenses incurred by Bank to compensate Bank for the costs and expenses of the cancellation or rescheduling.

6.11 Formation or Acquisition of Subsidiaries . At the time that Borrower or any Guarantor forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary after the Effective Date, Borrower and such Guarantor shall (a) cause such new Subsidiary to provide to Bank a guaranty, together with such appropriate financing statements and/or Control Agreements, all in form and substance reasonably satisfactory to Bank (including being sufficient to grant Bank a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired Domestic Subsidiary), (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in such new Subsidiary, in form and substance satisfactory to Bank, and (c) provide to Bank other documentation in form and substance reasonably satisfactory to Bank which Bank shall reasonably request. Any document, agreement, or instrument executed or issued pursuant to this Section 6.11 shall be a Loan Document. Notwithstanding the foregoing, no Foreign Subsidiary shall be required to guarantee the Obligations or pledge any assets in support thereof, and the Collateral shall not include more than 65% of the issued and outstanding shares of capital stock of any Foreign Subsidiary which shares entitle the holder thereof to vote for directors or any other matter, in each case to the extent that such guarantee or pledge would result in material adverse tax consequences for the Borrower and its Subsidiaries.

6.12 Further Assurances . Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s Lien in the Collateral or to effect the purposes of this Agreement. Deliver to Bank, within five (5) Business Days after the same are sent or received, copies of all correspondence, reports, documents and other filings with any Governmental Authority regarding compliance with or maintenance of Governmental Approvals or Requirements of Law or that could reasonably be expected to have a material effect on any of the Governmental Approvals or otherwise on the operations of Borrower or any of its Subsidiaries.

6.13 Post-Closing Matters . Within sixty (60) days of the Effective Date, use commercially reasonable efforts to deliver to Bank a landlord’s consent in form and substance reasonably satisfactory to Bank for Borrower’s leased United States location by the landlord thereof.

7 NEGATIVE COVENANTS

   Borrower shall not do any of the following without Bank’s prior written consent:

7.1 Dispositions . Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “ Transfer ”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out, obsolete or surplus Equipment; (c) in connection with Permitted Liens and Permitted Investments; (d) of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business and licenses that could not result in a legal transfer of title of the licensed property but that may be exclusive in respects other than territory and that may be exclusive as to territory only as to discreet geographical areas outside of the United States; and (e) (i) between Borrower and any Guarantor or (ii) from any Subsidiary to Borrower or any Guarantor, and (f) of licenses of Intellectual Property, whether exclusive or otherwise, to any of its Subsidiaries on terms and conditions reasonably acceptable to Bank.

7.2 Changes in Business, Management, Ownership, or Business Locations . (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) the Key Person ceases to hold such office with the Borrower as is held on the Effective Date and a replacement reasonably satisfactory to Bank is not made within sixty (60) days after his or her departure from Borrower; or (ii) permit or suffer any Change of Control.

Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than Five Hundred Thousand Dollars ($500,000) in Borrower’s assets or property) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Five Hundred Thousand Dollars ($500,000) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization. If Borrower intends to deliver any

 

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portion of the Collateral valued, individually or in the aggregate, in excess of Five Hundred Thousand Dollars ($500,000) to a bailee at a location other than as provided in the Perfection Certificate, Borrower will first receive the written consent of Bank, and such bailee shall execute and deliver a bailee agreement in form and substance satisfactory to Bank in its reasonable discretion.

7.3 Mergers or Acquisitions . Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person except where (a) total consideration including cash and the value of any non-cash consideration, for all such transactions does not in the aggregate exceed Five Hundred Thousand Dollars ($500,000) in any fiscal year of Borrower; (b) no Event of Default has occurred and is continuing or would result after giving effect to such transactions; and (c) Borrower is the surviving legal entity. Notwithstanding the foregoing, a Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

7.4 Indebtedness . Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.

7.5 Encumbrance . Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein, or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s Intellectual Property, except as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Liens” herein.

7.6 Maintenance of Collateral Accounts . Maintain any Collateral Account except pursuant to the terms of Section 6.6(b) hereof.

7.7 Distributions; Investments . (a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock, provided that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof, (ii) Borrower may pay dividends solely in common stock; and (iii) Borrower may repurchase the stock of former employees or consultants pursuant to stock repurchase agreements so long as an Event of Default does not exist at the time of such repurchase and would not result after giving effect to such repurchase, provided such repurchase price does not exceed the original purchase price paid by such employees or consultants; or (b) directly or indirectly make any Investment other than Permitted Investments, or permit any of its Subsidiaries to do so.

7.8 Transactions with Affiliates . Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.

7.9 Subordinated Debt . (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof or adversely affect the subordination thereof to Obligations owed to Bank.

7.10 Compliance . Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with applicable provisions of the Federal Fair Labor Standards Act or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower’s business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.

 

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8 EVENTS OF DEFAULT

Any one of the following shall constitute an event of default (an “Event of Default”) under this Agreement:

8.1 Payment Default . Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments of (i) Mezzanine Term Loans due on the Mezzanine Term Loan Maturity Date or (ii) Revolving Advances due on the Revolving Line Maturity Date). During the cure period, the failure to make or pay any payment specified under clause (a) or (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);

8.2 Covenant Default .

(a) Borrower fails or neglects to perform any obligation in Sections 2.2, 6.2, 6.4, 6.5, 6.6, 6.7 or 6.10, or violates any covenant in Section 7; provided, that in no event shall any failure or neglect to perform any obligation under Section 6.7 shall constitute an Event of Default with respect to the Mezzanine Term Loan Facility; or

(b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided , however , that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Cure periods provided under this Section shall not apply, among other things, to financial covenants or any other covenants set forth in clause (a) above;

8.3 Reserved .

8.4 Attachment; Levy; Restraint on Business .

(a) (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control of Borrower (including a Subsidiary) on deposit or otherwise maintained with Bank or any Bank Affiliate, or (ii) a notice of lien or levy is filed against any of Borrower’s assets by any government agency, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided , however , no Credit Extensions shall be made during any ten (10) day cure period; or

(b) (i) any material portion of Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting any material part of its business;

8.5 Insolvency . (a) Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within thirty (30) days (but no Credit Extensions shall be made while of any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);

8.6 Other Agreements . There is, under any agreement to which Borrower or any Subsidiary is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of Five Hundred Thousand Dollars ($500,000); or (b) any default by Borrower or Subsidiary, the result of which would have a material adverse effect on Borrower’s or any Subsidiary’s business; provided that solely for purposes of this clause (b), in no event shall any default arising solely from Borrower’s failure to comply with Section 6.7 constitute an Event of Default with respect to the Mezzanine Term Loan Facility;

 

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8.7 Judgments . One or more final judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least Five Hundred Thousand Dollars ($500,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower and the same are not, within ten (10) days after the entry thereof, discharged or execution thereof stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the discharge, stay, or bonding of such judgment, order, or decree);

8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank in connection with this Agreement or any Loan Document or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made; and

8.9 Subordinated Debt. Any document, instrument, or agreement evidencing any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect, any Person shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement.

9 BANK’S RIGHTS AND REMEDIES

9.1 Rights and Remedies. While an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following, to the extent not prohibited by applicable law:

(a) declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);

(b) stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Bank;

(c) for any Letters of Credit, demand that Borrower (i) deposit cash with Bank in an amount equal to 105% of the Dollar Equivalent of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;

(d) terminate any FX Contracts;

(e) settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, notify any Person owing Borrower money of Bank’s security interest in such funds, and verify the amount of such account;

(f) make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral including, without limitation, perfecting Bank’s security interest in Borrower’s Intellectual Property. Borrower shall assemble the Collateral if Bank requests and make it available as Bank designates at any location that is reasonably convenient to both Bank and Borrower. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge by Borrower or any of its Affiliates, to exercise any of Bank’s rights or remedies;

(g) apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower;

(h) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names,

 

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Trademarks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit;

(i) place a “hold” on any account maintained by Borrower or any Guarantor with Bank (other than deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower’s employees) and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;

(j) demand and receive possession of Borrower’s Books; and

(k) exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).

9.2 Power of Attorney . Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower’s name on any checks or other forms of payment or security; (b) sign Borrower’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower’s name on any documents necessary to perfect or continue the perfection of Bank’s security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations (other than inchoate indemnity or inchoate reimbursement obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder. Bank’s foregoing appointment as Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with an interest, are irrevocable until all Obligations(other than inchoate indemnity or inchoate reimbursement obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been fully repaid and performed and Bank’s obligation to provide Credit Extensions terminates.

9.3 Protective Payments . If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon when due or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document when due, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral. Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default.

9.4 Application of Payments and Proceeds Upon Default . If an Event of Default has occurred and is continuing, Bank may apply any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Bank shall determine in its sole discretion. Any surplus shall be paid to Borrower or other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. If Bank, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral upon the occurrence of and during the continuation of an Event of Default, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.

9.5 Bank’s Liability for Collateral . So long as Bank complies with applicable law and reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.

 

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9.6 No Waiver; Remedies Cumulative . Bank’s failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given. Bank’s rights and remedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank’s exercise of one right or remedy is not an election and shall not preclude Bank from exercising any other remedy under this Agreement or other remedy available at law or in equity, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay in exercising any remedy is not a waiver, election, or acquiescence.

9.7 Demand Waiver . Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable.

10 NOTICES

All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.

 

  If to Borrower: Zendesk, Inc.
       989 Market Street
       San Francisco, CA 94103
       Attn: Alan Black, Chief Financial Officer
       Fax: (415) 644-5778
       Email: ablack@zendesk.com

 

  If to Bank: Silicon Valley Bank
       Hanover Street Palo Alto, CA 93404
       Attn: Brian Fitzpatrick, Relationship Manager
       Fax: (650) 494-1377
       Email: bfitzpatrick@svb.com

11 CHOICE OF LAW, VENUE, JURY TRIAL WAIVER, AND JUDICIAL REFERENCE

California law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank. Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in, or subsequently provided by Borrower in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.

 

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TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara County, California; and the parties hereby submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.

12 GENERAL PROVISIONS

12.1 Successors and Assigns . This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights or obligations under it without Bank’s prior written consent (which may be granted or withheld in Bank’s discretion). Bank has the right, without the consent of or notice to Borrower, to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, Bank’s obligations, rights, and benefits under this Agreement and the other Loan Documents.

12.2 Indemnification . Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an “ Indemnified Person ”) harmless against: (a) all obligations, demands, claims, and liabilities (collectively, “ Claims ”) claimed or asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or reasonable documented out-of-pocket expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Bank and Borrower (including reasonable documented out-of-pocket attorneys’ fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person’s gross negligence or willful misconduct.

12.3 Time of Essence . Time is of the essence for the performance of all Obligations in this Agreement.

12.4 Severability of Provisions . Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

12.5 Correction of Loan Documents . Bank may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties so long as Bank provides Borrower with written notice of such correction and allows Borrower at least ten (10) days to object to such correction. In the event of such objection, such correction shall not be made except by an amendment signed by both Bank and Borrower.

12.6 Amendments in Writing; Waiver; Integration . No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party against

 

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which enforcement or admission is sought. In furtherance and not in limitation of the immediately preceding sentence, all amendments to this Agreement must be in writing and signed by both Bank and Borrower. Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document. Any waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver. The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.

12.7 Counterparts . This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.

12.8 Survival . All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been paid in full and satisfied. The grant of security interest by Borrower in Section 4.1 shall survive until the termination of all Bank Services Agreements, and the obligation of Borrower in Section 12.2 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run.

12.9 Confidentiality . In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank’s Subsidiaries or Affiliates; (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall obtain any prospective transferee’s or purchaser’s agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise required in connection with Bank’s examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein. Confidential information does not include information that is either: (i) in the public domain or in Bank’s possession when disclosed to Bank or becomes part of the public domain after disclosure to Bank; or (ii) disclosed to Bank by a third party if Bank does not know that the third party is prohibited from disclosing the information.

Bank may use confidential information for the development of databases, reporting purposes, and market analysis so long as such confidential information is aggregated and anonymized prior to distribution unless otherwise expressly permitted by Borrower. The provisions of the immediately preceding sentence shall survive the termination of this Agreement.

12.10 Attorneys’ Fees, Costs and Expenses . In any action or proceeding between Borrower and Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to recover its reasonable documented out-of-pocket attorneys’ fees and other reasonable documented out-of-pocket costs and expenses incurred, in addition to any other relief to which it may be entitled.

12.11 Electronic Execution of Documents . The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.

12.12 Captions . The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

12.13 Construction of Agreement . The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement. In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.

12.14 Relationship . The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement. The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract.

 

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12.15 Third Parties . Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.

13 DEFINITIONS

13.1 Definitions. As used in the Loan Documents, the word “shall” is mandatory, the word “may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not limiting, the singular includes the plural, and numbers denoting amounts that are set off in brackets are negative. As used in this Agreement, the following capitalized terms have the following meanings:

Account ” is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.

Account Debtor ” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.

Advance ” or “ Advances ” is an advance (or advances) under the Revolving Line.

Advance Amount ” means, with respect to each of Borrower’s Specified Price Plans, the sum of Committed Monthly Recurring Revenue with respect to such Specified Price Plan for each month of the immediately preceding Measurement Period.

Affiliate ” is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.

Agreement ” is defined in the preamble hereof.

Annual Recurring Revenue ” is, as of any date of determination, with respect to each of Borrower’s Specified Price Plans, an amount equal to product of (a) the number of active customers with respect to each such Specified Price Plan, multiplied by (b) ARPU with respect to each such Specified Price Plan.

Annualized Client Loss Rate ” is the percentage, with respect to each of Borrower’s Specified Price Plans, derived from (a) Annualized Client Losses with respect to each such Specified Price Plan divided by (b) the number of clients with respect to each such Specified Price Plan, in each case as of the end of the immediately preceding three month period.

Annualized Client Losses ” are, with respect to each of Borrower’s Specified Price Plans, (a) the total number of clients lost over the immediately preceding Measurement Period with respect to each such Specified Price Plan, multiplied by (b) four (4).

Annualized Client Retention Rate ” is, as of any date of determination with respect to each of Borrower’s Specified Price Plans, (a) one hundred percent (100%) minus (b) the Annualized Client Loss Rate with respect to each such Specified Price Plan.

ARPU ” is, with respect to each of Borrower’s Specified Price Plans, the average monthly subscription revenue per customer with respect to each such Specified Price Plan over the immediately preceding Measurement Period.

Availability Amount ” is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the outstanding principal balance of any Advances.

Bank ” is defined in the preamble hereof.

 

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Bank Expenses ” are all audit fees and expenses and other reasonable documented out-of-pocket costs and expenses (including reasonable documented out-of-pocket attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower or any other Credit Party.

Bank Services ” are any products, credit services, and/or financial accommodations previously, now, or hereafter provided to Borrower or any of its Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Bank’s various agreements related thereto (each, a “ Bank Services Agreement ”).

Borrower ” is defined in the preamble hereof.

Borrower’s Books ” are all Borrower’s books and records including ledgers, federal and state tax returns, records regarding Borrower’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

Borrowing Base ” is, as of the date of determination, the aggregate of the three Advance Amounts (reflecting all of Borrower’s Specified Price Plans).

Borrowing Base Certificate ” is that certain certificate in the form attached hereto as Exhibit C .

Borrowing Resolutions ” are, with respect to any Person, those resolutions adopted by such Person’s Board of Directors and delivered by such Person to Bank approving the Loan Documents to which such Person is a party and the transactions contemplated thereby, together with a certificate executed by its Secretary on behalf of such Person certifying that (a) such Person has the authority to execute, deliver, and perform its obligations under each of the Loan Documents to which it is a party, (b) that attached as an exhibit to such certificate is a true, correct, and complete copy of the resolutions then in full force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Loan Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Loan Documents on behalf of such Person, together with a sample of the true signature(s) of such Person(s), and (d) that Bank may conclusively rely on such certificate unless and until such Person shall have delivered to Bank a further certificate canceling or amending such prior certificate.

Business Day ” is any day that is not a Saturday, Sunday or a day on which Bank is closed.

Cash Equivalents ” are (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc.; (c) Bank’s certificates of deposit issued maturing no more than one (1) year after issue; and (d) money market funds at least ninety-five percent (95%) of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (c) of this definition.

Change in Control ” is any event, transaction, or occurrence as a result of which any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of Borrower, who is not a stockholder as of the Effective Date is or becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Borrower, representing fifty percent (50%) or more of the combined voting power of Borrower’s then outstanding securities.

Code ” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of California, the term “ Code ” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

 

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Collateral ” is any and all properties, rights and assets of Borrower described on Exhibit A .

“C ollateral Account ” is any Deposit Account, Securities Account, or Commodity Account.

Committed Monthly Recurring Revenue ” is, as of any date of determination, with respect to each of Borrower’s Specified Price Plans, an amount equal to (a) the number of active customers with respect to such Specified Price Plan, multiplied by (b) ARPU with respect to such Specified Price Plan, multiplied by (c) the Annualized Client Retention Rate with respect to such Specified Price Plan.

Commodity Account ” is any “commodity account” as defined in the Code with such additions to such term as may hereafter be made.

Compliance Certificate ” is that certain certificate in the form attached hereto as Exhibit D .

Contingent Obligation ” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

Control Agreement ” is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.

Copyrights ” are any and all copyright rights, copyright applications, copyright registrations and like protections in each work or authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.

Credit Extension ” is any Advance, Mezzanine Term Loan, or any other extension of credit by Bank for Borrower’s benefit under this Agreement.

Credit Party ” is the Borrower and any Subsidiaries from time to time party hereto.

Current Liabilities ” are all obligations and liabilities of Borrower to Bank, plus, without duplication, the aggregate amount of Borrower’s Total Liabilities that mature within one (1) year, provided that “Current Liabilities” shall not include any obligation or liability outstanding under any Mezzanine Term Loan.

Default Rate ” is defined in Section 2.3(b).

Deferred Revenue ” is all amounts received or invoiced by Borrower in advance of performance under its contracts and not yet recognized as revenue of Borrower.

Deposit Account ” is any “deposit account” as defined in the Code with such additions to such term as may hereafter be made.

Designated Deposit Account ” is Borrower’s deposit account, account number, maintained with Bank.

Dollars ,” “ dollars ” or use of the sign “ $ ” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.

 

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Dollar Equivalent ” is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.

Domestic Subsidiary ” is a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia.

Draw Period ” is the period of time from the Effective Date through the earlier to occur of (a) June 11, 2013 or (b) an Event of Default.

Effective Date ” is defined in the preamble hereof.

Equipment ” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

ERISA ” is the Employee Retirement Income Security Act of 1974, and its regulations.

Event of Default ” is defined in Section 8.

Exchange Act ” is the Securities Exchange Act of 1934, as amended.

Foreign Currency ” means lawful money of a country other than the United States.

Foreign Subsidiary ” means any Subsidiary which is not a Domestic Subsidiary.

Funding Date ” is any date on which a Credit Extension is made to or for the account of Borrower which shall be a Business Day.

FX Contract ” is any foreign exchange contract by and between Borrower and Bank under which Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency on a specified date.

GAAP ” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

General Intangibles ” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation property damage and business interruption insurance), payments of insurance and rights to payment of any kind.

Governmental Approval ” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

Governmental Authority ” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

Guarantor ” is any present or future guarantor of the Obligations.

 

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Indebtedness ” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.

Indemnified Person ” is defined in Section 12.2.

Initial Audit ” is Bank’s inspection of Borrower’s Accounts, the Collateral, and Borrower’s Books, with results satisfactory to Bank in its sole and absolute discretion.

Initial Public Offering ” is a underwritten initial public offering of shares of common stock of Borrower on any U.S. national securities exchange, pursuant to which shares of Borrower’s common stock are registered with the SEC.

Insolvency Proceeding ” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.

Intellectual Property ” is all of a Credit Party’s right, title, and interest in and to the following:

(a) its Copyrights, Trademarks and Patents;

(b) any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how, operating manuals;

(c) any and all source code;

(d) any and all design rights which may be available to a Borrower;

(e) any and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above; and

(f) all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.

Inventory ” is all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

Investment ” is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.

Key Person ” is the Borrower’s Chief Executive Officer, who is, as of the Effective Date, Mikkel Svane.

Lien ” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.

Loan Documents ” are, collectively, this Agreement, the Warrant, the Perfection Certificate, any subordination agreement, any note, or notes or guaranties executed by Borrower or any Guarantor, and any other present or future agreement between Borrower any Guarantor and/or for the benefit of Bank in connection with this Agreement, all as amended, restated, or otherwise modified.

Material Adverse Change ” is (a) a material impairment in the perfection or priority of Bank’s Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; or (c) a material impairment of the prospect of repayment of any portion of the Obligations when due and payable.

Measurement Period ” is, at any date of determination, the three (3) month period then ended.

 

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Mezzanine Term Loan ” is a loan made by Bank pursuant to the terms of Section 2.1.2 hereof.

Mezzanine Term Loan Amount ” is an amount equal to Five Million Dollars ($5,000,000.00).

Mezzanine Term Loan Maturity Date ” is June 11, 2015.

Net Income ” is, as calculated on a consolidated basis for Borrower and its Subsidiaries for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Borrower and its Subsidiaries for such period taken as a single accounting period.

Obligations ” are Borrower’s obligation to pay when due any debts, principal, interest, Bank Expenses, and other amounts Borrower owes Bank now or later, whether under this Agreement, the other Loan Documents, or otherwise, including, without limitation, any interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and the performance of Borrower’s duties under the Loan Documents.

Operating Documents ” are, for any Person, such Person’s formation documents, as certified with the Secretary of State of such Person’s state of formation on a date that is no earlier than 30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.

Patents ” are all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.

Payment/Advance Form ” is that certain form attached hereto as Exhibit B .

Payment Date ” is the first calendar day of each month.

Perfection Certificate ” is defined in Section 5.1.

Permitted Indebtedness ” is:

(a) Borrower’s Indebtedness to Bank under this Agreement and the other Loan Documents;

(b) Indebtedness existing on the Effective Date and shown on the Perfection Certificate;

(c) unsecured Indebtedness to trade creditors incurred in the ordinary course of business;

(d) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;

(e) Indebtedness secured by Liens permitted under clauses (a) and (k) of the definition of “Permitted Liens” hereunder;

(f) other Indebtedness not otherwise permitted by Section 7.4 not exceeding Five Hundred Thousand Dollars ($500,000) in the aggregate outstanding at any time;

(g) Indebtedness of any Guarantor owed to the Borrower or any other Guarantor; and

(h) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (g) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.

Permitted Investments ” are:

(a) Investments existing on the Effective Date and shown on the Perfection Certificate and;

 

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(b) Investments consisting of Cash Equivalents;

(c) Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower;

(d) Investments consisting of deposit accounts in which Bank has a perfected security interest;

(e) Investments accepted in connection with Transfers permitted by Section 7.1;

(f) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower’s Board of Directors;

(g) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business;

(h) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this paragraph (h) shall not apply to Investments of Borrower in any Subsidiary;

(i) joint ventures or strategic alliances in the ordinary course of Borrower’s business consisting of the non-exclusive licensing of technology, the development of technology or the providing of technical support, provided that any cash investments by Borrower do not exceed Five Hundred Thousand Dollars ($500,000) in the aggregate in any fiscal year;

(j) other Investments not otherwise permitted by Section 7.7 not exceeding Five Hundred Thousand Dollars ($500,000) in the aggregate outstanding at any time; and

(k) Investments by Borrower or a Subsidiary in any Subsidiary.

Permitted Liens ” are:

(a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising under this Agreement and the other Loan Documents;

(b) Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which Borrower maintains adequate reserves on its Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;

(c) Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;

(d) Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);

(e) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase;

(f) leases or subleases of real property granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrower’s business (or, if referring to another Person, in the ordinary course of such Person’s business), if the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein;

 

- 24 -


(g) non-exclusive license of Intellectual Property granted to third parties in the ordinary course of business;

(i) Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 8.4 and 8.7;

(j) Liens in favor of other financial institutions arising in connection with Borrower’s deposit and/or securities accounts held at such institutions, provided that Bank has a perfected security interest in the amounts held in such deposit and/or securities accounts; and

(k) purchase money Liens or capital leases on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than Three Million Dollars ($3,000,000) in the aggregate amount outstanding.

Person ” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

Prime Rate ” is the prime rate as quoted in The Wall Street Journal, as in effect from time to time.

Quick Assets ” is, on any date, the sum of Borrower’s unrestricted cash and Cash Equivalents held at Bank, net billed accounts receivable and investments with maturities of fewer than 12 months determined according to GAAP. For the avoidance of doubt, Quick Assets shall not include cash, Cash Equivalents, accounts receivable or investments of any Subsidiary of Borrower.

Registered Organization ” is any “registered organization” as defined in the Code with such additions to such term as may hereafter be made.

Requirement of Law ” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

Responsible Officer ” is any of the Chief Executive Officer, President, Chief Financial Officer, Treasurer, Chief Operating Officer and Controller of Borrower.

Restricted License ” is any material license or other material agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower’s interest in such license or agreement or any other property, or (b) for which a default under or termination of would interfere with the Bank’s right to sell any Collateral.

Revolving Line ” is an Advance or Advances in an amount equal to Ten Million Dollars ($10,000,000.00).

Revolving Line Maturity Date ” is June 11, 2014.

SEC ” shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.

Securities Account ” is any “securities account” as defined in the Code with such additions to such term as may hereafter be made.

Specified Price Plans ” are Borrower’s “regular,” “plus” and “enterprise” price plans as in effect as of the Effective Date. For the avoidance of doubt, Borrower’s “starter” price plan shall not constitute a Specified Price Plan.

 

- 25 -


Subordinated Debt ” is indebtedness incurred by Borrower subordinated to all of Borrower’s now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank. For the avoidance of doubt, any Mezzanine Term Loan shall not constitute Subordinated Debt.

Subsidiary ” is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower.

Total Liabilities ” is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness and current portion of Subordinated Debt permitted by Bank to be paid by Borrower, but excluding all other Subordinated Debt, provided that “Total Liabilities” shall not include any obligation or liability outstanding under any Mezzanine Term Loan.

Trademarks ” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.

Transfer ” is defined in Section 7.1.

Warrant ” is that certain Warrant to Purchase Stock in the form attached hereto as Exhibit E , dated the Effective Date and executed by Borrower in favor of Bank.

[Signature page follows.]

 

- 26 -


IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed as of the Effective Date.

BORROWER:

ZENDESK, INC.

 

By   /s/ Alan Black
Name:   Alan Black
Title:   CFO

BANK:

SILICON VALLEY BANK

 

By   /s/ Brian Fitzpatrick
Name:   Brian Fitzpatrick
Title:   Relationship Manager

 

[Signature page to Loan and Security Agreement]


EXHIBIT A

DESCRIPTION OF COLLATERAL

The Collateral consists of all of Borrower’s right, title and interest in and to the following personal property:

All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles (except as provided below), commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and all Borrower’s Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.

Notwithstanding the foregoing, the Collateral does not include any Intellectual Property; provided, however, that (i) the Collateral shall include all Accounts and all proceeds of Intellectual Property and (ii) if a judicial authority (including a U.S. Bankruptcy Court) would hold that a security interest in the underlying Intellectual Property is necessary to have a security interest in such Accounts and such property that are proceeds of Intellectual Property, then, notwithstanding the foregoing, the Collateral shall automatically, and effective as of the Effective Date, include the Intellectual Property to the extent necessary to permit perfection of Bank’s security interest in such Accounts and such other property of Borrower that are proceeds of the Intellectual Property.

Pursuant to the terms of a certain negative pledge arrangement with Bank, Borrower has agreed not to encumber any of its Intellectual Property without Bank’s prior written consent.


EXHIBIT B

LOAN PAYMENT/ADVANCE REQUEST FORM

D EADLINE FOR SAME DAY PROCESSING IS N OON P ACIFIC T IME

 

Fax To:    Date:                     

L OAN P AYMENT :

 

       [Insert Borrower name]
From Account #          To Account #     
  (Deposit Account #)         (Loan Account #)
Principal $          and/or Interest $     
Authorized Signature:                  Phone Number:     
Print Name/Title:            

L OAN A DVANCE :

Complete Outgoing Wire Request section below if all or a portion of the funds from this loan advance are for an outgoing wire.

 

From Account #          To Account #     
  (Loan Account #)         (Deposit Account #)
Amount of Advance $          

All Borrower’s representations and warranties in the Loan and Security Agreement are true and correct in all material respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true and correct in all material respects as of such date:

 

Authorized Signature:          Phone Number:     
Print Name/Title:            

O UTGOING W IRE R EQUEST :

Complete only if all or a portion of funds from the loan advance above is to be wired.

Deadline for same day processing is noon, Pacific Time

 

Beneficiary Name:          Amount of Wire: $     
Beneficiary Bank:          Account Number:     
City and State:            
Beneficiary Bank Transit (ABA) #:                                                                       Beneficiary Bank Code (Swift, Sort, Chip, etc.):                                             
                 (For International Wire Only)
Intermediary Bank:          Transit (ABA) #:     
For Further Credit to:                  
Special Instruction:                  

By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).

 

Authorized Signature:

         2nd Signature (if required):     

Print Name/Title:

         Print Name/Title:     

Telephone #:

         Telephone #:     


EXHIBIT C

BORROWING BASE CERTIFICATE

Borrower: ZENDESK, INC.

Lender: Silicon Valley Bank

Commitment Amount: $                                 

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.

Advance Rate on Average CMRR (before accounting for churn): 300%

CMRR Retention, Advance Rate and Line Availability Calculation

 

     Regular Plan    Plus Plan    Enterprise Plan

Trailing 3-month average MRR churn rate calculation

        

Month 1 - MRR Churned Out ($)

        
  

 

  

 

  

 

Month 1 - MRR ($)

        
  

 

  

 

  

 

= Monthly MRR Churn Rate (%)

        
  

 

  

 

  

 

- Month 2 MRR Churn ($)

        
  

 

  

 

  

 

- Month 2 MRR ($)

        
  

 

  

 

  

 

= Monthly MRR Churn Rate (%)

        
  

 

  

 

  

 

- Month 3 MRR Churn ($)

        
  

 

  

 

  

 

- Month 3 MRR ($)

        
  

 

  

 

  

 

= Monthly MRR Churn Rate (%)

        
  

 

  

 

  

 

1.) Trailing 3-month average MRR churn rate:

        
  

 

  

 

  

 

2.) Annualized MRR Churn Rate (Line #1 X 12):

        
  

 

  

 

  

 

 

1


3.) CMRR Retention Rate (100% - Line #2):

              
                        

4.) Advance Rate for given Plan (300% X Line #3):

              
                        

5.) CMRR:

              
                        

6.) Line Availability for given plan (Line #4 X Line #5):

              
                        

> Aggregate Line Availability (Regular Plan Availability
+
Plus Plan Availability + Enterprise Plan Availability):

     Al               

7.) Current CMRR Line Outstandings:

   $                 
                    

*Net CMRR Line Availability (A1 - Line #7):

              

 

* Note: If net line availability is negative (overadvance), the line must be paid down by an amount equal to or greater than the overadvance.

 

2


Explanatory comments from previous page:

 

 

 

 

 

 

The undersigned represents and warrants that this is true and correct, and that the information in this Borrowing Base Certificate complies with the representations and warranties in the Loan and Security Agreement between the undersigned and Silicon Valley Bank.

 

      BANK USE ONLY
         Received by:     
            A UTHORIZED S IGNER
COMMENTS:       Date:     
By:            Verified:     
   Authorized Signer          A UTHORIZED S IGNER
Date:            Date:     
         Compliance Status:             Yes             No

 

3


EXECUTION VERSION

EXHIBIT D

COMPLIANCE CERTIFICATE

 

TO: SILICON VALLEY BANK

   Date:                     

FROM:                     

  

The undersigned authorized officer of ZENDESK, INC. (“Borrower”) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the “Agreement”):

(1) Borrower is in complete compliance for the period ending                      with all required covenants except as noted below; (2) there are no Defaults or Events of Default except as noted below; and (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true and correct in all material respects as of such date.

Attached are the required documents supporting the certification. The undersigned certifies that, to the extent required by the Agreement, these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

Please indicate compliance status by circling Yes/No under “Complies” column.

 

Reporting Covenant

  

Required

  

Complies

Monthly financial statements with Compliance Certificate    Monthly (Quarterly after an IPO) within days    Yes No
Annual financial statement (CPA Audited)
+ CC
   FYE 2011 within 270 days/each subsequent FYE within 180 days    Yes No
10-Q, 10-K and 8-K    Within 5 days after filing with SEC    Yes No
Borrowing Base Certificate A/R & A/P Agings    Monthly (Quarterly after an IPO) within 30 days    Yes No
Monthly bank statements from accounts held at banks outside the U.S., with respect to Borrower and its Subsidiaries    Together with Monthly, Quarterly and Annual financial statements    Yes No

 

Financial Covenant

  

Required

  

Actual

  

Complies

Maintain on a Monthly Basis:

        

Minimum Quick Ratio

   1.25:1.0             :1.0    Yes        No

The following financial covenant analysis and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.

The following are the exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions to note.”)

 

 

 

 

 

 

 

-1-


      BANK USE ONLY
         Received by:     
ZENDESK, INC.:          A UTHORIZED S IGNER
By:            Date:     
Name:            Verified:     
            A UTHORIZED S IGNER
Date:            Date:     
         Compliance Status:             Yes             No

 

2


EXECUTION VERSION

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.

Dated:                     

Quick Ratio (Section 6.7)

Required: 1.25:1.00

Actual:

 

A.

   Aggregate value of the unrestricted cash and Cash Equivalents of Borrower    $                

B.

   Aggregate value of the net billed accounts receivable of Borrower    $                

C.

   Aggregate value of the Investments with maturities of fewer than 12 months of Borrower    $                

D.

   Quick Assets (the sum of lines A through C)    $                

E.

   Aggregate value of Obligations to Bank (excluding obligations and liabilities outstanding under any Mezzanine Term Loan)    $                

F.

   Aggregate value of liabilities that should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, and not otherwise reflected in line E above that matures within one (1) year    $                

G.

   Current portion of Deferred Revenue    $                

H.

   Current Liabilities (the sum of lines E and F, minus G)    $                

I.

   Quick Ratio (line D divided by line H)    $                

Is line I equal to or greater than 1.25:1:00?

 

                   No, not in compliance                     Yes, in compliance

 

3


EXECUTION VERSION

EXHIBIT E

FORM OF WARRANT

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AS SET FORTH IN SECTIONS 5.3 AND 5.4 BELOW, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND LAWS OR IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY, SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

WARRANT TO PURCHASE STOCK

 

Company:

  Zendesk, Inc.

Number of Shares:

  250,000 (the “ Initial Shares ”), plus all Additional Shares which Holder is entitled to purchase pursuant to Section 1.7

Type/Series of Stock:

  Series B Common Stock

Warrant Price:

  $0.96 per share, with respect to the Initial Shares, and the price per share calculated in accordance with Section 1.7, with respect to any Additional Shares

Issue Date:

  June      , 2012

Expiration Date:

  June      , 2019

Credit Facility:

  This Warrant to Purchase Stock (“ Warrant ”) is issued in connection with that certain Loan and Security Agreement of even date herewith between Silicon Valley Bank and the Company (the “ Loan Agreement ”).

THIS WARRANT CERTIFIES THAT, for good and valuable consideration, SILICON VALLEY BANK (together with any successor or permitted assignee or transferee of this Warrant or of any shares issued upon exercise hereof, “ Holder ”) is entitled to purchase the number of fully paid and non-assessable shares (the “ Shares ”) of the above-stated Type/Series of Stock (the “ Class ”) of the above-named company (the “ Company ”) at the above-stated Warrant Price, all as set forth above and as adjusted pursuant to Section 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant. Reference is made to Section 5.4 of this Warrant whereby Silicon Valley Bank shall transfer this Warrant to its parent company, SVB Financial Group.

1 SECTION 1. EXERCISE.

1.1 1.1 Method of Exercise . Holder may at any time and from time to time exercise this Warrant, in whole or in part, by delivering to the Company the original of this Warrant together with a duly executed Notice of Exercise in substantially the form attached hereto as Appendix 1 and, unless Holder is exercising this Warrant pursuant to a cashless exercise set forth in Section 1.2, a check, wire transfer of same-day funds (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.

1.2 1.2 Cashless Exercise . On any exercise of this Warrant, in lieu of payment of the aggregate Warrant Price in the manner as specified in Section 1.1 above, but otherwise in accordance with the requirements of Section 1.1, Holder may elect to receive Shares equal to the value of this Warrant, or portion hereof as to which this Warrant is being exercised. Thereupon, the Company shall issue to the Holder such number of fully paid and non-assessable Shares as are computed using the following formula:

X =Y(A-B)/A

 

4


where:

 

  X = the number of Shares to be issued to the Holder;

 

  Y = the number of Shares with respect to which this Warrant is being exercised (inclusive of the Shares surrendered to the Company in payment of the aggregate Warrant Price);

 

  A = the Fair Market Value (as determined pursuant to Section 1.3 below) of one Share; and

 

  B = the Warrant Price.

1.3 1.3 Fair Market Value . If the Company’s common stock is then traded or quoted on a nationally recognized securities exchange, inter-dealer quotation system or over-the-counter market (a “ Trading Market ”) and the Class is common stock, the fair market value of a Share shall be the closing price or last sale price of a share of common stock reported for the Business Day immediately before the date on which Holder delivers this Warrant together with its Notice of Exercise to the Company. If the Company’s common stock is then traded in a Trading Market and the Class is a series of the Company’s convertible preferred stock, the fair market value of a Share shall be the closing price or last sale price of a share of the Company’s common stock reported for the Business Day immediately before the date on which Holder delivers this Warrant together with its Notice of Exercise to the Company multiplied by the number of shares of the Company’s common stock into which a Share is then convertible. If the Company’s common stock is not traded in a Trading Market, the Board of Directors of the Company shall determine the fair market value of a Share in its reasonable good faith judgment.

1.4 1.4 Delivery of Certificate and New Warrant . Within a reasonable time after Holder exercises this Warrant in the manner set forth in Section 1.1 or 1.2 above, the Company shall deliver to Holder a certificate representing the Shares issued to Holder upon such exercise and, if this Warrant has not been fully exercised and has not expired, a new warrant of like tenor representing the Shares not so acquired.

1.5 1.5 Replacement of Warrant . On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form, substance and amount to the Company or, in the case of mutilation, on surrender of this Warrant to the Company for cancellation, the Company shall, within a reasonable time, execute and deliver to Holder, in lieu of this Warrant, a new warrant of like tenor and amount.

1.6 1.6 Treatment of Warrant Upon Acquisition of Company .

1.6.1 (a) Acquisition . For the purpose of this Warrant, “ Acquisition ” means any transaction or series of related transactions involving: (i) the sale, lease, exclusive license, or other disposition of all or substantially all of the assets of the Company (ii) any merger or consolidation of the Company into or with another person or entity (other than a merger or consolidation effected exclusively to change the Company’s domicile), or any other corporate reorganization, in which the stockholders of the Company in their capacity as such immediately prior to such merger, consolidation or reorganization, own less than a majority of the Company’s (or the surviving or successor entity’s) outstanding voting power immediately after such merger, consolidation or reorganization; or (iii) any sale or other transfer by the stockholders of the Company of shares representing at least a majority of the Company’s then-total outstanding combined voting power.

1.6.2 (b) Treatment of Warrant at Acquisition . In the event of an Acquisition in which the consideration to be received by the Company’s stockholders consists solely of cash, solely of Marketable Securities or a combination of cash and Marketable Securities (a “ Cash/Public Acquisition ”), either (i) Holder shall exercise this Warrant pursuant to Section 1.1 and/or 1.2 and such exercise will be deemed effective immediately prior to and contingent upon the consummation of such Acquisition or (ii) if Holder elects not to exercise the Warrant, this Warrant will expire immediately prior to the consummation of such Acquisition.

1.6.3 (c) The Company shall provide Holder with written notice of its request relating to the Cash/Public Acquisition (together with such reasonable information as Holder may reasonably require regarding the treatment of this Warrant in connection with such contemplated Cash/Public Acquisition giving rise to such notice), which is to be delivered to Holder not less than seven (7) Business Days prior to the closing of the proposed Cash/Public Acquisition. In the event the Company does not provide such notice, then if, immediately prior to the Cash/Public Acquisition, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above would be greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be exercised pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised, and the Company shall promptly notify the Holder of the number of Shares (or such other securities) issued upon such exercise to the Holder and Holder shall be deemed to have restated each of the representations and warranties in Section 4 of the Warrant as the date thereof.


1.6.4 (d) Upon the closing of any Acquisition other than a Cash/Public Acquisition defined above, the acquiring, surviving or successor entity shall assume the obligations of this Warrant, and this Warrant shall thereafter be exercisable for the same securities and/or other property as would have been paid for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on and as of the closing of such Acquisition, subject to further adjustment from time to time in accordance with the provisions of this Warrant.

1.6.5 (e) As used in this Warrant, “ Marketable Securities ” means securities meeting all of the following requirements: (i) the issuer thereof is then subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and is then current in its filing of all required reports and other information under the Act and the Exchange Act; (ii) the class and series of shares or other security of the issuer that would be received by Holder in connection with the Acquisition were Holder to exercise this Warrant on or prior to the closing thereof is then traded in Trading Market, and (iii) Holder would be able to publicly re-sell, within six (6) months following the closing of such Acquisition, all of the issuer’s shares and/or other securities that would be received by Holder in such Acquisition were Holder to exercise this Warrant in full on or prior to the closing of such Acquisition.

1.7 Additional Shares . In addition to the Initial Shares granted to Holder on the Issue Date, on the first Funding Date of any extension under the Mezzanine Term Loan, the Company shall be deemed to have automatically granted to Holder, in addition to the number of Initial Shares which this Warrant can otherwise be exercised for by Holder, the right to purchase 300,000 additional Shares at the price per share equal to (a) $0.96 or (b) to the extent the Company’s 409(a) valuation is completed on or prior to July 31, 2012, then the average of $0.96 and such valuation (such additional Shares, the “ Additional Shares ”). Capitalized terms used but not defined in this Section 1.7 shall have the meanings given to them in the Loan Agreement.

2 SECTION 2. ADJUSTMENTS TO THE SHARES AND WARRANT PRICE.

2.1 2.1 Stock Dividends, Splits, Etc . If the Company declares or pays a dividend or distribution on the outstanding shares of the Class payable in common stock or other securities or property (other than cash), then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without additional cost to Holder, the total number and kind of securities and property which Holder would have received had Holder owned the Shares of record as of the date the dividend or distribution occurred. If the Company subdivides the outstanding shares of the Class by reclassification or otherwise into a greater number of shares, the number of Shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding shares of the Class are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.

2.2 2.2 Reclassification, Exchange, Combinations or Substitution . Upon any event whereby all of the outstanding shares of the Class are reclassified, exchanged, combined, substituted, or replaced for, into, with or by Company securities of a different class and/or series, then from and after the consummation of such event, this Warrant will be exercisable for the number, class and series of Company securities that Holder would have received had the Shares been outstanding on and as of the consummation of such event, and subject to further adjustment thereafter from time to time in accordance with the provisions of this Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, combinations substitutions, replacements or other similar events.

2.3 2.3 No Fractional Share . No fractional Share shall be issuable upon exercise of this Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional Share interest arises upon any exercise of the Warrant, the Company shall eliminate such fractional Share interest by paying Holder in cash the amount computed by multiplying the fractional interest by (i) the fair market value (as determined in accordance with Section 1.3 above) of a full Share, less (ii) the then-effective Warrant Price.

2.4 2.4 Notice/Certificate as to Adjustments . Upon each adjustment of the Warrant Price, Class and/or number of Shares, the Company, at the Company’s expense, shall notify Holder in writing within a reasonable time setting forth the adjustments to the Warrant Price, Class and/or number of Shares and facts upon which such adjustment is based. The Company shall, upon written request from Holder, furnish Holder with a certificate of its Chief Financial Officer, including computations of such adjustment and the Warrant Price, Class and number of Shares in effect upon the date of such adjustment.


3 SECTION 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.

3.1 3.1 Representations and Warranties . The Company represents and warrants to, and agrees with, the Holder as follows:

3.1.1 (a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the price per share at which shares of the Class were last sold and issued prior to the Issue Date hereof in an arms-length transaction in which at least $500,000 of such shares were sold.

3.1.2 (b) All Shares which may be issued upon the exercise of this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. The Company covenants that it shall at all times cause to be reserved and kept available out of its authorized and unissued capital stock such number of shares of the Class, common stock and other securities as will be sufficient to permit the exercise in full of this Warrant and the conversion of the Shares into common stock or such other securities.

3.1.3 (c) The Company’s capitalization table attached hereto as Schedule 1 is true and complete, in all material respects, as of the Issue Date.

3.2 3.2 Notice of Certain Events . If the Company proposes at any time to:

(a) declare any dividend or distribution upon the outstanding shares of the Class or common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend;

(b) offer for subscription or sale pro rata to the holders of the outstanding shares of the Class any additional shares of any class or series of the Company’s stock (other than pursuant to contractual pre-emptive rights);

(c) effect any reclassification, exchange, combination, substitution, reorganization or recapitalization of the outstanding shares of the Class;

(d) effect an Acquisition or to liquidate, dissolve or wind up; or

(e) effect an initial, underwritten public offering and sale of the Company’s common stock pursuant to an effective registration statement under the Act (the “ IPO ”);

then, in connection with each such event, the Company shall give Holder:

(1) at least seven (7) Business Days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of outstanding shares of the Class will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (a) and (b) above;

(2) in the case of the matters referred to in (c) and (d) above at least seven (7) Business Days prior written notice of the date when the same will take place (and specifying the date on which the holders of outstanding shares of the Class will be entitled to exchange their shares for the securities or other property deliverable upon the occurrence of such event); and

(3) with respect to the IPO, at least seven (7) Business Days prior written notice of the date on which the Company proposes to file its registration statement in connection therewith.

3.3 3.3 Annual Audited Financial Statements . The Company shall deliver to Holder, as soon as available, but no later than (i) in the case of the fiscal year ended December 31, 2011, no later than two hundred and seventy (270) days of the end of such fiscal year, and (ii) for each fiscal year of the Company ending thereafter, no later than one hundred and eighty (180) days after the last day of the Company’s fiscal year, in each case audited consolidated financial statements prepared under GAAP (as defined in the Loan Agreement) consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to Holder in its reasonable discretion.

Reference is made to Section 1.6(c) whereby this Warrant will be deemed to be exercised pursuant to Section 1.2 hereof if the Company does not give written notice to Holder of a Cash/Public Acquisition as required by the terms hereof. Company will also provide information requested by Holder that is reasonably necessary to enable Holder to comply with Holder’s accounting or reporting requirements.


4 SECTION 4. REPRESENTATIONS, WARRANTIES OF THE HOLDER.

The Holder represents and warrants to the Company as follows:

4.1 4.1 Purchase for Own Account . This Warrant and the securities to be acquired upon exercise of this Warrant by Holder are being acquired for investment for Holder’s account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act. Holder also represents that it has not been formed for the specific purpose of acquiring this Warrant or the Shares.

4.2 4.2 Disclosure of Information . Holder is aware of the Company’s business affairs and financial condition and has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities. Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.

4.3 4.3 Investment Experience . Holder understands that the purchase of this Warrant and its underlying securities involves substantial risk. Holder has experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic risk of such Holder’s investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.

4.4 4.4 Accredited Investor Status . Holder is an “accredited investor” within the meaning of Regulation D promulgated under the Act.

4.5 4.5 The Act . Holder understands that this Warrant and the Shares issuable upon exercise hereof have not been registered under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of the Holder’s investment intent as expressed herein. Holder understands that this Warrant and the Shares issued upon any exercise hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available. Holder is aware of the provisions of Rule 144 promulgated under the Act.

4.6 4.6 Market Stand-off Agreement . The Holder agrees that the Shares shall be subject to the Market Standoff provisions in Section 2.11 of the Company’s Amended and Restated Investors’ Rights Agreement, dated November 30, 2010.

4.7 4.7 No Voting Rights . Holder, as a Holder of this Warrant, will not have any voting rights until the exercise of this Warrant.

5 SECTION 5. MISCELLANEOUS.

5.1 5.1 Term and Automatic Cashless Exercise Upon Expiration .

5.1.1 (a) Term . Subject to the provisions of Section 1.6 above, this Warrant is exercisable in whole or in part at any time and from time to time on or before 6:00 PM, Pacific time, on the Expiration Date and shall be void thereafter.

5.1.2 (b) Automatic Cashless Exercise upon Expiration . In the event that, upon the Expiration Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Section 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be exercised pursuant to Section 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised, and the Company shall, within a reasonable time, deliver a certificate representing the Shares (or such other securities) issued upon such exercise to Holder.


5.2 5.2 Legends . The Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:

THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AS SET FORTH IN THAT CERTAIN WARRANT TO PURCHASE STOCK ISSUED BY THE ISSUER TO SILICON VALLEY BANK DATED JUNE      , 2012, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND LAWS OR IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, PLEDGE OR OTHER TRANSFER IS EXEMPT FROM SUCH REGISTRATION.

5.3 5.3 Compliance with Securities Laws on Transfer . This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part except in compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to SVB Financial Group (Silicon Valley Bank’s parent company) or any other affiliate of Holder, provided that any such transferee is an “accredited investor” as defined in Regulation D promulgated under the Act. Additionally, the Company shall also not require an opinion of counsel if there is no material question as to the availability of Rule 144 promulgated under the Act.

5.4 5.4 Transfer Procedure . After receipt by Silicon Valley Bank of the executed Warrant, Silicon Valley Bank will transfer all of this Warrant to its parent company, SVB Financial Group. By its acceptance of this Warrant, SVB Financial Group hereby makes to the Company each of the representations and warranties set forth in Section 4 hereof and agrees to be bound by all of the terms and conditions of this Warrant as if the original Holder hereof. Subject to the provisions of Section 5.3 and upon providing the Company with written notice, SVB Financial Group and any subsequent Holder may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable directly or indirectly, upon conversion of the Shares, if any) to any transferee, provided, however, in connection with any such transfer, SVB Financial Group or any subsequent Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable); and provided further, that any subsequent transferee other than SVB Financial Group shall agree in writing with the Company to be bound by all of the terms and conditions of this Warrant. Notwithstanding any contrary provision herein, at all times prior to the IPO, Holder may not, without the Company’s prior written consent, transfer this Warrant or any portion hereof, or any Shares issued upon any exercise hereof, or any shares or other securities issued upon any conversion of any Shares issued upon any exercise hereof, to any person or entity who directly competes with the Company, except in connection with an Acquisition of the Company by such a direct competitor.

5.5 5.5 Notices . All notices and other communications hereunder from the Company to the Holder, or vice versa, shall be deemed delivered and effective (i) when given personally, (ii) on the third (3rd) Business Day after being mailed by first-class registered or certified mail, postage prepaid, (iii) upon actual receipt if given by facsimile or electronic mail and such receipt is confirmed in writing by the recipient, or (iv) on the first Business Day following delivery to a reliable overnight courier service, courier fee prepaid, in any case at such address as may have been furnished to the Company or Holder, as the case may be, in writing by the Company or such Holder from time to time in accordance with the provisions of this Section 5.5. All notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:

SVB Financial Group

Attn: Treasury Department

3003 Tasman Drive, HC 215

Santa Clara, CA 95054

Telephone: (408) 654-7400

Facsimile: (408) 988-8317

Email address: derivatives@svb.com


Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:

Zendesk, Inc.

Attn: Chief Financial Officer

989 Market Street, Suite 300

San Francisco, CA 94103

Telephone: (415) 418-7506

Facsimile: (415) 778-9355

Email: ablack@zendesk.com

5.6 5.6 Waiver . This Warrant and any term hereof may be changed, waived, discharged or terminated (either generally or in a particular instance and either retroactively or prospectively) only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

5.7 5.7 Attorney’s Fees . In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys’ fees.

5.8 5.8 Counterparts; Facsimile/Electronic Signatures . This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement. Any signature page delivered electronically or by facsimile shall be binding to the same extent as an original signature page with regards to any agreement subject to the terms hereof or any amendment thereto.

5.9 5.9 Governing Law . This Warrant shall be governed by and construed in accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law.

5.10 5.10 Headings . The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant.

5.11 5.11 Business Days . “ Business Day ” is any day that is not a Saturday, Sunday or a day on which Silicon Valley Bank is closed.

[Remainder of page left blank intentionally]

[Signature page follows]

 

4


IN WITNESS WHEREOF, the parties have caused this Warrant to Purchase Stock to be executed by their duly authorized representatives effective as of the Issue Date written above.

“COMPANY”

ZENDESK, INC.

 

By:     
Name:     
  (Print)
Title:  

“HOLDER”

SILICON VALLEY BANK

 

By:     
Name:    
  (Print)
Title:  


APPENDIX 1

NOTICE OF EXERCISE

1. The undersigned Holder hereby exercises its right purchase              shares of the Common Stock of Zendesk, Inc. (the “ Company ”) in accordance with the attached Warrant To Purchase Stock, and tenders payment of the aggregate Warrant Price for such shares as follows:

 

  [    ] check in the amount of $              payable to order of the Company enclosed herewith

 

  [    ] Wire transfer of immediately available funds to the Company’s account

 

  [    ] Cashless Exercise pursuant to Section 1.2 of the Warrant

 

  [    ] Other [Describe]                                                                          

2. Please issue a certificate or certificates representing the Shares in the name specified below:

 

      
 

                Holder’s Name

 

  
      
      
                  (Address)   

3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Section 4 of the Warrant to Purchase Stock as of the date hereof.

 

HOLDER:

 

By:     
Name:     
Title:     
(Date):    


SCHEDULE 1

Company Capitalization Table

See attached

Exhibit 10.15

FIRST AMENDMENT AND WAIVER

TO

LOAN AND SECURITY AGREEMENT

This FIRST AMENDMENT AND WAIVER TO LOAN AND SECURITY AGREEMENT (this “ Amendment ”) is entered into this 14th day of June, 2013, by and between SILICON VALLEY BANK (“ Bank ”) and ZENDESK, INC. , a Delaware corporation (“ Borrower ”).

R ECITALS

A. Bank and Borrower have entered into that certain Loan and Security Agreement dated as of June 12, 2012, (as the same may from time to time be amended, modified, supplemented or restated, the “ Loan Agreement ”). Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.

B. Borrower has requested that Bank amend the Loan Agreement to (1) provide for a new $10,000,000 term loan to finance equipment and (2) make certain other revisions to the Loan Agreement as more fully set forth herein.

C. The Borrower has requested that Bank amend and waive certain provisions of the Loan Agreement.

D. Bank has agreed to amend and waive such provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

A GREEMENT

NOW, THEREFORE , in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

1. Definitions . Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

2. Amendments to Loan Agreement .

2.1 Section 2.1.1 (Revolving Advances). Clause (a) of Section 2.1.1 is hereby amended in its entirety to read as follows:

“(a) Availability . Subject to the terms and conditions of this Agreement, Bank shall make Advances not exceeding the Availability Amount. Amounts borrowed under the Revolving Line may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.”


2.2 Section 2.1.3 (Equipment Advances) . A new Section 2.1.3 is hereby added to the Loan Agreement to read as follows:

“2.1.3 Equipment Advances.

(a) Availability . Subject to the terms and conditions of this Agreement, during the Equipment Draw Period, Bank shall make advances (each, an “Equipment Advance” and, collectively, “Equipment Advances ) not exceeding the Equipment Line. Equipment Advances may only be used to finance (including by means of intercompany investments) Eligible Equipment purchased by Borrower or any of its Subsidiaries within one hundred eighty (180) days (determined based upon the applicable invoice date of such Eligible Equipment) before the date of each Equipment Advance. No Equipment Advance may exceed one hundred percent (100%) of the total invoice for Eligible Equipment (excluding taxes, shipping, warranty charges, freight discounts and installation expenses relating to such Eligible Equipment except to the extent such are allowed to be financed pursuant hereto as Other Equipment). Unless otherwise agreed to by Bank, not more than thirty percent (30.0%) of the proceeds of the Equipment Line shall be used to finance Other Equipment. Each Equipment Advance must be in an amount equal to the lesser of Five Hundred Thousand Dollars ($500,000) or the amount that has not yet been drawn under the Equipment Line. After repayment, no Equipment Advance may be reborrowed.

(b) Repayment . Equipment Advances outstanding on the last day of the Equipment Draw Period are payable in 30 consecutive equal monthly installments of principal and interest, beginning on the first day of each month following the last day of the Equipment Draw Period and ending on the Equipment Maturity Date. The Final Payment shall be payable upon the earliest of (i) the outstanding balance under the Equipment Line is reduced to zero following the Equipment Draw Period, (ii) the Equipment Maturity Date or (iii) an Event of Default.

(c) Prepayment Upon an Event of Loss . Borrower shall bear the risk of any loss, theft, destruction, or damage of or to the Financed Equipment. If, during the term of this Agreement, any item of Financed Equipment becomes obsolete or is lost, stolen, destroyed, damaged beyond repair, rendered permanently unfit for use, or seized by a governmental authority for any reason for a period ending beyond the Equipment Maturity Date with respect to such Financed Equipment (an “ Event of Loss ”), then, within ten (10) days following such Event of Loss, Borrower shall (i) pay to Bank on account of the Obligations all accrued interest to the date of the prepayment, plus all outstanding principal owing with respect to the Financed Equipment subject to the Event of Loss plus the ratable portion of the Final Payment that relates to the principal amount of such prepayment; or (ii) if no Event of Default has occurred and is continuing, at Borrower’s option, repair or replace any Financed Equipment subject to an Event of Loss provided the repaired or replaced Financed Equipment is of equal or like value to the Financed Equipment subject to an Event of Loss and provided further


that Bank has a first priority perfected security interest in such repaired or replaced Financed Equipment. Any partial prepayment of an Equipment Advance paid by Borrower on account of an Event of Loss shall be applied to prepay amounts owing for such Equipment Advance ratably to reduce scheduled principal installments with respect to such Equipment Advance.

2.3 Section 2.3 (Payment of Interest on the Credit Extensions) . A new Section 2.3(a)(iii) is hereby added to the Loan Agreement to read as follows:

“(iii) Equipment Advances . Subject to Section 2.3(b), the principal amount outstanding for each Equipment Advance shall accrue interest at a per annum rate equal to 2.50%, which interest shall be payable monthly in accordance with Section 2.3(f) below.”

2.4 Section 2.4 (Fees) . Section 2.4 of the Loan Agreement is hereby amended by (x) deleting the word “and” at the end of subsection (b) thereof, (y) relabeling subsection (c) thereof as subsection (e), and (z) inserting the following as new subsection (c) and (d):

“(c) Final Payment . The Final Payment, when due hereunder;

(d) Facility Fee . A fully earned, non-refundable facility fee of Twenty Five Thousand Dollars ($25,000), on the First Amendment Effective Date; and”

2.5 Section 3.4 (Procedures for Borrowing) . Section 3.4 is hereby is hereby amended in its entirety to read as follows:

“(a) Advances; Mezzanine Term Loans . Subject to the prior satisfaction of all other applicable conditions to the making of an Advance or Mezzanine Term Loan set forth in this Agreement, to obtain an Advance or Mezzanine Term Loan, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the Funding Date of the Advance or Mezzanine Term Loan. Together with any such electronic or facsimile notification, Borrower shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Bank shall credit Advances and Mezzanine Term Loans to the Designated Deposit Account. Bank may make Advances and Mezzanine Term Loans under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Advances or Mezzanine Term Loans are necessary to meet Obligations which have become due.

(b) Equipment Advances . Equipment Advances . Subject to the prior satisfaction of all other applicable conditions to the making of an Equipment Advance set forth in this Agreement, to obtain an Equipment Advance, Borrower must notify Bank (which notice shall be irrevocable) by electronic mail or facsimile no later than 12:00 p.m. Pacific time one (1) Business


Day before the proposed Funding Date. The notice shall be a Payment/Advance Form, must be signed by a Responsible Officer or designee, and shall include a copy of the invoice for the Equipment being financed. Borrower shall also deliver to Bank by electronic mail or facsimile a completed Loan Supplement, executed by a Responsible Officer or his or her designee, copies of invoices for the Financed Equipment and such additional information as Bank may reasonably request no later than 12:00 p.m. Pacific time one (1) Business Day before the proposed Funding Date. At Bank’s discretion, Bank shall have the opportunity to confirm that, upon filing the UCC-1 financing statement covering the Equipment described on the Loan Supplement, Bank shall have a first priority perfected security interest in such Equipment. If Borrower satisfies the conditions of each Equipment Advance, Bank shall disburse such Equipment Advance by transfer to the Designated Deposit Account.”

2.6 Section 4.2 (Priority of Security Interest) . The first sentence of Section 4.2 is hereby amended in its entirety to read as follows:

“Borrower represents, warrants, and covenants that the security interest granted herein (a) to secure the Revolving Line and the Equipment Line is and shall at all times continue to be a first priority perfected security interest in the Collateral and (b) to secure the Mezzanine Term Loan is and shall at all times continue to be subordinated in right of payment to the security interest described in clause (a) above (in each case, subject only to Permitted Liens that may have superior priority to Bank’s Lien under this Agreement).”

2.7 Section 5.1 (Due Organization, Authorization; Power and Authority) . The second sentence of Section 5.1 is hereby amended in its entirety to read as follows:

“In connection with this Agreement, Borrower has delivered to Bank a completed Perfection Certificate.”

2.8 Section 5.2 (Collateral) . The second sentence of the fourth paragraph of Section 5.2 is hereby amended in its entirety to read as follows:

“Each Patent (other than patent applications) which it owns or purports to own and which is material to Borrower’s business is valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrower’s business has been judged invalid or unenforceable, in whole or in part.”

2.9 Section 5.8 (Tax Returns and Payments; Pension Contributions) . The first sentence of Section 5.1 is hereby amended in its entirety to read as follows:

“Except as set forth in the Perfection Certificate, Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower, except for taxes, assessments, deposits and contributions owed to a Governmental Authority that (i) do not at any time exceed an amount of Twenty-Five Thousand Dollars ($25,000) individually or Two Hundred Thousand Dollars ($200,000) in the aggregate and (ii) are not secured by any Lien on any of the Collateral that is other than a “Permitted Lien.””


2.10 Section 5.9 (Use of Proceeds) . Section 5.9 is hereby amended in its entirety to read as follows:

“5.9 Use of Proceeds . Borrower shall use the proceeds of the Credit Extensions solely as working capital, to purchase Eligible Equipment (including by means of an intercompany investment that enables a Subsidiary of Borrower to do so), and to fund its general business requirements and not for personal, family, household or agricultural purposes.”

2.11 Section 6.6 (Operating Accounts) . Section 6.6(a) is hereby amended in its entirety to read as follows:

“(a) Maintain all of its primary operating and other deposit accounts and securities accounts with Bank.”

2.12 Section 7.1 (Dispositions) . Clause (b) of Section 7.1 is hereby amended in its entirety to read as follows:

“(b) of worn-out, obsolete or surplus Equipment that does not constitute Financed Equipment;”

2.13 Section 8.1 (Payment Default) . Section 8.1 is hereby amended in its entirety to read as follows:

“Payment Default. Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments of (i) Mezzanine Term Loans due on the Mezzanine Term Loan Maturity Date, (ii) Revolving Advances due on the Revolving Line Maturity Date or (iii) Equipment Advances on the Equipment Maturity Date or any scheduled payments of principal under the Equipment Line). During the cure period, the failure to make or pay any payment specified under clause (a) or (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);”

2.14 Section 13 (Definitions) .

(a) The following term and its respective definition set forth in Section 13.1 of the Loan Agreement is amended in its entirety and replaced with the following:

““Credit Extension is any Advance, Mezzanine Term Loan, Equipment Advance or any other extension of credit by Bank for Borrower’s benefit under this Agreement.”


““Current Liabilities are all obligations and liabilities of Borrower to Bank, plus, without duplication, the aggregate amount of Borrower’s Total Liabilities that mature within one (1) year, provided that “Current Liabilities” shall not include (a) any obligation or liability outstanding under any Mezzanine Term Loan or (b) the non-current portion of any Equipment Advances.”

““Perfection Certificate means a completed certificate entitled “Perfection Certificate” signed by Borrower and delivered to Bank on or about the First Amendment Effective Date.

(b) Clause (a) of the defined term “Permitted Investments” is hereby amended and restated in its entirety as follows:

“Investments existing on the First Amendment Effective Date and shown on the Perfection Certificate and;”

(c) The following terms and their definitions are hereby added to Section 13.1 of the Loan Agreement as follows:

““Eligible Equipment is the following to the extent it complies with all of Borrower’s representations and warranties to Bank, is acceptable to Bank in all respects, is located at locations permitted by Section 7.2, and (in the case of Eligible Equipment owned by the Borrower or any Guarantor) is subject to a first priority Lien in favor of Bank: (a) general purpose equipment, computer equipment, servers and related equipment, office equipment, furnishings, subject to the limitations set forth herein, and (b) Other Equipment.”

““Equipment Advance is defined in Section 2.1.3(a).”

““ Equipment Draw Period is the period of time from the First Amendment Effective Date through the earlier to occur of (a) September 14, 2014 or (b) an Event of Default.”

““Equipment Line is an Equipment Advance or Equipment Advances in an aggregate amount of up to Ten Million Dollars ($10,000,000).”

““Equipment Maturity Date is March 14, 2017.”

““Event of Loss is defined in Section 2.1.3(c).”

““Final Payment a final payment fee in an amount equal to 4.0% of the aggregate principal amount of Equipment Advances made under the Equipment Line.”

““Financed Equipment i s all present and future Eligible Equipment in which Borrower has any interest which is financed by an Equipment Advance.”

““First Amendment Effective Date means June 14, 2013.”


““Loan Supplement is the form attached hereto as Schedule 2.”

““Other Equipment is leasehold improvements, intangible property such as computer software and software licenses, equipment specifically designed or manufactured for Borrower, other intangible property, limited use property and other similar property and soft costs approved by Bank, including taxes, shipping, warranty charges, freight discounts and installation expenses.”

2.15 Schedules . A new Schedule 2 is hereby added to the Loan Agreement in the form attached hereto as Annex A.

2.16 Section 6.13 (Post-Closing Matters) . Section 8.1 is hereby amended in its entirety to read as follows:

“Post-Closing Matters . Use its commercially reasonable efforts to, within sixty (60) days of the First Amendment Effective Date (or such later date as Bank may agree in writing), deliver to Bank (i) a landlord’s consent in form and substance reasonably satisfactory to Bank for 989 Market Street, San Francisco, CA 94103 and (ii) a bailee agreement in form and substance reasonably satisfactory to Bank for 1200 Striker Avenue, Sacramento, CA 95834.”

2.17 Exhibit A . Exhibit A is hereby amended by inserting the following sentences at the end of the existing text:

“Notwithstanding the foregoing, the Collateral shall not include more than 65% of the issued and outstanding shares of capital stock of any Foreign Subsidiary which shares entitle the holder thereof to vote for directors or any other matter, in each case to the extent that such pledge would result in material adverse tax consequences for the Borrower and its Subsidiaries. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Loan and Security Agreement by and between Borrower and Silicon Valley Bank.”

3. Waiver . Bank and the Borrower hereby acknowledge that the Borrower failed to comply with Section 6.11 of the Loan Agreement in connection with the creation of each of Kabushiki Kaisha Zendesk and Zendesk International Limited (the “ Designated Event ”). Subject to the terms and conditions of this Amendment, Bank hereby waives any Event of Default under Section 8.2(b) of the Loan Agreement that has arisen or shall arise solely as a result of the occurrence of the Designated Event. The waiver by the Bank described in this Section 3 is subject to the satisfaction of the conditions precedent set forth below in this Amendment. Such waiver is limited to the extent described herein and shall not be construed to be a consent to or a waiver of any other breach of Section 6.11 of the Loan Agreement or any other terms, provisions, covenants, warranties or agreements contained in the Loan Agreement or in any of the other Loan Documents. Bank reserves the right to exercise any rights and remedies available to them in connection with any other present or future Events of Default with respect to the Loan Agreement or any other provision of any Loan Document. The description herein of the Designated Event shall not be deemed to exclude the existence of any other Event of Default.


The failure of Bank to give notice to Borrower of any such other Default or Event of Default is not intended to be nor shall be a waiver thereof.

4. Limitation of Amendments and Waiver .

4.1 The amendments set forth in Section 2 above and the waiver set forth in Section 3 above are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

4.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

5. Representations and Warranties . To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:

5.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;

5.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

5.3 The organizational documents of Borrower delivered to Bank on the First Amendment Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

5.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized by all necessary action on the part of Borrower;

5.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

5.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of,


or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and

5.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application relating to or affecting creditors’ rights and general equitable principles.

6. Effectiveness . This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, (b) Borrower’s payment of the facility fee pursuant to Section 2.4(d) of the Loan Agreement as amended by this Amendment, (c) all corporate and other proceedings taken or to be taken in connection with this Amendment and all documents incidental thereto, whether or not referred to herein, shall be reasonably satisfactory in form and substance to Bank, (d) the representations and warranties in Section 5 of this Amendment shall be true, accurate and complete in all material respects, (e) the due execution and delivery to Bank of the Perfection Certificate and (f) the due execution and delivery to Bank of issuer’s acknowledgements by each of Zendesk Pty Ltd, Zendesk APS, Zendesk UK Limited, Kabushiki Kaisha Zendesk and Zendesk International Limited.

7. Bank Expenses . In accordance with Section 12.10 of the Loan Agreement, the Borrower agrees to promptly pay all Bank Expenses payable by the Borrower to Bank in connection with this Amendment, including the reasonable and documented fees, charges and disbursements of Cooley LLP, as counsel for Bank not to exceed $7,500.

8. Effect of Amendment; Reaffirmation . On and after the effectiveness of this Amendment, each reference in the Loan Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import referring to the Loan Agreement, and each reference in each of the Loan Documents to “the Loan Agreement,” “thereunder,” “thereof” or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as amended by this Amendment. Except as expressly provided for in this Amendment, the Loan Documents are hereby ratified and reaffirmed and shall remain in full force and effect. This Amendment is not a novation and the terms and conditions of this Amendment shall be in addition to and supplemental to all terms and conditions set forth in the Loan Documents. In the event of any conflict or inconsistency between this Amendment and the terms of such documents, the terms of this Amendment shall be controlling, but such document shall not otherwise be affected or the rights therein impaired.

9. Integration . This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.


10. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

11. Governing Law. This Amendment and the rights and obligations of the parties hereto shall be governed by and construed in accordance with the laws of the State of California.

[Signature page follows.]


I N W ITNESS W HEREOF , the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

 

BANK     BORROWER
Silicon Valley Bank     Zendesk, Inc.
By:  

/s/ Brian Fitzpatrick

    By:  

/s/ Alan Black

Name:   Brian Fitzpatrick     Name:   Alan Black
Title:   Vice President     Title:   Chief Financial Officer


Annex A

SCHEDULE 2 - FORM OF LOAN AGREEMENT SUPPLEMENT

LOAN AGREEMENT SUPPLEMENT No. [    ]

LOAN AGREEMENT SUPPLEMENT No. [    ], dated              , 201      (“ Loan Supplement ”), to the Loan and Security Agreement dated as of June 12, 2012 (as amended, restated, or otherwise modified from time to time, the “ Loan Agreement ”) by and between the undersigned ZENDESK, INC. , a Delaware corporation (“ Borrower ”), and SILICON VALLEY BANK (“ Bank ”). Capitalized terms used herein but not otherwise defined herein are used with the respective meanings given to such terms in the Loan Agreement.

To secure the prompt payment by Borrower of all amounts from time to time outstanding under the Loan Agreement, and the performance by Borrower of all the terms contained in the Loan Agreement, Borrower grants Bank, a first priority security interest in each item of equipment and other property purchased by it and described in Annex A hereto. The equipment and other property described in Annex A hereto shall be deemed to be additional Financed Equipment and, to the extent owned by Borrower or any Guarantor, Collateral. The Loan Agreement is hereby incorporated by reference herein and is hereby ratified, approved and confirmed. Annex A (Equipment Schedule) is attached hereto. The proceeds of the Equipment Advance should be transferred to Borrower’s account with Bank set forth below:

Bank Name: Silicon Valley Bank

Account No.:                                 

Borrower hereby certifies that (a) the foregoing information is true and correct and authorizes Bank to endorse in its respective books and records, the interest rate applicable to the Funding Date of the Equipment Advance contemplated in connection with this Supplement and the principal amount set forth below; (b) the representations and warranties made by Borrower in the Loan Agreement are true and correct in all material respects on the date hereof and shall be true and correct in all material respects on such Funding Date. No Event of Default has occurred and is continuing under the Loan Agreement. This Supplement may be executed by Borrower and Bank in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.

Equipment Advance Funding Date :                      , 201     

Equipment Advance Amount : $             

Interest Rate :          %

This Supplement is delivered as of this day and year first above written.

 

SILICON VALLEY BANK       ZENDESK, INC.
     
By:  

 

      By:  

 

Name:         Name:    
Title:           Title:    

Annex I - Description of Financed Equipment


Annex I to Supplement

The Financed Equipment being financed with the Equipment Advance which this Supplement is being executed is listed below. Upon the funding of such Equipment Advance, this schedule and the property described below, to the extent owned by Borrower or any Guarantor, automatically shall be deemed to be a part of the Collateral.

 

Description of Equipment

   Make    Model    Serial
#
   Quantity    PO
#
   Invoice
Date
   Invoice
#
   Cost    Tax/Freight/Install
and Soft Costs
   Total
                             
                             

Exhibit 10.16

SECOND AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

This SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “ Amendment ”) is entered into this 30 th  day of December, 2013, by and between SILICON VALLEY BANK (“ Bank ”) and ZENDESK, INC. , a Delaware corporation (“ Borrower ”).

R ECITALS

A. Bank and Borrower have entered into that certain Loan and Security Agreement dated as of June 12, 2012 (as amended by that certain First Amendment and Waiver, dated as of June 14, 2013, and as further amended, modified, supplemented or restated from time to time, the “ Loan Agreement ”). Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.

B. Borrower has requested that Bank amend the Loan Agreement to (1) increase the revolving line from $10,000,000 to $20,000,000 and (2) make certain other revisions to the Loan Agreement as more fully set forth herein.

C. Bank has agreed to amend such provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

A GREEMENT

Now, Therefore , in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

2. Amendments to Loan Agreement.

2.1 Section 2.3 (Payment of Interest on the Credit Extensions). Section 2.3(a)(i) of the Loan Agreement is hereby amended in its entirety and replaced with the following:

(i) Revolving Advances . Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating rate per annum equal to two percentage points (2.00%) (the “margin”) above the Prime Rate, which interest shall be payable monthly in accordance with Section 2.3(f) below; provided that upon the consummation of an Initial Public Offering yielding net cash proceeds of not less than One Hundred Million Dollars ($100,000,000) to the Borrower, such margin shall be reduced to zero percentage points (0.00%).

2.2 Section 2.4 (Fees). Section 2.4 of the Loan Agreement is hereby amended and restated in its entirety as follows:

(a) Commitment Fee . A fully earned, non-refundable commitment fee of One Hundred Thousand Dollars ($100,000), on the Effective Date;


(b) Anniversary Fee . (i) A fully earned, non-refundable anniversary fee of Fifty Thousand Dollars ($50,000), on the first anniversary of the Effective Date, (ii) a fully earned, non-refundable anniversary fee of Twenty Seven Thousand Eight Hundred and Eight Dollars ($27,808) on June 11, 2014, and (iii) a fully earned, non-refundable anniversary fee of One Hundred Thousand Dollars ($100,000), on the first anniversary of the Second Amendment Effective Date;

(c) Final Payment . The Final Payment, when due hereunder;

(d) Facility Fee . A fully earned, non-refundable facility fee of Twenty Five Thousand Dollars ($25,000), on the First Amendment Effective Date;

(e) Facility Fee . A fully earned, non-refundable facility fee of Fifty Thousand Dollars ($50,000), on the Second Amendment Effective Date; and

(f) Bank Expenses . All Bank Expenses (including reasonable documented out-of-pocket attorneys’ fees and expenses for documentation and negotiation of this Agreement) incurred and invoiced to Borrower through and after the Second Amendment Effective Date, when due hereunder.

2.3 Section 5.8 (Tax Returns and Payments; Pension Contributions). The first sentence of Section 5.8 is hereby amended in its entirety to read as follows:

“Except as set forth on Annex I to the Second Amendment, Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower, except for taxes, assessments, deposits and contributions owed to a Governmental Authority that (i) do not at any time exceed an amount of Twenty-Five Thousand Dollars ($25,000) individually or Two Hundred Thousand Dollars ($200,000) in the aggregate and (ii) are not secured by any Lien on any of the Collateral that is other than a “Permitted Lien.”

2.4 Section 6.7 (Financial Covenants). Section 6.7 of the Loan Agreement is hereby amended and restated in its entirety as follows:

(a) Quick Ratio . Maintain at all times, to be tested as of the last day of each month, unless otherwise noted, a ratio of Quick Assets to Current Liabilities minus the current portion of Deferred Revenue of at least the levels set forth below corresponding to any date of determination:

 

Date of Determination

  

Ratio

Effective Date through March 31, 2014    1.25 to 1.0
April 1, 2014 through June 30, 2014    1.00 to 1.0
July 1, 2014 and thereafter    0.85 to 1.0

(b) Minimum Revenue . Maintain, measured as of the end of each fiscal quarter during the following periods, revenue (as defined under GAAP) of at least the following:

 

Fiscal Quarter Ending

  

Minimum GAAP Revenue

March 31, 2014    $19,748,000
June 30, 2014    $22,480,000
September 30, 2014    $25,779,000
December 31, 2014    $29,323,000


For each fiscal quarter ending during the 2015 fiscal year, the minimum revenue covenant will be established by Bank based on the Borrower’s board approved plan for such fiscal year, in a manner consistent with the manner in which the levels above were established with respect to the 2014 fiscal year.

2.5 Section 13 ( Definitions ).

(a) The following term and its respective definition set forth in Section 13.1 of the Loan Agreement is amended in its entirety and replaced with the following:

“Borrowing Base” is, as of the date of determination, the aggregate of the three Advance Amounts (reflecting all of Borrower’s Specified Price Plans); provided that if at any time the Borrower’s ratio of Quick Assets to Current Liabilities minus the current portion of Deferred Revenue as of the last day of any month is less than 1.00 to 1.0, then the Borrowing Base shall be immediately reduced to fifty percent (50%) of such aggregate amount and shall not revert to the full aggregate amount until such ratio exceeds 1.00 to 1.0 as of the last day of any month.

““Revolving Line” is an Advance or Advances in an amount equal to Twenty Million Dollars ($20,000,000.00).”

““Revolving Line Maturity Date” is January 1, 2016.”

(b) The following terms and their definitions are hereby added to Section 13.1 of the Loan Agreement as follows:

““Second Amendment” means that certain Second Amendment to this Agreement, dated as of December 30, 2013, between Bank and Borrower.

““Second Amendment Effective Date” means December 30, 2013.”

2.6 Exhibit D (Compliance Certificate). Exhibit D of the Loan Agreement is hereby amended and restated in its entirety in the form set forth as Annex II hereto.

3. Limitation of Amendments.

3.1 The amendments set forth in Section 2 above are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

3.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

4. Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:

4.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of


the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;

4.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

4.3 The organizational documents of Borrower delivered to Bank on the Second Amendment Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

4.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized by all necessary action on the part of Borrower;

4.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

4.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and

4.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application relating to or affecting creditors’ rights and general equitable principles.

5. Effectiveness. This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, (b) Borrower’s payment of the facility fee pursuant to Section 2.4(d) of the Loan Agreement as amended by this Amendment, (c) all corporate and other proceedings taken or to be taken in connection with this Amendment and all documents incidental thereto, whether or not referred to herein, shall be reasonably satisfactory in form and substance to Bank and (d) the representations and warranties in Section 4 of this Amendment shall be true, accurate and complete in all material respects.

6. Bank Expenses. In accordance with Section 12.10 of the Loan Agreement, the Borrower agrees to promptly pay all Bank Expenses payable by the Borrower to Bank in connection with this Amendment, including the reasonable and documented fees, charges and disbursements of Cooley LLP, as counsel for Bank.

7. Effect of Amendment; Reaffirmation. On and after the effectiveness of this Amendment, each reference in the Loan Agreement to “this Agreement,” “hereunder,” “hereof or words of like import referring to the Loan Agreement, and each reference in each of the Loan Documents to “the Loan Agreement,” “thereunder,” “thereof or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as amended by this


Amendment. Except as expressly provided for in this Amendment, the Loan Documents are hereby ratified and reaffirmed and shall remain in full force and effect. This Amendment is not a novation and the terms and conditions of this Amendment shall be in addition to and supplemental to all terms and conditions set forth in the Loan Documents. In the event of any conflict or inconsistency between this Amendment and the terms of such documents, the terms of this Amendment shall be controlling, but such document shall not otherwise be affected or the rights therein impaired.

8. Integration . This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.

9. Counterparts . This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

10. Governing Law . This Amendment and the rights and obligations of the parties hereto shall be governed by and construed in accordance with the laws of the State of California.

[Signature page follows.]


I N W ITNESS W HEREOF , the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

 

BANK     BORROWER

Silicon Valley Bank

 

By:   /s/ Shawn Parry                                                                                       

Name:   Shawn Parry                                                                                       

Title:   V.P.                                                                                                          

   

Zendesk, Inc.

 

By:   /s/ Alan Black                                                                                          

Name:   Alan Black                                                                                          

Title:   Chief Financial Officer                                                                      

Exhibit 10.17

THIRD AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

This THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”) is entered into this day of February 7, 2014, by and between SILICON VALLEY BANK (“Bank”) and ZENDESK, INC., a Delaware corporation (“Borrower”).

RECITALS

A. Bank and Borrower have entered into that certain Loan and Security Agreement dated as of June 12, 2012 (as amended by that certain First Amendment and Waiver, dated as of June 14, 2013, and that certain Second Amendment, dated as of December 30, 2013, and as further amended, modified, supplemented or restated from time to time, the “Loan Agreement”). Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.

B. Borrower has requested that Bank amend the Loan Agreement to make certain revisions to the Loan Agreement as more fully set forth herein.

C. Bank has agreed to amend such provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

AGREEMENT

Now, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

2. Amendments to Loan Agreement.

2.1 Section 7.3 (Mergers or Acquisitions). Section 7.3 of the Loan Agreement is hereby amended in its entirety and replaced with the following:

“Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person except where (a) total cash consideration paid by Borrower and its Subsidiaries in respect of all such transactions consummated from and including the Effective date through and including the Revolving Line Maturity Date does not exceed Ten Million Dollars ($10,000,000) in the aggregate; (b) no Event of Default has occurred and is continuing or would result after giving effect to such transactions; and (c) in the case of a merger or consolidation involving the Borrower, Borrower is the surviving legal entity.


2.2 Section 13 (Definitions).

(a) Clause (j) of the defined term “Permitted Investments” is hereby amended by deleting the word “and” at the end of such clause.

(b) Clause (k) of the defined term “Permitted Investments” is hereby amended by replacing the period(“.”) at the end of such clause and replacing it with “; and”.

(c) The following new clause (I) is hereby added to the defined term “Permitted Investments” immediately following clause (k) thereof.

“(I) Investments consisting of all or substantially all of the capital stock or property of another Person acquired pursuant to Section 7.3.”

3. Limitation of Amendments.

3.1 The amendments set forth in Section 2 above are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.

3.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

4. Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as follows:

4.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;

4.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

4.3 The organizational documents of Borrower delivered to Bank on the Second Amendment Effective Date remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

4.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized by all necessary action on the part of Borrower;


4.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

4.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and

4.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application relating to or affecting creditors’ rights and general equitable principles.

5. Effectiveness. This Amendment shall be deemed effective upon (a) the due execution and delivery to Bank of this Amendment by each party hereto, (b) all corporate and other proceedings taken or to be taken in connection with this Amendment and all documents incidental thereto, whether or not referred to herein, shall be reasonably satisfactory in form and substance to Bank and (c) the representations and warranties in Section 4 of this Amendment shall be true, accurate and complete in all material respects.

6. Bank Expenses. In accordance with Section 12.10 of the Loan Agreement, the Borrower agrees to promptly pay all Bank Expenses payable by the Borrower to Bank in connection with this Amendment, including the reasonable and documented fees, charges and disbursements of Cooley LLP, as counsel for Bank.

7. Effect of Amendment; Reaffirmation. On and after the effectiveness of this Amendment, each reference in the Loan Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import referring to the Loan Agreement, and each reference in each of the Loan Documents to “the Loan Agreement,” “thereunder,” “thereof” or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as amended by this Amendment. Except as expressly provided for in this Amendment, the Loan Documents are hereby ratified and reaffirmed and shall remain in full force and effect. This Amendment is not a novation and the terms and conditions of this Amendment shall be in addition to and supplemental to all terms and conditions set forth in the Loan Documents. In the event of any conflict or inconsistency between this Amendment and the terms of such documents, the terms of this Amendment shall be controlling, but such document shall not otherwise be affected or the rights therein impaired.

8. Integration. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.

9. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

10. Governing Law. This Amendment and the rights and obligations of the parties hereto shall be governed by and construed in accordance with the laws of the State of California.


[Signature page follows.]


IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

 

BANK

 

Silicon Valley Bank

   

BORROWER

 

Zendesk, Inc.

By:   /s/ Brian Fitzpatrick     By:   /s/ Alan Black
Name:   Brian Fitzpatrick     Name:   Alan Black
Title:   Director     Title:   CFO

Exhibit 16.1

February 14, 2014

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549-7561

Dear Sirs/Madams:

We have read the disclosures under the heading “Change in Accountants” included in the prospectus forming a part of Zendesk, Inc.’s (“Zendesk”) Confidential Draft Submission of its registration statement on Form S-1 submitted to the Securities and Exchange Commission on February 14, 2014 (the “Disclosures”), and have the following comments:

 

1. We agree with the first, third, fourth, fifth and sixth sentences in the first paragraph and the statements made in the second paragraph of the Disclosures.

 

2. We have no basis on which to agree or disagree with the second sentence in the first paragraph or the statements made in the third paragraph of the Disclosures.

 

3. Supplementally, we advise that in February 2014, management of Zendesk communicated to Deloitte & Touche LLP (“Deloitte”) that an error existed in the previously issued consolidated financial statements for the year ended December 31, 2012 on which Deloitte had issued an audit report dated May 20, 2013. As a result, Deloitte communicated to Zendesk that Deloitte’s audit report should no longer be relied upon or associated with such consolidated financial statements.

 

4. Deloitte communicated to management of Zendesk that Deloitte believes the matters described in item 3 above represent a reportable event as such term is defined in Item 304(a)(1)(v) of Regulation S-K.

Yours truly,

/s/ Deloitte & Touche LLP

San Jose, California

Exhibit 23.1

 

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated February 14, 2014, in the Registration Statement (Form S-1) and related Prospectus of Zendesk, Inc. for the registration of shares of its common stock.

/s/ Ernst & Young LLP

Redwood City, California

April 9, 2014